Foster Wheeler (FWLT) 8-K Index to Financial Statements

INDEX TO FINANCIAL STATEMENTS

		Page
Item 1 -	Financial Statements:	1
	Condensed Consolidated Balance Sheet at March 28, 2003 and December 27, 2002	1
	Condensed Consolidated Statement of Earnings and Comprehensive Income for the Three Months Ended March 28, 2003 and March 29, 2002 (Restated)	2
	Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 28, 2003 and March 29, 2002(Restated)	4
	Notes to Condensed Consolidated Financial Statements	5

PART I   FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

FOSTER WHEELER LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(In Thousands of Dollars)

(Unaudited)

	March 28, 2003			December 27, 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	384,106		$	344,305
Short-term investments		274			271
Accounts and notes receivable, net		586,486			684,672
Contracts in process and inventories		224,943			289,933
Prepaid, deferred and refundable income taxes		37,517			41,155
Prepaid expenses		39,707			36,071
Total current assets		1,273,033			1,396,407
Land, buildings and equipment		748,923			769,680
Less accumulated depreciation		351,904			361,861
Net book value		397,019			407,819
Restricted cash		88,490			84,793
Notes and accounts receivable – long-term		21,926			21,944
Investment and advances		93,153			88,523
Goodwill, net		50,399			50,214
Other intangible assets, net		72,280			72,668
Prepaid pension cost and related benefit assets		26,567			26,567
Asbestos-related insurance recovery receivable		526,372			534,045
Other assets		161,267			156,279
Deferred income taxes		68,336			69,578
TOTAL ASSETS	$	2,778,842		$	2,908,837
LIABILITIES AND SHAREHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Current installments on long-term debt	$	31,856		$	31,562
Bank loans		14,444			14,474
Accounts payable and accrued expenses		605,663			635,089
Estimated costs to complete long-term contracts		646,000			707,323
Advance payments by customers		90,536			87,658
Income taxes		63,784			64,517
Total current liabilities		1,452,283			1,540,623
Corporate and other debt less current installment		331,068			341,702
Special-purpose project debt less current installments		178,346			181,613
Capital lease obligations		58,864			58,237
Deferred income taxes		7,823			8,333
Pension, postretirement and other employee benefits		447,512			437,820
Asbestos-related liability		505,721			519,790
Other long-term liabilities and minority interest		106,391			109,373
Subordinated Robbins exit funding obligations less current installment		107,285			107,285
Convertible subordinated notes		210,000			210,000
Mandatory redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable interest debentures		175,000			175,000
Commitments and contingencies		—			—
TOTAL LIABILITIES		3,580,293			3,689,776
SHAREHOLDERS’ DEFICIT:
Common Stock		40,772			40,772
Paid-in capital		201,841			201,718
Retained earnings (deficit)		(673,811	)		(653,991	)
Accumulated other comprehensive loss		(370,253	)		(369,438	)
TOTAL SHAREHOLDERS’ DEFICIT		(801,451	)		(780,939	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	$	2,778,842		$	2,908,837

See notes to condensed consolidated financial statements.

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FOSTER WHEELER LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME

(In Thousands of Dollars, Except Per Share Amounts)

(Unaudited)

	Three Months Ended
	March 28, 2003			March 29, 2002
				(Restated, See Note 1)
Revenues:
Operating revenues	$	784,092		$	795,409
Other income		26,776			10,620
Total revenues and other income		810,868			806,029
Costs and expenses:
Cost of operating revenues		727,129			711,932
Selling, general and administrative expenses		51,740			54,258
Other deductions/minority interest		22,567			38,649
Interest expense		17,422			16,904
Dividends on preferred security of subsidiary trust		4,372			4,012
Total costs and expenses		823,230			825,755
Loss before income taxes		(12,362	)		(19,726	)
Provision for income taxes		7,458			5,884
Net loss prior to cumulative effect of a change in accounting principle		(19,820	)		(25,610	)
Cumulative effect on prior years (to December 29, 2001) of a change in accounting principle for goodwill, net of $0 tax		—			(150,500	)
Net loss		(19,820	)		(176,110	)
Other comprehensive loss:
Foreign currency translation adjustment		(815	)		(9,277	)
Change in unrealized losses on derivative instruments, net of tax		—			(3,378	)
Comprehensive loss	$	(20,635	)	$	(188,765	)

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	Three Months Ended
	March 28, 2003			March 29, 2002
Loss per share:
Basic:
Net loss prior to cumulative effect of a change in accounting principle	$	(0.48	)	$	(0.63	)
Cumulative effect on prior years (to December 29, 2001) of a change in accounting principle		—			(3.67	)
Net loss	$	(0.48	)	$	(4.30	)
Diluted:
Net loss prior to cumulative effect of a change in accounting principle	$	(0.48	)	$	(0.63	)
Cumulative effect on prior years (to December 29, 2001) of a change in accounting principle		—			(3.67	)
Net loss	$	(0.48	)	$	(4.30	)
Shares outstanding (in thousands):
Basic: weighted average number of shares Outstanding		41,035			40,920
Diluted: effect of share options		—			—
Total diluted		41,035			40,920
Cash dividends paid per common share	$	—		$	—

See notes to condensed consolidated financial statements.

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FOSTER WHEELER LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In Thousands of Dollars)

(Unaudited)

	Three Months Ended
	March 28, 2003			March 29, 2002
				(Restated) (See Note 1)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(19,820	)	$	(176,110	)
Adjustments to reconcile net earnings to cash flows from operating activities:
Cumulative effect of a change in accounting principle		—			150,500
Gain on sale of assets		(15,949	)		—
Depreciation and amortization		9,809			11,514
Deferred tax		(306	)		1,973
Equity loss/(earnings), net of dividends		(3,506	)		6,076
Other non-cash charges		(10,865	)		(246	)
Changes in assets and liabilities:
Receivables		64,463			34,779
Contracts in process and inventories		20,834			67,873
Deferred dividends on Preferred Trust Securities		4,372			4,012
Accounts payable and accrued expenses		(12,388	)		(17,952	)
Estimated costs to complete long-term contracts		(60,446	)		28,350
Advance payments by customers		990			39,257
Income taxes		3,692			(5,432	)
Other assets and liabilities		2,150			1,398
NET CASH (USED)/PROVIDED BY OPERATING ACTIVITIES		(16,970	)		145,992
CASH FLOWS FROM INVESTING ACTIVITIES
Change in restricted cash		(3,697	)		—
Capital expenditures		(3,613	)		(4,565	)
Proceeds from sale of assets		72,918			157
Decrease/(increase) in investments and advances		3,718			(368	)
Increase in short-term investments		(2	)		—
NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES		69,324			(4,776	)
CASH FLOWS FROM FINANCING ACTIVITIES
Partnership distributions to minority shareholders		(2,879	)		(2,061	)
Decrease in short-term debt		(503	)		(12,278	)
Proceeds from long-term debt		18			81,321
Repayment of long-term debt		(13,603	)		(3,037	)
NET CASH (USED)/PROVIDED BY FINANCING ACTIVITIES		(16,967	)		63,945
Effect of exchange rate changes on cash and cash equivalents		4,414			(6,003	)
INCREASE IN CASH AND CASH EQUIVALENTS		39,801			199,158
Cash and cash equivalents at beginning of year		344,305			224,020
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	384,106		$	423,178
Cash paid during period:
Interest (net of amount capitalized)	$	6,566		$	4,479
Income taxes	$	2,053		$	3,298

See notes to condensed consolidated financial statements.

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FOSTER WHEELER LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands of Dollars, Except per Share Amounts)

(Unaudited)

1.	The condensed consolidated balance sheet as of March 28, 2003 and the related condensed consolidated statements of earnings and comprehensive income and cash flows for the three-month periods ended March 28, 2003 and March 29, 2002 as restated, 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 Foster Wheeler Ltd.’s Annual Report on Form 10-K/A for the fiscal year ended December 27, 2002 (“2002 Form 10-K”) filed with the Securities and Exchange Commission on June 20, 2003. The condensed consolidated balance sheet as of December 27, 2002 has been derived from the audited consolidated balance sheet included in the 2002 Form 10-K. A summary of Foster Wheeler Ltd.’s significant accounting policies is presented below.  There has been no material change in the accounting policies followed by Foster Wheeler Ltd. (hereinafter referred to as “Foster Wheeler” or the “Company”) during the first quarter of 2003.
	Restatement — In the fourth quarter of 2002, management determined that the liabilities and results of operations associated with one of its postretirement medical benefit plans was not accounted for in accordance with Statement of Financial Accounting Standards 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions” (“SFAS 106”).  The condensed consolidated statement of earnings and comprehensive income and the condensed consolidated statement of cash flows for the three-month period ended March 29, 2002 have been restated to account for such benefit plan in accordance with SFAS 106.  See Note 15.
	In addition, the 2002 financial statements have been revised to reflect the cumulative effect of the change in accounting principle for goodwill in accordance with the provisions of SFAS 142, “Goodwill and Other Intangibles.”  As permitted by SFAS 142, the Company completed its step two assessment of goodwill impairment on one of its reporting units in the fourth quarter of 2002, resulting in an impairment charge of $77,000.  The March 29, 2002 financial statements have been revised in accordance with SFAS 142 to record this charge effective as of the beginning of the year (December 29, 2001), as required.
	Principles of Consolidation — The 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 generally accepted accounting principles 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 period 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 and retiree benefit plans, taxes, asbestos litigation and expected recoveries and contingencies, among others. The Company established a provision for the balance of outstanding commercial claims as of December 27, 2002. The Company revised its estimates of claim revenues to reflect recent adverse recovery experience, management’s desire to monetize claims, and the poor economic conditions impacting the markets served by the Company. As a result, as of both March 28, 2003 and December 27, 2002 the Company has recorded commercial claims of $0. At March 28, 2003 and December 27, 2002, the Company anticipates collection of approximately $7,000 and $9,000, respectively, in requests for

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equitable adjustments.  These amounts relate primarily to a claim against a U.S. Government agency for a project currently being executed. If this claim were to be unsuccessful, the costs would be charged to cost of operating revenues.

Revenue Recognition on Long-term Contracts — Revenues and profits in long-term fixed price contracts are recorded under the percentage of completion method. Progress towards completion is measured using physical completion for all contracts with a value in excess of $5,000.  Progress toward completion for fixed priced contracts with a value under $5,000 is measured using the cost-to-cost method.

Revenues and profits on cost reimbursable contracts are recorded as the costs are incurred. The Company includes flow-through costs consisting of materials, equipment and subcontractor costs as revenue on cost-reimbursable contracts when the Company is responsible for the engineering specifications and procurement for such costs.

Contracts in progress are stated at cost increased for profits recorded on the completed effort or decreased for estimated losses, less billings to the customer and progress payments on uncompleted contracts. Negative balances are presented as “estimated costs to complete long-term contracts.”

The Company has numerous contracts that are in various stages of completion. Such contracts require estimates to determine the appropriate cost and revenue recognition. However, current estimates may be revised as additional information becomes available. If estimates of costs to complete long-term contracts indicate a loss, provision is made currently for the total loss anticipated. The elapsed time from award of a contract to completion of performance may be up to four years.

Claims are amounts in excess of the agreed contract price (or amounts not included in the original contract price) that a contractor seeks to collect from customers or others for delays, errors in specifications and designs, contract terminations, change orders in dispute or unapproved as to both scope and price or other causes of unanticipated additional costs. The Company records claims in accordance with paragraph 65 of the American Institute of Certified Public Accountants Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” This statement of position states that recognition of amounts as additional contract revenue related to claims is appropriate only if it is probable that the claims will result in additional contract revenue and if the amount can be reliably estimated. Those two requirements are satisfied by the existence of all of the following conditions: the contract or other evidence provides a legal basis for the claim; additional costs are caused by circumstances that were unforeseen at the contract date and are not the result of deficiencies in the contractor’s performance; costs associated with the claim are identifiable or otherwise determinable and are reasonable in view of the work performed; and the evidence supporting the claim is objective and verifiable. If such requirements are met, revenue from a claim is recorded only to the extent that contract costs relating to the claim have been incurred. Costs attributable to claims are treated as costs of contract performance as incurred. Such claims are currently in various stages of negotiation, arbitration and other legal proceedings.

Certain special-purpose subsidiaries in the Energy Group are reimbursed by customers for their costs, including amounts related to principal repayments of non-recourse project debt, for building and operating certain facilities over the lives of the non-cancelable service contracts. The Company records revenues relating to debt repayment obligations on these contracts on a straight-line basis over the lives of the service contracts, and records depreciation of the facilities on a straight-line basis over the estimated useful lives of the facilities, after consideration of the estimated residual value.

Cash and Cash Equivalents —  Cash and cash equivalents include highly liquid short-term investments purchased with original maturities of three months or less. Cash and cash equivalents of approximately $259,300 are maintained by foreign subsidiaries as of March 28, 2003. These

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subsidiaries require a substantial portion of these funds to support their liquidity and working capital needs. Accordingly, these funds may not be readily available for repatriation to U.S. entities.

Restricted Cash — Restricted cash consists of approximately $16,000 that the Company was required to deposit into escrow in connection with the Todak litigation discussed in Note 5; approximately $4,000 held by special purpose entities and restricted for debt service payments; approximately $63,000 that was required to collateralize letters of credit and bank guarantees, and approximately $5,500 of client escrow funds.  Domestic restricted cash totals approximately $21,000 and relates primarily to the $16,000 of escrow funds connected with litigation, the $4,000 held by special purpose entities and $1,000 of other restricted funds.  The balance of $67,500, predominately related to the letters of credit and bank guarantees, is foreign restricted cash.

Short-term Investments — Short-term investments consist primarily of bonds of foreign governments and are classified as available for sale under SFAS Statement 115 “Accounting for Certain Investments in Debt and Equity Securities.”  Realized gains and losses from sales are based on the specific identification method.

