FOSTER WHEELER LTD - 10-Q Quarterly Report

Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

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

For the quarterly period ended March 26, 2004

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

For the transition period from .......... to ..........

Commission File Number 001-31305

FOSTER WHEELER LTD.
(Exact name of registrant as specified in its charter)


BERMUDA	22-3802649
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Perryville Corporate Park, Clinton, NJ	08809-4000
(Address of principal executive offices)	(Zip Code)

(908) 730-4000
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 40,771,560 shares of the Company’s common stock ($1.00 par value) were outstanding as of March 26, 2004.

FOSTER WHEELER LTD.

INDEX


Part I	Financial Information

		Item 1 –	Financial Statements (Unaudited):	3

			Condensed Consolidated Balance Sheet at March 26, 2004 and December 26, 2003	3

			Condensed Consolidated Statement of Operations and Comprehensive Loss for the Three Months Ended March 26, 2004 and March 28, 2003	4

			Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 26, 2004 and March 28, 2003	5

			Notes to Condensed Consolidated Financial Statements	6

		Item 2 –	Management’s Discussion and Analysis of Financial Condition and Results of Operations	58

		Item 3 –	Quantitative and Qualitative Disclosures about Market Risk	81

		Item 4 –	Controls and Procedures	81

Part II	Other Information

		Item 1 –	Legal Proceedings	85

		Item 6 –	Exhibits and Reports on Form 8-K	85

Signatures				87

Back to Index

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FOSTER WHEELER LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands of dollars, except share data and per share amounts)
(Unaudited)

	March 26, 2004			December 26, 2003


ASSETS
Current Assets:
Cash and cash equivalents	$	375,614		$	364,095
Short-term investments		5,128			13,390
Accounts and notes receivable, net		522,442			556,414
Contracts in process and inventories		127,184			173,293
Prepaid, deferred and refundable income taxes		30,663			37,160
Prepaid expenses		31,965			30,024

Total current assets		1,092,996			1,174,376

Land, buildings and equipment		622,172			622,729
Less accumulated depreciation		318,566			313,114

Net book value		303,606			309,615

Restricted cash		73,021			52,685
Notes and accounts receivable — long-term		6,280			6,776
Investments and advances		88,786			98,651
Goodwill, net		50,993			51,121
Other intangible assets, net		70,308			71,568
Prepaid pension cost and related benefit assets		7,131			7,240
Asbestos-related insurance recovery receivable		480,786			495,400
Other assets		184,536			182,151
Deferred income taxes		60,500			56,947

TOTAL ASSETS	$	2,418,943		$	2,506,530

LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities:
Current installments on long-term debt	$	20,945		$	20,979
Bank loans		—			121
Accounts payable		207,395			305,286
Accrued expenses		377,867			381,376
Estimated costs to complete long-term contracts		578,049			552,754
Advance payments by customers		67,865			50,248
Income taxes		60,729			62,996

Total current liabilities		1,312,850			1,373,760

Corporate and other debt less current installment		332,348			333,729
Special-purpose project debt less current installments		115,735			119,281
Capital lease obligations		62,295			62,373
Deferred income taxes		11,164			9,092
Pension, postretirement and other employee benefits		303,961			295,133
Asbestos-related liability		502,287			526,200
Other long-term liabilities and minority interest		119,229			124,792
Subordinated Robbins exit funding obligations less current installment		112,003			111,589
Convertible subordinated notes		210,000			210,000
Mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable interest debentures		—			175,000
Deferred accrued mandatorily redeemable preferred security distributions of subsidiary trust		—			38,021
Subordinated deferrable interest debentures		175,000			—
Deferred accrued interest on subordinated deferrable interest debentures		42,813			—
Commitments and contingencies		—			—

TOTAL LIABILITIES		3,299,685			3,378,970

Shareholders’ Deficit:
Preferred Stock
No par value; authorized — 1,500,000 shares; issued — none outstanding		—			—
Common stock
$1.00 par value; authorized — 160,000,000 shares; issued — 40,771,560 shares		40,772			40,772
Paid-in capital		201,841			201,841
Accumulated deficit		(815,352	)		(811,054	)
Accumulated other comprehensive loss		(308,003	)		(303,999	)

TOTAL SHAREHOLDERS’ DEFICIT		(880,742	)		(872,440	)

TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	$	2,418,943		$	2,506,530

See notes to condensed consolidated financial statements.

