10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

OR

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

for the transition period from                                                             to                                                             

Commission File Number 001-05083

FURMANITE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	74-1191271
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
2435 North Central Expressway
Suite 700
Richardson, Texas	75080
(Address of principal executive offices)	(Zip Code)

(972) 699-4000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former
Fiscal year, if changed since last report)

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. þYes o No

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

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

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

There were 37,092,575 shares of the registrant’s common stock outstanding as of August 2, 2011.

FURMANITE CORPORATION AND SUBSIDIARIES
INDEX

	Page
	Number
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		3
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010		4
Consolidated Income Statements for the Three and Six Months Ended June 30, 2011 and 2010 (unaudited)		5
Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2011 (unaudited) and for the Year Ended December 31, 2010		6
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010 (unaudited)		7
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2011 and 2010 (unaudited)		8
Notes to Consolidated Financial Statements (unaudited)		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3. Quantitative and Qualitative Disclosure About Market Risk		31
Item 4. Controls and Procedures		31
PART II. Other Information
Item 1. Legal Proceedings		32
Item 1A. Risk Factors		32
Item 6. Exhibits		33
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) may contain forward-looking statements within the meaning of sections 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Report, including, but not limited to, statements regarding the Company’s future financial position, business strategy, budgets, projected costs, savings and plans, and objectives of management for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or the negative thereof or variations thereon or similar terminology. The Company bases its forward-looking statements on reasonable beliefs and assumptions, current expectations, estimates and projections about itself and its industry. The Company cautions that these statements are not guarantees of future performance and involve certain risks and uncertainties that cannot be predicted. In addition, the Company based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate and actual results may differ materially from those expressed or implied by the forward-looking statements. One is cautioned not to place undue reliance on such statements, which speak only as of the date of this Report. Unless otherwise required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or circumstances, or otherwise.

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PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

FURMANITE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	June 30,			December 31,
	2011			2010
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	30,855		$	37,170
Accounts receivable, trade (net of allowance for doubtful accounts of $1,500 and $ 1,497 as of June 30, 2011 and December 31, 2010, respectively)		74,014			63,630
Inventories, net of reserve:
Raw materials and supplies		18,506			17,375
Work-in-process		7,495			6,906
Finished goods		167			85
Prepaid expenses and other current assets		5,769			5,951
Total current assets		136,806			131,117
Property and equipment		83,204			73,969
Less: accumulated depreciation and amortization		(48,015	)		(43,249	)
Property and equipment, net		35,189			30,720
Goodwill		14,538			13,148
Deferred tax assets		2,750			2,872
Intangible and other assets		8,168			4,244
Total assets	$	197,451		$	182,101
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt	$	2,727		$	76
Accounts payable		17,634			17,815
Accrued expenses and other current liabilities		21,846			24,488
Income taxes payable		906			557
Total current liabilities		43,113			42,936
Long-term debt, non-current		32,855			30,085
Net pension liability		8,591			8,432
Other liabilities		2,598			2,560
Commitments and contingencies (Note 11)
Stockholders’ equity:
Series B Preferred Stock, unlimited shares authorized, none outstanding		–			–
Common stock, no par value; 60,000,000 shares authorized; 41,070,216 and 40,925,619 shares issued as of June 30, 2011 and December 31, 2010, respectively		4,758			4,745
Additional paid-in capital		132,567			132,132
Accumulated deficit		(3,201	)		(12,373	)
Accumulated other comprehensive loss		(5,817	)		(8,403	)
Treasury stock, at cost (4,008,963 shares as of June 30, 2011 and December 31, 2010)		(18,013	)		(18,013	)
Total stockholders’ equity		110,294			98,088
Total liabilities and stockholders’ equity	$	197,451		$	182,101

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

4

FURMANITE CORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

(in thousands, except per share data)

(Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2011			2010			2011			2010
Revenues	$	83,009		$	77,513		$	156,063		$	143,948
Costs and expenses:
Operating costs (exclusive of depreciation and amortization)		56,425			51,922			106,868			97,584
Depreciation and amortization expense		2,198			1,572			4,073			3,121
Selling, general and administrative expense		17,779			18,493			34,690			37,256
Total costs and expenses		76,402			71,987			145,631			137,961
Operating income		6,607			5,526			10,432			5,987
Interest income and other income (expense), net		120			(246	)		242			96
Interest expense		(255	)		(241	)		(495	)		(482	)
Income before income taxes		6,472			5,039			10,179			5,601
Income tax expense		(1,326	)		(1,479	)		(1,007	)		(1,650	)
Net income	$	5,146		$	3,560		$	9,172		$	3,951
Earnings per common share:
Basic	$	0.14		$	0.10		$	0.25		$	0.11
Diluted	$	0.14		$	0.10		$	0.25		$	0.11
Weighted-average number of common and common equivalent shares used in computing net income per common share:
Basic		36,971			36,734			36,948			36,711
Diluted		37,328			36,932			37,296			36,871

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

5

FURMANITE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2011 (Unaudited) and Year Ended December 31, 2010

(in thousands, except share data)

													Accumulated
							Additional						Other
	Common Shares				Common		Paid-In			Accumulated			Comprehensive			Treasury
	Issued		Treasury		Stock		Capital			Deficit			Loss			Stock			Total
Balances at January 1, 2010		40,682,815		4,008,963	$	4,723	$	132,106		$	(21,859	)	$	(11,627	)	$	(18,013	)	$	85,330
Net income		–		–		–		–			9,486			–			–			9,486
Stock-based compensation and stock option exercises		242,804		–		22		1,469			–			–			–			1,491
Change in pension net actuarial loss and prior service credit, net of tax		–		–		–		–			–			3,484			–			3,484
Other								(1,443	)											(1,443	)
Foreign currency translation adjustment		–		–		–		–			–			(260	)		–			(260	)
Balances at December 31, 2010		40,925,619		4,008,963	$	4,745	$	132,132		$	(12,373	)	$	(8,403	)	$	(18,013	)	$	98,088
Net income		–		–		–		–			9,172			–			–			9,172
Stock-based compensation and stock option exercises		144,597		–		13		435			–			–			–			448
Change in pension net actuarial loss and prior service credit, net of tax		–		–		–		–			–			(112	)		–			(112	)
Foreign currency translation adjustment		–		–		–		–			–			2,698			–			2,698
Balances at June 30, 2011		41,070,216		4,008,963	$	4,758	$	132,567		$	(3,201	)	$	(5,817	)	$	(18,013	)	$	110,294

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

6

FURMANITE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	For the Six Months
	Ended June 30,
	2011			2010
Operating activities:
Net income	$	9,172		$	3,951
Reconciliation of net income to net cash (used in) provided by operating activities:
Depreciation and amortization		4,073			3,121
Provision for doubtful accounts		216			327
Deferred income taxes		(1,259	)		(86	)
Stock-based compensation expense		322			494
Other, net		320			441
Changes in operating assets and liabilities:
Accounts receivable		(10,057	)		(6,850	)
Inventories		(2,469	)		1,842
Prepaid expenses and other current assets		326			1,316
Accounts payable		(134	)		(496	)
Accrued expenses and other current liabilities		(2,715	)		(3,142	)
Income taxes payable		376			(352	)
Other, net		(134	)		(47	)
Net cash (used in) provided by operating activities		(1,963	)		519
Investing activities:
Capital expenditures		(1,579	)		(3,451	)
Acquisition of assets and business, net of cash acquired of $971 in 2011		(4,029	)		(350	)
Proceeds from sale of assets		105			195
Net cash used in investing activities		(5,503	)		(3,606	)
Financing activities:
Payments on debt		(69	)		(99	)
Issuance of common stock		126			–
Net cash provided by (used in) financing activities		57			(99	)
Effect of exchange rate changes on cash		1,094			(1,094	)
Decrease in cash and cash equivalents		(6,315	)		(4,280	)
Cash and cash equivalents at beginning of period		37,170			36,117
Cash and cash equivalents at end of period	$	30,855		$	31,837
Supplemental cash flow information:
Cash paid for interest	$	357		$	400
Cash paid for income taxes, net of refunds received	$	1,612		$	1,577
Non-cash investing and financing activities:
Issuance of notes payable to equity holders related to acquistion of business	$	5,300		$	–

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

7

FURMANITE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)
(Unaudited)

	For the Three Months					For the Six Months
	Ended June 30,					Ended June 30,
	2011		2010			2011			2010
Net income	$	5,146	$	3,560		$	9,172		$	3,951
Other comprehensive income (loss):
Change in pension net actuarial loss and prior service credit, net of tax		113		205			(112	)		1,137
Foreign currency translation adjustments		774		(1,356	)		2,698			(3,556	)
Total other comprehensive income (loss)		887		(1,151	)		2,586			(2,419	)
Comprehensive income	$	6,033	$	2,409		$	11,758		$	1,532

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

8

FURMANITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011
(Unaudited)

1. General and Summary of Significant Accounting Policies

General

The consolidated interim financial statements include the accounts of Furmanite Corporation (the “Parent Company”) and its subsidiaries (collectively, the “Company” or “Furmanite”). All intercompany transactions and balances have been eliminated in consolidation. These unaudited consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnote disclosures required by U.S. GAAP for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 as filed with the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) and accruals, necessary for a fair presentation of the financial statements, have been made. Interim results of operations are not necessarily indicative of the results that may be expected for the full year.

Revenue Recognition

Revenues are recorded in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, when realized or realizable, and earned.

Revenues are based primarily on time and materials. Substantially all projects are generally short term in nature. Revenues are recognized when persuasive evidence of an arrangement exists, services to customers have been rendered or products have been delivered and risk of ownership has passed to the customer, the selling price is fixed or determinable and collectability is reasonably assured. Revenues are recorded, net of sales tax. The Company provides limited warranties to customers, depending upon the service performed. Warranty claim costs were not material during the three or six months ended June 30, 2011 or 2010.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined using the weighted average cost method. Inventory quantities on hand are reviewed regularly based on related service levels and functionality, and carrying cost is reduced to net realizable value for inventories in which their cost exceeds their utility, due to physical deterioration, obsolescence, changes in price levels or other causes. The excess and obsolete reserve was $1.7 million and $1.8 million at June 30, 2011 and December 31, 2010, respectively. The cost of inventories consumed or products sold are included in operating costs.

New Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 provides more robust disclosures about the transfers between Levels 1 and 2, the activity in Level 3 fair value measurements and clarifies the level of disaggregation and disclosure related to the valuation techniques and inputs used. The new disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the Level 3 activity disclosures, which are effective for fiscal years beginning after December 15, 2010. There was not a material impact from the adoption of this guidance on the Company’s consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 clarifies the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. ASU 2011-04 provides further clarification on the: (1) application of the highest and best use and valuation premise concepts, (2) fair value measurement of an instrument classified in a reporting entity’s shareholders’ equity, and (3) disclosure of unobservable inputs used in Level 3 fair value measurements. ASU 2011-04 also changes how fair value is measured for financial instruments that are managed within a portfolio and how premiums and discounts are applied in measuring fair value. In addition to the clarification of Level 3 disclosures, ASU 2011-04 requires additional disclosures for fair value measurements as it

9

relates to the following: (1) the valuation process and sensitivity of changes in unobservable inputs, (2) a reporting entity’s use of a nonfinancial asset in a way that differs from the asset’s highest and best use, and (3) the categorization by level of the fair value hierarchy for items that are not measured at fair value but for which the fair value is required to be disclosed. ASU 2011-04 is effective for interim and annual periods beginning on or after December 15, 2011. The Company does not expect a material impact from the adoption of this guidance on the Company’s consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 amends existing guidance by allowing only the following two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement or (2) in two separate but consecutive financial statements. In addition, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU 2011-05 does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, the Company’s option to present components of other comprehensive income either net of related tax effects or before related tax effects, nor does it affect how earnings per share is calculated or presented. ASU 2011-05 requires retrospective application, and it is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The Company anticipates the adoption of this guidance will change the presentation and provide additional detail on certain consolidated financial statements, but will not have any other material impact.

2. Acquisition

On February 23, 2011, Furmanite Worldwide, Inc. (“FWI”), a wholly owned subsidiary of the Parent Company, entered into a Stock Purchase Agreement to acquire 100% of the outstanding stock of Self Leveling Machines, Inc. and a subsidiary of FWI entered into an Asset Purchase Agreement to acquire substantially all of the material operating and intangible assets of Self Levelling Machines Pty. Ltd. (collectively, “SLM”) for total consideration of $9.3 million, net of cash acquired of $1.0 million. SLM provides large scale on-site machining, which includes engineering, fabrication and execution of highly-specialized machining solutions for large-scale equipment or operations.

In connection with the SLM acquisition, on February 23, 2011, FWI entered into a consent and waiver agreement under its credit agreement. See Note 6, “Long-Term Debt,” to these consolidated financial statements for additional information as it relates to the credit agreement. FWI funded the cost of the acquisition with $5.0 million in cash and by issuing notes payable (the “Notes”) to the sellers’ equity holders for $5.3 million.

The final determinations of fair value for certain assets and liabilities remain subject to change based on final valuations of the assets acquired and liabilities assumed. During the second quarter of 2011, goodwill increased by $0.2 million resulting from adjustments to the fair value measurement of acquired net assets. The following amounts represent the preliminary determination of the fair value of the assets acquired and liabilities assumed (in thousands):

Fair value of net assets acquired

Cash	$	971
Accounts receivable		224
Prepaid expenses and other current assets		46
Property and equipment		5,024
Goodwill 1		1,390
Intangible and other assets 2		4,135
Accrued expenses and other current liabilities		(100	)
Deferred tax liabilities		(1,390	)
Fair value of net assets acquired	$	10,300

¹ Goodwill consists of intangible assets that do not qualify for separate recognition and is not deductible for tax purposes.

² Intangible assets are primarily comprised of trademarks, patents, and non-compete arrangements. Other assets consist of acquired interests in equity and cost method investments.

10

The SLM acquisition was not material to the Company’s financial position and results of operations, therefore, SLM’s pro forma results would not have a material impact on the Company’s results had the acquisition occurred at the beginning of the current or previous year.

3. Earnings Per Share

Basic earnings per share are calculated as net income divided by the weighted-average number of shares of common stock and restricted stock outstanding during the period. Diluted earnings per share assumes issuance of the net incremental shares from stock options when dilutive. The weighted-average common shares outstanding used to calculate diluted earnings per share reflect the dilutive effect of common stock equivalents including options to purchase shares of common stock, using the treasury stock method.

Basic and diluted weighted-average common shares outstanding and earnings per share include the following (in thousands, except per share data):

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2011		2010		2011		2010
Net income	$	5,146	$	3,560	$	9,172	$	3,951
Basic weighted-average common shares outstanding		36,971		36,734		36,948		36,711
Dilutive effect of common stock equivalents		357		198		348		160
Diluted weighted-average common shares outstanding		37,328		36,932		37,296		36,871
Earnings per share:
Basic	$	0.14	$	0.10	$	0.25	$	0.11
Dilutive	$	0.14	$	0.10	$	0.25	$	0.11
Stock options excluded from diluted weighted-average common shares outstanding because their inclusion would have an anti-dilutive effect:		328		515		319		560

4. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

	June 30,		December 31,
	2011		2010
Compensation and benefits1	$	13,672	$	15,130
Value added tax payable		1,957		1,387
Estimated potential uninsured liability claims		1,521		1,886
Taxes other than income		1,242		1,052
Professional, audit and legal fees		854		1,088
Rent		332		327
Customer deposit		287		615
Other employee related expenses		247		550
Interest		64		20
Other2		1,670		2,433
	$	21,846	$	24,488

¹ Includes restructuring accruals of $0.3 million and $1.1 million as of June 30, 2011 and December 31, 2010, respectively.

² Includes restructuring accruals of $0.5 million at each of June 30, 2011 and December 31, 2010, respectively.

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5. Restructuring

During the fourth quarter of 2009 and in the first half of 2010, the Company committed to cost reduction initiatives, including planned workforce reductions and restructuring of certain functions. The Company has taken these specific actions in order to more strategically align the Company’s operating, selling, general and administrative costs relative to revenues.

2009 Cost Reduction Initiative

The Company completed this cost reduction initiative during 2010 and incurred total costs of approximately $3.4 million. For the three months ended June 30, 2010, restructuring costs of $0.3 million were incurred and are included in selling, general and administrative expenses. For the six months ended June 30, 2010, restructuring costs of $0.7 million and $1.4 million were incurred and are included in operating costs and selling, general and administrative expenses, respectively. There was minimal activity during the first half of 2011 related to this initiative.

2010 Cost Reduction Initiative

During the second quarter of 2010, the Company committed to an additional cost reduction initiative, primarily related to the restructuring of certain functions within the Company’s EMEA operations (which includes operations in Europe, the Middle East and Africa). The Company took specific actions in order to improve the operational and administrative efficiency of its EMEA operations, while providing a structure which will allow for future expansion of operations within the region. At each of the three and six months ended June 30, 2011, restructuring costs of $0.1 million are included in operating costs, respectively. No restructuring costs were included in operating costs for this initiative for the three or six months ended June 30, 2010. At each of the three and six months ended June 30, 2011, restructuring costs incurred of $0.1 million are included in selling, general and administrative expenses, respectively. For each of the three and six months ended June 30, 2010, restructuring costs incurred of $0.6 million are included in selling, general and administrative expenses.

The total restructuring costs estimated to be incurred in connection with this cost reduction initiative are $4.0 million. As of June 30, 2011, the costs incurred since the inception of this cost reduction initiative totaled approximately $3.6 million, with the remaining $0.4 million expected to relate primarily to severance and benefits and lease termination costs.

In connection with these initiatives, the Company recorded estimated expenses for severance, lease cancellations, and other restructuring costs in accordance with FASB ASC 420-10, “Exit or Disposal Cost Obligations” and FASB ASC 712-10, “Nonretirement Postemployment Benefits.”

The activity related to reserves associated with the cost reduction initiatives for the six months ended June 30, 2011, is as follows (in thousands):

	Reserve at								Foreign currency		Reserve at
	December 31, 2010		Charges			Cash payments			adjustments		June 30, 2011
2009 Initiative
Severance and benefit costs	$	107	$	–		$	(110	)	$	3	$	–
Lease termination costs		125		–			–			5		130
Other restructuring costs		9		(9	)		–			–		–
2010 Initiative
Severance and benefit costs		969		211			(917	)		54		317
Lease termination costs		277		19			(30	)		25		291
Other restructuring costs		90		24			(28	)		7		93
	$	1,577	$	245		$	(1,085	)	$	94	$	831

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Restructuring costs associated with the cost reduction initiatives consist of the following (in thousands):

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2011		2010		2011		2010
Severance and benefit costs	$	127	$	692	$	211	$	1,878
Lease termination costs		21		89		19		405
Other restructuring costs		9		89		15		441
	$	157	$	870	$	245	$	2,724

Restructuring costs were incurred in the following geographical areas (in thousands):

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2011		2010		2011		2010
Americas	$	–	$	180	$	–	$	367
EMEA		157		690		245		2,357
	$	157	$	870	$	245	$	2,724

Total workforce reductions in which severance costs were incurred related to the cost reduction initiatives included terminations for 165 employees, which include reductions of 31 employees in the Americas (which includes operations in North America, South America and Latin America), 133 employees in EMEA, and one employee in Asia-Pacific.

6. Long-Term Debt

Long-term debt consists of the following (in thousands):

	June 30,			December 31,
	2011			2010
Borrowings under the revolving credit facility (the “Credit Agreement”)	$	30,000		$	30,000
Capital leases		96			161
Notes payable (the “Notes”)		5,486			–
Total long-term debt		35,582			30,161
Less: current portion of long-term debt		(2,727	)		(76	)
Total long-term debt, non-current	$	32,855		$	30,085

On August 4, 2009, FWI and certain foreign subsidiaries of FWI (the “designated borrowers”) entered into a credit agreement dated July 31, 2009 with a banking syndicate comprising Bank of America, N.A. and Compass Bank (the “Credit Agreement”). The Credit Agreement, which matures on January 31, 2013, provides a revolving credit facility of up to $50.0 million. A portion of the amount available under the Credit Agreement (not in excess of $20.0 million) is available for the issuance of letters of credit. In addition, a portion of the amount available under the Credit Agreement (not in excess of $5.0 million in the aggregate) is available for swing line loans to FWI. The loans outstanding under the Credit Agreement may not exceed $35.0 million in the aggregate to the designated borrowers.