Trade Accounts Receivable — In accordance with terms of long-term contracts, certain percentages of billings are withheld by customers until completion and acceptance of the contracts.  Final payments of all such amounts withheld might not be received within a one-year period.  In conformity with industry practice, however, the full amount of accounts receivable, including such amounts withheld, has been included in current assets.

Accounts and Notes Receivable Other — Non-trade accounts and notes receivable consist primarily of foreign value added tax receivable.

Land, Buildings and Equipment — Depreciation is computed on a straight-line basis using composite estimated lives ranging from 10 to 50 years for buildings and from 3 to 35 years for equipment. Expenditures for maintenance and repairs are charged to operations. Renewals and betterments are capitalized. Upon retirement or other disposition of fixed assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gains or losses are reflected in earnings.

In July 2001, the FASB issued SFAS 143, “Accounting for Asset Retirement Obligations.”  This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002.  The adoption of this new statement was not material to the Company.

Investments and Advances — The Company uses the equity method of accounting for investment ownership of between 20% and 50% in affiliates unless significant economic considerations indicate that the cost method is appropriate. The equity method is also used for investments in which ownership is greater than 50% when the Company does not have a controlling financial interest. Investment ownership of less than 20% in affiliates is carried at cost. Currently, all of the Company’s significant investments in affiliates are recorded using the equity method.

Income Taxes — Deferred income taxes are provided on a liability method whereby deferred tax assets/liabilities are established for the difference between the financial reporting and income tax basis of assets and liabilities, as well as operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Investment tax credits are accounted for by the flow-through method whereby they reduce income taxes currently payable and the provision for income taxes in the period the assets giving

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rise to such credits are placed in service. To the extent such credits are not currently utilized on the Company’s tax return, deferred tax assets, subject to considerations about the need for a valuation allowance, are recognized for the carryforward amounts.

Provision is made for Federal income taxes which may be payable on foreign subsidiary earnings to the extent that the Company anticipates they will be remitted.

Foreign Currency — Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at year-end exchange rates and income and expenses and cash flows at monthly weighted average rates.

The Company enters into foreign exchange contracts in its management of foreign currency exposures related to commercial contracts. Changes in the fair value of derivative contracts that qualify as designated cash flow hedges are deferred until the hedged forecasted transaction affects earnings. Amounts receivable or payable (gains or losses) under foreign exchange hedges are recognized as deferred gains or losses and are included in either contracts in process or estimated costs to complete long-term contracts. The Company utilizes foreign exchange contracts solely for hedging purposes, whether or not they qualify for hedge accounting under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.” At March 28, 2003, the Company did not meet the requirements for deferral under SFAS 133 and recorded in the quarter ended March 28, 2003 a loss on derivative instruments of approximately $1,153.

Inventories — Inventories, principally materials and supplies, are stated at the lower of cost or market, determined primarily on the average cost method.

Intangible Assets — Intangible assets consist principally of the excess of cost over the fair value of net assets acquired (goodwill), trademarks and patents. Patents and trademarks are being amortized on a straight-line basis over periods of 12 to 40 years. The Company periodically evaluates goodwill on a separate operating unit basis to assess recoverability, and impairments, if any, are recognized in earnings.

Effective December 29, 2001, the Company adopted SFAS 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) which supersedes APB Opinion 17, “Intangible Assets.” The statement requires that goodwill and intangible assets with indefinite lives no longer be amortized, but instead be tested for impairment at least annually. The Company tests for impairment at the reporting unit level as defined in SFAS 142. This test is a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value exceeds the carrying amount, goodwill is not considered impaired. If the carrying amount exceeds the fair value, the second step must be performed to measure the amount of the impairment loss, if any. The second step compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. An impairment loss would be recognized in an amount equal to the excess of the carrying amount of the goodwill over the implied fair value of the goodwill. Impairment losses have been measured as of December 29, 2001 and recognized as the cumulative effect of a change in accounting principle in 2002. SFAS 142 also requires that intangible assets with determinable useful lives be amortized over their respective estimated useful lives and reviewed annually for impairment in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

As of March 28, 2003 and December 27, 2002, the Company had unamortized goodwill of $50,399 and $50,214, respectively. Goodwill at March 28, 2003 related to the Finnish operations of the Energy Group.  The increase in goodwill is due to foreign currency translation adjustments of $185. In accordance with SFAS 142, the Company is no longer amortizing goodwill. The Company recognized $150,500 of impairment losses in 2002 related to the goodwill as a cumulative effect of a change in accounting principle. Of this total, $24,800 was associated with the Camden waste-to-energy facility and $77,000 was associated with the North American Power unit included in the operations of the Energy Group. The fair value of the facility and the

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operating unit were estimated using the expected present value of future cash flows. The remaining $48,700 related to Foster Wheeler Environmental Corporation in the E&C Group. An impairment of the goodwill on this subsidiary was determined based upon indications of its market value from potential buyers.

The following table details amounts relating to identifiable intangible assets.

	As of March 28, 2003				As of December 27, 2002
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Patents	$	35,900	$	12,427	$	35,695	$	11,973
Trademarks		60,696		11,889		60,378		11,432
Total	$	96,596	$	24,316	$	96,073	$	23,405

Amortization expense related to patents and trademarks for the three-month period ended March 28, 2003 was $911.  Amortization expense is expected to approximate $3,500 each year in the next five years.

Earnings per Share — Basic per share data has been computed based on the weighted average number of shares of common stock outstanding.  Options to purchase 8,623,432 and 4,877,038 shares of common stock were not included in the computation of diluted earnings per share for the quarterly periods ended March 28, 2003 and March 29, 2002 as restated, respectively, because the options’ exercise price was greater than the average market price.  The 13,085,751 shares related to the convertible subordinated notes were not included in the computation of diluted earnings per share for the quarterly periods ended March 28, 2003 or March 29, 2002 as restated, due to their antidilutive effect.

The Company has options plans which reserve shares of common stock for issuance to executives, key employees, and directors.  The Company has adopted the disclosure only provisions of SFAS 123, “Accounting for Stock-Based Compensation.”  Accordingly, no compensation cost has been recognized for the stock option plans.  No options were issued during the three months ended March 28, 2003 or March 29, 2002.  Therefore, there would be no difference between net income and earnings per share on a pro forma basis and net income and earnings per share as reported.

Reclassifications — Certain prior period amounts have been reclassified to conform to current financial statement presentation.

Recent Accounting Developments — In June 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS 145, “Rescission of FASB Statements 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS 145 rescinds previous statements regarding the extinguishment of debt and amends SFAS 13, “Accounting for Leases” to eliminate an inconsistency between the required accounting for sale/leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale/leaseback transactions. The provisions of SFAS 145 related to the extinguishment of debt are to be applied to fiscal years beginning after May 15, 2002. The provisions of SFAS 145 related to the amendment of SFAS 13 are effective for transactions occurring after May 15, 2002. The adoption of this statement did not have a material impact on the Company.

In June 2002, the FASB issued SFAS 146 “Accounting for Costs Associated with Exit or Disposal Activities.”  SFAS 146 requires liabilities associated with an exit or disposal activity to be recognized at fair value when the liability is incurred. This contrasts with existing accounting requirements, under which liabilities for exit or disposal activities are recognized at the date of an entity’s commitment to an exit plan. The provisions of SFAS 146 are effective for exit or disposal activities initiated after December 31, 2002, although early adoption is permitted. The Company implemented SFAS 146 in the fourth quarter of 2002. In connection with the Company’s exit

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from the Dansville, NY manufacturing facility, the Company recognized $5,300 as a charge to earnings in 2002 in accordance with this standard.
In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” SFAS 148 amends SFAS 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure requirements of SFAS 123 to require prominent disclosures, in both interim and annual financial statements, about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. The provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The provisions of this standard relating to the fair value measurements do not affect the Company as it accounts for stock-based employee compensation under the provisions of Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees” as permitted under SFAS 123. The Company has implemented the disclosure requirements of this standard.
In November 2002, the FASB issued FASB Interpretation (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The interpretation does not prescribe a specific approach for subsequently measuring the guarantor’s recognized liability over the term of the related guarantee. FIN 45 also incorporates, without change, the guidance in FIN 34, “Disclosure of Indirect Guarantees of Indebtedness of Others”, which is being superseded.
This interpretation does not apply to certain guarantee contracts and the provisions related to recognizing a liability at inception for the fair value of the guarantor’s obligation do not apply to the following:
	a.  Product warranties;
	b.  Guarantees that are accounted for as derivatives;
	c.  Guarantees that represent contingent consideration in a business combination;
	d.  Guarantees for which the guarantor’s obligations would be reported as an equity item (rather than a liability);
	e.  An original lessee’s guarantee of lease payments when that lessee remains secondarily liable in conjunction with being relieved from being the primary obligor (that is, the principal debtor) under a lease restructuring;
	f.  Guarantees issued between either parents and their subsidiaries or corporations under common control; and
	g.  A parent’s guarantee of a subsidiary’s debt to a third party, and a subsidiary’s guarantee of the debt owed to a third party by either its parent or another subsidiary of that parent.
	However, the guarantees described in a.–g. above are subject to the disclosure requirements.
The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company in its 2002 Form 10-K implemented the disclosure requirements of this interpretation.  The Company implemented the recognition and measurement provisions of the interpretation in the first quarter of 2003.

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	In April 2003, the FASB issued SFAS 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”  SFAS 149 amends SFAS 133 for decisions made: (1) as part of the Derivatives Implementation Group process that effectively required amendments to SFAS 133; (2) in connection with the other FASB projects dealing with financial instruments; and (3) in connection with implementation issues raised in relation to the application of the definition of a derivative.  The provisions of SFAS 149 are effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company is currently assessing the impact of the adoption of this standard.
2.	The accompanying condensed consolidated financial statements are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. 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 significant losses in each of the years in the two-year period ended December 27, 2002 and has a shareholder deficit of $801,451 at March 28, 2003. The Company has substantial debt obligations, and during 2002 it was unable to comply with certain debt covenants under the previous revolving credit agreement. Accordingly, the Company received waivers of covenant violations and ultimately negotiated new credit facilities in August 2002. While management believes its operating plans, if met, are sufficient to assure compliance with the terms of its new debt agreements, as amended, there is no assurance that the Company will do so during 2003. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s plans in regard to these matters are described below.
	In August 2002, the Company finalized a Senior Credit Facility with its lender group. This facility, including a $71,000 term loan, a $69,000 revolving credit facility, and a $149,000 letter of credit facility, expires on April 30, 2005. This facility is secured by the assets of the domestic subsidiaries, the stock of the domestic subsidiaries, and 66% of the stock of the first-tier foreign subsidiaries. The facility has no scheduled repayments prior to maturity on April 30, 2005. The facility requires prepayments from proceeds of assets sales, the issuance of debt or equity, and from excess cash flow. The Company retains the first $77,000 of such amounts and also retains a 50% share of the balance. The financial covenants in the facility commenced at the end of the first quarter 2003 and include a senior leverage ratio and a minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”) level as described in the agreement, as amended. With the sale of the Company’s interest in a corporate office building on March 31, 2003 (see Note 16), the $77,000 threshold discussed above has been exceeded.  Accordingly, a principal prepayment of $1,445 was made on the revolving credit facility in the second quarter of 2003.
	Amendment No.  1 to the Credit Agreement, entered into on November 8, 2002, provides covenant relief of up to $180,000 of gross pre-tax charges recorded by the Company in the third quarter of 2002. The amendment further provides that up to an additional $63,000 in pre-tax charges related to specific contingencies may be excluded from the covenant calculation through December 31, 2003, if incurred. Through the first quarter of 2003, $11,000 of the contingency risks were favorably resolved, and additional project reserves were established for $24,000 leaving a contingency balance of $28,000.
	Amendment No. 2 to the Credit Agreement, 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 on the term loan in the aggregate amount of $10,000.
	The Company’s 6.75% Notes have a security interest in the stock and debt 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 as defined in the Indenture, in each case to the extent such stock, debt and facilities

11

	secure obligations under the Senior Credit Facility.  As permitted by the Indenture, the Term Loan and the obligations under the letter of credit facility (collectively approximating $187,300 at March 28, 2003) have a senior position to the 6.75% Notes in these assets while the security interest of the 6.75% Notes is equal and ratable with another $69,000 of debt under the Senior Credit Facility.
	Due to the Company’s significant leverage, management is reviewing various options to restructure its balance sheet. Although no definitive plans have been finalized at this point, such options may include, among other things, debt for equity exchanges, debt for debt exchanges, equity for equity exchanges, and additional asset sales. There can be no assurances, however, that the Company can successfully effect any of the foregoing.
	During the third quarter of 2002, the Company also completed a receivables financing arrangement of up to $40,000. The funding available to the Company is dependent on the amount and characteristics of the domestic receivables. This financing arrangement expires in August 2005 and is subject to covenant compliance. Certain of the financial covenants commence 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. Although the Company has not received a notice of termination, the Company has been informed by the lender that it believes that Foster Wheeler Funding LLC, the wholly-owned special purpose subsidiary operating the facility, is out of compliance with certain maintenance covenants regarding the nature and amount of domestic receivables.  The Company is currently in discussions with the lender to bring the Company into compliance.  Until the receivables financing documents are amended to reflect these adjustments, the Company has no availability under this facility.  As of March 28, 2003, the Company had no borrowings outstanding under this facility.  See Note 3 for further information regarding the facility.
	The Company initiated a comprehensive plan to enhance cash generation and to improve profitability during 2002.  Management forecasts that the cash on hand, together with cash from operations, asset sales, collection of receivables and claims recoveries will be sufficient to fund the Company’s working capital needs through the first quarter of 2004.  It is possible that asset sales may result in amounts realized which differ materially from the balances recorded in the financial statements.  There can be no assurance that the Company will meet its forecast.  Failure by the Company to achieve its forecast could have a material adverse effect on the Company’s financial condition.
	Foster Wheeler received a formal notice, dated March 18, 2003, from the New York Stock Exchange (“NYSE”) indicating that it was below the continued listing criteria of a total market capitalization of not less than $50,000 over a 30-day trading period and shareholders’ equity of not less than $50,000.  The Company has held discussions with the NYSE and has submitted a business plan on May 5, 2003 that will demonstrate compliance with the continued listing standard within 18 months of notice from the NYSE. The NYSE is currently reviewing the plan and the Company expects a decision on the NYSE acceptance of the Company’s plan within the next 45 days.  The Company’s business plan, if accepted, will be reviewed by the NYSE for ongoing compliance with its goals and objectives. Throughout the review process, Foster Wheeler’s common stock will continue to be listed on the NYSE, subject to reassessment.
3.	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 the Company’s domestic trade receivables.  The facility operates through the use of a wholly owned, special purpose subsidiary, Foster Wheeler Funding LLC (“FW Funding”) as described below.  FW Funding is included in the condensed consolidated financial statements of the Company.
	FW Funding entered into a Purchase, Sale and Contribution Agreement (“PSCA”) on August 15, 2002 with six of the Company’s wholly owned domestic subsidiaries.  Pursuant to the PSCA, FW