Back to Index

FOSTER WHEELER LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands of dollars, except per share amounts)
(Unaudited)

	Three Months Ended
	March 26, 2004			March 28, 2003

Revenues and other income:
Operating revenues	$	666,359		$	784,092
Other income		35,949			26,776

Total revenues and other income		702,308			810,868

Costs and expenses:
Cost of operating revenues		591,147			727,129
Selling, general and administrative expenses		57,184			51,740
Other deductions		18,417			21,244
Minority interest		982			1,323
Interest expense		20,640			17,422
Mandatorily redeemable preferred security distributions of subsidiary trust		—			4,372
Interest expense on subordinated deferrable interest debentures		4,792			—

Total costs and expenses		693,162			823,230

Earnings/(loss) before income taxes		9,146			(12,362	)
Provision for income taxes		13,444			7,458

Net loss		(4,298	)		(19,820	)
Other comprehensive loss:
Foreign currency translation adjustments		(4,004	)		(815	)

Net comprehensive loss	$	(8,302	)	$	(20,635	)


Loss per share:
Basic	$	(0.10	)	$	(0.48	)

Diluted	$	(0.10	)	$	(0.48	)



Shares outstanding (in thousands):
Basic: weighted-average number of shares outstanding		41,055			41,035
Diluted: effect of share options		—			—

Total diluted		41,055			41,035

See notes to condensed consolidated financial statements.

Back to Index

FOSTER WHEELER LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)
(Unaudited)

	Three Months Ended
	March 26, 2004			March 28, 2003

CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided/(used) by operating activities	$	29,568		$	(16,970)

CASH FLOWS FROM INVESTING ACTIVITIES
Change in restricted cash		(20,700	)		(3,697	)
Capital expenditures		(1,759	)		(3,613	)
Proceeds from sale of assets		127			72,918
Decrease in investments and advances		—			3,718
Decrease/(increase) in short-term investments		8,309			(2	)

Net cash (used)/provided by investing activities		(14,023	)		69,324


CASH FLOWS FROM FINANCING ACTIVITIES
Partnership distributions to minority shareholders		(2,663	)		(2,879	)
Decrease in short-term debt		(121	)		(503	)
Proceeds from long-term debt		—			18
Repayment of long-term debt		(4,826	)		(13,603	)

Net cash used by financing activities		(7,610	)		(16,967	)

Effect of exchange rate changes on cash and cash equivalents		3,584			4,414

INCREASE IN CASH AND CASH EQUIVALENTS		11,519			39,801
Cash and cash equivalents at beginning of period		364,095			344,305

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	375,614		$	384,106

See notes to condensed consolidated financial statements.

Back to Index

FOSTER WHEELER LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars, except per share amounts)
(Unaudited)

1. Going Concern

The accompanying condensed consolidated financial statements of Foster Wheeler Ltd., hereinafter referred to as “Foster Wheeler” or the “Company,” are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company may not, however, be able to continue as a going concern. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to return to profitability, to continue to generate cash flows from operations, asset sales and collections of receivables to fund its obligations including those resulting from asbestos related liabilities, as well as the Company maintaining credit facilities and bonding capacity adequate to conduct its business. The Company has incurred losses for the three months ended March 26, 2004 and in each of the years in the three-year period ended December 26, 2003 and has a shareholders’ deficit of $880,700 as of March 26, 2004. The Company has substantial debt obligations including its Senior Credit Facility and during 2002, it was unable to comply with certain debt covenants under the previous revolving credit agreement. As described in more detail below, the Company received waivers of covenant violations and ultimately negotiated new credit facilities in August 2002. In November 2002, the new Senior Credit Facility was amended to provide covenant relief of up to $180,000 of gross pretax charges recorded in the third quarter of 2002 and also to provide that up to an additional $63,000 in pretax charges related to specific contingencies could be excluded from the covenant calculation through December 2003, if incurred. In March 2003, the Senior Credit Facility was again amended to provide further covenant relief by modifying certain definitions of financial measures utilized in the calculation of the financial covenants and the minimum earnings before interest expense, taxes, depreciation and amortization (“EBITDA”) and senior debt ratio. The credit facilities were also amended in July 2003 to provide waivers of the applicable sections of the Senior Credit Facility to permit the exchange offers described elsewhere in this report, other internal restructuring transactions as well as transfers, cancellations and setoffs of certain intercompany obligations. There is no assurance that the Company will be able to comply with the terms of the Senior Credit Facility, as amended, and other debt agreements during 2004. Management’s current forecast indicates that the Company will be in compliance with financial covenants throughout 2004. However, there can be no assurance that the actual financial results will match the forecasts or that the Company will not violate the covenants.