At each of June 30, 2011 and December 31, 2010, $30.0 million was outstanding under the Credit Agreement. Borrowings under the Credit Agreement bear interest at variable rates (based on the prime rate, federal funds rate or Eurocurrency rate, at the option of the borrower, including a margin above such rates, and subject to an adjustment based on a calculated funded debt to EBITDA ratio (as defined in the Credit Agreement)) which was 2.2% at June 30, 2011 and 2.3% at December 31, 2010. The Credit Agreement contains a commitment fee, which ranges between 0.25% to 0.30% based on the funded debt to EBITDA ratio, and was 0.25% at each of June 30, 2011 and December 31, 2010, based on the unused portion of the amount available under the Credit Agreement. All obligations under the Credit Agreement are guaranteed by

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FWI and certain of its subsidiaries under a guaranty and collateral agreement, and are secured by a first priority lien on certain of FWI and its subsidiaries’ assets (which approximates $148.2 million of current assets and property and equipment as of June 30, 2011) and is without recourse to the Parent Company. FWI is subject to certain compliance provisions including, but not limited to, maintaining certain funded debt and fixed charge coverage ratios, tangible asset concentration levels, and capital expenditure limitations as well as restrictions on indebtedness, guarantees, dividends and other contingent obligations and transactions. Events of default under the Credit Agreement include customary events, such as change of control, breach of covenants or breach of representations and warranties. At June 30, 2011, FWI was in compliance with all covenants under the Credit Agreement.

Considering the outstanding borrowings of $30.0 million, and $1.1 million related to outstanding letters of credit, the unused borrowing capacity under the Credit Agreement was $18.9 million at June 30, 2011, with a limit of $5.0 million of this capacity remaining for the designated borrowers.

In connection with the acquisition of SLM, on February 23, 2011, FWI entered into a consent and waiver agreement as it relates to the Credit Agreement. Pursuant to the consent and waiver agreement, Bank of America, N.A. and Compass Bank consented to the SLM acquisition and waived any default or event of default for certain debt covenants that would arise as a result of the SLM acquisition. FWI funded the cost of the acquisition with $5.0 million in cash and by issuing the Notes to the sellers’ equity holders for $5.3 million ($2.9 million denominated in U.S. dollar and $2.4 million denominated in Australian dollar) payable in two annual installments, which mature on February 23, 2013. All obligations under the Notes are secured by a first priority lien on the assets acquired in the acquisition. At June 30, 2011, $5.5 million was outstanding under the Notes. The Notes bear interest at a fixed rate of 2.5% per annum.

7. Retirement Plan

Two of the Company’s foreign subsidiaries have defined benefit pension plans, one plan covering certain of its United Kingdom employees (the “U.K. Plan”) and the other covering certain of its Norwegian employees (the “Norwegian Plan”). Since the Norwegian Plan represents approximately two percent of the Company’s total pension plan assets and three percent of total pension plan liabilities, only the schedule of net periodic pension cost includes combined amounts from the two plans, while assumption and narrative information relates solely to the U.K. Plan.

Net periodic pension cost for the U.K. and Norwegian Plans includes the following components (in thousands):

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2011			2010			2011			2010
Service cost	$	231		$	198		$	461		$	404
Interest cost		965			879			1,936			1,779
Expected return on plan assets		(939	)		(862	)		(1,884	)		(1,745	)
Amortization of prior service cost		(25	)		(23	)		(50	)		(46	)
Amortization of net actuarial loss		164			260			329			526
Net periodic pension cost	$	396		$	452		$	792		$	918

The expected long-term rate of return on invested assets is determined based on the weighted average of expected returns on asset investment categories as follows: 6.3% overall, 7.8% for equities and 4.7% for bonds. Estimated annual pension plan contributions are assumed to be consistent with the current expected contribution level of $0.8 million for 2011.

8. Stock-Based Compensation

The Company has stock option plans and agreements which allow for the issuance of stock options, restricted stock awards, restricted stock units and stock appreciation rights. For the three and six months ended June 30, 2011, the total compensation cost charged against income and included in selling, general and administrative expenses for stock-based compensation arrangement was $0.1 million and $0.3 million, respectively, and $0.1 million and $0.5 million for the three and six months ended June 30, 2010. The expense for the six months ended June 30, 2010 included $0.2 million associated with accelerated vesting of awards in connection with the retirement of the former Chairman and Chief Executive Officer of the Company. Tax effects from stock-based compensation are insignificant due to the Company’s current domestic tax position. During the first quarter of 2011, the Company granted options to certain employees to purchase 70,000 shares of its common stock with a fair market value of $4.15 per share.

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During the three months ended June 30, 2011, the Company granted $0.7 million in restricted stock units. The Company uses authorized but unissued shares of common stock for stock option exercises and restricted stock issuances pursuant to the Company’s share-based compensation plan and treasury stock for issuances outside of the plan. As of June 30, 2011, the total unrecognized compensation expense related to stock options and restricted stock was $1.6 million and $1.1 million, respectively.

9. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss in the equity section of the consolidated balance sheets includes the following (in thousands):

	June 30,			December 31,
	2011			2010
Net actuarial loss and prior service credit	$	(13,119	)	$	(12,965	)
Less: deferred tax benefit		3,580			3,538
Net of tax		(9,539	)		(9,427	)
Foreign currency translation adjustment		3,722			1,024
Total accumulated other comprehensive loss	$	(5,817	)	$	(8,403	)

10. Income Taxes

The Company maintains a valuation allowance to adjust the basis of net deferred tax assets in accordance with the provisions of FASB ASC 740, Income Taxes (“ASC 740”). As a result, substantially all domestic federal income taxes, as well as certain state and foreign income taxes, recorded for the three and six months ended June 30, 2011 and 2010 were fully offset by a corresponding change in valuation allowance. Income tax expense recorded for the three and six months ended June 30, 2011 consisted of income tax expenses in foreign and state jurisdictions in which the Company operates, with the six months ended June 30, 2011 partially offset by a valuation allowance change resulting in a deferred tax benefit of $1.2 million related to the SLM acquisition. Income tax expense recorded for the three and six months ended June 30, 2010 consisted primarily of income tax expenses in foreign and state jurisdictions in which the Company operates.

Income tax expense differs from the expected tax at statutory rates due primarily to the change in valuation allowance for deferred tax assets and different tax rates in the various foreign jurisdictions. Additionally, the aggregate tax expense is not always consistent when comparing periods due to the changing income before income taxes mix between domestic and foreign operations and within the foreign operations. In concluding that a full valuation allowance on domestic federal and certain state and foreign income taxes was required, the Company primarily considered such factors as the history of operating losses and the nature of the deferred tax assets. Interim period income tax expense or benefit is computed at the estimated annual effective tax rate, unless adjusted for specific discrete items as required.

Income tax expense as a percentage of income before income taxes was approximately 9.9% and 29.5% for the six months ended June 30, 2011 and 2010, respectively. For the three months ended June 30, 2011 and 2010 income tax expense as a percentage of income before income taxes was approximately 20.5% and 29.4%, respectively. Excluding the $1.2 million acquisition related deferred tax benefit noted above, the effective income tax rate for the six months ended June 30, 2011 was 21.9%. The remaining change in the income tax rates between periods is related to changes in the mix of income before income taxes between countries whose income taxes are offset by full valuation allowance and those that are not, and differing statutory tax rates in the countries in which the Company incurs tax liabilities.

In accordance with ASC 740, the Company recognizes the tax benefit from uncertain tax positions only if it is more-likely-than-not that the tax position will be sustained on examination by the applicable taxing authorities, based on the technical merits of the position. The tax benefit recognized is based on the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority.

The Company recognizes interest expense on underpayments of income taxes and accrued penalties related to unrecognized non-current tax benefits as part of the income tax provision. The Company incurred no significant interest or penalties for the three and six months ended June 30, 2011 and 2010. Unrecognized tax benefits at June 30, 2011 and December 31, 2010 of $0.9 million and $0.8 million, respectively, for uncertain tax positions related to transfer pricing are included in other liabilities on the consolidated balance sheets and would impact the effective tax rate for certain foreign jurisdictions if recognized.

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A reconciliation of the change in the unrecognized tax benefits for the six months ended June 30, 2011 is as follows (in thousands):

Balance at December 31, 2010	$	803
Additions based on tax positions		114
Balance at June 30, 2011	$	917

11. Commitments and Contingencies

The operations of the Company are subject to federal, state and local laws and regulations in the United States and various foreign locations relating to protection of the environment. Although the Company believes its operations are in compliance with applicable environmental regulations, there can be no assurance that costs and liabilities will not be incurred by the Company. Moreover, it is possible that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from operations of the Company, could result in costs and liabilities to the Company. The Company has recorded, in other liabilities, an undiscounted reserve for environmental liabilities related to the remediation of site contamination for properties in the United States in the amount of $1.1 million and $1.2 million at June 30, 2011 and December 31, 2010, respectively.

Furmanite America, Inc., a subsidiary of the Company, is involved in disputes with two customers, who are each negotiating with a governmental regulatory agency and claim that the subsidiary failed to provide them with satisfactory services at the customers’ facilities. On April 17, 2009, a customer, INEOS USA LLC, initiated legal action against the subsidiary in the Common Pleas Court of Allen County, Ohio, alleging that the subsidiary and one of its former employees, who performed data services at one of the customer’s facilities, breached its contract with the customer and failed to provide the customer with adequate and timely information to support the subsidiary’s work at the customer’s facility from 1998 through the second quarter of 2005. The customer’s complaint seeks damages in an amount that the subsidiary believes represents the total proposed civil penalty, plus the cost of unspecified supplemental environmental projects requested by the regulatory agency to reduce air emissions at the customer’s facility, and also seeks unspecified punitive damages. The subsidiary believes that it provided the customer with adequate and timely information to support the subsidiary’s work at the customer’s facilities and will vigorously defend against the customer’s claim.

In the first quarter of 2008, a subsidiary of the Company filed an action seeking to vacate a $1.35 million arbitration award related to a sales brokerage agreement associated with a business that the subsidiary sold in 2005. The subsidiary believed that the sales broker was an affiliate of another company that in 2006 settled all of its claims, as well as all of the claims of its affiliates, against the subsidiary. The action to vacate the arbitration award terminated and, in January 2010, the subsidiary paid the full amount of the arbitration award plus accrued interest to the sales broker which was accrued as of December 31, 2009. In separate actions, the subsidiary was seeking to enforce the prior settlement agreement executed by the sales broker’s affiliate and obtain an equitable offset of the arbitration award, however, upon mutual agreement by all parties, these separate actions were dismissed by the court in July 2010.

The Company has contingent liabilities resulting from litigation, claims and commitments incident to the ordinary course of business. Management believes, after consulting with counsel, that the ultimate resolution of such contingencies will not have a material adverse effect on the financial position, results of operations or liquidity of the Company.

While the Company cannot make an assessment of the eventual outcome of all of these matters or determine the extent, if any, of any potential uninsured liability or damage, reserves of $1.5 million and $1.9 million were recorded in accrued expenses and other current liabilities as of June 30, 2011 and December 31, 2010, respectively.

12. Business Segment Data and Geographical Information

An operating segment is defined as a component of an enterprise about which separate financial information is available that is evaluated regularly by the chief decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. For financial reporting purposes, the Company operates in a single segment.

The Company provides technical services to an international client base that includes petroleum refineries, chemical plants, pipelines, offshore drilling and production platforms, steel mills, food and beverage processing facilities, power generation, and other flow-process industries.

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Geographical areas are the Americas, EMEA and Asia-Pacific. The following geographical area information includes revenues by major service line based on the physical location of the operations (in thousands):

					Asia-
	Americas		EMEA		Pacific		Total
Three months ended June 30, 2011:
On-line services	$	17,054	$	10,696	$	3,875	$	31,625
Off-line services		17,401		15,593		4,684		37,678
Other services		6,488		5,977		1,241		13,706
Total revenues	$	40,943	$	32,266	$	9,800	$	83,009
Three months ended June 30, 2010:
On-line services	$	12,359	$	8,049	$	4,174	$	24,582
Off-line services		15,678		14,654		6,863		37,195
Other services		9,513		5,143		1,080		15,736
Total revenues	$	37,550	$	27,846	$	12,117	$	77,513
Six months ended June 30, 2011:
On-line services	$	32,999	$	20,166	$	6,384	$	59,549
Off-line services		35,765		25,689		8,724		70,178
Other services		12,406		11,084		2,846		26,336
Total revenues	$	81,170	$	56,939	$	17,954	$	156,063
Six months ended June 30, 2010:
On-line services	$	23,737	$	17,604	$	8,238	$	49,579
Off-line services		31,041		25,290		10,581		66,912
Other services		14,339		11,213		1,905		27,457
Total revenues	$	69,117	$	54,107	$	20,724	$	143,948

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Historically, the Company has not allocated headquarter costs to its operating locations. However, if the headquarter costs had been allocated to all the operating locations based on their respective revenues, the operating income by geographical area based on physical location would have been as follows (in thousands):

	Americas			EMEA			Asia- Pacific			Total
Three months ended June 30, 2011:
Operating income1	$	2,321		$	3,299		$	987		$	6,607
Allocation of headquarter costs		2,058			(1,582	)		(476	)		—
Adjusted operating income	$	4,379		$	1,717		$	511		$	6,607
Three months ended June 30, 2010:
Operating income2	$	515		$	1,569		$	3,442		$	5,526
Allocation of headquarter costs		2,187			(1,536	)		(651	)		—
Adjusted operating income	$	2,702		$	33		$	2,791		$	5,526
Six months ended June 30, 2011:
Operating income1	$	4,901		$	4,061		$	1,470		$	10,432
Allocation of headquarter costs		3,511			(2,678	)		(833	)		—
Adjusted operating income	$	8,412		$	1,383		$	637		$	10,432
Six months ended June 30, 2010:
Operating income (loss)3	$	(169	)	$	933		$	5,223		$	5,987
Allocation of headquarter costs		4,317			(3,146	)		(1,171	)		—
Adjusted operating income (loss)	$	4,148		$	(2,213	)	$	4,052		$	5,987

¹ Includes restructuring charges of $0.1 million and $0.2 million in EMEA for the three and six months ended June 30, 2011, respectively.

² Includes restructuring charges totaling $0.2 million and $0.7 million in the Americas and EMEA, respectively.

³ Includes restructuring charges totaling $0.4 million and $2.3 million in the Americas and EMEA, respectively.

The following geographical area information includes total long-lived assets (which consist of all non-current assets, other than goodwill, indefinite-lived intangible assets and deferred tax assets) based on physical location (in thousands):

	June 30,		December 31,
	2011		2010
Americas	$	20,902	$	17,311
EMEA		12,199		12,092
Asia-Pacific		7,168		3,493
	$	40,269	$	32,896

13. Fair Value of Financial Instruments and Credit Risk

Fair value is defined under FASB ASC 820-10, Fair Value Measurement (“ASC 820-10”), as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820-10 must maximize the use of the observable inputs and minimize the use of unobservable inputs. The standard established a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

• Level 1 — Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

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• Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.

• Level 3 — Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

The Company currently does not have any assets or liabilities that would require valuation under ASC 820-10, except for pension assets. The Company does not have any derivatives or marketable securities. The estimated fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short period to maturity of these instruments. The estimated fair value of all debt as of June 30, 2011 and December 31, 2010 approximated the carrying value. These fair values were estimated based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements, when quoted market prices were not available. The estimates are not necessarily indicative of the amounts that would be realized in a current market exchange.

The Company provides services to an international client base that includes petroleum refineries, chemical plants, offshore energy production platforms, steel mills, nuclear power stations, conventional power stations, pulp and paper mills, food and beverage processing plants, other flow process facilities. The Company does not believe that it has a significant concentration of credit risk at June 30, 2011, as the Company’s accounts receivable are generated from these business industries with customers located throughout the Americas, EMEA and Asia-Pacific.

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FURMANITE CORPORATION AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto of Furmanite Corporation included in Item 1 of this Quarterly Report on Form 10-Q.

Business Overview

Furmanite Corporation, (the “Parent Company”), together with its subsidiaries (collectively the “Company” or “Furmanite”) was incorporated in 1953 and conducts its principal business through its subsidiaries in the technical services industry. The Parent Company’s common stock, no par value, trades under the ticker symbol FRM on the New York Stock Exchange.

The Company provides specialized technical services, including on-line services, which include leak sealing, hot tapping, line stopping, line isolation, composite repair and valve testing. In addition, the Company provides off-line services, which include on-site machining, heat treatment, bolting and valve repair, and other services including heat exchanger design, manufacture and repair, smart shim services, concrete repair and valve and other product manufacturing. These products and services are provided primarily to electric power generating plants, petroleum refineries, which include refineries and offshore drilling rigs (including subsea) and other process industries in the Americas (which includes operations in North America, South America and Latin America), EMEA (which includes operations in Europe, the Middle East and Africa) and Asia-Pacific through Furmanite.

Financial Overview

For the three and six months ended June 30, 2011, consolidated revenues increased by $5.5 million and $12.1 million, respectively, compared to the three and six months ended June 30, 2010, primarily related to increases in leak sealing, line stopping and bolting services in the Americas. The Company’s net income for the three and six months ended June 30, 2011 increased by $1.6 million and $5.2 million, respectively, compared to the three and six months ended June 30, 2010. The increase in net income was a result of the increase in revenues for the current year three and six month periods, as well as lower restructuring costs and operational improvements realized as a result of the cost reduction initiatives which began in late 2009 and continued throughout 2010.

In the fourth quarter of 2009, the Company committed to a cost reduction initiative, including planned workforce reductions and restructuring of certain functions, in order to more strategically align the Company’s operating, selling, general and administrative costs relative to revenues. The Company completed the 2009 cost reduction initiative during 2010 with total restructuring costs incurred under this initiative of approximately $3.4 million. The Company estimates the effects of this initiative have resulted in annual cost reductions at historical activity levels of approximately $11.0 million, primarily compensation expenses, which have favorably impacted selling, general and administrative expenses.

In the second quarter of 2010, the Company committed to an additional cost reduction initiative, primarily related to the restructuring of certain functions within the Company’s EMEA operations. The Company took specific actions in order to improve the operational and administrative efficiency of its EMEA operations, while providing a structure which will allow for future expansion of operations within the region. The Company expects to incur total costs of approximately $4.0 million in connection with this cost reduction initiative, which are primarily related to severance and benefit costs. As of June 30, 2011, restructuring costs of $3.6 million have been incurred since the inception of this additional cost reduction initiative, with the remaining $0.4 million expected to be incurred during 2011. The Company estimates the effects of this initiative to result in annual cost reductions at historical activity levels of approximately $5.0 million, primarily compensation expenses, of which approximately half will affect operating costs with the other half impacting selling, general and administrative expenses.

As a result of these two initiatives, total restructuring costs negatively impacted operating income by $0.2 million and $0.9 million and net income by $0.1 million and $0.8 million for the three months ended June 30, 2011 and 2010, respectively. Total restructuring costs negatively impacted operating income by $0.2 million and $2.7 million and net income by $0.2 million and $2.4 million for the six months ended June 30, 2011 and 2010, respectively.

The Company’s diluted earnings per share for the three and six months ended June 30, 2011 were $0.14 and $0.25, respectively, compared to $0.10 and $0.11, for the three and six months ended June 30, 2010, respectively.

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Results of Operations

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2011			2010			2011			2010
	(in thousands, except per share data)
Revenues	$	83,009		$	77,513		$	156,063		$	143,948
Costs and expenses:
Operating costs (exclusive of depreciation and amortization)		56,425			51,922			106,868			97,584
Depreciation and amortization expense		2,198			1,572			4,073			3,121
Selling, general and administrative expense		17,779			18,493			34,690			37,256
Total costs and expenses		76,402			71,987			145,631			137,961
Operating income		6,607			5,526			10,432			5,987
Interest income and other income (expense), net		120			(246	)		242			96
Interest expense		(255	)		(241	)		(495	)		(482	)
Income before income taxes		6,472			5,039			10,179			5,601
Income tax expense		(1,326	)		(1,479	)		(1,007	)		(1,650	)
Net income	$	5,146		$	3,560		$	9,172		$	3,951
Earnings per share:
Basic	$	0.14		$	0.10		$	0.25		$	0.11
Diluted	$	0.14		$	0.10		$	0.25		$	0.11

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Geographical Information

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2011			2010			2011			2010
	(in thousands)
Revenues:
Americas	$	40,943		$	37,550		$	81,170		$	69,117
EMEA		32,266			27,846			56,939			54,107
Asia-Pacific		9,800			12,117			17,954			20,724
Total revenues		83,009			77,513			156,063			143,948
Costs and expenses:
Operating costs (exclusive of depreciation and amortization)
Americas		27,522			25,260			54,626			46,024
EMEA		22,250			19,805			39,967			39,732
Asia-Pacific		6,653			6,857			12,275			11,828
Total operating costs (exclusive of depreciation and amortization)		56,425			51,922			106,868			97,584
Operating costs as a percentage of revenue		68.0	%		67.0	%		68.5	%		67.8	%
Depreciation and amortization expense
Americas, including corporate		1,159			846			2,188			1,658
EMEA		507			453			1,011			920
Asia-Pacific		532			273			874			543
Total depreciation and amortization expense		2,198			1,572			4,073			3,121
Depreciation and amortization expense as a percentage of revenue		2.6	%		2.0	%		2.6	%		2.2	%
Selling, general and administrative expense
Americas, including corporate		9,941			10,929			19,455			21,604
EMEA		6,210			6,019			11,900			12,522
Asia-Pacific		1,628			1,545			3,335			3,130
Total selling general and administrative expense		17,779			18,493			34,690			37,256
Selling, general and administrative expense as a percentage of revenue		21.4	%		23.9	%		22.2	%		25.9	%
Total costs and expenses	$	76,402		$	71,987		$	145,631		$	137,961

Geographical areas, based on physical location, are the Americas, EMEA and Asia-Pacific. The following discussion and analysis, as it relates to geographic information, excludes any allocation of headquarter costs to EMEA or Asia-Pacific.