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	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.  On August 15, 2002, FW Funding also 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 security.  FW Funding pays 10% interest on all outstanding borrowings.  In addition, FW Funding pays a monthly unused line fee equal to .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 receivable purchaser to terminate the arrangement and accelerate any amounts then outstanding.  Although the Company has not received a notice of termination, the Company has been informed by the lender that it believes that Foster Wheeler Funding LLC, the wholly-owned special purpose subsidiary operating the facility, is out of compliance with certain maintenance covenants regarding the nature and amount of domestic receivables.  The Company is currently in discussions with the lender to bring the Company into compliance.  Until the receivables financing documents are amended to reflect these adjustments, the Company has no availability under this facility.
	No borrowings were outstanding under this facility as of March 28, 2003 or December 27, 2002.  As of March 28, 2003, FW Funding held $202,974 of trade accounts receivable, which are included in the condensed consolidated balance sheet.
4.	At March 28, 2003, a total of 8,927,501 shares of common stock were reserved for issuance under various stock option plans; of this total, 554,069 were not under option.
5.	In the ordinary course of business, the Company and its subsidiaries enter into contracts providing for assessment of damages for nonperformance or delays in completion. Suits and claims have been or may be brought against the Company by customers alleging deficiencies in either equipment design or plant construction. Based on its knowledge of the facts and circumstances surrounding such claims and of its insurance coverage for such claims, if any, management of the Company believes that the disposition of such suits will not result in charges against assets or earnings materially in excess of amounts previously provided for in the accounts.
	Some of the Company’s subsidiaries, along with many other companies, are codefendants in numerous lawsuits pending in the United States. Plaintiffs claim damages for personal injury alleged to have arisen from exposure to or use of asbestos in connection with work performed by the Company’s subsidiaries during the 1970s and prior. As of March 28, 2003, there were approximately 151,100 claims pending.  During the first quarter of 2003, approximately 15,600 new claims have been filed and approximately 4,300 were either settled or dismissed without payment. The amount spent on asbestos litigation defense and case resolution, substantially all of which was reimbursed or will be reimbursed from insurance coverage, was $13,800 in the first quarter of 2003.  As of March 29, 2002, there were approximately 111,500 claims pending.  During the first quarter of 2002, approximately 10,000 new claims were filed and approximately 9,200 were either settled or dismissed without payment. The amount spent on asbestos litigation defense and case resolution, substantially all of which was reimbursed or will be reimbursed from insurance coverage, was $19,200 in the first quarter of 2002.
	The Company’s subsidiaries continue to actively manage claims and to negotiate with certain insurance carriers concerning the limits of coverage provided during different time periods. An agreement which one of the Company’s subsidiaries has had with a number of insurers to allow for efficient and thorough handling of claims was terminated by one of the participant insurers with respect to claims filed after June 12, 2001.  As a result in the first quarter of 2001, lawsuits commenced among the Company’s subsidiaries and certain of the insurers to determine the respective rights and responsibilities under the policies going forward.  The Company’s

13

subsidiaries are currently in negotiations with the insurers, and the Company believes that they will enter into a similar replacement arrangement to govern the management of, and allocation of payments on, asbestos related claims filed after June 12, 2001. The Company anticipates that the existing insurance policies are adequate whether or not its subsidiaries can agree on a new arrangement with insurers.  Although the expiration of the previous arrangement may delay the ability of the Company’s subsidiaries to get reimbursed on a timely basis by the insurers for claims filed after June 12, 2001, insurance policies will continue to cover asbestos related claims brought against the Company’s subsidiaries after June 12, 2001 and it is anticipated that the Company’s subsidiaries can continue to manage the resolution of such claims without a material adverse impact on the Company’s financial condition.

As of March 28, 2003, the Company had recorded a liability related to probable losses on asbestos-related insurance claims of approximately $540,700, of which approximately $35,000 is considered short-term.  The Company had recorded an asset of approximately $561,400 relating to probable insurance recoveries of which the Company has funded approximately $65,500 as of March 28, 2003.  In addition to the $526,400 shown separately in the balance sheet, approximately $35,000 is recorded in accounts and notes receivables.The asset is an estimate of recoveries from insurers based upon assumptions relating to cost allocation and resolution of pending proceedings with certain insurers, as well as recoveries under a funding arrangement with other insurers, which has been in place since 1993. The total liability recorded is comprised of an estimated liability relating to open (outstanding) claims of approximately $393,600 and an estimated liability relating to future unasserted claims of approximately $147,100.  These estimates are based upon the following information and/or assumptions:  number of open claims; forecasted number of future claims; estimated average cost per claim by disease type; and the breakdown of known and future claims into disease type.  The total estimated liability includes both the estimate of forecasted indemnity amounts and forecasted defense expenses.  The defense costs and indemnity payments are expected to be incurred over the next 15 years during which period new claims are expected to decline from year to year.  The Company believes that there will be a substantial reduction in the number of new claims filed after 2018 although there are no assurances this will be correct.  Nonetheless, the Company plans to periodically update its forecasts of estimated future costs and insurance recoveries to take into consideration its future experience and other considerations such as legislation. Historically, the Company’s defense costs have represented approximately 24% of total costs.  Through March 28, 2003, total indemnity costs paid were approximately $306,700 and total defense costs paid were approximately $96,800.

The Company’s management, after consultation with counsel, has considered the litigation with the insurers described above, and the financial viability and legal obligations of the insurance carriers and believes that except for those insurers that have become or may become insolvent, the insurers or their guarantors should continue to adequately fund claims and defense costs relating to asbestos litigation. It should be noted that the estimate of the assets and liabilities related to asbestos claims and recovery is subject to a number of uncertainties that may result in significant changes in the current estimates.  Among these are uncertainty as to the ultimate number of claims filed, the amounts of claim costs, the impact of bankruptcies of other companies currently involved in litigation, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, as well as potential legislative changes.

The Company’s subsidiaries have been effective in managing the asbestos litigation in part because (1) the Company’s subsidiaries have access to historical project documents and other business records going back more than 50 years, allowing them to defend themselves by determining if they were present at the location that is the cause of the alleged asbestos claim and, if so the timing and extent of their presence, (2) the Company’s subsidiaries maintain good records on insurance policies and have identified policies issued since 1952, and (3) the Company’s subsidiaries have consistently  and vigorously defended these claims which has resulted in dismissal of  claims that are without merit or settlement of claims at amounts that are considered reasonable.

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A subsidiary of the Company in the United Kingdom has also received a limited number of claims alleging personal injury arising from exposure to asbestos. None of these claims have resulted in material costs to the Company.

A San Francisco, California jury returned a verdict on March 26, 2002 finding Foster Wheeler liable for $10,600 in the case of Todak vs. Foster Wheeler Corporation. The case was brought against Foster Wheeler, the U.S. Navy and several other companies by a 59-year-old man suffering from mesothelioma which allegedly resulted from exposure to asbestos. The case has been amicably resolved by the parties and the appeal of the verdict has been dismissed. The terms of the settlement are confidential. The Company’s financial obligation is covered by insurance.

On April 3, 2002 the United States District Court for the Northern District of Texas entered an amended final judgment in the matter of Koch Engineering Company et al vs. Glitsch, Inc. et al.  Glitsch, Inc. (now known as Tray, Inc.) is an indirect subsidiary of the Company.  This lawsuit claimed damages for patent infringement and trade secret misappropriations and has been pending for over 18 years.  As previously reported by the Company, a judgment was entered in this case on November 29, 1999 awarding plaintiffs compensatory and punitive damages plus prejudgment interest in an amount yet to be calculated.  This amended final judgment in the amount of $54,283 includes such interest for the period beginning in 1983 when the lawsuit was filed through entry of judgment.  Post-judgment interest will accrue at a rate of 5.471% per annum from November 29, 1999.  The management of Tray, Inc. believes that the Court’s decision contains numerous factual and legal errors subject to reversal on appeal.  Tray, Inc. has filed a notice of appeal to the United States Court of Appeals for the Fifth Circuit.  On April 7, 2003, Tray, Inc. filed for bankruptcy.  Management assessed the liability associated with this legal proceeding and had previously recorded a provision in the financial statements for the potential liability.

In 1997, the United States Supreme Court effectively invalidated New Jersey’s long-standing municipal solid waste flow rules and regulations. The immediate effect was to eliminate the guaranteed supply of municipal solid waste to the Camden County Waste-to-Energy Project (the “Project”) with its corresponding tipping fee revenue. As a result, tipping fees have been reduced to market rate in order to provide a steady supply of fuel to the Project. Those market-based revenues have not been, and are not expected to be, sufficient to service the debt on outstanding bonds which were issued to construct the Project and to acquire a landfill for Camden County’s use.

The Company’s project subsidiary, Camden County Energy Recovery Associates, LP (“CCERA”), has filed suit against the involved parties, including the State of New Jersey, seeking among other things to void the applicable contracts and agreements governing the Project (Camden County Energy Recovery Assoc. vs. N.J. Department of Environmental Protection, et al., Superior Court of New Jersey, Mercer County, L-268-98). Since 1999, the State of New Jersey has provided subsidies sufficient to ensure the payment of each of the Project’s debt service payments as it became due. In January 2002, the State of New Jersey enacted legislation providing a mechanism for state-supported refinancing of bond debt on solid waste facilities located within the state. The legislation expired on December 31, 2002, without any refinancing having been accomplished. Press reports indicate that it is unlikely that any state-supported refinancing will occur in the near future, but those same reports include statements by state officials that the State will continue to ensure that debt service payments are made when due.

The bonds outstanding on the Camden Project are public debt, not debt of either the Company or CCERA, and the bonds are not guaranteed by the Company. If the State were to fail to subsidize

15

the debt service, and there were to be a default on a debt service payment, the bondholders might proceed to attempt to exercise their remedies.

At this time, management cannot determine the ultimate outcome of the foregoing and the potential effects on CCERA and the Project. However, management believes that pending the conclusion of the foregoing litigation, the Project will continue to operate at full capacity receiving market rates for waste disposal and generating sufficient revenues to pay CCERA its service fee. Because the debt outstanding on the Camden Project is not CCERA’s, and is not secured by CCERA’s plant, the Company’s management does not believe that an attempt by the bondholders to exercise their remedies would have a material adverse effect on CCERA or the Company.

Under the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and similar state laws, the current owner or operator of real property and the past owners or operators of real property (if disposal took place during such past ownership or operation) may be jointly and severally liable for the costs of removal or remediation of toxic or hazardous substances on or under their property, regardless of whether such materials were released in violation of law or whether the owner or operator knew of, or was responsible for, the presence of such substances. Moreover, under CERCLA and similar state laws, persons who arrange for the disposal or treatment of hazardous or toxic substances may also be jointly and severally liable for the costs of the removal or remediation of such substances at a disposal or treatment site, whether or not such site was owned or operated by such person (“off-site facility”). Liability at such off-site facilities is typically allocated among all of the viable responsible parties based on such factors as the relative amount of waste contributed to a site, toxicity of such waste, relationship of the waste contributed by a party to the remedy chosen for the site, and other factors.

The Company currently owns and operates industrial facilities and has also transferred its interests in industrial facilities that it formerly owned or operated.  It is likely that as a result of its current or former operations, such facilities have been impacted by hazardous substances.  The Company is not aware of any conditions at its currently owned facilities in the United States that it expects will cause the Company to incur material costs.

The Company also may receive claims, pursuant to indemnity obligations from owners of recently sold facilities that may require the Company to incur costs for investigation and/or remediation. Based on the available information, the Company does not believe that such costs will be material.  No assurance can be provided that the Company will not discover environmental conditions at its currently owned or operated properties, or that additional claims will not be made with respect to formerly owned properties, requiring the Company to incur material expenditures to investigate and/or remediate such conditions.

The Company had been notified that it was a potentially responsible party (“PRP”) under CERCLA or similar state laws at three off-site facilities, excluding sites as to which the Company has resolved its liability.  At each of these sites, the Company’s liability should be substantially less than the total site remediation costs because the percentage of waste attributable to the Company compared to that attributable to all other PRPs is low.  The Company does not believe that its share of cleanup obligations at any of the off-site facilities as to which it has received a notice of potential liability will exceed $500 in the aggregate.