The Company’s U.S. operations, which include the corporate functions, are cash flow negative and are expected to continue to generate negative cash flow due to a number of factors including costs related to the Company’s indebtedness, obligations to fund U.S. pension plans, and other expenses related to corporate overhead.

Management closely monitors liquidity and updates its U.S. liquidity forecasts weekly. These forecasts include, among other analyses, cash flow forecasts, which include cash on hand, cash flows from operations, cash repatriations and loans from non-U.S. subsidiaries, asset sales, collections of receivables and claims recoveries, and working capital needs and unused credit line availability. The Company’s current cash flow forecasts indicate that sufficient cash will be available to fund the Company’s U.S. and foreign working capital needs throughout 2004. However, there can be no assurance that sufficient cash will be available in 2004.

As of March 26, 2004, the Company had aggregate indebtedness of approximately $1,000,000. The corporate debt must be funded primarily with distributions from the Company’s foreign subsidiaries. As of March 26, 2004, the Company had cash and cash equivalents, short-term investments, and restricted cash totaling $453,800 compared to $430,200 as of December 26, 2003. Of the $453,800 total at March 26, 2004, approximately $355,800 was held by foreign subsidiaries. The Company is sometimes required to cash collateralize bonding or certain bank facilities. The amount of restricted cash at March 26, 2004 was $73,000, of which $61,200 related to the non-U.S. operations.

Back to Index

FOSTER WHEELER LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
(Unaudited)

1. Going Concern — (Continued)

The Company requires cash distributions from its non-U.S. subsidiaries in the normal course of its operations to meet its U.S. operations’ minimum working capital needs. The Company’s current 2004 forecast assumes cash repatriation from its non-U.S. subsidiaries from royalties, management fees, intercompany loans, debt service on intercompany loans, and dividends of approximately $61,000. In 2003, the Company repatriated approximately $100,000 from its non-U.S. subsidiaries.

There can be no assurance that the forecasted foreign cash repatriation will occur as there are significant legal and contractual restrictions on the Company’s ability to repatriate funds from its non-U.S. subsidiaries. These subsidiaries need to keep certain amounts available for working capital purposes, to pay known liabilities, and for other general corporate purposes. Such amounts exceed, and are not directly comparable to, the foreign component of restricted cash previously noted. In addition, certain of the Company’s non-U.S. subsidiaries are parties to loan and other agreements with covenants, and are subject to statutory minimum capitalization requirements in their jurisdictions of organization that restrict the amount of funds that such subsidiaries may distribute. Distributions in excess of these specified amounts would violate the terms of the agreements or applicable law which could result in civil or criminal penalties. The repatriation of funds may also subject those funds to taxation. As a result of these factors, the Company may not be able to repatriate and utilize funds held by its non-U.S. subsidiaries or future earnings of those subsidiaries in sufficient amounts to fund its U.S. working capital requirements, to repay debt, or to satisfy other obligations of its U.S. operations, which could limit the Company’s ability to continue as a going concern.

Commercial operations under a domestic contract retained by the Company in the Foster Wheeler Environmental Corporation (“Environmental”) asset sale, as described further below under “Sale of Certain Business Assets” in the Notes to Condensed Consolidated Financial Statements, commenced in January 2004. The plant processes low-level nuclear waste for the U.S. Department of Energy (“DOE”). The Company funded the plant’s construction costs and operates the facility. The majority of the Company’s invested capital is expected to be recovered during the early stages of processing the waste materials. This project’s performance exceeded expectations during the first quarter of 2004 and successfully processed sufficient materials to fully recover the forecasted 2004 capital recovery amount. The original forecast expected to recover the capital over the first three quarters of 2004. At March 26, 2004 the project generated a year to date net cash flow of approximately $32,400. The net cash flow forecast for 2004 from this project remains in excess of $40,000.