Revenues

For the six months ended June 30, 2011, consolidated revenues increased by $12.1 million, or 8.4%, to $156.0 million, compared to $143.9 million for the six months ended June 30, 2010. Changes related to foreign currency exchange rates favorably impacted revenues by $7.0 million, of which $4.1 million, $2.6 million and $0.3 million were related to favorable impacts from EMEA, Asia-Pacific and Americas, respectively. Excluding the foreign currency exchange rate impact, revenues increased by $5.1 million, or 3.5%, for the six months ended June 30, 2011 compared to the same period in the prior year. This $5.1 million increase in revenues consisted of $11.7 million increase in the Americas, partially offset by a $5.3 million decrease in Asia-Pacific and a $1.3 million decrease in EMEA. The increase in revenues in the Americas was primarily related to increases in on-line services, which included volume increases in leak sealing and line stopping services of approximately 31% when compared to revenues in the same period in the prior year. In addition, revenues increased within off-line services by approximately 15% related primarily to volume increases in bolting and valve repair services. The decrease in revenues in Asia-Pacific was attributable to decreases in both on-line and off-line services. The decreases within on-line services primarily included volume decreases in hot tapping services in Singapore as a large hot tapping project concluded in late 2010 and resulted in an approximate 33% decrease in hot tapping services when compared to revenue in the same period of the prior year. The decrease within Asia-Pacific’s off-line services primarily included

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volume decreases in bolting services in Australia of approximately 27% when compared to bolting revenues in the same period in the prior year, which was partially due to inclement weather conditions in the current year. The decrease in revenues in EMEA was primarily attributable to decreases in off-line services, which included volume decreases in heat exchanger repair services of approximately 5% when compared to revenues in the same period in the prior year.

For the three months ended June 30, 2011, consolidated revenues increased by $5.5 million, or 7.1%, to $83.0 million, compared to $77.5 million for the three months ended June 30, 2010. Changes related to foreign currency exchange rates favorably impacted revenues by $5.4 million, of which $3.5 million, $1.7 million and $0.2 million were related to favorable impacts in EMEA, Asia- Pacific and the Americas, respectively. Excluding the foreign currency exchange rate impact, revenues increased by $0.1 million, or 0.1%, for the three months ended June 30, 2011 compared to the same period in the prior year. This $0.1 million increase in revenues consisted of increases of $3.2 million and $0.9 million in the Americas and EMEA, respectively, which were substantially offset by a decrease of $4.0 million in Asia-Pacific. The increase in revenues in the Americas was due to increases in on-line services, which included volume increases in leak sealing and line stopping services of approximately 28% when compared to revenues in the same period in the prior year. In addition, revenues increased within off-line services, which included volume increases in bolting and valve repair services of approximately 13% when compared to revenues in the prior years. These increases in the Americas were partially offset by decreases in other services as the three months ended June 30, 2010 included a $4.7 million hot tapping equipment package sale within manufacturing and product sales. The increase in revenues in EMEA was primarily attributable to increases in on-line services, which included volume increases in leak sealing services of approximately 16%, when compared to revenues in the same period in the prior year. The decrease in revenues in Asia-Pacific was related to decreases in both on-line and off-line services. The decreases in on-line services primarily related to volume decreases in hot tapping services within Singapore as a large hot tapping project concluded in late 2010 resulting in an approximate 28% decrease in hot tapping services when compared to revenues in the same period of the prior year. In addition, revenues decreased within off-line services primarily related to volume decreases in bolting and on-site machining services in Australia and resulted in an approximate 47% decrease in these services when compared to revenues in the same period of the prior year as the current year has been negatively impacted by inclement weather conditions.

Operating Costs (exclusive of depreciation and amortization)

For the six months ended June 30, 2011, operating costs, increased $9.3 million, or 9.5%, to $106.9 million, compared to $97.6 million for the six months ended June 30, 2010. Changes related to foreign currency exchange rates unfavorably impacted costs by $4.9 million, of which $3.0 million, $1.7 million and $0.2 million were related to unfavorable impacts from EMEA, Asia-Pacific and the Americas, respectively. Excluding the foreign currency exchange rate impact, operating costs increased $4.4 million, or 4.5%, for the six months ended June 30, 2011, compared to the same period in the prior year. This change consisted of an $8.4 million increase in the Americas, partially offset by decreases of $2.7 million and $1.3 million in EMEA and Asia-Pacific, respectively. The increase in operating costs in the Americas was primarily related to higher material, labor and equipment rental costs of approximately 16% when compared to the same period in the prior year, which were attributable to the increase in revenues. The decrease in EMEA was due to decreases in labor costs of 8% associated with the cost reduction initiatives and the decreases in revenues which was partially offset by increases in material costs of approximately 3%. In addition, severance related restructuring costs in EMEA decreased from $0.7 million for the six months ended June 30, 2010 to $0.1 million for the six months ended June 30, 2011. The decrease in operating costs in Asia-Pacific was primarily attributable to a decrease in labor and equipment rental costs of approximately 12% when compared to the same period in the prior year associated with the decreased revenues.

For the three months ended June 30, 2011, operating costs increased $4.5 million, or 8.7%, to $56.4 million, compared to $51.9 million for the three months ended June 30, 2010. Changes related to foreign currency exchange rates unfavorably impacted costs by $3.8 million, of which $2.5 million, $1.1 million and $0.2 million were related to unfavorable impacts in EMEA, Asia-Pacific and the Americas, respectively. Excluding the foreign currency exchange rate impact, operating costs increased by $0.7 million, or 1.3%, for the three months ended June 30, 2011, compared to the same period in the prior year. This change consisted of a $2.1 million increase in the Americas which was partially offset by a $1.3 million decrease in Asia-Pacific and a $0.1 million decrease in EMEA. The increase in operating costs in the Americas was primarily attributable to an increase in labor and equipment rental costs of approximately 8% and was associated with the increase in revenues when compared to the same period in the prior year. The decrease in Asia-Pacific was due to decreases in labor and equipment rental costs of 16% associated with decreases in revenues. The operating costs in EMEA remained relatively flat as increases in material costs were offset by decreases in labor costs.

Operating costs as a percentage of revenue were 68.0% and 67.0% for the three months ended June 30, 2011 and 2010, respectively, and 68.5% and 67.8% for the six months ended June 30, 2011 and 2010, respectively. The percentage of operating costs to revenues for the three and six months ended June 30, 2011 were slightly lower than the same periods in prior year due in part to certain higher margin large jobs in the prior year which did not recur in 2011.

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Depreciation and Amortization

For the three and six months ended June 30, 2011, depreciation and amortization expense increased $0.6 million, or 37.5%, and $1.0 million, or 32.3%, respectively, when compared to the same periods in the prior year. Changes related to foreign currency exchange rates unfavorably impacted depreciation and amortization expense by $0.1 million and $0.2 million for the three and six months ended June 30, 2011, respectively. Excluding the foreign currency exchange rate impact, depreciation and amortization expense for the three and six months ended June 30, 2011 was $0.5 million and $0.8 million higher compared to the same periods in the prior year, respectively. Depreciation and amortization expense increased as a result of the acquisition of Self Leveling Machines (the “SLM acquisition”) as well as the effects of capital expenditures of approximately $5.4 million placed in service over the twelve-month period ended June 30, 2011. Depreciation and amortization expense related to the SLM acquisition was $0.4 million and $0.5 million for the three and six months ended June 30, 2011, respectively.

Depreciation and amortization expense as a percentage of revenue were 2.6% and 2.0% for the three months ended June 30, 2011 and 2010, respectively, and 2.6% and 2.2% for the six months ended June 30, 2011 and 2010, respectively. When excluding depreciation and amortization expense related to the SLM acquisition, depreciation and amortization expense as a percentage of revenue was 2.2% and 2.3% for the three and six months ended June 30, 2011, respectively.

Selling, General and Administrative

For the six months ended June 30, 2011, selling, general and administrative expenses decreased $2.6 million, or 7.0%, to $34.7 million compared to $37.3 million for the six months ended June 30, 2010. Changes related to foreign currency exchange rates unfavorably impacted costs by $1.2 million, of which $0.8 million and $0.4 million were related to unfavorable impacts in EMEA and Asia-Pacific, respectively. Excluding the foreign currency exchange rate differences, selling, general and administrative expenses decreased $3.8 million, or 10.2%, for the six months ended June 30, 2011, compared to the same period in the prior year. This $3.8 million decrease in selling, general and administrative costs consisted of a $2.2 million, $1.4 million and a $0.2 million decrease in the Americas, EMEA and Asia-Pacific, respectively. Selling, general and administrative expense decreases in the Americas were related to reductions in salary and related costs of approximately 7% when compared to the same period in the prior year. In addition, the six months ended June 30, 2010 included approximately $0.5 million of costs incurred in connection with the retirement of the Company’s former Chairman and Chief Executive Officer and severance related restructuring charges of $0.4 million. There were no restructuring charges incurred for the six months ended June 30, 2011. In EMEA, decreases in selling, general and administrative costs were primarily a result of reductions in restructuring costs from $1.6 million for the six months ended June 30, 2010 to $0.1 million for the six months ended June 30, 2011. In Asia-Pacific, decreases in selling, general and administrative costs were primarily a result of reductions in salary and related costs of approximately 11% when compared to the same period in the prior year.

For the three months ended June 30, 2011, selling, general and administrative expenses decreased $0.7 million, or 3.8%, to $17.8 million compared to $18.5 million for the three months ended June 30, 2010. Changes related to foreign currency exchange rates unfavorably impacted costs by $1.0 million, of which $0.7 million and $0.3 million were related to unfavorable impacts in EMEA and Asia-Pacific, respectively. Excluding the foreign currency exchange rate impact, selling, general and administrative expenses decreased $1.7 million, or 9.2%, for the three months ended June 30, 2011, compared to the same period in the prior year. This $1.7 million decrease in selling, general and administrative expenses consisted of $1.0 million, $0.5 million and $0.2 million in decreases in the Americas, EMEA and Asia-Pacific, respectively. The decrease in selling, general and administrative expenses in the Americas was related to reductions in salary and related costs of approximately 10% when compared to the same period in the prior year. In addition, no restructuring costs were incurred in the Americas in the three months ended June 30, 2011 compared to $0.2 million incurred in the same period in the prior year. Decreases in selling, general and administrative expenses in EMEA were primarily a result of reductions in restructuring costs from $0.7 million for the three months ended June 30, 2010 to $0.1 million for the three months ended June 30, 2011. Decreases in selling, general and administrative expenses in Asia-Pacific were related to a 11% reduction in salary and related costs.

As a result of the above factors, selling, general and administrative costs as a percentage of revenues decreased to 21.4% and 22.2% for the three and six months ended June 30, 2011, respectively, compared to 23.9% and 25.9% for the three and six months ended June 30, 2010, respectively.

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Other Income

Interest Income and Other Income (Expense), Net

For the three and six months ended June 30, 2011, interest income and other income (expense) increased $0.4 million and $0.1 million, respectively, when compared to the same periods in the prior year. Interest income and other income (expense) primarily relates to exchange gains and losses on foreign currency denominated transactions.

Interest Expense

For both the three and six months ended June 30, 2011, consolidated interest expense was comparable to the three and six months ended June 30, 2010 as the increase in interest expense related to the SLM acquisition was partially offset by the impact of lower interest rates on outstanding borrowings under the Credit Agreement.

Income Taxes

The Company maintains a valuation allowance to adjust the basis of net deferred tax assets in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes. As a result, substantially all domestic federal income taxes, as well as certain state and foreign income taxes, recorded for the three and six months ended June 30, 2011 and 2010 were fully reserved with changes offset by a corresponding change in valuation allowance. Income tax expense recorded for the three and six months ended June 30, 2011 consisted of income tax expenses in foreign and state jurisdictions in which the Company operates, with the six months ended June 30, 2011 partially offset by a valuation allowance change resulting in a deferred tax benefit of $1.2 million related to the SLM acquisition (see “Liquidity and Capital Resources” for additional information on the SLM acquisition). Income tax expense recorded for the three and six months ended June 30, 2010 consisted primarily of income taxes due in foreign and state jurisdictions in which the Company operates.

Income tax expense differs from the expected tax at statutory rates due primarily to the change in valuation allowance for deferred tax assets and different tax rates in the various foreign jurisdictions. Additionally, the aggregate tax expense is not always consistent when comparing periods due to the changing income before income taxes mix between domestic and foreign operations and within the foreign operations. In concluding that a full valuation allowance on domestic federal and certain state and foreign income taxes was required, the Company primarily considered factors such as the history of operating losses and the nature of the deferred tax assets. Interim period income tax expense or benefit is computed at the estimated annual effective tax rate, unless adjusted for specific discrete items as required.

Income tax expense as a percentage of income before income taxes was approximately 9.9% and 29.5% for the six months ended June 30, 2011 and 2010, respectively. For the three months ended June 30, 2011 and 2010 income tax expense as a percentage of income before income taxes was approximately 20.5% and 29.4%, respectively. Excluding the $1.2 million acquisition related deferred tax benefit noted above, the effective income tax rate for the six months ended June 30, 2011 was 21.9%. The remaining change in the income tax rates between periods is related to changes in the mix of income before income taxes between countries whose income taxes are offset by full valuation allowance and those that are not, and differing statutory tax rates in the countries in which the Company incurs tax liabilities.

Liquidity and Capital Resources

The Company’s liquidity and capital resources requirements include the funding of working capital needs, the funding of capital investments and the financing of internal growth.

Net cash used in operating activities was $2.0 million for the six months ended June 30, 2011 compared to net cash provided by operating activities of $0.5 million for the six months ended June 30, 2010. The increase in net cash used in operating activities was primarily due to changes in working capital requirements, which decreased cash flows by $14.8 million for the six months ended June 30, 2011 compared to a decrease of approximately $7.7 million in the six months ended June 30, 2010. These decreases in cash flows were partially offset by a $5.2 million increase in net income for the six months ended June 30, 2011 due to higher revenues and lower restructuring costs as compared to the same period in prior year.

Net cash used in investing activities increased to $5.5 million for the six months ended June 30, 2011 from $3.6 million for the six months ended June 30, 2010 primarily due to $4.0 million of cash paid, net of cash acquired of $1.0 million, in connection with the SLM acquisition.

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The increase in cash used relating to the SLM acquisition is partially offset by a reduction in capital expenditures from $3.5 million for the six months ended June 30, 2010 to $1.6 million for the six months ended June 30, 2011. The decrease in capital expenditures compared to the prior year is due to the timing of capital projects placed in service in the current year as compared to the prior year.

Consolidated capital expenditures for the calendar year 2011 have been budgeted at $11.0 million to $12.0 million. Such expenditures, however, will depend on many factors beyond the Company’s control, including, without limitation, demand for services as well as domestic and foreign government regulations. No assurance can be given that required capital expenditures will not exceed anticipated amounts during 2011 or thereafter. Capital expenditures during the year are expected to be funded from existing cash and anticipated cash flows from operations.

Net cash provided by financing activities for the six months ended June 30, 2011 was $0.1 million compared to net cash used in financing activities of $0.1 million for the six months ended June 30, 2010. The increase is due to the issuance of $0.1 million in common stock related to stock option exercises. Financing activities related to principal payments on long-term capital leases during the current year period was consistent with the prior year period.

While the Company’s operating results for the six months ended June 30, 2011 have improved as compared to the same period in the prior year, the worldwide economy, including the markets in which the Company operates, continues, in varying degrees to remain sluggish, and as such, the Company believes that the risks to its business and its customers remain heightened. Lower levels of liquidity and capital adequacy affecting lenders, increases in defaults and bankruptcies by customers and suppliers, and volatility in credit and equity markets, as observed in this economic environment, could continue to have a negative impact on the Company’s business, operating results, cash flows or financial condition in a number of ways, including reductions in revenues and profits, increased bad debts, and financial instability of suppliers and insurers.

On August 4, 2009, Furmanite Worldwide, Inc. (“FWI”), a wholly owned subsidiary of the Parent Company, and certain foreign subsidiaries of FWI (the “designated borrowers”) entered into a credit agreement dated July 31, 2009 with a banking syndicate comprising Bank of America, N.A. and Compass Bank (the “Credit Agreement”). The Credit Agreement, which matures on January 31, 2013, provides a revolving credit facility of up to $50.0 million. A portion of the amount available under the Credit Agreement (not in excess of $20.0 million) is available for the issuance of letters of credit. In addition, a portion of the amount available under the Credit Agreement (not in excess of $5.0 million in the aggregate) is available for swing line loans to FWI. The loans outstanding under the Credit Agreement may not exceed $35.0 million in the aggregate to the designated borrowers.

At each of June 30, 2011 and December 31, 2010, $30.0 million was outstanding under the Credit Agreement. Borrowings under the Credit Agreement bear interest at variable rates (based on the prime rate, federal funds rate or Eurocurrency rate at the option of the borrower, including a margin above such rates, and subject to an adjustment based on a calculated funded debt to EBITDA ratio (as defined in the Credit Agreement)) which was 2.2% at June 30, 2011 and 2.3% at December 31, 2010. The Credit Agreement contains a commitment fee which ranges between 0.25% to 0.30% based on the funded debt to EBITDA ratio, and was 0.25% at each of June 30, 2011 and December 31, 2010, based on the unused portion of the amount available under the Credit Agreement. All obligations under the Credit Agreement are guaranteed by FWI and certain of its subsidiaries under a guaranty and collateral agreement, and are secured by a first priority lien on certain of FWI and its subsidiaries’ assets (which approximates $148.2 million of current assets and property and equipment as of June 30, 2011) and is without recourse to the Parent Company. FWI is subject to certain compliance provisions including, but not limited to, maintaining certain funded debt and fixed charge coverage ratios, tangible asset concentration levels, and capital expenditure limitations as well as restrictions on indebtedness, guarantees, dividends and other contingent obligations and transactions. Events of default under the Credit Agreement include customary events, such as change of control, breach of covenants or breach of representations and warranties. At June 30, 2011, FWI was in compliance with all covenants under the Credit Agreement.

Considering the outstanding borrowings of $30.0 million, and $1.1 million related to outstanding letters of credit, the unused borrowing capacity under the Credit Agreement was $18.9 million at June 30, 2011, with a limit of $5.0 million of this capacity remaining for the designated borrowers.

On February 23, 2011, FWI entered into a Stock Purchase Agreement to acquire 100% of the outstanding stock of Self Leveling Machines, Inc. and a subsidiary of FWI entered into an Asset Purchase Agreement to acquire substantially all of the material operating and intangible assets of Self Levelling Machines Pty. Ltd. for total consideration of $9.3 million, net of cash acquired of $1.0 million. SLM provides large scale on-site machining, which includes engineering, fabrication and execution of highly-specialized machining solutions for large-scale equipment or operations.

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In connection with the acquisition of SLM, on February 23, 2011, FWI entered into a consent and waiver agreement as it relates to the Credit Agreement. Pursuant to the consent and waiver agreement, Bank of America, N.A. and Compass Bank consented to the SLM acquisition and waived any default or event of default for certain debt covenants that would arise as a result of the SLM acquisition. FWI funded the cost of the acquisition with $5.0 million in cash and by issuing notes payable (the “Notes”) to the sellers’ equity holders for $5.3 million ($2.9 million denominated in U.S. dollar and $2.4 million denominated in Australian dollar) payable in two annual installments, which mature February 23, 2013. All obligations under the Notes are secured by a first priority lien on the assets acquired in the acquisition. At June 30, 2011, $5.5 million was outstanding under the Notes. The Notes bear interest at a fixed rate of 2.5% per annum.