The Company’s project claims have increased as a result of the increase in lump-sum contracts. Project claims brought by the Company against project owners for additional costs over the contract price or amounts not included in the original contract price, typically arising from changes in the initial scope of work or from owner-caused delays.  These claims are often subject to lengthy arbitration or litigation proceedings.  The costs associated with these changes or owner-caused delays include additional direct costs, such as increased labor and material costs associated with the performance of the additional works, as well as indirect costs that may arise due to delays in the completion of the project, such as increased labor costs resulting from changes in labor markets.  The Company has used significant additional working capital in projects with costs

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overruns pending the resolution of the relevant project claims.  The Company cannot assure that project claims will not continue to increase.

In the ordinary course of business, the Company enters into contracts providing for assessment of damages for nonperformance or delays in completion.  Suits and claims have been or may be brought against the Company by customers alleging deficiencies in either equipment or plant construction.  Based on the Company’s knowledge of the facts and circumstances relating to the liabilities, if any, and to the insurance coverage, the management believes that the disposition of those suits will not result in charges against assets or earnings materially in excess of amounts previously provided in the accounts.

The ultimate legal and financial liability in respect to all claims, lawsuits and proceedings cannot be estimated with certainty. As additional information concerning the estimates used become known, the Company reassesses its position both with respect to gain contingencies and accrued liabilities and other potential exposures. Estimates that are particularly sensitive to future change relate to legal matters, which are subject to change as events evolve and as additional information becomes available during the administration and litigation process.  Increases in the number of claims filed or costs to resolve those claims will cause the Company to increase further the estimates of the costs associated with such claims and could have a material adverse effect on the business, financial condition, results of operations, and cash flows.

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6. Changes in equity for the three months ended March 28, 2003 were as follows:

	Common Stock				Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
	Shares		Amount
Balance December 27, 2002		40,771,560	$	40,772	$	201,718	$	(653,991	)	$	(369,438	)	$	(780,939	)
Net loss								(19,820	)					(19,820	)
Shares issued under incentive and other plans						123								123
Foreign currency translation adjustment											(815	)		(815	)
Balance March 28, 2003		40,771,560	$	40,772	$	201,841	$	(673,811	)	$	(370,253	)	$	(801,451	)

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7. Major Business Groups

	Three Months Ended
	March 28, 2003			March 29, 2002
				(Restated)
Engineering & Construction (E&C)(1)
Revenues	$	482,805		$	421,135
Gross earnings from operations*		13,626			40,263
Interest expense (income)		(630	)		(318	)
Earnings before income taxes and cumulative effect of a change in accounting principle for goodwill		9,805			20,502
Energy Group
Revenues	$	326,427		$	387,420
Gross earnings from operations*		43,789			43,266
Interest expense		4,868			7,381
Earnings/loss before income taxes and cumulative effect of a change in accounting principle for goodwill		19,794			(1,774	)
Corporate and Financial Services (C&F) (2)
Revenues		$1,636		$	(2,526	)
Gross loss from operations*		(452	)		(52	)
Interest expense (3)		17,556			13,853
Loss before income taxes and cumulative effect of a change in accounting principle for goodwill		(41,961	)		(38,454	)
Total
Revenues	$	810,868		$	806,029
Gross earnings from operations*		56,963			83,477
Interest expense (3)		21,794			20,916
Loss before income taxes and accounting change		(12,362	)		(19,726	)
Provision for income taxes		7,458			5,884
Net loss prior to cumulative effect of a change in accounting principle		(19,820	)		(25,610	)
Cumulative effect on prior years of a change in accounting principle for goodwill  (4)		—			(150,500	)
Net loss	$	(19,820	)	$	(176,110	)

(*)	Gross earnings are equal to operating revenues minus the cost of operating revenues.
(1)	Refer to Note 14 regarding the sale of certain assets of the E&C Group in March 2003.
(2)	Includes intersegment eliminations.
(3)	Includes accrued dividends on Preferred Trust Securities.
(4)	Includes a provision for goodwill impairment of $48,700 for E&C and $101,800 for the Energy Group.

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Operating revenues by industry segment for the three-month periods ending March 28, 2003 and March 29, 2002 were as follows:

	Three Months Ended
	March 28, 2003			March 29,2002
Power	$	371,680		$	380,732
Oil and gas/refinery		203,234			158,087
Pharmaceutical		60,064			75,345
Chemical		56,154			38,636
Environmental		77,881			84,768
Power production		28,314			33,897
Eliminations and other		(13,235	)		23,944
Total Operating Revenues	$	784,092		$	795,409

8.	Consolidating Financial Information – 6.75% Notes
	As a result of the reorganization on May 25, 2001, Foster Wheeler LLC, as successor to Foster Wheeler Corporation, became obligor for the 6.75% notes due November 15, 2005 (the “Notes”). Foster Wheeler Ltd. and the following 100% owned companies issued guarantees in favor of the holders of the Notes: Equipment Consultants, Inc., Foreign Holdings Ltd., Foster Wheeler Asia Limited, Foster Wheeler Capital & Finance Corporation, Foster Wheeler Constructors, Inc., Foster Wheeler Development Corporation, Foster Wheeler Energy Corporation, Foster Wheeler Energy Manufacturing, Inc., Foster Wheeler Energy Services, Inc., Foster Wheeler Enviresponse, Inc., Foster Wheeler Environmental Corporation, Foster Wheeler Facilities Management, Inc., Foster Wheeler Inc., Foster Wheeler International Corporation, Foster Wheeler International Holdings, Inc., Foster Wheeler Power Group, Inc., Foster Wheeler Power Systems, Inc., Foster Wheeler Pyropower, Inc., Foster Wheeler Real Estate Development Corporation, Foster Wheeler Realty Services, Inc., Foster Wheeler USA Corporation, Foster Wheeler Virgin Islands, Inc., Foster Wheeler Zack, Inc., FW Mortshal, Inc., FW Technologies Holdings LLC, HFM International, Inc., Process Consultants, Inc., Pyropower Operating Services Company, Inc., and Perryville III Trust. Each of the guarantees is full and unconditional and joint and several. Foster Wheeler LLC and each of the subsidiary guarantors are 100% owned, directly or indirectly, by Foster Wheeler Ltd. The summarized consolidating financial information is presented in lieu of separate financial statements and other related disclosures of the wholly owned subsidiary guarantors and issuer because management does not believe that such separate financial statements and related disclosures would be material to investors. None of the subsidiary guarantors are restricted from making distributions to the Company. The following represents summarized condensed consolidating financial information as of March 28, 2003 and December 27, 2002 with respect to the financial position, and for the three months ended March 28, 2003 and March 29, 2002, as restated, for results of operations and for cash flows of the Company and its 100% owned and majority-owned subsidiaries.
	The Foster Wheeler Ltd. column presents the parent company’s financial information. Foster Wheeler Ltd. is also a guarantor. The Foster Wheeler LLC column presents the issuer’s financial information. The Guarantor Subsidiaries column presents the financial information of all guarantors excluding that of Foster Wheeler Ltd. which is separately presented. The guarantor subsidiaries include the results of Foreign Holdings Ltd., the parent of Foster Wheeler LLC. Foster Wheeler LLC owns, directly or indirectly, the other guarantor subsidiaries and non-guarantor subsidiaries.

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FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
March 28, 2003
(In Thousands of Dollars)

	Foster Wheeler			Foster Wheeler			Guarantor			Non-Guarantor
	Ltd.			LLC			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—		$	—		$	95,218		$	288,888		$	—		$	384,106
Accounts and notes receivable, net		—			229,123			70,634			953,792			(667,063	)		586,486
Contracts in process and inventories		—			—			125,497			107,920			(8,474	)		224,943
Other current assets		—			—			39,656			37,842			—			77,498
Total current assets		—			229,123			331,005			1,388,442			(675,537	)		1,273,033
Investment in subsidiaries & others		(801,156	)		(862,719	)		693,182			93,153			970,693			93,153
Land, buildings & equipment (net)		—			—			95,056			301,963			—			397,019
Notes and accounts receivable – long-term		210,000			595,656			289,155			658,899			(1,731,784	)		21,926
Intangible assets (net)		—			—			103,678			19,001			—			122,679
Asbestos-related insurance recovery
receivable		—			526,372			—			—			—			526,372
Other non-current assets		—			20,446			107,887			216,327			—			344,660
TOTAL ASSETS	$	(591,156	)	$	508,878		$	1,619,963		$	2,677,785		$	(1,436,628	)	$	2,778,842
Liabilities & Shareholders’ Equity
Accounts payable and accrued expenses	$	347		$	69,688		$	720,323		$	490,844		$	(675,539	)	$	605,663
Estimated costs to complete long-
term contracts		—			—			319,088			326,912			—			646,000
Other current liabilities		(52	)		(1,085	)		63,795			137,962			—			200,620
Total current liabilities		295			68,603			1,103,206			955,718			(675,539	)		1,452,283
Corporate and other debt		—			330,000			43,783			16,149			—			389,932
Special-purpose project debt		—			—			—			178,346			—			178,346
Pension, postretirement and other
employee benefits		—			—			300,697			146,815			—			447,512
Asbestos-related liability		—			505,721			—			—			—			505,721
Other long-term liabilities and
minority interest		—			405,651			866,148			1,002,672			(2,160,257	)		114,214
Subordinated Robbins obligations		—			—			107,285			—			—			107,285
Convertible subordinated notes		210,000			—			—			—			—			210,000
Preferred trust securities		—			—			—			175,000			—			175,000
TOTAL LIABILITIES		210,295			1,309,975			2,421,119			2,474,700			(2,835,796	)		3,580,293
Common stock and paid in capital		242,613			242,613			242,613			450,606			(935,832	)		242,613
Retained earnings/(deficit)		(673,811	)		(673,457	)		(673,516	)		8,098			1,338,875			(673,811	)
Accumulated other comprehensive loss		(370,253	)		(370,253	)		(370,253	)		(255,619	)		996,125			(370,253	)
TOTAL SHAREHOLDERS’ EQUITY		(801,451	)		(801,097	)		(801,156	)		203,085			1,399,168			(801,451	)
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY	$	(591,156	)	$	508,878		$	1,619,963		$	2,677,785		$	(1,436,628	)	$	2,778,842

21

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
December 27, 2002
(In Thousands of Dollars)

	Foster Wheeler			Foster Wheeler			Guarantor			Non-Guarantor
	Ltd.			LLC			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—		$	—		$	19,615		$	324,690		$	—		$	344,305
Accounts and notes receivable, net		—			228,428			151,070			916,680			(611,506	)		684,672
Contracts in process and inventories		—			—			187,224			110,959			(8,250	)		289,933
Other current assets		—			—			39,924			38,102			(529	)		77,497
Total current assets		—			228,428			397,833			1,390,431			(620,285	)		1,396,407
Investment in subsidiaries and others		(780,671	)		(842,608	)		687,193			88,523			936,086			88,523
Land, buildings & equipment (net)		—			—			103,489			304,330			—			407,819
Notes and accounts receivable – long-term		210,000			595,656			289,106			658,167			(1,730,985	)		21,944
Intangible assets (net)		—			—			104,349			18,533			—			122,882
Asbestos-related insurance recovery
receivable		—			534,045			—			—			—			534,045
Other non-current assets		—			20,749			107,330			209,140			(2	)		337,217
TOTAL ASSETS	$	(570,671	)	$	536,270		$	1,689,300		$	2,669,124		$	(1,415,186	)	$	2,908,837
Liabilities & Shareholders’ Equity
Accounts payable and accrued expenses	$	320		$	58,927		$	747,395		$	448,732		$	(620,285	)	$	635,089
Estimated costs to complete long-
term contracts		—			—			341,299			366,024			—			707,323
Other current liabilities		(52	)		(1,085	)		28,643			170,705			—			198,211
Total current liabilities		268			57,842			1,117,337			985,461			(620,285	)		1,540,623
Corporate and other debt		—			340,000			43,678			16,261			—			399,939
Special-purpose project debt		—			—			—			181,613			—			181,613
Pension, postretirement and other
employee benefits		—			—			294,133			143,687			—			437,820
Asbestos-related liability		—			519,790			—			—			—			519,790
Other long-term liabilities and
minority interest		—			399,255			907,538			971,731			(2,160,818	)		117,706
Subordinated Robbins obligations		—			—			107,285			—			—			107,285
Convertible subordinated notes		210,000			—			—			—			—			210,000
Preferred trust securities		—			—			—			175,000			—			175,000
TOTAL LIABILITIES		210,268			1,316,887			2,469,971			2,473,753			(2,781,103	)		3,689,776
Common stock and paid-in-capital		242,490			242,490			242,490			444,090			(929,070	)		242,490
Retained earnings/(deficit)		(653,991	)		(653,669	)		(653,723	)		5,727			1,301,665			(653,991	)
Accumulated other comprehensive loss		(369,438	)		(369,438	)		(369,438	)		(254,446	)		993,322			(369,438	)
TOTAL SHAREHOLDERS’ EQUITY		(780,939	)		(780,617	)		(780,671	)		195,371			1,365,917			(780,939	)
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY	$	(570,671	)	$	536,270		$	1,689,300		$	2,669,124		$	(1,415,186	)	$	2,908,837

22

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Three Months Ended March 28, 2003
(In Thousands of Dollars)

		Foster Wheeler Ltd.			Foster Wheeler LLC			Guarantor Subsidiaries		Non-Guarantor Subsidiaries				Eliminations			Consolidated
Operating revenues	$	—		$	—		$	263,681		$	544,482		$	(24,071	)	$	784,092
Other income		3,413			13,696			23,617			22,961			(36,911	)		26,776
Total revenues and other income		3,413			13,696			287,298			567,443			(60,982	)		810,868
Cost of operating revenues		—			—			257,551			493,649			(24,071	)		727,129
Selling, general and administrative
expenses		—			—			25,090			26,650			—			51,740
Other deductions and minority
interest		6			130			17,306			5,531			(406	)		22,567
Interest expense (*)		3,434			14,058			14,031			26,776			(36,505	)		21,794
Equity in net (loss)/gain of
subsidiaries		(19,793	)		(19,296	)		8,997			—			30,092			—
(Loss)/earnings before income
taxes		(19,820	)		(19,788	)		(17,683	)		14,837			30,092			(12,362	)
Provision for income taxes		—			—			2,110			5,348			—			7,458
Net (loss)/earnings		(19,820	)		(19,788	)		(19,793	)		9,489			30,092			(19,820	)
Other comprehensive loss:
Foreign currency translation
adjustment		(815	)		(815	)		(815	)		(815	)		2,445			(815	)
Comprehensive (loss)/earnings	$	(20,635	)	$	(20,603	)	$	(20,608	)	$	8,674		$	32,537		$	(20,635	)
(*) Includes dividends on preferred securities of $4,372.