On February 26, 2004, the California Public Utilities Commission approved certain changes to Pacific Gas & Electric’s rates. As relevant to the Company’s subsidiary’s Martinez Project, the E-20T rate has been decreased by approximately 15% retroactive to January 1, 2004, having a negative effect on the subsidiary’s 2004 cash flow and earnings. This rate change has been reflected in the Company’s liquidity forecast.

As part of its debt restructuring plan described below, the Company and certain of its subsidiaries filed an amended registration statement with the Securities and Exchange Commission (“SEC”) on April 12, 2004 and on May 4, 2004, relating to an exchange offer for all of the existing $175,000 trust preferred securities, $210,000 Convertible Subordinated Notes (“Convertible Notes”), $113,700 Subordinated Robbins Exit Funding Obligations (“Robbins Bonds”), and $200,000 2005 Senior Notes (the “Senior Notes”) due 2005.

On February 5, 2004, the Company announced, in support of its restructuring activities, a number of institutional investors have committed to provide $120,000 of new financing in a private transaction to the Company to replace the current term loan and the revolving credit facility portions of its Senior Credit Facility. This commitment is contingent upon the completion of the proposed exchange offer. Additionally, the Company has discontinued its previously announced plans to divest one of its European operating units.

Back to Index

FOSTER WHEELER LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
(Unaudited)

1. Going Concern — (Continued)

The total amount of debt and preferred trust securities subject to the proposed exchange offer that is part of the Company’s planned restructuring is approximately $700,000. Interest expense incurred on this debt in 2003 totaled approximately $55,000. The Company expects to offer a mix of equity as well as debt with longer maturities in exchange for these securities. The Company anticipates that both total debt and related interest expense would be significantly reduced upon completion of the debt exchange offer; however, the Company may not complete the exchange offer on acceptable terms, or at all.

Failure by the Company to achieve its cash flow forecast or to complete the components of the restructuring plan on acceptable terms would have a material adverse effect on the Company’s financial condition. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

In August 2002, the Company finalized a Senior Credit Facility with its lender group. This facility included a $71,000 term loan, a $69,000 revolving credit facility, and a $149,900 letter of credit facility, which expires on April 30, 2005. The Senior Credit Facility is secured by the assets of the domestic subsidiaries, the stock of the domestic subsidiaries, and, in connection with Amendment No. 3 discussed below, 100% of the stock of the first-tier foreign subsidiaries. The Senior Credit Facility has no required repayments prior to maturity on April 30, 2005. The agreement requires prepayments from proceeds of assets sales, the issuance of debt or equity, and from excess cash flow. The Company retained the first $77,000 of such amounts and also retains a 50% share of the balance. With the Company’s sale of the Environmental net assets on March 7, 2003, and an interest in a corporate office building on March 31, 2003, the $77,000 threshold was exceeded. Accordingly, principal prepayments of $1,250 and $11,800 were made on the term loan in the first quarter of 2004 and during the full year of 2003, respectively.

The financial covenants in the Senior Credit Facility include a senior leverage ratio and a minimum EBITDA defined in the agreement, as amended. Compliance with these covenants is measured quarterly. The EBITDA covenant compares the actual average rolling four quarter EBITDA, as adjusted in the Senior Credit Facility, to minimum EBITDA targets. The senior leverage covenant compares actual average rolling EBITDA, as adjusted in the Senior Credit Facility, to total senior debt. The resultant multiple of debt to EBITDA must be less than maximum amounts specified in the Senior Credit Facility. Management’s current forecast indicates that the Company will be in compliance with these covenants throughout 2004.

Amendment No. 1 to the Senior Credit Facility, obtained on November 8, 2002, provides covenant relief of up to $180,000 of gross pretax charges recorded by the Company in the third quarter of 2002. The amendment further provides that up to an additional $63,000 in pretax charges related to specific contingencies may be excluded from the covenant calculation through December 31, 2003, if incurred. As of December 26, 2003, $31,000 of the contingency risks was favorably resolved, and additional project reserves were established for $32,000 leaving a contingency balance of $0.