At the end of 2009 and in the first half of 2010, the Company committed to cost reduction initiatives in order to more strategically align the Company’s operating, selling, general and administrative costs relative to revenues. As of June 30, 2011, the costs incurred since the inception of these cost reduction initiatives totaled approximately $7.0 million. During the six months ended June 30, 2011, the Company incurred restructuring charges of $0.2 million related to the 2010 initiative and made cash payments of $1.1 million related to both the 2009 and 2010 initiatives. As of June 30, 2011, the remaining reserve associated with these initiatives totaled $0.8 million with estimated additional charges to be incurred of approximately $0.4 million, all of which are expected to require cash payments. Total workforce reductions in which severance costs were incurred related to the cost reduction initiatives included terminations for 165 employees, which included reductions of 31 employees in the Americas, 133 employees in EMEA, and one employee in Asia-Pacific.

The Company does not anticipate paying any dividends as it believes investing earnings back into the Company will provide a better long-term return to stockholders in increased per share value. The Company believes that funds generated from operations, together with existing cash and available credit under the Credit Agreement, will be sufficient to finance current operations, including the Company’s remaining cost reduction initiative obligations, planned capital expenditure requirements and internal growth for the foreseeable future.

Critical Accounting Policies and Estimates

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant policies are presented in the Notes to the Consolidated Financial Statements and under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Critical accounting policies are those that are most important to the portrayal of the Company’s financial position and results of operations. These policies require management’s most difficult, subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. The Company’s critical accounting policies and estimates, for which no significant changes have occurred in the six months ended June 30, 2011, include revenue recognition, allowance for doubtful accounts, goodwill, intangible and long-lived assets, stock-based compensation, income taxes, defined benefit pension plan, contingencies, and exit or disposal obligations. Critical accounting policies are discussed regularly, at least quarterly, with the Audit Committee of the Company’s Board of Directors.

Revenue Recognition

Revenues are recorded in accordance with Financial Account Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, when realized or realizable, and earned.

Revenues are based primarily on time and materials. Substantially all projects are generally short term in nature. Revenues are recognized when persuasive evidence of an arrangement exists, services to customers have been rendered or when products have been delivered and risk of ownership has passed to the customer, the selling price is fixed or determinable and collectability is reasonably assured. Revenues are recorded, net of sales tax. The Company provides limited warranties to customers, depending upon the service performed.

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Allowance for Doubtful Accounts

Credit is extended to customers based on evaluation of the customer’s financial condition and generally collateral is not required. Accounts receivable outstanding longer than contractual payment terms are considered past due. The Company regularly evaluates and adjusts accounts receivable as doubtful based on a combination of write-off history, aging analysis and information available on specific accounts. The Company writes off accounts receivable when they become uncollectible. Any payments subsequently received on such receivables are credited to the allowance in the period the payment is received.

Goodwill, Intangible and Long-Lived Assets

The Company accounts for goodwill and other intangible assets in accordance with the provisions of FASB ASC 350, Intangibles — Goodwill and Other. Under FASB ASC 350, intangible assets with lives restricted by contractual, legal or other means are amortized over their useful lives. Goodwill and other intangible assets not subject to amortization are tested for impairment annually (in the fourth quarter of each calendar year), or more frequently if events or changes in circumstances indicate that the assets might be impaired. Examples of such events or circumstances include a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, or a loss of key personnel.

FASB ASC 350 requires a two-step process for testing goodwill impairment. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. A reporting unit is an operating segment or one level below an operating segment (referred to as a component). Two or more components of an operating segment shall be aggregated and deemed a single reporting unit if the components have similar economic characteristics. The Company has one reporting unit for the purpose of testing goodwill impairment. Second, if an impairment is indicated, the implied fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value to its assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill and other intangible assets is measured as the excess of the carrying value over the implied fair value.

The Company uses market capitalization as the basis for its measurement of fair value as management considers this approach the most meaningful measure, considering the quoted market price as providing the best evidence of fair value. In performing the analysis, the Company uses the stock price on December 31 of each year as the valuation date. On December 31, 2010, Furmanite’s fair value substantially exceeded its carrying value.

The Company accounts for long-lived assets in accordance with the provisions of FASB ASC 360, Property, Plant, and Equipment. Under FASB ASC 360, the Company reviews long-lived assets, which consist of finite-lived intangible assets and property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Factors that may affect recoverability include changes in planned use of equipment, closing of facilities and discontinuance of service lines. Property and equipment to be held and used is reviewed at least annually for possible impairment. The Company’s impairment review is based on an estimate of the undiscounted cash flow at the lowest level for which identifiable cash flows exist. Impairment occurs when the carrying value of the assets exceeds the estimated future undiscounted cash flows generated by the asset and the impairment is viewed as other than temporary. When impairment is indicated, an impairment charge is recorded for the difference between the carrying value of the asset and its fair market value. Depending on the asset, fair market value may be determined either by use of a discounted cash flow model or by reference to estimated selling values of assets in similar condition.

Stock-Based Compensation

All stock-based compensation is recognized as an expense in the financial statements and such costs are measured at the fair value of the award at the date of grant. The fair value of stock-based payment awards on the date of grant as determined by the Black-Scholes model is affected by the Company’s stock price on the date of the grant as well as other assumptions. Assumptions utilized in the fair value calculations include the expected stock price volatility over the term of the awards (estimated using the historical volatility of the Company’s stock price), the risk free interest rate (based on the U.S. Treasury Note rate over the expected term of the option), the dividend yield (assumed to be zero, as the Company has not paid, nor anticipates paying, any cash dividends in the foreseeable future), and employee stock option exercise behavior and forfeiture assumptions (based on historical experience and other relevant factors).

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Income Taxes

Deferred tax assets and liabilities result from temporary differences between the U.S. GAAP and tax treatment of certain income and expense items. The Company must assess and make estimates regarding the likelihood that the deferred tax assets will be recovered. To the extent that it is determined the deferred tax assets will not be recovered, a valuation allowance must be established for such assets. In making such a determination, the Company must take into account positive and negative evidence including projections of future taxable income and assessments of potential tax planning strategies.

The Company recognizes the tax benefit from uncertain tax positions only if it is more-likely-than-not that the tax position will be sustained on examination by the applicable taxing authorities, based on the technical merits of the position. The tax benefit recognized is based on the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority. Uncertain tax positions in certain foreign jurisdictions would not impact the effective foreign tax rate because unrecognized non-current tax benefits are offset by the foreign net operating loss carryforwards, which are fully reserved. The Company recognizes interest expense on underpayments of income taxes and accrued penalties related to unrecognized non-current tax benefits as part of the income tax provision.

Defined Benefit Pension Plan

Pension benefit costs and liabilities are dependent on assumptions used in calculating such amounts. The primary assumptions include factors such as discount rates, expected investment return on plan assets, mortality rates and retirement rates. These rates are reviewed annually and adjusted to reflect current conditions. These rates are determined based on reference to yields. The compensation increase rate is based on historical experience. The expected return on plan assets is derived from detailed periodic studies, which include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes, risks (standard deviations) and correlations of returns among the asset classes that comprise the plans’ asset mix. While the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily long-term, prospective rates of return. Mortality and retirement rates are based on actual and anticipated plan experience. In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation in future periods. While the Company believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect pension and postretirement obligation and future expense.

Contingencies

Environmental

Liabilities are recorded when site restoration or environmental remediation and cleanup obligations are either known or considered probable and can be reasonably estimated. Recoveries of environmental costs through insurance, indemnification arrangements or other sources are recognized when such recoveries become certain.

The Company capitalizes environmental costs only if the costs are recoverable and the costs extend the life, increase the capacity, or improve the safety or efficiency of property owned by the Company as compared with the condition of that property when originally constructed or acquired, or if the costs mitigate or prevent environmental contamination that has yet to occur and that otherwise may result from future operations or activities and the costs improve the property compared with its condition when constructed or acquired. All other environmental costs are expensed.

Other

The Company establishes a liability for all other loss contingencies, when information indicates that it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated.

Exit or Disposal Obligations

In the fourth quarter of 2009 and in the first half of 2010, the Company committed to cost reduction initiatives, including planned workforce reductions and restructuring of certain functions. The Company has taken these specific actions in order to more strategically align its operating, selling, general and administrative costs relative to revenues. The Company has recorded expenses related to these cost reduction initiatives for severance, lease cancellations, and other restructuring costs in accordance with FASB ASC 420-10, “Exit or Disposal Cost Obligations” and FASB ASC 712-10, “Nonretirement Postemployment Benefits.”

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Under FASB ASC 420-10, costs associated with restructuring activities are generally recognized when they are incurred. In the case of leases, the expense is estimated and accrued when the property is vacated. In addition, post-employment benefits accrued for workforce reductions related to restructuring activities are accounted for under FASB ASC 712-10. A liability for post-employment benefits is generally recorded when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have vested or accumulated. The Company continually evaluates the adequacy of the remaining liabilities under its restructuring initiatives. Although the Company believes that these estimates accurately reflect the costs of its restructuring plans, actual results may differ, thereby requiring the Company to record additional provisions or reverse a portion of such provisions.

New Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 provides more robust disclosures about the transfers between Levels 1 and 2, the activity in Level 3 fair value measurements and clarifies the level of disaggregation and disclosure related to the valuation techniques and inputs used. The new disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the Level 3 activity disclosures, which are effective for fiscal years beginning after December 15, 2010. There was not a material impact from the adoption of this guidance on the Company’s consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 clarifies the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. ASU 2011-04 provides further clarification on the: (1) application of the highest and best use and valuation premise concepts, (2) fair value measurement of an instrument classified in a reporting entity’s shareholders’ equity, and (3) disclosure of unobservable inputs used in Level 3 fair value measurements. ASU 2011-04 also changes how fair value is measured for financial instruments that are managed within a portfolio and how premiums and discounts are applied in measuring fair value. In addition to the clarification of Level 3 disclosures, ASU 2011-04 requires additional disclosures for fair value measurements as it relates to the following: (1) the valuation process and sensitivity of changes in unobservable inputs, (2) a reporting entity’s use of a nonfinancial asset in a way that differs from the asset’s highest and best use, and (3) the categorization by level of the fair value hierarchy for items that are not measured at fair value but for which the fair value is required to be disclosed. ASU 2011-04 is effective for interim and annual periods beginning on or after December 15, 2011. The Company does not expect a material impact from the adoption of this guidance on the Company’s consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 amends existing guidance by allowing only the following two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement or (2) in two separate but consecutive financial statements. In addition, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU 2011-05 does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, the Company’s option to present components of other comprehensive income either net of related tax effects or before related tax effects, nor does it affect how earnings per share is calculated or presented. ASU 2011-05 requires retrospective application, and it is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The Company anticipates the adoption of this guidance will change the presentation and provide additional detail on certain consolidated financial statements, but will not have any other material impact.

Off-Balance Sheet Transactions

The Company was not a party to any off-balance sheet transactions at June 30, 2011 or December 31, 2010, or for the six months ended June 30, 2011.

Inflation and Changing Prices

The Company does not operate or conduct business in hyper-inflationary countries nor enter into long-term supply contracts that may impact margins due to inflation. Changes in prices of goods and services are reflected on proposals, bids or quotes submitted to customers.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s principal market risk exposures (i.e., the risk of loss arising from the adverse changes in market rates and prices) are to changes in interest rates on the Company’s debt and investment portfolios and fluctuations in foreign currency.

The Company centrally manages its debt, considering investment opportunities and risks, tax consequences and overall financing strategies. Based on the amount of variable rate debt, $30.0 million at June 30, 2011, an increase in interest rates by one hundred basis points would increase annual interest expense by approximately $0.3 million.

A significant portion of the Company’s business is exposed to fluctuations in the value of the U.S. dollar as compared to foreign currencies as a result of the foreign operations of the Company in Australia, Bahrain, Belgium, Canada, China, Denmark, France, Germany, Malaysia, The Netherlands, New Zealand, Nigeria, Norway, Singapore, Sweden and the United Kingdom. Overall volatility in currency exchange rates has increased over the past several years. Currencies in the first half of 2011 strengthened, as foreign currencies exchange rate changes, primarily the Euro, the Australian Dollar and the British Pound, relative to the U.S. dollar resulted in a favorable impact on the Company’s U.S. dollar reported revenues for the three and six months ended June 30, 2011 when compared to the three and six months ended June 30, 2010. The revenue impact was somewhat mitigated with similar exchange effects on operating costs thereby reducing the exchange rate effect on operating income. The Company does not use interest rate or foreign currency rate hedges.

Based on the six months ended June 30, 2011, foreign currency-based revenues and operating income of $80.0 million and $7.1 million, respectively, a ten percent decline in all applicable foreign currencies would result in a decrease in revenues and operating income of $7.3 million and $0.6 million, respectively.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company’s principal executive officer and principal financial officer have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2011. Based on that evaluation, the principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2011, the most recently completed fiscal quarter, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

31

FURMANITE CORPORATION AND SUBSIDIARIES

PART II — Other Information

Item 1. Legal Proceedings

The operations of the Company are subject to federal, state and local laws and regulations in the United States and various foreign locations relating to protection of the environment. Although the Company believes its operations are in compliance with applicable environmental regulations, there can be no assurance that costs and liabilities will not be incurred by the Company. Moreover, it is possible that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from operations of the Company, could result in costs and liabilities to the Company. The Company has recorded, in other liabilities, an undiscounted reserve for environmental liabilities related to the remediation of site contamination for properties in the United States in the amount of $1.1 million and $1.2 million at June 30, 2011 and December 31, 2010, respectively.

Furmanite America, Inc., a subsidiary of the Company, is involved in disputes with two customers, who are each negotiating with a governmental regulatory agency and claim that the subsidiary failed to provide them with satisfactory services at the customers’ facilities. On April 17, 2009, a customer, INEOS USA LLC, initiated legal action against the subsidiary in the Common Pleas Court of Allen County, Ohio, alleging that the subsidiary and one of its former employees, who performed data services at one of the customer’s facilities, breached its contract with the customer and failed to provide the customer with adequate and timely information to support the subsidiary’s work at the customer’s facility from 1998 through the second quarter of 2005. The customer’s complaint seeks damages in an amount that the subsidiary believes represents the total proposed civil penalty, plus the cost of unspecified supplemental environmental projects requested by the regulatory agency to reduce air emissions at the customer’s facility, and also seeks unspecified punitive damages. The subsidiary believes that it provided the customer with adequate and timely information to support the subsidiary’s work at the customer’s facilities and will vigorously defend against the customer’s claim.

In the first quarter of 2008, a subsidiary of the Company filed an action seeking to vacate a $1.35 million arbitration award related to a sales brokerage agreement associated with a business that the subsidiary sold in 2005. The subsidiary believed that the sales broker was an affiliate of another company that in 2006 settled all of its claims, as well as all of the claims of its affiliates, against the subsidiary. The action to vacate the arbitration award terminated and, in January 2010, the subsidiary paid the full amount of the arbitration award plus accrued interest to the sales broker which was accrued as of December 31, 2009. In separate actions, the subsidiary was seeking to enforce the prior settlement agreement executed by the sales broker’s affiliate and obtain an equitable offset of the arbitration award, however, upon mutual agreement by all parties, these separate actions were dismissed by the court in July 2010.

The Company has contingent liabilities resulting from litigation, claims and commitments incident to the ordinary course of business. Management believes, after consulting with counsel, that the ultimate resolution of such contingencies will not have a material adverse effect on the financial position, results of operations or liquidity of the Company.

While the Company cannot make an assessment of the eventual outcome of all of these matters or determine the extent, if any, of any potential uninsured liability or damage, reserves of $1.5 million and $1.9 million were recorded in accrued expenses and other current liabilities as of June 30, 2011 and December 31, 2010, respectively.

Item 1A. Risk Factors

During the quarter ended June 30, 2011, there were no material changes to the risk factors reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

32

Item 6. Exhibits

3.1	Restated Certificate of Incorporation of the Registrant, dated September 26, 1979, incorporated by reference herein to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-16.
3.2	Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated April 30, 1981, incorporated by reference herein to Exhibit 3.2 to the Registrant’s Form 10-K for the year ended December 31, 1981.
3.3	Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated May 28, 1985, incorporated by reference herein to Exhibit 4.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 1985.
3.4	Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated September 17, 1985, incorporated by reference herein to Exhibit 4.1 to the Registrant’s Form 10-Q for the quarter ended September 30, 1985.
3.5	Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated July 10, 1990, incorporated by reference herein to Exhibit 3.5 to the Registrant’s Form 10-K for the year ended December 31, 1990.
3.6	Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated September 21, 1990, incorporated by reference herein to Exhibit 3.5 to the Registrant’s Form 10-Q for the quarter ended September 30, 1990.
3.7	Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant, dated August 8, 2001, incorporated by reference herein to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on August 22, 2001.
3.8	By-laws of the Registrant, as amended and restated June 14, 2007, filed as Exhibit 3.8 to the Registrant’s 10-K for the year then ended December 31, 2007, which exhibit is hereby incorporated by reference.
4.1	Certificate of Designation, Preferences and Rights related to the Registrant’s Series B Junior Participating Preferred Stock, filed as Exhibit 4.2 to the Registrant’s 10-K for the year ended December 31, 2008, which exhibit is incorporated herein by reference.
4.2	Rights Agreement, dated as of April 15, 2008, between the Registrant and The Bank of New York Trust Company, N.A., a national banking association, as Rights Agent, which includes as exhibits, the Form of Rights Certificate and the Summary of Rights to Purchase Stock, filed as Exhibit 4.1 to the Registrant’s Form 8-A/A filed on April 18, 2008, which exhibit is incorporated herein by reference.
4.3	Letters to stockholders of the Registrant, dated April 19, 2008 (incorporated by reference herein to Exhibit 4.2 to the Registrant’s Form 8-A/A filed on April 18, 2008).
10.1*	Furmanite Corporation 1994 Stock Incentive Plan as amended and restated June 14, 2011.
10.2*	Performance Based Long Term Executive Incentive Restricted Stock Grants.
31.1*	Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated as of August 9, 2011.
31.2*	Certification of Principal Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated as of August 9, 2011.
32.1*	Certification of Chief Executive Officer, Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002, dated as of August 9, 2011.
32.2*	Certification of Principal Financial Officer, Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002, dated as of August 9, 2011.
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document
101.DEF**	XBRL Taxonomy Definition Linkbase Document
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

*

Filed herewith.

**

These exhibits are furnished herewith. In accordance with Rule 406T of Regulation S-T, these exhibits are not deemed to be filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are not deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

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Signature

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.