23

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Three Months Ended March 29, 2002
(In Thousands of Dollars)
(Restated)

		Foster Wheeler Ltd.			Foster Wheeler LLC			Guarantor Subsidiaries		Non-Guarantor Subsidiaries				Eliminations			Consolidated
Operating revenues	$	—		$	—		$	361,390		$	460,724		$	(26,705	)	$	795,409
Other income		3,413			13,699			9,936			21,572			(38,000	)		10,620
Total revenues and other income		3,413			13,699			371,326			482,296			(64,705	)		806,029
Cost of operating revenues		—			—			328,943			409,694			(26,705	)		711,932
Selling, general and administrative
expenses		—			—			31,518			22,740			—			54,258
Other deductions and minority
interest		5			2,167			15,712			22,216			(1,451	)		38,649
Interest expense (*)		3,437			12,508			15,895			25,625			(36,549	)		20,916
Equity in net losses of
subsidiaries		(25,591	)		(24,952	)		979			—			49,564			—
(Loss)/earnings before income
taxes		(25,620	)		(25,928	)		(19,763	)		2,021			49,564			(19,726	)
Provision/(benefit) for income
taxes		(10	)		(342	)		5,828			408			—			5,884
Net loss prior to cumulative effect of
a change in accounting
principle		(25,610	)		(25,586	)		(25,591	)		1,613			49,564			(25,610	)
Cumulative effect on prior years of
a change in accounting principle
for goodwill, net of $0 tax		(150,500	)		(150,500	)		(150,500	)		(24,800	)		325,800			(150,500	)
Net loss		(176,110	)		(176,086	)		(176,091	)		(23,187	)		375,364			(176,110	)
Other comprehensive loss:
Foreign currency translation
adjustment		(9,277	)		(9,277	)		(9,277	)		(9,277	)		27,831			(9,277	)
Net loss on derivative
instruments		(3,378	)		(3,378	)		(3,378	)		(3,358	)		10,114			(3,378	)
Comprehensive loss	$	(188,765	)	$	(188,741	)	$	(188,746	)	$	(35,822	)	$	413,309		$	(188,765	)
(*) Includes dividends on preferred securities of $4,012.

24

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Three Months Ended March 28, 2003
(In Thousands of Dollars)

		Foster Wheeler Ltd.			Foster Wheeler LLC			Guarantor Subsidiaries		Non-Guarantor Subsidiaries				Eliminations			Consolidated
Cash Flows from Operating     Activities
Net cash (used)/provided by
Operating Activities	$	(27	)	$	2,861		$	(22,589	)	$	3,652		$	(867	)	$	(16,970	)
Cash Flows from Investing     Activities
Change in restricted cash		—			—			(654	)		(3,043	)		—			(3,697	)
Capital expenditures		—			—			(747	)		(2,866	)		—			(3,613	)
Proceeds from sale of assets		—			—			72,580			338			—			72,918
(Increase)/decrease in investment and
advances		—			—			(4,417	)		2,754			5,381			3,718
Increase in short-term investments		—			—			—			(2	)		—			(2	)
Net cash (used)/ provided by
Investing Activities		—			—			66,762			(2,819	)		5,381			69,324
Cash Flows from Financing     Activities
Dividends to shareholders		—			—			—			—			—			—
Decrease in short-term debt		—			—			—			(503	)		—			(503	)
Proceeds from long-term debt		—			—			—			18			—			18
Repayment of long-term debt		—			(10,000	)		—			(3,603	)		—			(13,603	)
Other		27			7,139			31,074			(36,605	)		(4,514	)		(2,879	)
Net cash provided/(used) by
Financing Activities		27			(2,861	)		31,074			(40,693	)		(4,514	)		(16,967	)
Effect of exchange rate changes on
cash and cash equivalents		—			—			356			4,058			—			4,414
Increase/(decrease) in cash and cash
equivalents		—			—			75,603			(35,802	)		—			39,801
Cash and cash equivalents, beginning
of period		—			—			19,614			324,691			—			344,305
Cash and cash equivalents, end of
period	$	—		$	—		$	95,217		$	288,889		$	—		$	384,106

25

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Three Months Ended March 29, 2002
(In Thousands of Dollars)
(Restated)

		Foster Wheeler Ltd.			Foster Wheeler LLC			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from Operating     Activities
Net cash (used)/provided by
Operating Activities	$	(29	)	$	2,838		$	75,715		$	86,608		$	(19,140	)	$	145,992
Cash Flows from Investing     Activities
Capital expenditures		—			—			(2,657	)		(1,908	)		—			(4,565	)
Proceeds from sale of properties		—			—			12			145			—			157
Decrease in investment and advances		—			—			(6,354	)		(3,465	)		9,451			(368	)
Net cash (used)/provided by
Investing Activities		—			—			(8,999	)		(5,228	)		9,451			(4,776	)
Cash Flows from Financing Activities
Dividends to shareholders		—			—			—			(16,497	)		16,497			—
Decrease in short-term debt		—			—			—			(12,278	)		—			(12,278	)
Proceeds from long-term debt		—			70,000			—			11,321			—			81,321
Repayment of long-term debt		—			—			—			(3,037	)		—			(3,037	)
Other		29			(72,838	)		57,444			20,545			(7,241	)		(2,061	)
Net cash provided/(used) by
Financing Activities		29			(2,838	)		57,444			54			9,256			63,945
Effect of exchange rate changes on
cash and cash equivalents		—			—			(11	)		(6,425	)		433			(6,003	)
Increase in cash and cash     equivalents		—			—			124,149			75,009			—			199,158
Cash and cash equivalents, beginning
of period		—			—			40,965			183,055			—			224,020
Cash and cash equivalents, end of
period	$	—		$	—		$	165,114		$	258,064		$	—		$	423,178

26

9.	Consolidating Financial Information – Convertible Subordinated Notes
	In May and June 2001, Foster Wheeler Ltd. issued 6.5% Convertible Subordinated Notes (“Convertible Notes”) due in 2007. The Convertible Notes are fully and unconditionally guaranteed by Foster Wheeler LLC, a 100% owned subsidiary of Foster Wheeler Ltd. Foster Wheeler LLC has assumed the obligation to fund the debt service. The following summarized consolidating financial information is presented in lieu of separate financial statements and other related disclosures of Foster Wheeler LLC because management does not believe that such separate financial statements and related disclosures would be material to investors. The following represents summarized condensed consolidating financial information as of March 28, 2003 and December 27, 2002 with respect to the financial position, and for the three months ended March 28, 2003 and March 29, 2002, as restated, for results of operations and for cash flows of the Company and its 100% owned and majority-owned subsidiaries.
	The Foster Wheeler Ltd. column presents the financial information of the parent company, who is also the issuer. The Guarantor Subsidiary column presents the financial information of the sole guarantor, Foster Wheeler LLC. The non-guarantor subsidiaries include the results of all direct and indirect non-guarantor subsidiaries of Foster Wheeler Ltd., including Foreign Holdings Ltd., the parent of Foster Wheeler LLC. Foster Wheeler LLC owns, directly or indirectly, the other non-guarantor subsidiaries.

27

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
March 28, 2003
(In Thousands of Dollars)

		Foster Wheeler Ltd.			Guarantor Subsidiary		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—		$	—		$	384,106		$	—		$	384,106
Accounts and notes receivable, net		—			229,123			551,833			(194,470	)		586,486
Contracts in process and inventories		—			—			224,943			—			224,943
Other current assets		—			—			77,498			—			77,498
Total current assets		—			229,123			1,238,380			(194,470	)		1,273,033
Investment in subsidiaries & others		(801,156	)		(862,719	)		154,775			1,602,253			93,153
Land, buildings & equipment (net)		—			—			397,019			—			397,019
Notes and accounts receivable – long-term		210,000			595,656			196,926			(980,656	)		21,926
Intangible assets (net)		—			—			122,679			—			122,679
Asbestos-related insurance recovery
receivable		—			526,372			—			—			526,372
Other non-current assets		—			20,446			324,214			—			344,660
TOTAL ASSETS	$	(591,156	)	$	508,878		$	2,433,993		$	427,127		$	2,778,842
Liabilities & Shareholders’ Equity
Accounts payable and accrued expenses	$	347		$	69,688		$	730,098		$	(194,470	)	$	605,663
Estimated costs to complete long-term
contracts		—			—			646,000			—			646,000
Other current liabilities		(52	)		(1,085	)		201,757			—			200,620
Total current liabilities		295			68,603			1,577,855			(194,470	)		1,452,283
Corporate and other debt		—			330,000			59,932			—			389,932
Special-purpose project debt		—			—			178,346			—			178,346
Pension, postretirement and other
employee benefits		—			—			447,512			—			447,512
Asbestos-related liability		—			505,721			—			—			505,721
Other long-term liabilities and minority
interest		—			405,651			689,219			(980,656	)		114,214
Subordinated Robbins obligations		—			—			107,285			—			107,285
Convertible subordinated notes		210,000			—			—			—			210,000
Preferred trust securities		—			—			175,000			—			175,000
TOTAL LIABILITIES		210,295			1,309,975			3,235,149			(1,175,126	)		3,580,293
Common stock and paid in capital		242,613			242,613			242,613			(485,226	)		242,613
Retained deficit		(673,811	)		(673,457	)		(673,516	)		1,346,973			(673,811	)
Accumulated other comprehensive loss		(370,253	)		(370,253	)		(370,253	)		740,506			(370,253	)
TOTAL SHAREHOLDERS’ EQUITY		(801,451	)		(801,097	)		(801,156	)		1,602,253			(801,451	)
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY	$	(591,156	)	$	508,878		$	2,433,993		$	427,127		$	2,778,842

28

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
December 27, 2002
(In Thousands of Dollars)

	Foster Wheeler Ltd.			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—		$	—		$	344,305		$	—		$	344,305
Accounts and notes receivable, net		—			228,428			623,792			(167,548	)		684,672
Contracts in process and inventories		—			—			289,933			—			289,933
Other current assets		—			—			77,497			—			77,497
Total current assets		—			228,428			1,335,527			(167,548	)		1,396,407
Investment in subsidiaries and others		(780,671	)		(842,608	)		150,514			1,561,288			88,523
Land, buildings & equipment (net)		—			—			407,819			—			407,819
Notes and accounts receivable – long-term		210,000			595,656			196,944			(980,656	)		21,944
Intangible assets (net)		—			—			122,882			—			122,882
Asbestos-related insurance recovery
receivable		—			534,045			—			—			534,045
Other non-current assets		—			20,749			316,468			—			337,217
TOTAL ASSETS	$	(570,671	)	$	536,270		$	2,530,154		$	413,084		$	2,908,837
Liabilities & Shareholders’ Equity
Accounts payable and accrued expenses	$	320		$	58,927		$	743,390		$	(167,548	)	$	635,089
Estimated costs to complete long-term
contracts		—			—			707,323			—			707,323
Other current liabilities		(52	)		(1,085	)		199,348			—			198,211
Total current liabilities		268			57,842			1,650,061			(167,548	)		1,540,623
Corporate and other debt		—			340,000			59,939			—			399,939
Special purpose project debt		—			—			181,613			—			181,613
Pension, postretirement and other
employee benefits		—			—			437,820			—			437,820
Asbestos-related liability		—			519,790			—			—			519,790
Other long-term liabilities and
minority interest		—			399,255			699,107			(980,656	)		117,706
Subordinated Robbins obligations		—			—			107,285			—			107,285
Convertible subordinated notes		210,000			—			—			—			210,000
Preferred trust securities		—			—			175,000			—			175,000
TOTAL LIABILITIES		210,268			1,316,887			3,310,825			(1,148,204	)		3,689,776
Common stock and paid in capital		242,490			242,490			242,490			(484,980	)		242,490
Retained deficit		(653,991	)		(653,669	)		(653,723	)		1,307,392			(653,991	)
Accumulated other comprehensive loss		(369,438	)		(369,438	)		(369,438	)		738,876			(369,438	)
TOTAL SHAREHOLDERS’ EQUITY		(780,939	)		(780,617	)		(780,671	)		1,561,288			(780,939	)
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY	$	(570,671	)	$	536,270		$	2,530,154		$	413,084		$	2,908,837

29

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Three Months Ended March 28, 2003
(In Thousands of Dollars)

	Foster Wheeler Ltd.			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenues	$	—		$	—		$	784,092		$	—		$	784,092
Other income		3,413			13,696			31,170			(21,503	)		26,776
Total revenues and other income		3,413			13,696			815,262			(21,503	)		810,868
Cost of operating revenues		—			—			727,129			—			727,129
Selling, general and administrative
expenses		—			—			51,740			—			51,740
Other deductions and minority
interest		6			130			22,431			—			22,567
Interest expense (*)		3,434			14,058			25,805			(21,503	)		21,794
Equity in net loss of
subsidiaries		(19,793	)		(19,296	)		(492	)		39,581			—
Loss before income taxes		(19,820	)		(19,788	)		(12,335	)		39,581			(12,362	)
Provision for income taxes		—			—			7,458			—			7,458
Net loss		(19,820	)		(19,788	)		(19,793	)		39,581			(19,820	)
Other comprehensive loss:
Foreign currency translation
adjustment		(815	)		(815	)		(815	)		1,630			(815	)
Comprehensive loss	$	(20,635	)	$	(20,603	)	$	(20,608	)	$	41,211		$	(20,635	)
(*)    Includes dividends on preferred securities of $4,372.