Amendment No. 2 to the Senior Credit Facility, entered into on March 24, 2003, modifies (i) certain definitions of financial measures utilized in the calculation of the financial covenants and (ii) the Minimum EBITDA, and Senior Debt Ratio, as specified in section 6.01 of the Credit Agreement. In connection with this amendment of the Credit Agreement, the Company made a prepayment of principal in the aggregate amount of $10,000 in March 2003.

Amendment No. 3 to the Senior Credit Facility, entered into on July 14, 2003, modified certain affirmative and negative covenants to permit the exchange offer described elsewhere in this report, other internal restructuring transactions as well as transfers, cancellations and setoffs of certain intercompany obligations. The terms of the amendment called for the Company to pay a fee equal to 5% of the lenders’ credit exposure since it had not made a required prepayment of principal under the Senior Credit Facility of $100,000 on or before March 31, 2004. The Company paid the required fee of $13,600 on March 31, 2004.

Back to Index

FOSTER WHEELER LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
(Unaudited)

1. Going Concern — (Continued)

The annual interest rate on borrowings under the Senior Credit Facility has increased and will continue to increase an additional 0.5% each quarter until the Company repays $100,000 of indebtedness under the Senior Credit Facility. The fee was included in Foster Wheeler’s liquidity forecast for 2004.

Holders of the Company’s Senior Notes due November 15, 2005 have a security interest in the stock and debt of certain of Foster Wheeler LLC’s subsidiaries and on facilities owned by Foster Wheeler LLC or its subsidiaries that exceed 1% of consolidated net tangible assets, in each case to the extent such stock, debt and facilities secure obligations under the revolving portion of the Senior Credit Facility. As permitted by the Indenture, the Term Loan and the obligations under the letter of credit facility (collectively approximating $155,200 as of March 26, 2004) have priority to the Senior Notes in these assets while the security interest of the Senior Notes ranks equally and ratably with $69,000 of revolving credit borrowings under the Senior Credit Facility.

The Company finalized a sale/leaseback arrangement in the third quarter of 2002 for an office building at its corporate headquarters. This capital lease arrangement leases the facility to the Company, for an initial non-cancelable period of 20 years. The proceeds from the sale/leaseback were sufficient to repay the balance outstanding under a previous operating lease arrangement of $33,000 for a second corporate office building. The long-term capital lease obligation of $44,200 as of March 26, 2004 is included in capital lease obligations in the accompanying condensed consolidated balance sheet. The Company entered into a binding agreement in the first quarter 2004 to sell a second corporate office building. The sale closed in the second quarter 2004 and generated net cash proceeds of $16,400. Of this amount, 50% has been repaid to the Senior Credit Facilities’ lenders in the second quarter 2004.

In the third quarter of 2002, the Company entered into a receivables financing facility that matures on August 15, 2005 and is secured by a portion of certain of the Company’s domestic trade receivables. The facility operates through the use of a wholly owned, special- purpose subsidiary, Foster Wheeler Funding II LLC (“FW Funding”) as described below. FW Funding is included in the condensed consolidated financial statements of the Company.

FW Funding is a party to a Purchase, Sale and Contribution Agreement (“PSCA”) with six of the Company’s wholly owned domestic subsidiaries. Pursuant to PSCA, FW Funding is obligated to purchase eligible trade receivables, as defined in the PSCA, from these companies and these companies are obligated to contribute as capital their ineligible trade accounts receivable as defined in the PSCA. FW Funding simultaneously entered into a Loan and Security Agreement with Foothill Capital Corporation and Ableco Finance Corporation LLC. Under this agreement, FW Funding has the ability to borrow up to a maximum of $40,000 using eligible trade accounts receivable as collateral. FW Funding pays 10% interest on all outstanding borrowings. In addition, FW Funding pays a monthly fee on the unused line equal to 0.5% per annum of the maximum available amount less the average daily amount of borrowings during the preceding month. The facility is subject to covenant compliance. The financial covenants commenced at the end of the first quarter of 2003 and include a senior leverage ratio and a minimum EBITDA level. Noncompliance with the financial covenants allows the lender to terminate the arrangement and accelerate any amounts then outstanding.

No borrowings were outstanding under this facility as of March 26, 2004 or December 26, 2003. As of March 26, 2004, FW Funding held $63,600 of trade accounts receivable, net of allowances, which are included in the condensed consolidated balance sheet.