FURMANITE CORPORATION
(Registrant)
 

/s/ ROBERT S. MUFF  

Robert S. Muff 

Chief Accounting Officer
(Principal Financial and Accounting Officer) 

Date: August 9, 2011

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EX-10.1

Exhibit 10.1

FURMANITE CORPORATION

1994 STOCK INCENTIVE PLAN

Amendment and Restatement
Effective June 14, 2011

TABLE OF CONTENTS
			Page
ARTICLE I		PLAN		1
	1.1	Purpose		1
	1.2	Term of Plan		1
ARTICLE II		DEFINITIONS		2
	2.1	Affiliate		2
	2.2	Award		2
	2.3	Board		2
	2.4	Change of Control		2
	2.5	Code		3
	2.6	Committee		3
	2.7	Company		3
	2.8	Disability		3
	2.9	Distribution Date		4
	2.10	Dividend Equivalent		4
	2.11	Employee Benefits Agreement		4
	2.12	Employee		4
	2.13	Exchange Act		4
	2.14	Fair Market Value		4
	2.15	Holder		4
	2.16	Incentive Option		4
	2.17	KSI Deferred Compensation Plans		4
	2.18	Mature Shares		5
	2.19	Minimum Statutory Tax Withholding Obligation		5
	2.20	Net Shares		5
	2.21	Non-Employee Director		5
	2.22	Nonqualified Option		5
	2.23	Option		5
	2.24	Option Agreement		5
	2.25	Permissible under Section 409A		5
	2.26	Plan		5
	2.27	Restricted Stock		5
	2.28	Restricted Stock Agreement		5
	2.29	Restricted Stock Award		5
	2.30	Retirement		5
	2.31	Restricted Stock Unit		5
	2.32	Restricted Stock Unit Award		5
	2.33	Section 409A		6
	2.34	Stock		6
	2.35	Substantial Risk of Forfeiture		6
	2.36	Ten Percent Stockholder		6
ARTICLE III		ELIGIBILITY		7

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TABLE OF CONTENTS (continued)
			Page
ARTICLE IV		GENERAL PROVISIONS RELATING TO AWARDS		8
	4.1	Authority to Grant Awards		8
	4.2	Dedicated Shares; Maximum Awards		8
	4.3	Non-Transferability		8
	4.4	Requirements of Law		8
	4.5	Changes in the Company’s Capital Structure		9
	4.6	Election Under Section 83(b) of the Code		11
ARTICLE V		OPTIONS		12
	5.1	Type of Option		12
	5.2	Exercise Price		12
	5.3	Duration of Options		12
	5.4	Amount Exercisable		14
	5.5	Exercise of Options		14
	5.6	Substitution Options		15
	5.7	No Rights as Stockholder		15
ARTICLE VI		RESTRICTED STOCK AWARDS		16
	6.1	Restricted Stock Awards		16
	6.2	Holder’s Rights as Stockholder		16
ARTICLE VII		RESTRICTED STOCK UNIT AWARDS		17
	7.1	Authority to Grant Restricted Stock Unit Awards		17
	7.2	Restricted Stock Unit Award		17
	7.3	Restricted Stock Unit Award Agreement		17
	7.4	Dividend Equivalents		17
	7.5	Form of Payment Under Restricted Stock Unit Award		17
	7.6	Time of Payment Under Restricted Stock Unit Award		17
	7.7	No Rights as Stockholder		17
ARTICLE VIII		ADMINISTRATION		18
ARTICLE IX		AMENDMENT OR TERMINATION OF PLAN		19
ARTICLE X		MISCELLANEOUS		20
	10.1	No Establishment of a Trust Fund		20
	10.2	No Employment or Affiliation Obligation		20
	10.3	Forfeiture		20
	10.4	Tax Withholding		20
	10.5	Written Agreement		21
	10.6	Indemnification of the Committee		21
	10.7	Gender		22
	10.8	Headings		22
	10.9	Other Compensation Plans		22

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TABLE OF CONTENTS (continued)
			Page
	10.10	Other Options or Awards		22
	10.11	Option Adjustments Pursuant to the Employee Benefits Agreement		22
	10.12	Governing Law		22
	10.13	Compliance with Section 409A		22

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ARTICLE I

PLAN

          1.1        Purpose. The Plan is intended to advance the best interests of the Company and its stockholders by providing those persons who have substantial responsibility for the management and growth of the Company and its Affiliates with additional incentives and an opportunity to obtain or increase their proprietary interest in the Company, thereby encouraging them to continue in their employment or affiliation with the Company or any of its Affiliates.

          1.2        Term of Plan. No Award shall be granted under the Plan after March 4, 2019. The Plan shall remain in effect until all Awards under the Plan have been satisfied or expired.

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ARTICLE II

DEFINITIONS

             The words and phrases defined in this Article shall have the meaning set out in these definitions throughout the Plan, unless the context in which any such word or phrase appears reasonably requires a broader, narrower or different meaning.

          2.1        “Affiliate” means any parent corporation and any subsidiary corporation. The term “parent corporation” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of the action or transaction, each of the corporations other than the Company owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. The term “subsidiary corporation” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the action or transaction, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.

          2.2        “Award” means any Incentive Option, Nonqualified Option, Restricted Stock Award or Restricted Stock Unit Award granted under the Plan.

          2.3        “Board” means the board of directors of the Company.

          2.4        “Change of Control” means the occurrence of any of the following after March 4, 2009:

              (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Covered Person”) of beneficial ownership (within the meaning of rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either (i) the then outstanding shares of Stock (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this Section 2.4(a), the following acquisitions shall not constitute a Change in Control of the Company: (i) any acquisition by the Company, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company or (iii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of Section 2.4(c);

              (b) individuals who, as of March 4, 2009, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to March 4, 2009, whose election, or nomination for election, by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual

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whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors; or

              (c) the consummation of (i) a reorganization, merger or consolidation or sale of the Company or (ii) a disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 80 percent of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be, (B) no Covered Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 80 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation, except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; provided, however, that any individual becoming a director subsequent to March 4, 2009 whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors.

          2.5        “Code” means the Internal Revenue Code of 1986, as amended.

          2.6        “Committee” means a committee of at least two persons appointed by the Board.

          2.7        “Company” means Furmanite Corporation, a Delaware corporation.

          2.8        “Disability” means, as determined by the Committee in its discretion exercised in good faith, (a) in the case of an Award that is exempt from the application of the requirements of Section 409A a medically determinable mental or physical impairment which, in the opinion of a physician selected by the Committee, shall prevent the Holder from engaging in any substantial gainful activity and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months and which: (i) was not contracted,

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suffered or incurred while the Holder was engaged in, or did not result from having engaged in, a felonious criminal enterprise; (ii) did not result from alcoholism or addiction to narcotics; (iii) did not result from an injury incurred while a member of the Armed Forces of the United States for which the Holder receives a military pension; and (iv) did not result from an intentionally self-inflicted injury and (b) in the case of an Award that is not exempt from the application of the requirements of Section 409A, a physical or mental condition of the Holder where (i) the Holder is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) the Holder is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company. A determination of Disability may be made by a physician selected or approved by the Committee and, in this respect, the Holder shall submit to an examination by such physician upon request by the Committee.

          2.9        “Distribution Date” shall have the meaning specified in the Distribution Agreement by and between the Company, Kaneb Services LLC and Kaneb Pipeline Partners, L.P.

          2.10       “Dividend Equivalent” means a payment equivalent in amount to dividends paid with respect to the Stock to the Company’s stockholders.

          2.11       “Employee Benefits Agreement” means the Employee Benefits Agreement by and between the Company and Kaneb Services LLC, a Delaware limited liability company.

          2.12       “Employee” means a person employed by the Company or any Affiliate as a common law employee.

          2.13       “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          2.14       “Fair Market Value” of the Stock as of any date means the closing price of the Stock on such date, or, if the Stock was not traded on such date, on the immediately preceding day that the Stock was so traded. However, if the Stock is not listed on a securities exchange, the Fair Market Value will be an amount determined by the Committee in a manner that complies with the requirements of Section 409A.

          2.15       “Holder” means a person who has been granted an Award or any person who is entitled to receive Stock under an Award.

          2.16       “Incentive Option” means an Option granted under the Plan which is designated as an “Incentive Option” and satisfies the requirements of section 422 of the Code.

          2.17       “KSI Deferred Compensation Plans” means the Kaneb Services, Inc. 1996 Supplemental Deferred Compensation Plan, the Kaneb Services, Inc. Non-Employee Directors Deferred Stock Unit Plan, the Kaneb Services, Inc. Deferred Stock Unit Plan, and any other nonqualified deferred compensation plans that the Company may adopt in the future.

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          2.18       “Mature Shares” means shares of Stock that the Holder has held for at least six months.

          2.19       “Minimum Statutory Tax Withholding Obligation” means, with respect to an Award, the amount the Company, an Affiliate or other subsidiary is required to withhold for federal, state, local and foreign taxes based upon the applicable minimum statutory withholding rates required by the relevant tax authorities.

          2.20       “Net Shares” means the shares of Stock to be issued upon exercise of an Option reduced by the number of unencumbered, transferable Mature Shares that would be required to be tendered to the Company to satisfy the exercise price of the Option.

          2.21       “Non-Employee Director” means any duly elected member of the Board who is not an Employee.

          2.22       “Nonqualified Option” means an Option granted under the Plan other than an Incentive Option.

          2.23       “Option” means either an Incentive Option or a Nonqualified Option granted under the Plan to purchase shares of Stock.

          2.24       “Option Agreement” means the written agreement which sets out the terms of an Option.

          2.25       “Permissible under Section 409A” means with respect to a particular action (such as, the grant, payment, vesting, settlement or deferral of an amount or Award under the Plan) that such action shall not subject the compensation at issue to the additional tax or interest applicable under Section 409A.

          2.26       “Plan” means the Furmanite Corporation 1994 Stock Incentive Plan, as set forth in this document and as it may be amended from time to time.

          2.27       “Restricted Stock” means stock awarded or purchased under the Plan pursuant to a Restricted Stock Agreement.

          2.28       “Restricted Stock Agreement” means the written agreement which sets out the terms of a Restricted Stock Award.

          2.29       “Restricted Stock Award” means an Award of Restricted Stock.

          2.30       “Retirement” means the termination of an Employee’s employment relationship with the Company and all Affiliates after attaining the age of 55.

          2.31       “Restricted Stock Unit” means a restricted stock unit credited to a Holder’s ledger account maintained by the Company pursuant to Article VII.

          2.32       “Restricted Stock Unit Award” means an Award granted pursuant to Article VII.

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          2.33       “Section 409A” means section 409A of the Code and the regulations and other guidance promulgated by the United States Department of Treasury or the United States Internal Revenue Service under section 409A of the Code, or any successor statute.

          2.34       “Stock” means the common stock of the Company, no par value, or, in the event that the outstanding shares of common stock are later changed into or exchanged for a different class of stock or securities of the Company or another corporation, that other stock or security. Shares of Stock when issued may be represented by a certificate or by book or electronic entry.

          2.35       “Substantial Risk of Forfeiture” shall have the meaning ascribed to that term in Section 409A.

          2.36       “Ten Percent Stockholder” means an individual who, at the time the Option is granted, owns stock possessing more than ten percent of the total combined voting power of all classes of stock or series of the Company or of any Affiliate. An individual shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors and lineal descendants; and stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust, shall be considered as being owned proportionately by or for its stockholders, partners or beneficiaries.

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ARTICLE III

ELIGIBILITY

          The individuals who shall be eligible to receive Incentive Options shall be those key Employees of the Company or any of its Affiliates as the Committee shall determine from time to time. The individuals who shall be eligible to receive Awards other than Incentive Options shall be those persons, including Employees, consultants, advisors and directors, who have substantial responsibility for the management and growth of the Company or any of its Affiliates as the Committee shall determine from time to time. Further, shares of Stock may be issued under the Plan to participants and former participants in the KSI Deferred Compensation Plans in satisfaction of the Company’s obligations thereunder.

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ARTICLE IV

GENERAL PROVISIONS RELATING TO AWARDS

          4.1         Authority to Grant Awards. The Committee may grant Awards to those key Employees of the Company or any of its Affiliates and other eligible persons as it shall from time to time determine, under the terms and conditions of the Plan. Subject only to any applicable limitations set out in the Plan, the number of shares of Stock to be covered by any Award to be granted to any person shall be as determined by the Committee.

          4.2         Dedicated Shares; Maximum Awards. The aggregate number of shares of Stock with respect to which Awards may be granted under the Plan to current and former participants in the KSI Deferred Compensation Plans pursuant to the terms thereof is 6,100,000. Such shares of Stock may be treasury shares or authorized but unissued shares. The maximum number of shares of Stock with respect to which Options may be granted under the Plan is 6,100,000 shares. The maximum number of shares of Stock with respect to which Restricted Stock Awards and Restricted Stock Unit Awards may be granted under the Plan is 1,250,000 shares. The maximum number of shares with respect to which Options which may be granted to any person under the Plan during any calendar year is 750,000 shares. If a Holder’s Option is cancelled, the cancelled Option continues to be counted against the maximum number of shares of Stock for which Options may be granted to the Holder under the Plan. The number of shares stated in this Section 4.2 shall be subject to adjustment in accordance with the provisions of Section 4.5. If any outstanding Award expires or terminates for any reason or any Award is surrendered, the shares of Stock allocable to the unexercised portion of that Award may again be subject to an Award under the Plan.

          4.3         Non-Transferability. Incentive Options shall not be transferable by the Employee other than by will or under the laws of descent and distribution, and shall be exercisable, during the Employee’s lifetime, only by him. Except as specified in the applicable Award agreements or in domestic relations court orders, Awards other than Incentive Options shall not be transferable by the Holder other than by will or under the laws of descent and distribution, and shall be exercisable, during the Holder’s lifetime, only by him. In the discretion of the Committee, any attempt to transfer an Award other than under the terms of the Plan and the applicable Award agreement may terminate the Award.

          4.4         Requirements of Law. The Company shall not be required to sell or issue any shares of Stock under any Award if issuing the shares of Stock would constitute or result in a violation by the Holder or the Company of any provision of any law, statute or regulation of any governmental authority. Specifically, in connection with any applicable statute or regulation relating to the registration of securities, upon exercise of any Award, the Company shall not be required to issue any shares of Stock unless the Committee has received evidence satisfactory to it to the effect that the Holder will not transfer the shares of Stock except in accordance with applicable law, including receipt of an opinion of counsel satisfactory to the Company to the effect that any proposed transfer complies with applicable law. The determination by the Committee on this matter shall be final, binding and conclusive. The Company may, but shall in no event be obligated to, register any shares of Stock covered by the Plan pursuant to applicable securities laws of any country or any political subdivision. In the event the shares of Stock issuable on exercise of

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an Option or any other Award are not registered, the Company may imprint on the certificate evidencing the shares of Stock any legend that counsel for the Company considers necessary or advisable to comply with applicable law; or should the shares of Stock be represented by book or electronic entry rather than a certificate, the Company may take such steps to restrict transfer of the shares of Stock as counsel for the Company considers necessary or advisable to comply with applicable law. The Company shall not be obligated to take any other affirmative action in order to cause the exercise of an Option or vesting under an Award, or the issuance of shares of Stock pursuant thereto, to comply with any law or regulation of any governmental authority.

          4.5         Changes in the Company’s Capital Structure. (a) The existence of outstanding Awards shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Stock or its rights, the dissolution or liquidation of the Company, any sale or transfer of all or any part of its assets or business or any other corporate act or proceeding, whether of a similar character or otherwise.

               (a)         If the Company shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of Stock outstanding, without receiving compensation for it in money, services or property, then (i) the number, class or series and per share price of shares of Stock subject to outstanding Awards under this Plan shall be appropriately adjusted in such a manner as to entitle a Holder to receive upon exercise of an Award, for the same aggregate cash consideration, the equivalent total number and class or series of shares he would have received had he exercised his Award in full immediately prior to the event requiring the adjustment, and (ii) the number and class or series of shares of Stock then reserved to be issued under the Plan shall be adjusted by substituting for the total number and class or series of shares of Stock then reserved, that number and class or series of shares of Stock that would have been received by the owner of an equal number of outstanding shares of each class or series of Stock as the result of the event requiring the adjustment.

              (b)         If while unexercised Awards remain outstanding under the Plan (i) the Company shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than an entity that was wholly-owned by the Company immediately prior to such merger, consolidation or other reorganization), (ii) the Company sells, leases or exchanges or agrees to sell, lease or exchange all or substantially all of its assets to any other person or entity (other than an entity wholly-owned by the Company), (iii) the Company is to be dissolved or (iv) the Company is a party to any other corporate transaction (as defined under section 424(a) of the Code and applicable Department of Treasury Regulations) that is not described in clauses (i), (ii) or (iii) of this sentence (each such event is referred to herein as a “Corporate Change”), then, except as otherwise provided in an Award agreement or as a result of the Board’s effectuation of one or more of the alternatives described below, there shall be no acceleration of the time at which any Award then outstanding may be exercised, and no later than ten days after the approval by the stockholders of the

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Company of such Corporate Change, the Board, acting in its sole and absolute discretion without the consent or approval of any Holder, shall act to effect one or more of the following alternatives, which may vary among individual Holders and which may vary among Awards held by any individual Holder:

          (A)         accelerate the time at which some or all of the Awards then outstanding may be exercised so that such Awards may be exercised in full for a limited period of time on or before a specified date (before or after such Corporate Change) fixed by the Board, after which specified date all such Awards that remain unexercised and all rights of Holders thereunder shall terminate;

          (B)         require the mandatory surrender to the Company by all or selected Holders of some or all of the then outstanding Options held by such Holders (irrespective of whether such Options are then exercisable under the provisions of this Plan or the Option Agreements evidencing such Options) as of a date, before or after such Corporate Change, specified by the Board, in which event the Board shall thereupon cancel such Options and the Company shall pay to each such Holder an amount of cash per share equal to the excess, if any, of the per share price offered to stockholders of the Company in connection with such Corporate Change over the exercise prices under such Options for such shares;

          (C)         with respect to all or selected Holders, have some or all of their then outstanding Awards (whether vested or unvested) assumed or have a new Award substituted for some or all of their then outstanding Awards (whether vested or unvested) by an entity which is a party to the transaction resulting in such Corporate Change and which is then employing him, or a parent or subsidiary of such entity, provided that (1) such assumption or substitution is on a basis where the excess of the aggregate fair market value of the shares subject to the Award immediately after the assumption or substitution over the aggregate exercise price of such shares is equal to the excess of the aggregate fair market value of all shares subject to the Award immediately before such assumption or substitution over the aggregate exercise price of such shares, and (2) the assumed rights under such existing Award or the substituted rights under such new Award as the case may be will have the same terms and conditions as the rights under the existing Award assumed or substituted for, as the case may be;

          (D)         provide that the number and class or series of shares of Stock covered by an Award (whether vested or unvested) theretofore granted shall be adjusted so that such Award when exercised shall thereafter cover the number and class or series of shares of stock or other securities or property (including, without limitation, cash) to which the Holder would have been entitled pursuant to the terms of the agreement or plan relating to such Corporate Change if, immediately prior to such

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Corporate Change, the Holder had been the holder of record of the number of shares of Stock then covered by such Award; or

                   (E)         make such adjustments to Awards then outstanding as the Board deems appropriate to reflect such Corporate Change (provided, however, that the Board may determine in its sole and absolute discretion that no such adjustment is necessary).

            In effecting one or more of alternatives (C), (D) or (E) above, and except as otherwise may be provided in an Award agreement, the Board, in its sole and absolute discretion and without the consent or approval of any Holder, may accelerate the time at which some or all Awards then outstanding may be exercised.

          (c)         In the event of changes in the outstanding Stock by reason of recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes in capitalization occurring after the date of the grant of any Award and not otherwise provided for by this Section 4.5, any outstanding Awards and any agreements evidencing such Awards shall be subject to adjustment by the Board in its sole and absolute discretion as to the number and price of shares of Stock or other consideration subject to such Awards. In the event of any such change in the outstanding Stock, the aggregate number of shares available under this Plan may be appropriately adjusted by the Board, whose determination shall be conclusive.

          (d)         After a merger of one or more corporations into the Company or after a consolidation of the Company and one or more corporations in which the Company shall be the surviving corporation, each Holder shall be entitled to have his Restricted Stock appropriately adjusted based on the manner the Stock was adjusted under the terms of the agreement of merger or consolidation.

          (e)         The issue by the Company of shares of Stock of any class or series, or securities convertible into shares of Stock of any class or series, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe for them, or upon conversion of shares or obligations of the Company convertible into shares or other securities, shall not affect, and no adjustment by reason of such issuance shall be made with respect to, the number, class or series, or price of shares of Stock then subject to outstanding Awards.

          4.6         Election Under Section 83(b) of the Code. No Holder shall exercise the election permitted under section 83(b) of the Code with respect to any Award without the written approval of the Chief Financial Officer of the Company. Any Holder who makes an election under section 83(b) of the Code with respect to any Award without the written approval of the Chief Financial Officer of the Company may, in the discretion of the Committee, forfeit any or all Awards granted to him under the Plan.

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ARTICLE V

OPTIONS

           5.1        Type of Option. The Committee shall specify in an Option Agreement whether a given Option is an Incentive Option or a Nonqualified Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value (determined as of the time an Incentive Option is granted) of the Stock with respect to which incentive stock options first become exercisable by an Employee during any calendar year (under the Plan and any other incentive stock option plan(s) of the Company or any Affiliate) exceeds $100,000, the Incentive Option shall be treated as a Nonqualified Option. In making this determination, incentive stock options shall be taken into account in the order in which they were granted.

          5.2         Exercise Price. The price at which Stock may be purchased under an Option shall not be less than 100 percent of the Fair Market Value of the shares of Stock on the date the Option is granted. In the case of any Ten Percent Stockholder, the price at which shares of Stock may be purchased under an Incentive Option shall not be less than 110 percent of the Fair Market Value of the Stock on the date the Incentive Option is granted. An Option granted under the Plan may not be granted with any Dividend Equivalents rights.

           5.3         Duration of Options. An Option shall not be exercisable after the earlier of (i) the term of the Option specified in the Option Agreement (which shall not exceed five years from the date the Option is granted in the case of an Incentive Option granted to a Ten Percent Stockholder, or ten years from the date the Option is granted in the case of any other Option), or (ii) the period of time specified herein that follows the Holder’s Retirement, Disability, death or other severance of the employment or affiliation relationship between the Holder and the Company and all Affiliates. Except as specified in Section 10.11, unless the Holder’s Option Agreement specifies otherwise, an Option shall not continue to vest after the severance of the employment or affiliation relationship between the Company and all Affiliates.