30

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Three Months Ended March 29, 2002
(In Thousands of Dollars)
(Restated)

	Foster Wheeler Ltd.			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenues	$	—		$	—		$	795,409		$	—		$	795,409
Other income		3,413			13,699			14,657			(21,149	)		10,620
Total revenues and other income		3,413			13,699			810,066			(21,149	)		806,029
Cost of operating revenues		—			—			711,932			—			711,932
Selling, general and administrative
expenses		—			—			54,258			—			54,258
Other deductions and minority
interest		5			2,167			36,477			—			38,649
Interest expense (*)		3,437			12,508			26,120			(21,149	)		20,916
Equity in net losses of
subsidiaries		(25,591	)		(24,952	)		(634	)		51,177			—
Loss before income taxes		(25,620	)		(25,928	)		(19,355	)		51,177			(19,726	)
Provision/(benefit) for income
taxes		(10	)		(342	)		6,236			—			5,884
Net loss prior to cumulative effect of
a change in accounting
principle		(25,610	)		(25,586	)		(25,591	)		51,177			(25,610	)
Cumulative effect on prior years of
a change in accounting principle
for goodwill, net of $0 tax		(150,500	)		(150,500	)		(150,500	)		301,000			(150,500	)
Net loss		(176,110	)		(176,086	)		(176,091	)		352,177			(176,110	)
Other comprehensive loss:
Foreign currency translation
adjustment		(9,277	)		(9,277	)		(9,277	)		18,554			(9,277	)
Net loss on derivative
instruments		(3,378	)		(3,378	)		(3,378	)		6,756			(3,378	)
Comprehensive loss	$	(188,765	)	$	(188,741	)	$	(188,746	)	$	377,487		$	(188,765	)
(*)    Includes dividends on preferred securities of $4,012.

31

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Three Months Ended March 28, 2003
(In Thousands of Dollars)

	Foster Wheeler Ltd.			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from Operating Activities
Net cash (used)/provided by
Operating Activities	$	(27	)	$	2,861		$	(26,970	)	$	7,166		$	(16,970	)
Cash Flows from Investing Activities
Change in restricted cash		—			—			(3,697	)		—			(3,697	)
Capital expenditures		—			—			(3,613	)		—			(3,613	)
Proceeds from sale of assets		—			—			72,918			—			72,918
Decrease in investment and advances		—			—			3,718			—			3,718
Increase in short-term investments		—			—			(2	)		—			(2	)
Net cash provided by
Investing Activities		—			—			69,324			—			69,324
Cash Flows from Financing Activities
Dividends to shareholders		—			—			—			—			—
Decrease in short-term debt		—			—			(503	)		—			(503	)
Proceeds from long-term debt		—			—			18			—			18
Repayment of long-term debt		—			(10,000	)		(3,603	)		—			(13,603	)
Other		27			7,139			(2,879	)		(7,166	)		(2,879	)
Net cash provided/(used) by
Financing Activities		27			(2,861	)		(6,967	)		(7,166	)		(16,967	)
Effect of exchange rate changes on
cash and cash equivalents		—			—			4,414			—			4,414
Increase/(decrease) in cash and cash
equivalents		—			—			39,801			—			39,801
Cash and cash equivalents, beginning
of period		—			—			344,305			—			344,305
Cash and cash equivalents, end of
period	$	—		$	—		$	384,106		$	—		$	384,106

32

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Three Months Ended March 29, 2002
(In Thousands of Dollars)
(Restated)

	Foster Wheeler Ltd.			Guarantor Subsidiary			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from Operating Activities
Net cash (used)/provided by
Operating Activities	$	(29	)	$	2,838		$	215,992		$	(72,809	)	$	145,992
Cash Flows from Investing Activities
Capital expenditures		—			—			(4,565	)		—			(4,565	)
Proceeds from sale of properties		—			—			157			—			157
Decrease in investment and
advances		—			—			(368	)		—			(368	)
Net cash used by Investing Activities		—			—			(4,776	)		—			(4,776	)
Cash Flows from Financing Activities
Dividends to shareholders		—			—			—			—			—
Decrease in short-term debt		—			—			(12,278	)		—			(12,278	)
Proceeds from long-term debt		—			70,000			11,321			—			81,321
Repayment of long-term debt		—			—			(3,037	)		—			(3,037	)
Other		29			(72,838	)		(2,061	)		72,809			(2,061	)
Net cash provided/(used) by
Financing Activities		29			(2,838	)		(6,055	)		72,809			63,945
Effect of exchange rate changes on
cash and cash equivalents		—			—			(6,003	)		—			(6,003	)
Increase in cash and cash equivalents		—			—			199,158			—			199,158
Cash and cash equivalents, beginning
of period		—			—			224,020			—			224,020
Cash and cash equivalents, end of
period	$	—		$	—		$	423,178		$	—		$	423,178

33

10.	Consolidating Financial Information – Preferred Trust Securities
	On January 13, 1999 FW Preferred Capital Trust I, a Delaware Business Trust which is a 100% owned finance subsidiary of the Company, issued $175,000 in Preferred Trust Securities. The Preferred Trust Securities are fully and unconditionally guaranteed by Foster Wheeler Ltd. and Foster Wheeler LLC. Each of the guarantees is full and unconditional and joint and several. Foster Wheeler LLC has assumed the obligation to fund the debt service. These Preferred Trust Securities are entitled to receive cumulative cash distributions at an annual rate of 9.0%. Distributions are paid quarterly in arrears on April 15, July 15, October 15 and January 15 of each year. Such distributions may be deferred for periods up to five years. In accordance with this provision, the Company has deferred all quarterly distributions beginning with the distribution due on January 15, 2002. The maturity date is January 15, 2029. Foster Wheeler can redeem these Preferred Trust Securities on or after January 15, 2004. The following summarized consolidating financial information is presented in lieu of separate financial statements and other related disclosures of the 100% owned subsidiary guarantor and issuer because management does not believe that such separate financial statements and related disclosures would be material to investors. The following represents summarized condensed consolidating financial information as of March 28, 2003 and December 27, 2002 with respect to the financial position, and for the three months ended March 28, 2003 and March 29, 2002, as restated, for results of operations and for cash flows of the Company and its 100% owned and majority-owned subsidiaries.
	The Foster Wheeler Ltd. column presents the parent company’s financial information. Foster Wheeler Ltd. is also a guarantor. The FW Preferred Capital Trust column presents the financial information of the issuer. The Guarantor Subsidiary column presents the financial information of Foster Wheeler LLC, but excludes that of Foster Wheeler Ltd. which is separately presented. The non-guarantor subsidiaries include Foreign Holdings Ltd., the parent of Foster Wheeler LLC. Foster Wheeler LLC owns, directly or indirectly, the other non-guarantor subsidiaries.

34

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
March 28, 2003
(In Thousands of Dollars)

	Foster WheelerLtd.			FW Preferred Capital Trust			Guarantor Subsidiary		Non- Guarantor Subsidiaries
												Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—		$	—	$	—		$	384,106		$	—		$	384,106
Accounts and notes receivable, net		—			—		229,123			551,833			(194,470	)		586,486
Contracts in process and inventories		—			—		—			224,943			—			224,943
Other current assets		—			—		—			77,498			—			77,498
Total current assets		—			—		229,123			1,238,380			(194,470	)		1,273,033
Investment in subsidiaries & others		(801,156	)		—		(862,719	)		154,775			1,602,253			93,153
Land, buildings & equipment (net)		—			—		—			397,019			—			397,019
Notes and accounts receivable – long-       term		210,000			175,000		595,656			21,926			(980,656	)		21,926
Intangible assets (net)		—			—		—			122,679			—			122,679
Asbestos-related insurance recovery
receivable		—			—		526,372			—			—			526,372
Other non-current assets		—			—		20,446			324,214			—			344,660
TOTAL ASSETS	$	(591,156	)	$	175,000	$	508,878		$	2,258,993		$	427,127		$	2,778,842
Liabilities & Shareholders’ Equity
Accounts payable and accrued       expenses	$	347			—		69,688			730,098			(194,470	)		605,663
Estimated costs to complete long-term
contracts		—			—		—			646,000			—			646,000
Other current liabilities		(52	)		—		(1,085	)		201,757			—			200,620
Total current liabilities		295			—		68,603			1,577,855			(194,470	)		1,452,283
Corporate and other debt		—			—		330,000			59,932			—			389,932
Special-purpose project debt		—			—		—			178,346			—			178,346
Pension, postretirement and other
employee benefits		—			—		—			447,512			—			447,512
Asbestos-related liability		—			—		505,721			—			—			505,721
Other long-term liabilities and
minority interest		—			—		405,651			689,219			(980,656	)		114,214
Subordinated Robbins obligations		—			—		—			107,285			—			107,285
Convertible subordinated notes		210,000			—		—			—			—			210,000
Preferred trust securities		—			175,000		—			—			—			175,000
TOTAL LIABILITIES		210,295			175,000		1,309,975			3,060,149			(1,175,126	)		3,580,293
Common stock and paid in capital		242,613			—		242,613			242,613			(485,226	)		242,613
Retained deficit		(673,811	)		—		(673,457	)		(673,516	)		1,346,973			(673,811	)
Accumulated other comprehensive       loss		(370,253	)		—		(370,253	)		(370,253	)		740,506			(370,253	)
TOTAL SHAREHOLDERS’       EQUITY		(801,451	)		—		(801,097	)		(801,156	)		1,602,253			(801,451	)
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY	$	(591,156	)	$	175,000	$	508,878		$	2,258,993		$	427,127		$	2,778,842

35

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
December 27, 2002
(In Thousands of Dollars)

	Foster WheelerLtd.			FW Preferred Capital Trust			Guarantor Subsidiary		Non- Guarantor Subsidiaries
												Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—		$	—	$	—		$	344,305		$	—		$	344,305
Accounts and notes receivable, net		—			—		228,428			623,792			(167,548	)		684,672
Contracts in process and inventories		—			—		—			289,933			—			289,933
Other current assets		—			—		—			77,497			—			77,497
Total current assets		—			—		228,428			1,335,527			(167,548	)		1,396,407
Investment in subsidiaries and others		(780,671	)		—		(842,608	)		150,514			1,561,288			88,523
Land, buildings & equipment (net)		—			—		—			407,819			—			407,819
Notes and accounts receivable – long-       term		210,000			175,000		595,656			21,944			(980,656	)		21,944
Intangible assets (net)		—			—		—			122,882			—			122,882
Asbestos-related insurance recovery
receivable		—			—		534,045			—			—			534,045
Other non-current assets		—			—		20,749			316,468			—			337,217
TOTAL ASSETS	$	(570,671	)	$	175,000	$	536,270		$	2,355,154		$	413,084		$	2,908,837
Liabilities & Shareholders’ Equity
Accounts payable and accrued       expenses	$	320		$	—	$	58,927		$	743,390		$	(167,548	)	$	635,089
Estimated costs to complete long-term
contracts		—			—		—			707,323			—			707,323
Other current liabilities		(52	)		—		(1,085	)		199,348			—			198,211
Total current liabilities		268			—		57,842			1,650,061			(167,548	)		1,540,623
Corporate and other debt		—			—		340,000			59,939			—			399,939
Special-purpose project debt		—			—		—			181,613			—			181,613
Pension, postretirement and other
employee benefits		—			—		—			437,820			—			437,820
Asbestos-related liability		—			—		519,790			—			—			519,790
Other long-term liabilities and
minority interest		—			—		399,255			699,107			(980,656	)		117,706
Subordinated Robbins obligations		—			—		—			107,285			—			107,285
Convertible subordinated notes		210,000			—		—			—			—			210,000
Preferred trust securities		—			175,000		—			—			—			175,000
TOTAL LIABILITIES		210,268			175,000		1,316,887			3,135,825			(1,148,204	)		3,689,776
Common stock and paid in capital		242,490			—		242,490			242,490			(484,980	)		242,490
Retained deficit		(653,991	)		—		(653,669	)		(653,723	)		1,307,392			(653,991	)
Accumulated other comprehensive       loss		(369,438	)		—		(369,438	)		(369,438	)		738,876			(369,438	)
TOTAL SHAREHOLDERS’       EQUITY		(780,939	)		—		(780,617	)		(780,671	)		1,561,288			(780,939	)
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY	$	(570,671	)	$	175,000	$	536,270		$	2,355,154		$	413,084		$	2,908,837

36

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Three Months Ended March 28, 2003
(In Thousands of Dollars)

	Foster WheelerLtd.			FW Preferred Capital Trust			Guarantor Subsidiary		Non- Guarantor Subsidiaries
												Eliminations			Consolidated
Operating revenues	$	—		$	—	$	—		$	784,092		$	—		$	784,092
Other income		3,413			4,372		13,696			26,798			(21,503	)		26,776
Total revenues and other income		3,413			4,372		13,696			810,890			(21,503	)		810,868
Cost of operating revenues		—			—		—			727,129			—			727,129
Selling, general and administrative
expenses		—			—		—			51,740			—			51,740
Other deductions and minority
interest		6			—		130			22,431			—			22,567
Interest expense (*)		3,434			4,372		14,058			21,433			(21,503	)		21,794
Equity in net loss of subsidiaries		(19,793	)		—		(19,296	)		(492	)		39,581			—
Loss before income taxes		(19,820	)		—		(19,788	)		(12,335	)		39,581			(12,362	)
Provision for income taxes		—			—		—			7,458			—			7,458
Net loss		(19,820	)		—		(19,788	)		(19,793	)		39,581			(19,820	)
Other comprehensive loss:
Foreign currency translation
adjustment		(815	)		—		(815	)		(815	)		1,630			(815	)
Comprehensive loss	$	(20,635	)	$	—	$	(20,603	)	$	(20,608	)	$	41,211		$	(20,635	)
(*)    Includes dividends on preferred securities of $4,372.