On January 26, 2004, subsidiaries in the U.K. entered into a two-year revolving credit facility with Saberasu Japan Investments II B.V. in the Netherlands. The facility provides for up to $45,000 of additional revolving loans available to provide working capital which may be required by these subsidiaries as they seek

Back to Index

FOSTER WHEELER LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
(Unaudited)

1. Going Concern — (Continued)

to grow the business by pursuing a larger volume of lump sum EPC contracts. The facility is secured by substantially all of the assets of these subsidiaries. The facility is subject to covenant compliance. Such covenants include a minimum EBITDA level and a loan to EBITDA ratio. As of March 26, 2004, the facility remained undrawn.

The Senior Credit Facility, the sale/leaseback arrangement, and the receivables financing arrangement have quarterly debt covenant requirements. Management’s forecast indicates that the Company will be in compliance with the debt covenants throughout 2004. However, there can be no assurance that the actual financial results will match the forecasts or that the Company will not violate the covenants. If the Company violates a covenant under the Senior Credit Facility, the sale/leaseback arrangement, or receivables financing arrangement, repayment of amounts borrowed under such agreements could be accelerated. Acceleration of these facilities would result in a default under the following agreements: the Senior Notes, the Convertible Notes, the Subordinated Deferrable Interest Debentures, the Subordinated Robbins Facility Exit Funding Obligations, and certain of the special-purpose project debt facilities, which would allow such debt to be accelerated as well. The total amount of the Company debt that could be accelerated, including the amount outstanding under the Senior Credit Facility, is $915,000 as of March 26, 2004. The Company would not be able to repay amounts borrowed if the payment dates were accelerated. The debt covenants and the potential payment acceleration requirements raise substantial doubts about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

On November 14, 2003, Foster Wheeler was de-listed from the New York Stock Exchange (“NYSE”) because the Company ceased to meet NYSE continued listing criteria. The Company’s common stock and 9.00% FW Preferred Capital Trust I securities are quoted and traded on the Over-the-Counter Bulletin Board (“OTCBB”).

Under Bermuda law, the consent of the Bermuda Monetary Authority (“BMA”) is required prior to the transfer by non-residents of Bermuda of a Bermuda company’s shares. Since becoming a Bermuda company, Foster Wheeler has relied on an exemption from this rule provided to NYSE-listed companies. Due to the Company being de-listed, this exemption is no longer available. To address this issue, the Company obtained the consent of the BMA to transfers between non-residents for so long as the Company’s shares continue to be quoted in the Pink Sheets or on the OTCBB. The Company believes that this consent will continue to be available.

2. Summary of Significant Accounting Policies

The condensed consolidated balance sheet as of March 26, 2004 and December 26, 2003 and the related condensed consolidated statements of operations and comprehensive loss and cash flows for the three-month periods ended March 26, 2004 and March 28, 2003, are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments only consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year.

The financial statements and notes are presented in accordance with the requirements of Form 10-Q and do not contain certain information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2003 (“2003 Form 10-K”) filed with the SEC on March 12, 2004 and the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2004. The condensed consolidated balance sheet as of December 26, 2003 has been derived from the audited consolidated balance sheet included in the 2003 Form 10-K. A summary of the Company’s significant accounting policies is presented

Back to Index

FOSTER WHEELER LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(in thousands of dollars, except per share amounts)
(Unaudited)

2. Summary of Significant Accounting Policies — (Continued)

below. There has been no material change in the accounting policies followed by the Company during the first quarter of 2004.

Principles of Consolidation — The condensed consolidated financial statements include the accounts of Foster Wheeler and all significant domestic and foreign subsidiary companies. All significant intercompany transactions and balances have been eliminated.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Changes in estimates are reflected in the periods in which they become known. Significant estimates are used when accounting for long- term contracts including customer and vendor claims, depreciation, employee benefit plans, taxes, asbestos litigation and expected recoveries and contingencies, among others.

As of March 26, 2004 and December 27, 2003, the Company had recorded commercial claims of approximately $2,300 and $0, respectively. The increase is due to claims recorded in accordance with AICPA Statement of Position 81-1, “Accounting for Performance