             (a)         General Term of Option. Unless the Option Agreement specifies a shorter term, an Option shall expire on the tenth anniversary of the date the Option is granted. Notwithstanding the foregoing, unless the Option Agreement specifies a shorter term, in the case of an Incentive Option granted to a Ten Percent Stockholder, the Option shall expire on the fifth anniversary of the date the Option is granted.

             (b)        Early Termination of Option Due to Severance of Employment or Affiliation Relationship (Other Than for Death, Disability or Retirement). Except as may be otherwise expressly provided in an Option Agreement, (i) an Option that has been granted to a person other than a Non-Employee Director and that has been in effect for at least two years shall terminate on the earlier of the date of the expiration of the general term of the Option or 90 days after the date of the termination of the employment relationship between the Holder and the Company and all Affiliates for any reason other than the death, Disability or Retirement of the Holder, and (ii) an Option that has been granted to a person other than a Non-Employee Director and that has been in effect for less than two years shall terminate on the earlier of the date of the expiration of the general term of the Option or 30 days after the date of the termination of the employment

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relationship between the Holder and the Company and all Affiliates for any reason other than the death, Disability or Retirement of the Holder, during which period the Holder shall be entitled to exercise the Option in respect of the number of shares that the Holder would have been entitled to purchase had the Holder exercised the Option on the date of such termination of employment. Whether authorized leave of absence, or absence on military or government service, shall constitute a termination of the employment relationship between the Holder and the Company and all Affiliates shall be determined by the Committee at the time thereof.

          Except as may be otherwise expressly provided in an Option Agreement, an Option that has been granted to a Non-Employee Director shall terminate on the earlier of the date of the expiration of the general term of the Option or 90 days after the Non-Employee Director is no longer a director of the Company for any reason other than the death or Disability of the Holder.

          (c)        Early Termination of Option Due to Death. Unless the Option Agreement specifies otherwise, in the event of the severance of the employment or affiliation relationship between the Holder and the Company and all Affiliates due to death before the date of expiration of the general term of the Option, the Holder’s Option shall terminate on the earlier of the date of expiration of the general term of the Option or 180 days after the Holder’s death.

          (d)        Early Termination of Option Due to Disability. With respect to an Option granted to a person other than a Non-Employee Director, unless the Option Agreement specifies otherwise, in the event of the severance of the employment relationship between the Holder and the Company and all Affiliates due to Disability before the date of the expiration of the general term of the Option, the Option shall terminate on the earlier of the expiration of the general term of the Option or 90 days after the termination of the employment relationship between the Holder and the Company and all Affiliates terminates due to Disability.

          In the event his affiliation relationship is terminated as a result of Disability, a Holder who is a Non-Employee Director may exercise an Option for a period of 180 days after the Non-Employee Director is no longer a director of the Company or until the expiration of the Option period, if sooner, to the extent of the Stock with respect to which the Option could have been exercised by the Holder on the date the Non-Employee Director ceases being a director of the Company.

          (e)        Early Termination of Option Due to Retirement. Unless the Option Agreement specifies otherwise, if the Holder is an Employee and the employment relationship between the Holder and the Company and all Affiliates terminates by reason of Retirement, the Holder’s Option shall terminate on the earlier of the expiration of the general term of the Option or one day less than three months after the date of the Holder’s termination of employment due to Retirement.

          After the death of the Holder, the Holder’s executors, administrators or any person or persons to whom the Holder’s Option may be transferred by will or by the laws of descent and distribution, shall have the right, at any time prior to the termination of the Option to exercise the

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Option, in respect to the number of shares that the Holder would have been entitled to exercise if the Holder exercised the Option prior to his death.

          5.4        Amount Exercisable. Each Option may be exercised at the time, in the manner and subject to the conditions the Committee specifies in the Option Agreement in its sole discretion. If specified in the Option Agreement, an Option will be exercisable in full upon the occurrence of a Change of Control.

          5.5        Exercise of Options. Each Option shall be exercised by the delivery of written notice to the Company setting forth the number of shares of Stock with respect to which the Option is to be exercised, together with: (a) cash, a certified check, a bank draft or a postal or express money order payable to the order of the Company for an amount equal to the exercise price under the Option, (b) Mature Shares with a Fair Market Value on the date of exercise equal to the exercise price under the option, (c) an election to make a cashless exercise through a registered broker-dealer or (d) except as specified below, any other form of payment which is acceptable to the Committee, and specifying the address to which the certificates for the shares of Stock are to be mailed or the information necessary for the Company to effect an electronic transfer of the shares of Stock. If Mature Shares are used for payment by the Holder, the aggregate Fair Market Value of the shares of Stock tendered must be equal to or less than the aggregate exercise price of the shares of Stock being purchased upon exercise of the Option, and any difference must be paid pursuant to (a) above. As promptly as practicable after receipt of written notification and payment, the Company shall deliver the number of shares of Stock with respect to which the Option has been exercised, issued as designated by the Holder. Delivery of the shares of Stock shall be deemed effected for all purposes when the transfer agent of the Company shall have deposited the certificates in the United States mail, to the address specified by the Holder, or when the shares have been transferred electronically as designated by the Holder. In lieu of tendering the Mature Shares to the Company for the exercise price pursuant to (b) above, the Company may, in its sole discretion, accept documentation provided by the Holder that the Holder owns the Mature Shares necessary for exercise and would be able to deliver them to the Company if requested by the Company, in which case the Company will deliver only the Net Shares. The Company shall have sole discretion in determining that the shares are Mature Shares and that they are unencumbered, transferable, and acceptable by the Company for this purpose.

             The delivery of certificates upon the exercise of Options is subject to the condition that the person exercising the Option provide the Company with the information the Company might reasonably request pertaining to exercise, sale or other disposition.

             Electronic transfer of shares of Stock may be effected by the Company it is sole discretion, in lieu of issuance of physical share certificate(s).

             The Company may permit a Holder to elect to pay the exercise price upon the exercise of an Option by authorizing a third-party broker to sell all or a portion of the shares of Stock acquired upon exercise of the Option and remit to the Company a sufficient portion of the sale proceeds to pay the exercise price and any applicable tax withholding resulting from such exercise.

             An Option may not be exercised for a fraction of a Common Share.

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          5.6        Substitution Options. Options may be granted under the Plan from time to time in substitution for stock options held by employees of other corporations who are about to become employees of or affiliated with the Company or any Affiliate as the result of a merger or consolidation of the employing corporation with the Company or any Affiliate, or the acquisition by the Company or any Affiliate of the assets of the employing corporation, or the acquisition by the Company or any Affiliate of stock of the employing corporation as the result of which it becomes an Affiliate of the Company. The terms and conditions of the substitute Options granted may vary from the terms and conditions set out in the Plan to the extent the Committee, at the time of grant, may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted.

          5.7        No Rights as Stockholder. No Holder shall have any rights as a Stockholder with respect to Stock covered by his Option until the shares of Stock are delivered to him.

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ARTICLE VI

RESTRICTED STOCK AWARDS

          6.1        Restricted Stock Awards. The Committee may make Awards of Restricted Stock to eligible persons selected by it. The amount of, the vesting and the transferability restrictions applicable to, any Restricted Stock Award shall be determined by the Committee in its sole discretion; provided, however, that the minimum vesting period for any Awards of Restricted Stock should normally be ratably over a period of three years and, in no event, less than one year. If the Committee imposes vesting or transferability restrictions on a Holder’s rights with respect to shares of Restricted Stock, the Committee may issue such instructions to the Company’s transfer agent in connection therewith as it deems appropriate. The Committee may also cause the certificate for shares issued pursuant to a Restricted Stock Award to be imprinted with any legend which counsel for the Company considers advisable with respect to the restrictions or, should the shares of Stock be represented by book or electronic entry rather than a certificate, the Company may take such steps to restrict transfer of the shares of Stock as counsel for the Company considers necessary or advisable to comply with applicable law. Each Restricted Stock Award shall be evidenced by a Restricted Stock Award Agreement that contains any vesting, transferability restrictions and other provisions that are not inconsistent with the Plan as the Committee may specify.

          6.2        Holder’s Rights as Stockholder. Subject to the terms and conditions of the Plan, each Holder of Restricted Stock shall have all the rights of a shareholder with respect to the shares of Stock included in the Restricted Stock Award during any period in which such shares are subject to forfeiture and restrictions on transfer, including without limitation, the right to vote such shares, if unrestricted shares of the same class have the right to vote. Dividends paid with respect to shares of Restricted Stock in cash or property other than Stock in the Company or rights to acquire shares of Stock in the Company shall be paid to the Holder currently. Dividends paid in Stock in the Company or rights to acquire Stock in the Company shall be added to and become a part of the Restricted Stock.

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ARTICLE VII

RESTRICTED STOCK UNIT AWARDS

          7.1        Authority to Grant Restricted Stock Unit Awards. Subject to the terms and provisions of the Plan, the Committee may make Awards of Restricted Stock Units to eligible persons selected by it. The amount of and the vesting, transferability and forfeiture restrictions applicable to any Restricted Stock Unit Award shall be determined by the Committee in its sole discretion; provided, however, that the minimum vesting period for any Restricted Stock Unit Award should be not less than one year. The Committee shall maintain a bookkeeping ledger account which reflects the number of Restricted Stock Units credited under the Plan for the benefit of a Holder.

          7.2        Restricted Stock Unit Award. A Restricted Stock Unit Award shall be similar in nature to a Restricted Stock Award except that no shares of Stock are actually transferred to the Holder until a later date specified in the applicable Award agreement. Each Restricted Stock Unit shall have a value equal to the Fair Market Value of a share of Stock.

          7.3        Restricted Stock Unit Award Agreement. Each Restricted Stock Unit Award shall be evidenced by an Award agreement that contains any Substantial Risk of Forfeiture, vesting, transferability and forfeiture restrictions, form and time of payment provisions and other provisions not inconsistent with the Plan as the Committee may specify.

          7.4        Dividend Equivalents. An Award agreement for a Restricted Stock Unit Award may specify that the Holder shall be entitled to the payment of Dividend Equivalents under the Award.

          7.5        Form of Payment Under Restricted Stock Unit Award. Payment under a Restricted Stock Unit Award shall be made in shares of Stock.

          7.6        Time of Payment Under Restricted Stock Unit Award. A Holder’s payment under a Restricted Stock Unit Award shall be made at such time as is specified in the applicable Award agreement. The Award agreement shall specify that the payment will be made (a) by a date that is no later than the date that is two and one-half (2 1/2) months after the end of the calendar year in which the Restricted Stock Unit Award payment is no longer subject to a Substantial Risk of Forfeiture or (b) at a time that is Permissible under Section 409A.

          7.7        No Rights as Stockholder. A recipient of a Restricted Stock Unit Award shall have no rights of a stockholder with respect to the Holder’s Restricted Stock Units until the shares of Stock are delivered to him. A Holder shall have no voting rights with respect to any Restricted Stock Unit Awards.

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ARTICLE VIII

ADMINISTRATION

          The Plan shall be administered by the Committee. All questions of interpretation and application of the Plan and Awards shall be subject to the determination of the Committee. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be as effective as if it had been made by a majority vote at a meeting properly called and held. The Plan shall be administered in such a manner as to permit the Options which are designated to be Incentive Options to qualify as Incentive Options. In carrying out its authority under the Plan, the Committee shall have full and final authority and discretion, including but not limited to the following rights, powers and authorities, to:

          (a)        determine the persons to whom and the time or times at which Awards will be made;

          (b)        determine the number of shares and the exercise price of Stock covered in each Award, subject to the terms of the Plan;

          (c)        determine the terms, provisions and conditions of each Award, which need not be identical;

          (d)        accelerate the time at which any outstanding Option may be exercised, or Restricted Stock Award or Restricted Stock Unit Award will vest; provided, however, that the Committee determines that such acceleration of vesting is in the best interests of the Company and its shareholders and, in the case of a Restricted Stock Unit Award, is Permissible under Section 409A;

          (e)        define the effect, if any, on an Award of the death, disability, retirement or termination of employment or affiliation relationship between the Holder and the Company and Affiliates;

          (f)        prescribe, amend and rescind rules and regulations relating to administration of the Plan; and

          (g)        make all other determinations and take all other actions deemed necessary, appropriate or advisable for the proper administration of the Plan.

          The actions of the Committee in exercising all of the rights, powers, and authorities set out in this Article and all other Articles of the Plan, when performed in good faith and in its sole judgment, shall be final, conclusive and binding on all parties.

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ARTICLE IX

AMENDMENT OR TERMINATION OF PLAN

          The Board may amend, terminate or suspend the Plan at any time, in its sole and absolute discretion; provided, however, that to the extent required to maintain the status of any Option under the Code, no amendment that would change the aggregate number of shares of Stock which may be issued under Options, or change the class of Employees eligible to receive Options shall be made without the approval of the Company’s stockholders. Subject to the preceding sentence, the Board shall have the power to make any changes in the Plan and in the regulations and administrative provisions under it or in any outstanding Incentive Option as in the opinion of counsel for the Company may be necessary or appropriate from time to time to enable any Incentive Option granted under the Plan to continue to qualify as an incentive stock option or such other stock option as may be defined under the Code so as to receive preferential federal income tax treatment.

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ARTICLE X

MISCELLANEOUS

          10.1        No Establishment of a Trust Fund. No property shall be set aside nor shall a trust fund of any kind be established to secure the rights of any Holder under the Plan. All Holders shall at all times rely solely upon the general credit of the Company for the payment of any benefit which becomes payable under the Plan.

          10.2        No Employment or Affiliation Obligation. The granting of any Option or Award shall not constitute an employment contract, express or implied, nor impose upon the Company or any Affiliate any obligation to employ or continue to employ, or utilize the services of, any Holder. The right of the Company or any Affiliate to terminate the employment of any person shall not be diminished or affected by reason of the fact that an Option or Award has been granted to him.

          10.3        Forfeiture. Notwithstanding any other provisions of the Plan, if the Committee finds by a majority vote after full consideration of the facts that the Holder, before or after termination of his employment or affiliation relationship with the Company or an Affiliate for any reason committed or engaged in willful misconduct, gross negligence, a breach of fiduciary duty, fraud, embezzlement, theft, a felony, a crime involving moral turpitude or proven dishonesty in the course of his employment by the Company or an Affiliate, which conduct damaged the Company or Affiliate, the Holder shall forfeit all outstanding Options and all outstanding Awards, and all exercised Options if the Company has not yet delivered Stock to the Holder with respect thereto.

             The decision of the Committee as to the cause of the Holder’s discharge, the damage done to the Company or an Affiliate shall be final. No decision of the Committee, however, shall affect the finality of the discharge of the Holder by the Company or an Affiliate in any manner.

          10.4        Tax Withholding. The Company or any Affiliate or subsidiary shall be entitled to deduct from other compensation payable to each Holder any sums required by federal, state, local or foreign tax law to be withheld with respect to the grant, vesting or exercise of an Award or lapse of restrictions on an Award or payment under an Award. In the alternative, the Company may require the Holder (or other person validly exercising or holding the Award) to pay such sums for taxes directly to the Company or any Affiliate or subsidiary in cash or by check within ten days after the date of grant, vesting, exercise or lapse of restrictions or payment. In the discretion of the Company, and with the consent of the Holder, the Company may reduce the number of shares of Stock issued to the Holder upon his exercise of an Option to satisfy the tax withholding obligations of the Company or an Affiliate; provided that the Fair Market Value of the shares held back shall not exceed the Company’s or the Affiliate’s minimum statutory withholding tax obligations. The Company may, in its discretion, permit a Holder to satisfy any Minimum Statutory Tax Withholding Obligation arising upon the vesting of or payment under an Award by delivering to the Holder a reduced number of shares of Stock in the manner specified herein. If permitted by the Company and acceptable to the Holder, at the time of vesting of shares or payment under the Award, the Company shall (a) calculate the amount of the Company’s or an Affiliate’s or a subsidiary’s Minimum Statutory Tax Withholding Obligation on the assumption that all such shares of Stock vested or to be paid under the Award are made available for delivery, (b) reduce

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the number of such shares of Stock made available for delivery so that the Fair Market Value of the shares of Stock withheld on the vesting or payment date approximates the Company’s or an Affiliate’s or a subsidiary’s Minimum Statutory Tax Withholding Obligation and (c) in lieu of the withheld shares of Stock, remit cash to the United States Treasury or other applicable governmental authorities, on behalf of the Holder, in the amount of the Minimum Statutory Tax Withholding Obligation. The Company shall withhold only whole shares of Stock to satisfy its Minimum Statutory Tax Withholding Obligation. Where the Fair Market Value of the withheld shares of Stock does not equal the amount of the Minimum Statutory Tax Withholding Obligation, the Company shall withhold shares of Stock with a Fair Market Value less than the amount of the Minimum Statutory Tax Withholding Obligation and the Holder must satisfy the remaining minimum withholding obligation in some other manner permitted under this Section 10.4. The withheld shares of Stock not made available for delivery by the Company shall be retained as treasury shares or will be cancelled and the Holder’s right, title and interest in such shares of Stock shall terminate. The Company shall have no obligation upon payment, vesting or exercise of any Award or lapse of restrictions on an Award until the Company or an Affiliate or subsidiary has received payment sufficient to cover all tax withholding amounts due with respect to that payment, vesting, exercise or lapse of restrictions. Neither the Company nor any Affiliate or subsidiary shall be obligated to advise a Holder of the existence of the tax or the amount which it will be required to withhold.

          10.5        Written Agreement. Each Award shall be embodied in a written agreement which shall be subject to the terms and conditions of the Plan and shall be signed by the Holder and by a member of the Committee on behalf of the Committee and the Company or an executive officer of the Company, other than the Holder, on behalf of the Company. The agreement may contain any other provisions that the Committee in its discretion shall deem advisable which are not inconsistent with the terms of the Plan.

          10.6        Indemnification of the Committee. The Company shall indemnify each present and future member of the Committee against, and each member of the Committee shall be entitled without further act on his part to indemnity from the Company for, all expenses (including attorney’s fees, the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his being or having been a member of the Committee, whether or not he continues to be a member of the Committee at the time of incurring the expenses, including, without limitation, matters as to which he shall be finally adjudged in any action, suit or proceeding to have been found to have been negligent in the performance of his duty as a member of the Committee. However, this indemnity shall not include any expenses incurred by any member of the Committee in respect of matters as to which he shall be finally adjudged in any action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of his duty as a member of the Committee. In addition, no right of indemnification under the Plan shall be available to or enforceable by any member of the Committee unless, within 60 days after institution of any action, suit or proceeding, he shall have offered the Company, in writing, the opportunity to handle and defend same at its own expense. This right of indemnification shall inure to the benefit of the heirs, executors or administrators of each member of the Committee and shall be in addition to all other rights to which a member of the Committee may be entitled as a matter of law, contract or otherwise.

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          10.7        Gender. If the context requires, words of one gender when used in the Plan shall include the other and words used in the singular or plural shall include the other.

          10.8        Headings. Headings of Articles and Sections are included for convenience of reference only and do not constitute part of the Plan and shall not be used in construing the terms of the Plan.

          10.9        Other Compensation Plans. The adoption of the Plan shall not affect any other stock option, incentive or other compensation or benefit plans in effect for the Company or any Affiliate, nor shall the Plan preclude the Company from establishing any other forms of incentive compensation arrangements for Employees.

          10.10     Other Options or Awards. The grant of an Award shall not confer upon the Holder the right to receive any future or other Awards under the Plan, whether or not Awards may be granted to similarly situated Holders, or the right to receive future Awards upon the same terms or conditions as previously granted.

          10.11     Option Adjustments Pursuant to the Employee Benefits Agreement. Notwithstanding any other provision of the Plan or an Option Agreement, the exercise price applicable to each outstanding Option, to the extent that the Option has not expired or been exercised as of the Distribution Date, shall be reduced in accordance with the formula specified in paragraph (b) of Section 3.1 of the Employee Benefits Agreement. Notwithstanding any other provisions of the Plan or Option Agreement, the term of each outstanding Option, to the extent that the Option has not expired or been exercised as of the Distribution Date, shall be adjusted in the manner specified in paragraph (e) of Section 3.1 of the Employee Benefits Agreement.

          10.12     Governing Law. The provisions of the Plan shall be construed, administered and governed under the laws of the State of Texas.