37

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Three Months Ended March 29, 2002
(In Thousands of Dollars)
(Restated)

	Foster WheelerLtd.			FW Preferred Capital Trust			Guarantor Subsidiary		Non- Guarantor Subsidiaries
												Eliminations			Consolidated
Operating revenues	$	—		$	—	$	—		$	795,409		$	—		$	795,409
Other income		3,413			4,012		13,699			10,645			(21,149	)		10,620
Total revenues and other income		3,413			4,012		13,699			806,054			(21,149	)		806,029
Cost of operating revenues		—			—		—			711,932			—			711,932
Selling, general and administrative
expenses		—			—		—			54,258			—			54,258
Other deductions and minority
interest		5			—		2,167			36,477			—			38,649
Interest expense (*)		3,437			4,012		12,508			22,108			(21,149	)		20,916
Equity in net losses of subsidiaries		(25,591	)		—		(24,952	)		(634	)		51,177			—
Loss before income taxes		(25,620	)		—		(25,928	)		(19,355	)		51,177			(19,726	)
Provision/(benefit) for income
taxes		(10	)		—		(342	)		6,236			—			5,884
Net loss prior to cumulative effect of
a change in accounting principle		(25,610	)		—		(25,586	)		(25,591	)		51,177			(25,610	)
Cumulative effect of a change in
accounting principle for goodwill,
net of $0 tax		(150,500	)		—		(150,500	)		(150,500	)		301,000			(150,500	)
Net loss		(176,110	)		—		(176,086	)		(176,091	)		352,177			(176,110	)
Other comprehensive loss:
Foreign currency           translation adjustment		(9,277	)		—		(9,277	)		(9,277	)		18,554			(9,277	)
Net loss on derivative instruments		(3,378	)		—		(3,378	)		(3,378	)		6,756			(3,378	)
Comprehensive loss	$	(188,765	)	$	—	$	(188,741	)	$	(188,746	)	$	377,487		$	(188,765	)
(*)   Includes dividends on preferred securities of $4,012.

38

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Three Months Ended March 28, 2003
(In Thousands of Dollars)

	Foster WheelerLtd.			FW Preferred Capital Trust			Guarantor Subsidiary		Non- Guarantor Subsidiaries
												Eliminations			Consolidated
Cash Flows from Operating       Activities
Net cash (used)/provided by
Operating Activities	$	(27	)	$	—	$	2,861		$	(26,970	)	$	7,166		$	(16,970	)
Cash Flows from Investing       Activities
Change in restricted cash		—			—		—			(3,697	)		—			(3,697	)
Capital expenditures		—			—		—			(3,613	)		—			(3,613	)
Proceeds from sale of assets		—			—		—			72,918			—			72,918
Decrease in investment and
advances		—			—		—			3,718			—			3,718
Increase in short-term investment		—			—		—			(2	)		—			(2	)
Net cash provided by
Investing Activities		—			—		—			69,324			—			69,324
Cash Flows from Financing       Activities
Dividends to shareholders		—			—		—			—			—			—
Decrease in short-term debt		—			—		—			(503	)		—			(503	)
Proceeds from long-term debt		—			—		—			18			—			18
Repayment of long-term debt		—			—		(10,000	)		(3,603	)		—			(13,603	)
Other		27			—		7,139			(2,879	)		(7,166	)		(2,879	)
Net cash provided/(used) by
Financing Activities		27			—		(2,861	)		(6,967	)		(7,166	)		(16,967	)
Effect of exchange rate changes on
cash and cash equivalents		—			—		—			4,414			—			4,414
Increase in cash and cash       equivalents		—			—		—			39,801			—			39,801
Cash and cash equivalents, beginning
of period		—			—		—			344,305			—			344,305
Cash and cash equivalents, end of
period	$	—		$	—	$	—		$	384,106		$	—		$	384,106

39

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Three Months Ended March 29, 2002
(In Thousands of Dollars)
(Restated)

	Foster WheelerLtd.			FW Preferred Capital Trust			Guarantor Subsidiary		Non- Guarantor Subsidiaries
												Eliminations			Consolidated
Cash Flows from Operating       Activities
Net cash (used)/provided by
Operating Activities	$	(29	)	$	—	$	2,838		$	215,992		$	(72,809	)	$	145,992
Cash Flows from Investing       Activities
Capital expenditures		—			—		—			(4,565	)		—			(4,565	)
Proceeds from sale of properties		—			—		—			157			—			157
Increase in investment and advances		—			—		—			(368	)		—			(368	)
Net cash used by Investing       Activities		—			—		—			(4,776	)		—			(4,776	)
Cash Flows from Financing       Activities
Dividends to shareholders		—			—		—			—			—			—
Decrease in short-term debt		—			—		—			(12,278	)		—			(12,278	)
Proceeds from long-term debt		—			—		70,000			11,321			—			81,321
Repayment of long-term debt		—			—		—			(3,037	)		—			(3,037	)
Other		29			—		(72,838	)		(2,061	)		72,809			(2,061	)
Net cash provided/(used) by
Financing Activities		29			—		(2,838	)		(6,055	)		72,809			63,945
Effect of exchange rate changes on
cash and cash equivalents		—			—		—			(6,003	)		—			(6,003	)
Increase in cash and cash       equivalents		—			—		—			199,158			—			199,158
Cash and cash equivalents, beginning
of period		—			—		—			224,020			—			224,020
Cash and cash equivalents, end of
period	$	—		$	—	$	—		$	423,178		$	—		$	423,178

40

11. The Company owns a non-controlling equity interest in three cogeneration projects and one waste-to-energy project; three of which are located in Italy and one in Chile.  Two of the projects in Italy are each 42% owned while the third is 49% owned by the Company.  The project in Chile is 85% owned by the Company.  The Company does not have a controlling financial interest in the Chilean project.  Following is summarized financial information for the Company’s equity affiliates combined, as well as the Company’s interest in the affiliates.

	March 28, 2003				December 27, 2002
	Italian Projects		Chilean Project		Italian Projects		Chilean Project
Balance Sheet Data:
Current assets	$	95,672	$	12,542	$	80,966	$	22,352
Other assets (primarily buildings and equipment)		363,188		216,028		344,993		218,990
Current liabilities		33,122		12,538		20,665		14,748
Other liabilities (primarily long- term debt)		358,033		148,220		344,148		152,949
Net assets		67,705		67,812		61,146		73,645

	March 28, 2003				March 29, 2002
	Italian Projects		Chilean Project		Italian Projects		Chilean Project
Income Statement Data for three months:
Total revenues	$	48,688	$	9,560	$	41,895	$	9,721
Gross earnings		13,792		5,257		11,083		5,038
Income before income taxes		7,492		2,579		8,134		2,311
Net earnings		4,215		2,141		4,781		1,918

As of March 28, 2003, the Company’s share of the net earnings and investment in the equity affiliates totaled $3,549 and $93,153, respectively. Dividends of $43 were received during the first three months of 2003. The Company has guaranteed certain performance obligations of these projects. The Company’s average contingent obligations under these guarantees are approximately $2,800 per year for the four projects in total. The Company has provided a $10,000 debt service reserve letter of credit providing liquidity should the performance of the project be insufficient to cover the debt service payments. No amount has been drawn under the letter of credit.

12.

The Company has provided indemnifications to third parties relating to businesses and/or assets the Company previously owned.  Such indemnifications relate primarily to potential environmental and tax exposures for activities conducted by the Company prior to the sale.

	Maximum Potential Payment		Carrying Amount of Liability
Environmental indemnifications		No limit	$	6,400
Tax indemnifications		No limit	$	0

41

The Company provides for make good/warranty reserves on certain of its long-term contracts.  Generally, these reserves are accrued over the life of the contract so that a sufficient balance is maintained to cover the exposures at the conclusion of the contract.

Balance as of December 27, 2002	$	81,900
Accruals		11,000
Settlements		(2,600	)
Adjustments to provisions		(6,100	)
Balance as of March 28, 2003	$	84,200

13.	The difference between the statutory and effective tax rate in 2003 and 2002 is predominately due to a domestic pretax loss for which no income tax benefit was claimed.
14.	On March 7, 2003, the Company sold certain assets of its wholly owned subsidiary, Foster Wheeler Environmental Corporation, for sales proceeds of approximately $72,000.  Additionally, approximately $8,000 of cash on hand was retained by Foster Wheeler.  The proceeds are subject to adjustment based on a final net worth calculation to be finalized in the second quarter.
	Net assets sold of approximately $57,000 essentially consisted of government and commercial contracts. The Company recorded a gain on the asset sale of $15,300. Project reserves totaling approximately $21,100 were established during the quarter on two government contracts retained by the subsidiary; $7,600 of which was to reflect a less optimistic view on recovery of costs on one contract, and $13,500 of which was to recognize the anticipated loss on another contract.
15.	In the fourth quarter of 2002, management determined that the liabilities and results of operations associated with one of the Company’s postretirement medical benefit plans were not accounted for in accordance with SFAS 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.”  The Company’s condensed consolidated balance sheet as of March 29, 2002 and the related condensed consolidated statement of earnings and comprehensive income and the condensed consolidated statement of cash flows for the three-month period ended March 29, 2002 have been revised to account for the liabilities and results of operations associated with this benefit plan in accordance with the provisions of SFAS 106. The cumulative effect on shareholders’ equity as of December 28, 2001 was a decrease of $18,900.
	The March 29, 2002 financial statements have also been revised to reflect the cumulative effect of the change in accounting principle for goodwill of $150,500 recorded by the Company in connection with its adoption of SFAS 142, an increase of $77,000 over what had been previously reported.  As permitted by SFAS 142, the Company completed its step two assessment of goodwill impairment on one of its reporting units in the fourth quarter of 2002, resulting in an impairment charge of $77,000.  The March 2002 financial statements have been revised in accordance with SFAS 142 to record this charge effective as of the beginning of the year (December 29, 2001), as required.
	A summary of the effects of the restatement on the Company’s condensed consolidated balance sheet and condensed consolidated statement of earnings and comprehensive income is as follows:

42

Balance Sheet	March 29, 2002 As Reported			March 29, 2002 Restated
Goodwill, net	$	126,301		$	49,301
Postretirement and other employee benefits other than pensions	$	169,515		$	188,815
Retained deficit	$	(208,582	)	$	(304,882	)
Total shareholder’s deficit	$	(140,909	)	$	(237,209	)

Statement of Earnings and Comprehensive Income		Three Months Ended March 29, 2002 As Reported			Three Months Ended March 29, 2002 Restated
Other deductions *	$	38,249		$	38,649
Loss before income taxes	$	(19,326	)	$	(19,726	)
Net loss prior to cumulative effect of a change in accounting principle	$	(25,210	)	$	(25,610	)
Cumulative effect on prior years of a change in accounting principle for goodwill, net of $0 tax	$	(73,500	)	$	(150,500	)
Net loss	$	(98,710	)	$	(176,110	)
Loss per share prior to cumulative effect of a change in accounting principle, basic and diluted	$	(0.62	)	$	(0.63	)
Loss per share on the cumulative effect of a change in accounting principle, basic and diluted	$	(1.79	)	$	(3.67	)
Loss per share, basic and diluted	$	(2.41	)	$	(4.30	)

*Other deductions, as reported, reflects a decrease of $16,904 related to a reclassification of interest expense to a separate line item on the condensed consolidating statement of earnings and comprehensive income.

16.	On March 31, 2003, the Company sold its interest in a corporate office building for net proceeds of approximately $7,900, which approximated the value of the Company’s investment.  With the completion of this transaction, $1,445 of the net proceeds were used to prepay principal outstanding under the Senior Credit Facility in accordance with the terms of the facility as described in Note 2.
17.	On April 10, 2003, the Board of Directors approved changes to the Company’s domestic employee benefits program, including the pension, postretirement medical, and 401(k) plans.  The changes

43

were made following an independent review of the Company’s domestic employee benefits which assessed the Company’s benefit program against that of the marketplace and its competitors.

The principal changes consist of the following:  the pension plan will be frozen as of May 31, 2003, which means participants will not be able to increase the amount earned under the terms of the plan; the postretirement medical plan will be available on a subsidized premium basis only to currently active employees who are eligible to retire under the terms of the pension plan by May 31, 2006; and the 401(k) plan will be enhanced to increase the level of employer matching contribution.  The net effect of these changes is expected to positively impact the financial condition of the Company through reduced costs and reduced cash outflow.

The Company has frozen the Supplemental Employee Retirement Plan (“SERP”) and, in April 2003, issued letters of credit totaling $2,424 to certain employees to support its obligations under the SERP.

44

18. Consolidating Financial Information — Proposed Preferred Share Exchange Offer of Foster Wheeler Holdings Ltd. (previously known as Foreign Holdings Ltd.)

   Under the proposed terms of Foster Wheeler Holdings Ltd.’s preferred share exchange offer, Foster Wheeler Holdings Ltd. plans to issue preferred shares in exchange for 9.00% Preferred Securities, Series I issued by FW Preferred Capital Trust I, which are fully and unconditionally guaranteed by Foster Wheeler Ltd. and Foster Wheeler LLC. Foster Wheeler Ltd. along with Foster Wheeler Inc. and FWPI Ltd., both of which are indirectly 100% owned subsidiaries of Foster Wheeler Ltd., will fully and unconditionally, jointly and severally, guarantee the new preferred shares as to the payment of declared dividends, redemption payments, if any, and distributions upon liquidation or winding up. Foster Wheeler Holdings Ltd. is a Bermuda company and a 100% owned direct subsidiary of Foster Wheeler Ltd. Foster Wheeler Holdings Ltd., a holding company, does not conduct any business except through its indirect ownership of its subsidiaries. The consolidated financial statements of Foster Wheeler Holdings Ltd. are substantially the same as those of Foster Wheeler Ltd.