          10.13     Compliance With Section 409A. Awards shall be designed, granted and administered in such a manner that they are either exempt from the application of, or comply with, the requirements of Section 409A. The Plan and each Award Agreement under the Plan that is intended to comply the requirements of Section 409A shall be construed and interpreted in accordance with such intent. If the Committee determines that an Award, Award agreement, payment, distribution, deferral election, transaction, or any other action or arrangement contemplated by the provisions of the Plan would, if undertaken or implemented, cause a Holder to become subject to additional taxes under Section 409A, then unless the Committee specifically provides otherwise, such Award, Award agreement, payment, distribution, deferral election, transaction or other action or arrangement shall not be given effect to the extent it causes such result and the related provisions of the Plan and/or Award agreement will be deemed modified, or, if necessary, suspended in order to comply with the requirements of Section 409A to the extent determined appropriate by the Committee, in each case without the consent of or notice to the Holder. The exercisability of an Option shall not be extended to the extent that such extension would subject the Holder to additional taxes under Section 409A. Notwithstanding any other provision of the Plan, if Holder is a “specified employee” (within the meaning of Section 409A), and the Company determines that a payment or vesting under an Award is not Permissible under Section 409A, then no payment shall be made or vesting shall occur under the Award due to a

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“separation from service” (within the meaning of Section 409A of the Code) for any reason before the date that is six (6) months after the date on which the Holder incurs such separation from service.

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EX-10.2

Exhibit 10.2

PERFORMANCE BASED LONG TERM EXECUTIVE INCENTIVE RESTRICTED STOCK GRANTS

“On June 14, 2011, the Board of Directors approved the award of Restricted Stock Units (“Awards”) tied to the long-term performance of the Company. These Awards are designed to further tie executive compensation to long term profitability growth. These performance based Restricted Stock Units are granted to senior management, including Named Executive Officers and other eligible Key Employees, under the Company’s 1994 Stock Incentive Plan as amended. The 2011 Long Term Incentive Awards are intended to place additional emphasis on creating long-term shareholder value and strengthen the link between executive compensation and the achievement of long-term financial objectives.

The Awards are divided into two long-term incentive components, LTI “A” and LTI “B”, and eligible participants may potentially participate in one, or both components at the discretion of the Board of Directors and the Compensation Committee. A list of participants will be approved by the Board of Directors each year, and all past participants must re-qualify each year.

The LTI “A” Award provides selected participants who achieve at least 100% of their financial and personal performance objectives the opportunity to forego up to 25% of their achieved target performance based annual cash incentive award in exchange for deferred compensation units equal in value to 50% of their achieved target performance based annual cash incentive award. If the eligible participant accepts the opportunity, they will be paid 75% of their achieved target performance based cash incentive award, and the Company will convert the deferred compensation units into a Restricted Stock Unit Award of the same value. The Restricted Stock Unit Award will vest at the rate of 25% per year on the first through fourth anniversaries of the grant date.

The LTI “B” Award allows the Board of Directors, in their sole discretion, to award grants of performance based Restricted Stock (or Deferred Compensation or Restricted Stock Units) to Key Employees on an annual or other periodic basis when the Company has achieved at least 100% of the Board approved financial plan in the prior year. Management will present their recommendations for grant awards to eligible participants at the annual Compensation Committee Meeting in March. Eligible participants must participate in the LTI “A” program to be considered for participation in the LTI “B” program. Awards granted become eligible for vesting at the rate of 12.5% each year, with eligibility for vesting contingent upon achieving annual Earnings per Share (EPS) targets set by the Board of Directors at the time the Restricted Stock Units are granted. Up to 50% of the total award will vest on the fourth anniversary of the grant date, and an additional 12.5% will vest on each subsequent anniversary date (years 5 through 8 from the grant date) if annual EPS targets are achieved. For any year an annual EPS target is not met, vesting eligibility for the 12.5% of shares/units applicable to that year will not occur, however, a one year “catch-up” provision will apply. If the subsequent year’s EPS target is achieved, both the previous year’s 12.5% and the current year’s 12.5% will become eligible for vesting. All unvested Restricted Stock Units are forfeited if the executive leaves the company under any unapproved conditions.

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles R. Cox, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Furmanite Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2011

/s/ CHARLES R. COX  

Charles R. Cox 

Chief Executive Officer 

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert S. Muff, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Furmanite Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2011

/s/ ROBERT S. MUFF  

Robert S. Muff 

Chief Accounting Officer
(Principal Financial and Accounting Officer) 

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906(A) OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, being the Chief Executive Officer of Furmanite Corporation (the “Company”) hereby certifies that, to his knowledge, the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, filed with the United States Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ CHARLES R. COX  

Charles R. Cox 

Chief Executive Officer 

This written statement is being furnished to the Securities and Exchange Commission as an exhibit to such Form 10-Q. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Date: August 9, 2011

EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906(A) OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, being the Principal Financial Officer of Furmanite Corporation (the “Company”) hereby certifies that, to his knowledge, the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011, filed with the United States Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ ROBERT S. MUFF  

Robert S. Muff 

Chief Accounting Officer
(Principal Financial and Accounting Officer) 

This written statement is being furnished to the Securities and Exchange Commission as an exhibit to such Form 10-Q. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Date: August 9, 2011

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data	Jun. 30, 2011	Dec. 31, 2010
Current assets:
Allowances for doubtful accounts	$ 1,500	$ 1,497
Stockholders' equity:
Common stock, par value	$ 0	$ 0
Common stock, shares authorized	60,000,000	60,000,000
Common stock, shares issued	41,070,216	40,925,619
Treasury stock, shares	4,008,963	4,008,963
Series B Preferred Stock
Stockholders' equity:
Preferred stock, unlimited shares authorized	unlimited shares	unlimited shares
Preferred stock, shares outstanding	0	0

XML



Consolidated Income Statements (Unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Consolidated Income Statements [Abstract]
Revenues	$ 83,009	$ 77,513	$ 156,063	$ 143,948
Costs and expenses:
Operating costs (exclusive of depreciation and amortization)	56,425	51,922	106,868	97,584
Depreciation and amortization expense	2,198	1,572	4,073	3,121
Selling, general and administrative expense	17,779	18,493	34,690	37,256
Total costs and expenses	76,402	71,987	145,631	137,961
Operating income	6,607	5,526	10,432	5,987
Interest income and other income (expense), net	120	(246)	242	96
Interest expense	(255)	(241)	(495)	(482)
Income before income taxes	6,472	5,039	10,179	5,601
Income tax expense	(1,326)	(1,479)	(1,007)	(1,650)
Net income	$ 5,146	$ 3,560	$ 9,172	$ 3,951
Earnings per common share:
Basic	$ 0.14	$ 0.10	$ 0.25	$ 0.11
Diluted	$ 0.14	$ 0.10	$ 0.25	$ 0.11
Weighted-average number of common and common equivalent shares used in computing net income per common share:
Basic	36,971	36,734	36,948	36,711
Diluted	37,328	36,932	37,296	36,871

XML



Document and Entity Information (USD $)	6 Months Ended
	Jun. 30, 2011	Aug. 02, 2011	Jun. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	FURMANITE CORP
Entity Central Index Key	0000054441
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 141,782,865
Entity Common Stock, Shares Outstanding		37,092,575

XML



Accrued Expenses and Other Current Liabilities

6 Months Ended

Jun. 30, 2011

Accrued Expenses and Other Current Liabilities [Abstract]

Accrued Expenses and Other Current Liabilities

4. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

	June 30,		December 31,
	2011		2010
Compensation and benefits1	$	13,672	$	15,130
Value added tax payable		1,957		1,387
Estimated potential uninsured liability claims		1,521		1,886
Taxes other than income		1,242		1,052
Professional, audit and legal fees		854		1,088
Rent		332		327
Customer deposit		287		615
Other employee related expenses		247		550
Interest		64		20
Other2		1,670		2,433
	$	21,846	$	24,488

¹ Includes restructuring accruals of $0.3 million and $1.1 million as of June 30, 2011 and December 31, 2010, respectively.

² Includes restructuring accruals of $0.5 million at each of June 30, 2011 and December 31, 2010, respectively.

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Accumulated Other Comprehensive Loss

6 Months Ended

Jun. 30, 2011

Accumulated Other Comprehensive Loss [Abstract]

Accumulated Other Comprehensive Loss

9. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss in the equity section of the consolidated balance sheets includes the following (in thousands):

	June 30,			December 31,
	2011			2010
Net actuarial loss and prior service credit	$	(13,119	)	$	(12,965	)
Less: deferred tax benefit		3,580			3,538
Net of tax		(9,539	)		(9,427	)
Foreign currency translation adjustment		3,722			1,024
Total accumulated other comprehensive loss	$	(5,817	)	$	(8,403	)

XML



Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 5,146	$ 3,560	$ 9,172	$ 3,951
Other comprehensive income (loss):
Change in pension net actuarial loss and prior service credit, net of tax	113	205	(112)	1,137
Foreign currency translation adjustments	774	(1,356)	2,698	(3,556)
Total other comprehensive income (loss)	887	(1,151)	2,586	(2,419)
Comprehensive income	$ 6,033	$ 2,409	$ 11,758	$ 1,532

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Long-Term Debt

6 Months Ended

Jun. 30, 2011

Long-Term Debt [Abstract]

Long-Term Debt

6. Long-Term Debt

Long-term debt consists of the following (in thousands):

	June 30,			December 31,
	2011			2010
Borrowings under the revolving credit facility (the “Credit Agreement”)	$	30,000		$	30,000
Capital leases		96			161
Notes payable (the “Notes”)		5,486			–
Total long-term debt		35,582			30,161
Less: current portion of long-term debt		(2,727	)		(76	)
Total long-term debt, non-current	$	32,855		$	30,085

On August 4, 2009, FWI and certain foreign subsidiaries of FWI (the “designated borrowers”) entered into a credit agreement dated July 31, 2009 with a banking syndicate comprising Bank of America, N.A. and Compass Bank (the “Credit Agreement”). The Credit Agreement, which matures on January 31, 2013, provides a revolving credit facility of up to $50.0 million. A portion of the amount available under the Credit Agreement (not in excess of $20.0 million) is available for the issuance of letters of credit. In addition, a portion of the amount available under the Credit Agreement (not in excess of $5.0 million in the aggregate) is available for swing line loans to FWI. The loans outstanding under the Credit Agreement may not exceed $35.0 million in the aggregate to the designated borrowers.

At each of June 30, 2011 and December 31, 2010, $30.0 million was outstanding under the Credit Agreement. Borrowings under the Credit Agreement bear interest at variable rates (based on the prime rate, federal funds rate or Eurocurrency rate, at the option of the borrower, including a margin above such rates, and subject to an adjustment based on a calculated funded debt to EBITDA ratio (as defined in the Credit Agreement)) which was 2.2% at June 30, 2011 and 2.3% at December 31, 2010. The Credit Agreement contains a commitment fee, which ranges between 0.25% to 0.30% based on the funded debt to EBITDA ratio, and was 0.25% at each of June 30, 2011 and December 31, 2010, based on the unused portion of the amount available under the Credit Agreement. All obligations under the Credit Agreement are guaranteed by FWI and certain of its subsidiaries under a guaranty and collateral agreement, and are secured by a first priority lien on certain of FWI and its subsidiaries’ assets (which approximates $148.2 million of current assets and property and equipment as of June 30, 2011) and is without recourse to the Parent Company. FWI is subject to certain compliance provisions including, but not limited to, maintaining certain funded debt and fixed charge coverage ratios, tangible asset concentration levels, and capital expenditure limitations as well as restrictions on indebtedness, guarantees, dividends and other contingent obligations and transactions. Events of default under the Credit Agreement include customary events, such as change of control, breach of covenants or breach of representations and warranties. At June 30, 2011, FWI was in compliance with all covenants under the Credit Agreement.

Considering the outstanding borrowings of $30.0 million, and $1.1 million related to outstanding letters of credit, the unused borrowing capacity under the Credit Agreement was $18.9 million at June 30, 2011, with a limit of $5.0 million of this capacity remaining for the designated borrowers.

In connection with the acquisition of SLM, on February 23, 2011, FWI entered into a consent and waiver agreement as it relates to the Credit Agreement. Pursuant to the consent and waiver agreement, Bank of America, N.A. and Compass Bank consented to the SLM acquisition and waived any default or event of default for certain debt covenants that would arise as a result of the SLM acquisition. FWI funded the cost of the acquisition with $5.0 million in cash and by issuing the Notes to the sellers’ equity holders for $5.3 million ($2.9 million denominated in U.S. dollar and $2.4 million denominated in Australian dollar) payable in two annual installments, which mature on February 23, 2013. All obligations under the Notes are secured by a first priority lien on the assets acquired in the acquisition. At June 30, 2011, $5.5 million was outstanding under the Notes. The Notes bear interest at a fixed rate of 2.5% per annum.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

11. Commitments and Contingencies

The operations of the Company are subject to federal, state and local laws and regulations in the United States and various foreign locations relating to protection of the environment. Although the Company believes its operations are in compliance with applicable environmental regulations, there can be no assurance that costs and liabilities will not be incurred by the Company. Moreover, it is possible that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from operations of the Company, could result in costs and liabilities to the Company. The Company has recorded, in other liabilities, an undiscounted reserve for environmental liabilities related to the remediation of site contamination for properties in the United States in the amount of $1.1 million and $1.2 million at June 30, 2011 and December 31, 2010, respectively.

Furmanite America, Inc., a subsidiary of the Company, is involved in disputes with two customers, who are each negotiating with a governmental regulatory agency and claim that the subsidiary failed to provide them with satisfactory services at the customers’ facilities. On April 17, 2009, a customer, INEOS USA LLC, initiated legal action against the subsidiary in the Common Pleas Court of Allen County, Ohio, alleging that the subsidiary and one of its former employees, who performed data services at one of the customer’s facilities, breached its contract with the customer and failed to provide the customer with adequate and timely information to support the subsidiary’s work at the customer’s facility from 1998 through the second quarter of 2005. The customer’s complaint seeks damages in an amount that the subsidiary believes represents the total proposed civil penalty, plus the cost of unspecified supplemental environmental projects requested by the regulatory agency to reduce air emissions at the customer’s facility, and also seeks unspecified punitive damages. The subsidiary believes that it provided the customer with adequate and timely information to support the subsidiary’s work at the customer’s facilities and will vigorously defend against the customer’s claim.

In the first quarter of 2008, a subsidiary of the Company filed an action seeking to vacate a $1.35 million arbitration award related to a sales brokerage agreement associated with a business that the subsidiary sold in 2005. The subsidiary believed that the sales broker was an affiliate of another company that in 2006 settled all of its claims, as well as all of the claims of its affiliates, against the subsidiary. The action to vacate the arbitration award terminated and, in January 2010, the subsidiary paid the full amount of the arbitration award plus accrued interest to the sales broker which was accrued as of December 31, 2009. In separate actions, the subsidiary was seeking to enforce the prior settlement agreement executed by the sales broker’s affiliate and obtain an equitable offset of the arbitration award, however, upon mutual agreement by all parties, these separate actions were dismissed by the court in July 2010.

The Company has contingent liabilities resulting from litigation, claims and commitments incident to the ordinary course of business. Management believes, after consulting with counsel, that the ultimate resolution of such contingencies will not have a material adverse effect on the financial position, results of operations or liquidity of the Company.

While the Company cannot make an assessment of the eventual outcome of all of these matters or determine the extent, if any, of any potential uninsured liability or damage, reserves of $1.5 million and $1.9 million were recorded in accrued expenses and other current liabilities as of June 30, 2011 and December 31, 2010, respectively.

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Retirement Plan

6 Months Ended

Jun. 30, 2011

Retirement Plan [Abstract]

Retirement Plan

7. Retirement Plan

Two of the Company’s foreign subsidiaries have defined benefit pension plans, one plan covering certain of its United Kingdom employees (the “U.K. Plan”) and the other covering certain of its Norwegian employees (the “Norwegian Plan”). Since the Norwegian Plan represents approximately two percent of the Company’s total pension plan assets and three percent of total pension plan liabilities, only the schedule of net periodic pension cost includes combined amounts from the two plans, while assumption and narrative information relates solely to the U.K. Plan.

Net periodic pension cost for the U.K. and Norwegian Plans includes the following components (in thousands):

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2011			2010			2011			2010
Service cost	$	231		$	198		$	461		$	404
Interest cost		965			879			1,936			1,779
Expected return on plan assets		(939	)		(862	)		(1,884	)		(1,745	)
Amortization of prior service cost		(25	)		(23	)		(50	)		(46	)
Amortization of net actuarial loss		164			260			329			526
Net periodic pension cost	$	396		$	452		$	792		$	918

The expected long-term rate of return on invested assets is determined based on the weighted average of expected returns on asset investment categories as follows: 6.3% overall, 7.8% for equities and 4.7% for bonds. Estimated annual pension plan contributions are assumed to be consistent with the current expected contribution level of $0.8 million for 2011.

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Restructuring

6 Months Ended

Jun. 30, 2011

Restructuring [Abstract]

Restructuring

5. Restructuring

During the fourth quarter of 2009 and in the first half of 2010, the Company committed to cost reduction initiatives, including planned workforce reductions and restructuring of certain functions. The Company has taken these specific actions in order to more strategically align the Company’s operating, selling, general and administrative costs relative to revenues.

2009 Cost Reduction Initiative

The Company completed this cost reduction initiative during 2010 and incurred total costs of approximately $3.4 million. For the three months ended June 30, 2010, restructuring costs of $0.3 million were incurred and are included in selling, general and administrative expenses. For the six months ended June 30, 2010, restructuring costs of $0.7 million and $1.4 million were incurred and are included in operating costs and selling, general and administrative expenses, respectively. There was minimal activity during the first half of 2011 related to this initiative.

2010 Cost Reduction Initiative

During the second quarter of 2010, the Company committed to an additional cost reduction initiative, primarily related to the restructuring of certain functions within the Company’s EMEA operations (which includes operations in Europe, the Middle East and Africa). The Company took specific actions in order to improve the operational and administrative efficiency of its EMEA operations, while providing a structure which will allow for future expansion of operations within the region. At each of the three and six months ended June 30, 2011, restructuring costs of $0.1 million are included in operating costs, respectively. No restructuring costs were included in operating costs for this initiative for the three or six months ended June 30, 2010. At each of the three and six months ended June 30, 2011, restructuring costs incurred of $0.1 million are included in selling, general and administrative expenses, respectively. For each of the three and six months ended June 30, 2010, restructuring costs incurred of $0.6 million are included in selling, general and administrative expenses.

The total restructuring costs estimated to be incurred in connection with this cost reduction initiative are $4.0 million. As of June 30, 2011, the costs incurred since the inception of this cost reduction initiative totaled approximately $3.6 million, with the remaining $0.4 million expected to relate primarily to severance and benefits and lease termination costs.

In connection with these initiatives, the Company recorded estimated expenses for severance, lease cancellations, and other restructuring costs in accordance with FASB ASC 420-10, “Exit or Disposal Cost Obligations” and FASB ASC 712-10, “Nonretirement Postemployment Benefits.”

The activity related to reserves associated with the cost reduction initiatives for the six months ended June 30, 2011, is as follows (in thousands):

	Reserve at								Foreign currency		Reserve at
	December 31, 2010		Charges			Cash payments			adjustments		June 30, 2011
2009 Initiative
Severance and benefit costs	$	107	$	–		$	(110	)	$	3	$	–
Lease termination costs		125		–			–			5		130
Other restructuring costs		9		(9	)		–			–		–
2010 Initiative
Severance and benefit costs		969		211			(917	)		54		317
Lease termination costs		277		19			(30	)		25		291
Other restructuring costs		90		24			(28	)		7		93
	$	1,577	$	245		$	(1,085	)	$	94	$	831

Restructuring costs associated with the cost reduction initiatives consist of the following (in thousands):

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2011		2010		2011		2010
Severance and benefit costs	$	127	$	692	$	211	$	1,878
Lease termination costs		21		89		19		405
Other restructuring costs		9		89		15		441
	$	157	$	870	$	245	$	2,724

Restructuring costs were incurred in the following geographical areas (in thousands):

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2011		2010		2011		2010
Americas	$	–	$	180	$	–	$	367
EMEA		157		690		245		2,357
	$	157	$	870	$	245	$	2,724

Total workforce reductions in which severance costs were incurred related to the cost reduction initiatives included terminations for 165 employees, which include reductions of 31 employees in the Americas (which includes operations in North America, South America and Latin America), 133 employees in EMEA, and one employee in Asia-Pacific.