   The following summarized consolidating financial information is presented in lieu of separate financial statements and other related disclosures of the wholly owned subsidiary guarantors and issuer because management does not believe that such separate financial statements and related disclosures would be material to investors. The following represents summarized condensed consolidating financial information as of March 28, 2003 and December 27, 2002 with respect to the financial position, and for the three-months ended March 28, 2003 and March 29, 2002 for results of operations and for cash flows of the Company and its 100% owned and majority owned subsidiaries.

   The Foster Wheeler Ltd. column presents the parent company’s financial information. Foster Wheeler Ltd. is also a guarantor. The Foster Wheeler Holdings Ltd. column presents the issuer’s financial information. The Guarantor Subsidiaries column presents the financial information of all guarantors excluding that of Foster Wheeler Ltd. which is separately presented.

   The consolidating financial statements have been prepared as if the proposed corporate structure for Foster Wheeler Holdings Ltd. and FWPI Ltd. was in place from the beginning of the time periods presented.

45

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
March 28, 2003
(In Thousands of Dollars)

Assets	Foster Wheeler Ltd.			Foster Wheeler Holdings Ltd.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	—		$	—		$	82,330		$	301,776		$	—		$	384,106
Accounts and notes receivable, net		—			—			336,764			1,200,909			(951,187	)		586,486
Contracts in process and inventories		—			—			—			224,943			—			224,943
Other current assets		—			—			2,047			75,451			—			77,498
Total current assets		—			—			421,141			1,803,079			(951,187	)		1,273,033
Investment in subsidiaries and others		(801,156	)		(801,097	)		49,503			(856,771	)		2,502,674			93,153
Land, buildings & equipment (net)		—			—			2,448			394,571			—			397,019
Notes and accounts receivable — long-term		210,000			—			90,552			58,277			(336,903	)		21,926
Intangible assets (net)		—			—			—			122,679			—			122,679
Asbestos-related insurance recovery receivable		—			—			—			526,372			—			526,372
Other non-current assets		—			—			104,705			239,955			—			344,660
TOTAL ASSETS	$	(591,156	)	$	(801,097	)	$	668,349		$	2,288,162		$	1,214,584		$	2,778,842
Liabilities & Shareholders’ Deficit
Accounts payable and accrued expenses	$	347		$	66		$	743,388		$	813,049		$	(951,187	)	$	605,663
Estimated costs to complete long-term contracts		—			—			—			646,000			—			646,000
Other current liabilities		(52	)		(7	)		107,990			92,689			—			200,620
Total current liabilities		295			59			851,378			1,551,738			(951,187	)		1,452,283
Corporate and other debt		—			—			—			389,932			—			389,932
Special-purpose project debt		—			—			—			178,346			—			178,346
Pension, postretirement and other employee benefits		—			—			292,998			154,514			—			447,512
Asbestos-related liability		—			—			—			505,721			—			505,721
Other long-term liabilities and minority interest		—			—			317,109			134,008			(336,903)			114,214
Subordinated Robbins obligations		—			—			107,285			—			—			107,285
Convertible subordinated notes		210,000			—			-			-			—			210,000
Preferred trust securities		—			—			—			175,000			—			175,000
TOTAL LIABILITIES		210,295			59			1,568,770			3,089,259			(1,288,090	)		3,580,293
Common stock and paid in capital		242,613			242,613			242,613			242,613			(727,839	)		242,613
Retained deficit		(673,811	)		(673,516	)		(772,781	)		(673,457	)		2,119,754			(673,811	)
Accumulated other comprehensive loss		(370,253	)		(370,253	)		(370,253	)		(370,253	)		1,110,759			(370,253	)
TOTAL SHAREHOLDERS’ DEFICIT		(801,451	)		(801,156	)		(900,421	)		(801,097	)		2,502,674			(801,451	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	$	(591,156	)	$	(801,097	)	$	668,349		$	2,288,162		$	1,214,584		$	2,778,842

46

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING BALANCE SHEET
December 27, 2002
(In Thousands of Dollars)

Assets	Foster Wheeler Ltd.			Foster Wheeler Holdings Ltd.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash and cash equivalents	$	—		$	—		$	7,149		$	337,156		$	—		$	344,305
Accounts and notes receivable, net		—			—			316,573			1,130,863			(762,764	)		684,672
Contracts in process and inventories		—			—			—			289,933			—			289,933
Other current assets		—			—			384			77,113			—			77,497
Total current assets		—			—			324,106			1,835,065			(762,764	)		1,396,407
Investment in subsidiaries and others		(780,671	)		(780,617	)		41,200			(831,494	)		2,440,105			88,523
Land, buildings & equipment (net)		—			—			2,496			405,323			—			407,819
Notes and accounts receivable — long-term		210,000			—			90,552			52,407			(331,015	)		21,944
Intangible assets (net)		—			—			—			122,882			—			122,882
Asbestos-related insurance recovery receivable		—			—			—			534,045			—			534,045
Other non-current assets		—			—			105,099			232,118			—			337,217
TOTAL ASSETS	$	(570,671	)	$	(780,617	)	$	563,453		$	2,350,346		$	1,346,326		$	2,908,837
Liabilities & Shareholders’ Deficit
Accounts payable and accrued expenses	$	320		$	54		$	626,046		$	771,433		$	(762,764	)	$	635,089
Estimated costs to complete long-term contracts		—			—			—			707,323			—			707,323
Other current liabilities		(52	)		—			63,051			135,212			—			198,211
Total current liabilities		268			54			689,097			1,613,968			(762,764	)		1,540,623
Corporate and other debt		—			—			—			399,939			—			399,939
Special-purpose project debt		—			—			—			181,613			—			181,613
Pension, postretirement and other employee benefits		—			—			288,044			149,776			—			437,820
Asbestos-related liability		—			—						519,790			—			519,790
Other long-term liabilities and minority interest		—			—			357,844			90,877			(331,015	)		117,706
Subordinated Robbins obligations		—			—			107,285			—			—			107,285
Convertible subordinated notes		210,000			—			—			—			—			210,000
Preferred trust securities		—			—			—			175,000			—			175,000
TOTAL LIABILITIES		210,268			54			1,442,270			3,130,963			(1,093,779	)		3,689,776
Common stock and paid in capital		242,490			242,490			242,490			242,490			(727,470	)		242,490
Retained deficit		(653,991	)		(653,723	)		(751,869	)		(653,669	)		2,059,261			(653,991	)
Accumulated other comprehensive loss		(369,438	)		(369,438	)		(369,438	)		(369,438	)		1,108,314			(369,438	)
TOTAL SHAREHOLDERS’ DEFICIT		(780,939	)		(780,671	)		(878,817	)		(780,617	)		2,440,105			(780,939	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	$	(570,671)		$	(780,617)		$	563,453		$	2,350,346		$	1,346,326		$	2,908,837

47

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
Three Months Ended March 28, 2003
(In Thousands of Dollars)

	Foster Wheeler Ltd.			Foster Wheeler Holdings Ltd			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenues	$	—		$	—		$	—		$	784,092		$	—		$	784,092
Other income		3,413			—			3,297			28,132			(8,066	)		26,776
Total revenues and other income		3,413			—			3,297			812,224			(8,066	)		810,868
Cost of operating revenues		—			—			—			727,129			—			727,129
Selling, general and administrative expenses		—			—			8,552			43,188			—			51,740
Other deductions and minority interest		6			5			14,251			8,305			—			22,567
Interest expense (*)		3,434			—			7,507			18,919			(8,066	)		21,794
Equity in net (loss)/earnings of subsidiaries		(19,793	)		(19,788	)		9,118			(29,908	)		60,371			—
Loss before income taxes		(19,820	)		(19,793	)		(17,895	)		(15,225	)		60,371			(12,362	)
Provision for income taxes		—			—			2,895			4,563			—			7,458
Net loss		(19,820	)		(19,793	)		(20,790	)		(19,788	)		60,371			(19,820	)
Other comprehensive loss:
Foreign currency translation adjustment		(815	)		(815	)		(815	)		(815	)		2,445			(815	)
Comprehensive loss	$	(20,635	)	$	$(20,608	)	$	$(21,605	)	$	$ (20,603	)	$	62,816		$	(20,635	)

(*) Includes dividends on preferred securities of $4,372.

48

FOSTER WHEELER LTD.

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

Three Months Ended March 29, 2002

(In Thousands of Dollars)

(Restated)

	Foster Wheeler Ltd.			Foster Wheeler Holdings Ltd			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenues	$	—		$	—		$	—		$	795,409		$	—		$	795,409
Other income		3,413			—			4,369			12,151			( 9,313	)		10,620
Total revenues and other income		3,413			—			4,369			807,560			( 9,313	)		806,029
Cost of operating revenues		—			—			—			711,932			—			711,932
Selling, general and administrative expenses		—			—			13,350			40,908			—			54,258
Other deductions/(income) and minority interest		5			7			(91	)		38,728			—			38,649
Interest expense (*)		3,437			—			5,772			21,020			( 9,313	)		20,916
Equity in net losses of subsidiaries		( 25,591	)		(25,586	)		(3,472	)		(22,367	)		77,016			—
Loss before income taxes		(25,620	)		(25,593	)		(18,134	)		(27,395	)		77,016			(19,726	)
Provision/(benefit) for income taxes		(10	)		(2	)		7,705			(1,809	)		—			5,884
Net loss prior to cumulative effect of a change in accounting principle		( 25,610	)		(25,591	)		(25,839	)		(25,586	)		77,016			(25,610	)
Cumulative effect of a change in accounting principle for goodwill, net of $0 tax		(150,500	)		(150,500	)		(150,500	)		(150,500	)		451,500			(150,500	)
Net loss		(176,110	)		(176,091	)		(176,339	)		(176,086	)		528,516			(176,110	)
Other comprehensive loss: Foreign currency translation adjustment		(9,277	)		(9,277	)		(9,277	)		(9,277	)		27,831			(9,277	)
Net loss on derivative instruments		(3,378	)		(3,378	)		(3,378	)		(3,378	)		10,134			(3,378)
Comprehensive loss	$	(188,765	)	$	(188,746	)	$	(188,994	)	$	(188,741	)	$	566,481		$	(188,765	)

(*)       Includes dividends on preferred securities of $4,012.

49

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Three Months Ended March 28, 2003
(In Thousands of Dollars)

	Foster Wheeler Ltd.			Foster Wheeler Holdings Ltd			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from Operating Activities
Net cash (used)/provided by Operating Activities	$	(27	)	$	(5	)	$	(29,123	)	$	12,153		$	32		$	(16,970	)
Cash Flows from Investing Activities
Change in restricted cash		—			—			—			(3,697	)		—			(3,697	)
Capital expenditures		—			—			—			(3,613	)		—			(3,613	)
Proceeds from sale of assets		—			—			—			72,918			—			72,918
Decrease in investment and advances					—			1			3,717			—			3,718
Increase in short term investments		—			—			—			(2	)		—			(2	)
Net cash provided by Investing Activities		—			—			1			69,323			—			69,324
Cash Flows from Financing Activities
Decrease in short-term debt		—			—			—			(503	)		—			(503	)
Proceeds from long-term debt		—			—			—			18			—			18
Repayment of long-term debt		—			—			—			(13,603	)		—			(13,603	)
Other		27			5			104,303			(107,182	)		(32	)		(2,879	)
Net cash provided/(used) by Financing Activities		27			5			104,303			(121,270	)		(32	)		(16,967	)
Effect of exchange rate changes on cash and cash equivalents		—			—			—			4,414			—			4,414
Increase/(decrease) in cash and cash equivalents		—			—			75,181			(35,380	)		—			39,801
Cash and cash equivalents, beginning of period		—			—			7,149			337,156			—			344,305
Cash and cash equivalents, end of period	$	—		$	—		$	82,330		$	301,776		$	—		$	384,106

50

FOSTER WHEELER LTD.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
Three Months Ended March 29, 2002
(In Thousands of Dollars)

	Foster Wheeler Ltd.			Foster Wheeler Holdings Ltd			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from Operating Activities
Net cash (used)/provided by Operating Activities	$	(29	)	$	(7	)	$	(15,563	)	$	172,263		$	(10,672	)	$	145,992
Cash Flows from Investing Activities
Capital expenditures		—			—			211			(4,776	)		—			(4,565	)
Proceeds from sale of properties		—			—			—			157			—			157
Increase in investment and advances		—			—			—			(368	)		—			(368	)
Net cash (used)/provided by Investing Activities		—			—			211			(4,987	)		—			(4,776	)
Cash Flows from Financing Activities
Dividends to shareholders		—			—			—			(10,708	)		10,708			—
Decrease in short-term debt		—			—			—			(12,278	)		—			(12,278	)
Proceeds from long-term debt		—			—			—			81,321			—			81,321
Repayment of long-term debt		—			—			—			(3,037	)		—			(3,037	)
Other		29			7			114,047			(116,108	)		(36	)		(2,061	)
Net cash provided/(used) by Financing Activities		29			7			114,047			(60,810	)		10,672			63,945
Effect of exchange rate changes on cash and cash equivalents		—			—			—			(6,003	)		—			(6,003	)
Increase in cash and cash equivalents		—			—			98,695			100,463			—			199,158
Cash and cash equivalents, beginning of year		—			—			21,791			202,229			—			224,020
Cash and cash equivalents, end of year	$	—		$	—		$	120,486		$	302,692		$	—		$	423,178

51