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Operating activities:
Net income	$ 9,172	$ 3,951
Reconciliation of net income to net cash (used in) provided by operating activities:
Depreciation and amortization	4,073	3,121
Provision for doubtful accounts	216	327
Deferred income taxes	(1,259)	(86)
Stock-based compensation expense	322	494
Other, net	320	441
Changes in operating assets and liabilities:
Accounts receivable	(10,057)	(6,850)
Inventories	(2,469)	1,842
Prepaid expenses and other current assets	326	1,316
Accounts payable	(134)	(496)
Accrued expenses and other current liabilities	(2,715)	(3,142)
Income taxes payable	376	(352)
Other, net	(134)	(47)
Net cash (used in) provided by operating activities	(1,963)	519
Investing activities:
Capital expenditures	(1,579)	(3,451)
Acquisition of assets and business, net of cash acquired of $971 in 2011	(4,029)	(350)
Proceeds from sale of assets	105	195
Net cash used in investing activities	(5,503)	(3,606)
Financing activities:
Payments on debt	(69)	(99)
Issuance of common stock	126
Net cash provided by (used in) financing activities	57	(99)
Effect of exchange rate changes on cash	1,094	(1,094)
Decrease in cash and cash equivalents	(6,315)	(4,280)
Cash and cash equivalents at beginning of period	37,170	36,117
Cash and cash equivalents at end of period	30,855	31,837
Supplemental cash flow information:
Cash paid for interest	357	400
Cash paid for income taxes, net of refunds received	1,612	1,577
Non-cash investing and financing activities:
Issuance of notes payable to equity holders related to acquisition of business	$ 5,300

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General and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

General and Summary of Significant Accounting Policies [Abstract]

General and Summary of Significant Accounting Policies

1. General and Summary of Significant Accounting Policies

General

The consolidated interim financial statements include the accounts of Furmanite Corporation (the “Parent Company”) and its subsidiaries (collectively, the “Company” or “Furmanite”). All intercompany transactions and balances have been eliminated in consolidation. These unaudited consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnote disclosures required by U.S. GAAP for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 as filed with the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) and accruals, necessary for a fair presentation of the financial statements, have been made. Interim results of operations are not necessarily indicative of the results that may be expected for the full year.

Revenue Recognition

Revenues are recorded in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition, when realized or realizable, and earned.

Revenues are based primarily on time and materials. Substantially all projects are generally short term in nature. Revenues are recognized when persuasive evidence of an arrangement exists, services to customers have been rendered or products have been delivered and risk of ownership has passed to the customer, the selling price is fixed or determinable and collectability is reasonably assured. Revenues are recorded, net of sales tax. The Company provides limited warranties to customers, depending upon the service performed. Warranty claim costs were not material during the three or six months ended June 30, 2011 or 2010.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined using the weighted average cost method. Inventory quantities on hand are reviewed regularly based on related service levels and functionality, and carrying cost is reduced to net realizable value for inventories in which their cost exceeds their utility, due to physical deterioration, obsolescence, changes in price levels or other causes. The excess and obsolete reserve was $1.7 million and $1.8 million at June 30, 2011 and December 31, 2010, respectively. The cost of inventories consumed or products sold are included in operating costs.

New Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update 2010-06, Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 provides more robust disclosures about the transfers between Levels 1 and 2, the activity in Level 3 fair value measurements and clarifies the level of disaggregation and disclosure related to the valuation techniques and inputs used. The new disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the Level 3 activity disclosures, which are effective for fiscal years beginning after December 15, 2010. There was not a material impact from the adoption of this guidance on the Company’s consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 clarifies the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. ASU 2011-04 provides further clarification on the: (1) application of the highest and best use and valuation premise concepts, (2) fair value measurement of an instrument classified in a reporting entity’s shareholders’ equity, and (3) disclosure of unobservable inputs used in Level 3 fair value measurements. ASU 2011-04 also changes how fair value is measured for financial instruments that are managed within a portfolio and how premiums and discounts are applied in measuring fair value. In addition to the clarification of Level 3 disclosures, ASU 2011-04 requires additional disclosures for fair value measurements as it relates to the following: (1) the valuation process and sensitivity of changes in unobservable inputs, (2) a reporting entity’s use of a nonfinancial asset in a way that differs from the asset’s highest and best use, and (3) the categorization by level of the fair value hierarchy for items that are not measured at fair value but for which the fair value is required to be disclosed. ASU 2011-04 is effective for interim and annual periods beginning on or after December 15, 2011. The Company does not expect a material impact from the adoption of this guidance on the Company’s consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 amends existing guidance by allowing only the following two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement or (2) in two separate but consecutive financial statements. In addition, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU 2011-05 does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, the Company’s option to present components of other comprehensive income either net of related tax effects or before related tax effects, nor does it affect how earnings per share is calculated or presented. ASU 2011-05 requires retrospective application, and it is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The Company anticipates the adoption of this guidance will change the presentation and provide additional detail on certain consolidated financial statements, but will not have any other material impact.

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Acquisition

6 Months Ended

Jun. 30, 2011

Acquisition [Abstract]

Acquisition

2. Acquisition

On February 23, 2011, Furmanite Worldwide, Inc. (“FWI”), a wholly owned subsidiary of the Parent Company, entered into a Stock Purchase Agreement to acquire 100% of the outstanding stock of Self Leveling Machines, Inc. and a subsidiary of FWI entered into an Asset Purchase Agreement to acquire substantially all of the material operating and intangible assets of Self Levelling Machines Pty. Ltd. (collectively, “SLM”) for total consideration of $9.3 million, net of cash acquired of $1.0 million. SLM provides large scale on-site machining, which includes engineering, fabrication and execution of highly-specialized machining solutions for large-scale equipment or operations.

In connection with the SLM acquisition, on February 23, 2011, FWI entered into a consent and waiver agreement under its credit agreement. See Note 6, “Long-Term Debt,” to these consolidated financial statements for additional information as it relates to the credit agreement. FWI funded the cost of the acquisition with $5.0 million in cash and by issuing notes payable (the “Notes”) to the sellers’ equity holders for $5.3 million.

The final determinations of fair value for certain assets and liabilities remain subject to change based on final valuations of the assets acquired and liabilities assumed. During the second quarter of 2011, goodwill increased by $0.2 million resulting from adjustments to the fair value measurement of acquired net assets. The following amounts represent the preliminary determination of the fair value of the assets acquired and liabilities assumed (in thousands):

Fair value of net assets acquired

Cash	$	971
Accounts receivable		224
Prepaid expenses and other current assets		46
Property and equipment		5,024
Goodwill 1		1,390
Intangible and other assets 2		4,135
Accrued expenses and other current liabilities		(100	)
Deferred tax liabilities		(1,390	)
Fair value of net assets acquired	$	10,300

¹ Goodwill consists of intangible assets that do not qualify for separate recognition and is not deductible for tax purposes.

² Intangible assets are primarily comprised of trademarks, patents, and non-compete arrangements. Other assets consist of acquired interests in equity and cost method investments.

The SLM acquisition was not material to the Company’s financial position and results of operations, therefore, SLM’s pro forma results would not have a material impact on the Company’s results had the acquisition occurred at the beginning of the current or previous year.

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Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes [Abstract]

Income Taxes

10. Income Taxes

The Company maintains a valuation allowance to adjust the basis of net deferred tax assets in accordance with the provisions of FASB ASC 740, Income Taxes (“ASC 740”). As a result, substantially all domestic federal income taxes, as well as certain state and foreign income taxes, recorded for the three and six months ended June 30, 2011 and 2010 were fully offset by a corresponding change in valuation allowance. Income tax expense recorded for the three and six months ended June 30, 2011 consisted of income tax expenses in foreign and state jurisdictions in which the Company operates, with the six months ended June 30, 2011 partially offset by a valuation allowance change resulting in a deferred tax benefit of $1.2 million related to the SLM acquisition. Income tax expense recorded for the three and six months ended June 30, 2010 consisted primarily of income tax expenses in foreign and state jurisdictions in which the Company operates.

Income tax expense differs from the expected tax at statutory rates due primarily to the change in valuation allowance for deferred tax assets and different tax rates in the various foreign jurisdictions. Additionally, the aggregate tax expense is not always consistent when comparing periods due to the changing income before income taxes mix between domestic and foreign operations and within the foreign operations. In concluding that a full valuation allowance on domestic federal and certain state and foreign income taxes was required, the Company primarily considered such factors as the history of operating losses and the nature of the deferred tax assets. Interim period income tax expense or benefit is computed at the estimated annual effective tax rate, unless adjusted for specific discrete items as required.

Income tax expense as a percentage of income before income taxes was approximately 9.9% and 29.5% for the six months ended June 30, 2011 and 2010, respectively. For the three months ended June 30, 2011 and 2010 income tax expense as a percentage of income before income taxes was approximately 20.5% and 29.4%, respectively. Excluding the $1.2 million acquisition related deferred tax benefit noted above, the effective income tax rate for the six months ended June 30, 2011 was 21.9%. The remaining change in the income tax rates between periods is related to changes in the mix of income before income taxes between countries whose income taxes are offset by full valuation allowance and those that are not, and differing statutory tax rates in the countries in which the Company incurs tax liabilities.

In accordance with ASC 740, the Company recognizes the tax benefit from uncertain tax positions only if it is more-likely-than-not that the tax position will be sustained on examination by the applicable taxing authorities, based on the technical merits of the position. The tax benefit recognized is based on the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority.

The Company recognizes interest expense on underpayments of income taxes and accrued penalties related to unrecognized non-current tax benefits as part of the income tax provision. The Company incurred no significant interest or penalties for the three and six months ended June 30, 2011 and 2010. Unrecognized tax benefits at June 30, 2011 and December 31, 2010 of $0.9 million and $0.8 million, respectively, for uncertain tax positions related to transfer pricing are included in other liabilities on the consolidated balance sheets and would impact the effective tax rate for certain foreign jurisdictions if recognized.

A reconciliation of the change in the unrecognized tax benefits for the six months ended June 30, 2011 is as follows (in thousands):

Balance at December 31, 2010	$	803
Additions based on tax positions		114
Balance at June 30, 2011	$	917

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Earnings Per Share

6 Months Ended

Jun. 30, 2011

Earnings Per Share [Abstract]

Earnings Per Share

3. Earnings Per Share

Basic earnings per share are calculated as net income divided by the weighted-average number of shares of common stock and restricted stock outstanding during the period. Diluted earnings per share assumes issuance of the net incremental shares from stock options when dilutive. The weighted-average common shares outstanding used to calculate diluted earnings per share reflect the dilutive effect of common stock equivalents including options to purchase shares of common stock, using the treasury stock method.

Basic and diluted weighted-average common shares outstanding and earnings per share include the following (in thousands, except per share data):

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2011		2010		2011		2010
Net income	$	5,146	$	3,560	$	9,172	$	3,951
Basic weighted-average common shares outstanding		36,971		36,734		36,948		36,711
Dilutive effect of common stock equivalents		357		198		348		160
Diluted weighted-average common shares outstanding		37,328		36,932		37,296		36,871
Earnings per share:
Basic	$	0.14	$	0.10	$	0.25	$	0.11
Dilutive	$	0.14	$	0.10	$	0.25	$	0.11
Stock options excluded from diluted weighted-average common shares outstanding because their inclusion would have an anti-dilutive effect:		328		515		319		560

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Fair Value of Financial Instruments and Credit Risk

6 Months Ended

Jun. 30, 2011

Fair Value of Financial Instruments and Credit Risk [Abstract]

Fair Value of Financial Instruments and Credit Risk

13. Fair Value of Financial Instruments and Credit Risk

Fair value is defined under FASB ASC 820-10, Fair Value Measurement (“ASC 820-10”), as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820-10 must maximize the use of the observable inputs and minimize the use of unobservable inputs. The standard established a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

• Level 1 — Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

• Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.

• Level 3 — Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

The Company currently does not have any assets or liabilities that would require valuation under ASC 820-10, except for pension assets. The Company does not have any derivatives or marketable securities. The estimated fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the relatively short period to maturity of these instruments. The estimated fair value of all debt as of June 30, 2011 and December 31, 2010 approximated the carrying value. These fair values were estimated based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements, when quoted market prices were not available. The estimates are not necessarily indicative of the amounts that would be realized in a current market exchange.

The Company provides services to an international client base that includes petroleum refineries, chemical plants, offshore energy production platforms, steel mills, nuclear power stations, conventional power stations, pulp and paper mills, food and beverage processing plants, other flow process facilities. The Company does not believe that it has a significant concentration of credit risk at June 30, 2011, as the Company’s accounts receivable are generated from these business industries with customers located throughout the Americas, EMEA and Asia-Pacific.

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Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (USD $) In Thousands, except Share data	Total	Common Stock	Treasury Stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Loss
Balance at Dec. 31, 2009	$ 85,330	$ 4,723	$ (18,013)	$ 132,106	$ (21,859)	$ (11,627)
Balance, shares at Dec. 31, 2009		40,682,815	4,008,963
Net income	9,486				9,486
Stock-based compensation and stock option exercises, shares		242,804
Stock-based compensation and stock option exercises	1,491	22		1,469
Change in pension net actuarial loss and prior service credit, net of tax	3,484					3,484
Other	(1,443)			(1,443)
Foreign currency translation adjustment	(260)					(260)
Balance at Dec. 31, 2010	98,088	4,745	(18,013)	132,132	(12,373)	(8,403)
Balance, shares at Dec. 31, 2010		40,925,619	4,008,963
Net income	9,172				9,172
Stock-based compensation and stock option exercises, shares		144,597
Stock-based compensation and stock option exercises	448	13		435
Change in pension net actuarial loss and prior service credit, net of tax	(112)					(112)
Foreign currency translation adjustment	2,698					2,698
Balance at Jun. 30, 2011	$ 110,294	$ 4,758	$ (18,013)	$ 132,567	$ (3,201)	$ (5,817)
Balance, shares at Jun. 30, 2011		41,070,216	4,008,963

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Consolidated Statements of Cash Flows (Unaudited) (Parenthetical) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011
Investing activities:
Acquisition of assets and business, net of cash acquired	$ 971

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

8. Stock-Based Compensation

The Company has stock option plans and agreements which allow for the issuance of stock options, restricted stock awards, restricted stock units and stock appreciation rights. For the three and six months ended June 30, 2011, the total compensation cost charged against income and included in selling, general and administrative expenses for stock-based compensation arrangement was $0.1 million and $0.3 million, respectively, and $0.1 million and $0.5 million for the three and six months ended June 30, 2010. The expense for the six months ended June 30, 2010 included $0.2 million associated with accelerated vesting of awards in connection with the retirement of the former Chairman and Chief Executive Officer of the Company. Tax effects from stock-based compensation are insignificant due to the Company’s current domestic tax position. During the first quarter of 2011, the Company granted options to certain employees to purchase 70,000 shares of its common stock with a fair market value of $4.15 per share.

During the three months ended June 30, 2011, the Company granted $0.7 million in restricted stock units. The Company uses authorized but unissued shares of common stock for stock option exercises and restricted stock issuances pursuant to the Company’s share-based compensation plan and treasury stock for issuances outside of the plan. As of June 30, 2011, the total unrecognized compensation expense related to stock options and restricted stock was $1.6 million and $1.1 million, respectively.

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Business Segment Data and Geographical Information

6 Months Ended

Jun. 30, 2011

Business Segment Data and Geographical Information [Abstract]

Business Segment Data and Geographical Information

12. Business Segment Data and Geographical Information

An operating segment is defined as a component of an enterprise about which separate financial information is available that is evaluated regularly by the chief decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. For financial reporting purposes, the Company operates in a single segment.

The Company provides technical services to an international client base that includes petroleum refineries, chemical plants, pipelines, offshore drilling and production platforms, steel mills, food and beverage processing facilities, power generation, and other flow-process industries.

Geographical areas are the Americas, EMEA and Asia-Pacific. The following geographical area information includes revenues by major service line based on the physical location of the operations (in thousands):

					Asia-
	Americas		EMEA		Pacific		Total
Three months ended June 30, 2011:
On-line services	$	17,054	$	10,696	$	3,875	$	31,625
Off-line services		17,401		15,593		4,684		37,678
Other services		6,488		5,977		1,241		13,706
Total revenues	$	40,943	$	32,266	$	9,800	$	83,009
Three months ended June 30, 2010:
On-line services	$	12,359	$	8,049	$	4,174	$	24,582
Off-line services		15,678		14,654		6,863		37,195
Other services		9,513		5,143		1,080		15,736
Total revenues	$	37,550	$	27,846	$	12,117	$	77,513
Six months ended June 30, 2011:
On-line services	$	32,999	$	20,166	$	6,384	$	59,549
Off-line services		35,765		25,689		8,724		70,178
Other services		12,406		11,084		2,846		26,336
Total revenues	$	81,170	$	56,939	$	17,954	$	156,063
Six months ended June 30, 2010:
On-line services	$	23,737	$	17,604	$	8,238	$	49,579
Off-line services		31,041		25,290		10,581		66,912
Other services		14,339		11,213		1,905		27,457
Total revenues	$	69,117	$	54,107	$	20,724	$	143,948

Historically, the Company has not allocated headquarter costs to its operating locations. However, if the headquarter costs had been allocated to all the operating locations based on their respective revenues, the operating income by geographical area based on physical location would have been as follows (in thousands):

	Americas			EMEA			Asia- Pacific			Total
Three months ended June 30, 2011:
Operating income1	$	2,321		$	3,299		$	987		$	6,607
Allocation of headquarter costs		2,058			(1,582	)		(476	)		—
Adjusted operating income	$	4,379		$	1,717		$	511		$	6,607
Three months ended June 30, 2010:
Operating income2	$	515		$	1,569		$	3,442		$	5,526
Allocation of headquarter costs		2,187			(1,536	)		(651	)		—
Adjusted operating income	$	2,702		$	33		$	2,791		$	5,526
Six months ended June 30, 2011:
Operating income1	$	4,901		$	4,061		$	1,470		$	10,432
Allocation of headquarter costs		3,511			(2,678	)		(833	)		—
Adjusted operating income	$	8,412		$	1,383		$	637		$	10,432
Six months ended June 30, 2010:
Operating income (loss)3	$	(169	)	$	933		$	5,223		$	5,987
Allocation of headquarter costs		4,317			(3,146	)		(1,171	)		—
Adjusted operating income (loss)	$	4,148		$	(2,213	)	$	4,052		$	5,987

¹ Includes restructuring charges of $0.1 million and $0.2 million in EMEA for the three and six months ended June 30, 2011, respectively.

² Includes restructuring charges totaling $0.2 million and $0.7 million in the Americas and EMEA, respectively.

³ Includes restructuring charges totaling $0.4 million and $2.3 million in the Americas and EMEA, respectively.

The following geographical area information includes total long-lived assets (which consist of all non-current assets, other than goodwill, indefinite-lived intangible assets and deferred tax assets) based on physical location (in thousands):

	June 30,		December 31,
	2011		2010
Americas	$	20,902	$	17,311
EMEA		12,199		12,092
Asia-Pacific		7,168		3,493
	$	40,269	$	32,896

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Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 30,855	$ 37,170
Accounts receivable, trade (net of allowance for doubtful accounts of $1,500 and $ 1,497 as of June 30, 2011 and December 31, 2010, respectively)	74,014	63,630
Inventories, net of reserve:
Raw materials and supplies	18,506	17,375
Work-in-process	7,495	6,906
Finished goods	167	85
Prepaid expenses and other current assets	5,769	5,951
Total current assets	136,806	131,117
Property and equipment	83,204	73,969
Less: accumulated depreciation and amortization	(48,015)	(43,249)
Property and equipment, net	35,189	30,720
Goodwill	14,538	13,148
Deferred tax assets	2,750	2,872
Intangible and other assets	8,168	4,244
Total assets	197,451	182,101
Current liabilities:
Current portion of long-term debt	2,727	76
Accounts payable	17,634	17,815
Accrued expenses and other current liabilities	21,846	24,488
Income taxes payable	906	557
Total current liabilities	43,113	42,936
Long-term debt, non-current	32,855	30,085
Net pension liability	8,591	8,432
Other liabilities	2,598	2,560
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock, no par value; 60,000,000 shares authorized; 41,070,216 and 40,925,619 shares issued as of June 30, 2011 and December 31, 2010, respectively	4,758	4,745
Additional paid-in capital	132,567	132,132
Accumulated deficit	(3,201)	(12,373)
Accumulated other comprehensive loss	(5,817)	(8,403)
Treasury stock, at cost (4,008,963 shares as of June 30, 2011 and December 31, 2010)	(18,013)	(18,013)
Total stockholders' equity	110,294	98,088
Total liabilities and stockholders' equity	197,451	182,101
Series B Preferred Stock
Stockholders' equity:
Series B Preferred Stock, unlimited shares authorized, none outstanding	$ 0	$ 0