As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/20/05  Foster Wheeler AG                 10-K/A     12/31/04    8:6.8M                                   Bowne & C… Smartedgar/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K/A      Amendment to Annual Report                          HTML   6.57M 
 2: EX-12.1     Statement re: Computation of Ratios                 HTML     24K 
 3: EX-21       Subsidiaries of the Registrant                      HTML     18K 
 4: EX-23.0     Consent of Experts or Counsel                       HTML     13K 
 5: EX-31.1     Certification per Sarbanes-Oxley Act (Section 302)  HTML     12K 
 6: EX-31.2     Certification per Sarbanes-Oxley Act (Section 302)  HTML     11K 
 7: EX-32.1     Certification per Sarbanes-Oxley Act (Section 906)  HTML      8K 
 8: EX-32.2     Certification per Sarbanes-Oxley Act (Section 906)  HTML      8K 

(Mark One)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

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

As of June 25, 2004, the aggregate market value of common shares held by non-affiliates of the Registrant was approximately $28,148,000 (based on the last price on that date of $28.60 per share, which has been adjusted for the one-for-twenty reverse stock split that was effective on November 29, 2004), assuming for these purposes, but without conceding, that all executive officers and directors are affiliates of the Registrant.

As of February 28, 2005, 44,577,858 shares of the Registrant’s common shares were issued and outstanding. The aggregate market value of such shares held by non-affiliates of the Registrant on such date was approximately $395,275,000 (based on the last price on that date of $17.95 per share), assuming for these purposes, but without conceding, that all executive officers and directors are affiliates of the Registrant.

List hereunder the following documents, if incorporated by reference and the Part of the Form 10-K into which the document is incorporated:

Part III incorporates certain information by reference from the registrant’s definitive proxy statement for the annual meeting of shareholders to be held on May 10, 2005, which proxy statement will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2004.

This Form 10-K/A (Amendment No. 1) amends the Registrant’s annual report on Form 10-K for the year ended December 31, 2004, as filed on March 31, 2005. The Registrant’s consolidated financial statements are being restated to correct an error made by the Company’s external actuaries in computing the Company’s December 31, 2004 pension valuation used in the preparation of the December 31, 2004 consolidated financial statements and to modify certain disclosures within Part II, Item 9A, “Controls and Procedures.” See Note 2 to the consolidated financial statements for further discussion on these matters. Each item of the Form 10-K for the year ended December 31, 2004 that was affected by the restatement has been amended and restated. No attempt has been made in this Form 10-K/A to modify or update other disclosures as presented in the original Form 10-K except as required to reflect the effects of the restatement.

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth in this Report. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Safe Harbor Statement” for further information.

Foster Wheeler Ltd. is incorporated under the laws of Bermuda and is a holding company that owns the stock of its various subsidiary companies. Except as the context otherwise requires, the terms “Foster Wheeler” or the “Company,” as used herein, include Foster Wheeler Ltd. and its direct and indirect subsidiaries.

This Form 10-K/A is hereinafter referred to as “Form 10-K.”

The Company operates through two business groups which also constitute separate reportable segments: the Engineering and Construction Group (the “E&C Group”) and the Global Power Group. The E&C Group designs, engineers, and constructs upstream oil and gas processing facilities, oil refining, chemical and petrochemical, pharmaceutical, natural gas liquefaction (LNG) facilities and receiving terminals, and related infrastructure, including power generation and distribution facilities. The E&C Group provides engineering, project management and construction management services, and purchases equipment, materials and services from third-party suppliers and subcontractors. The E&C Group owns industry leading technology in delayed coking, solvent de-asphalting, and hydrogen production processes used in oil refineries and has access to numerous technologies owned by others. The E&C Group also provides international environmental remediation services, together with related technical, engineering, design and regulatory services. The E&C Group generates revenues from engineering and construction activities pursuant to long-term contracts spanning up to four years in duration.

The Global Power Group designs, manufactures, and erects steam generating and auxiliary equipment for electric power generating stations and industrial markets worldwide. Steam generating equipment includes a full range of fluidized bed and conventional boilers firing coal, oil, gas, biomass and municipal solid waste, waste wood, and low-Btu gases. The Company’s circulating fluidized-bed boiler technology is recognized as one of the leading solid fired fuel technologies in the world. Auxiliary equipment includes feedwater heaters, steam condensers, heat-recovery equipment, selective non-catalytic recovery units, selective catalytic recovery units and low-NOx burners. The Company provides a broad range of site services relating to these products, including full plant construction, maintenance engineering, plant upgrading and life extension, and plant repowering. The Global Power Group also provides research analysis and experimental work in fluid dynamics, heat transfer, combustion and fuel technology, materials engineering and solids mechanics. In addition, the Global Power Group builds, owns and operates cogeneration, independent power production and waste-to-energy facilities, as well as facilities for the process and petrochemical industries. The Global Power Group generates revenues from long-term engineering activities, supply of equipment and construction contracts, and from operating activities pursuant to the long-term sale of project outputs (i.e., electricity, steam, etc.), operating and maintenance agreements, and from returns on its equity investments in certain production facilities.

Please see Note 20 to the consolidated financial statements in this Form 10-K for a discussion of the Company’s financial reporting segments and geographic financial information relating to the Company’s domestic and foreign operations and export sales.

The E&C Group provides the following services:

The principal products of the Global Power Group are boilers. These boilers may be described as either heat-recovery steam generators, circulating fluidized-bed steam generators, or pulverized coal boilers. A boiler is a device that turns water into steam. It is a critical component in any solid or liquid fuel or combined-cycle gas-fired power generation facility. A boiler creates steam either through the combustion of solid or liquid fuel or the recapture of heat exhaust from a gas turbine. The boiler’s steam is then directed to a steam turbine to generate electricity.

Circulating Fluidized-Bed Steam Generators (“CFB”).     The Global Power Group provides circulating fluidized-bed technology. Circulating fluidized-bed combustion is one of the most efficient, environmentally friendly and versatile ways to generate steam from coal and virtually any other solid or gaseous fuel with reduced emission of sulfur and other environmental pollutants. A CFB boiler utilizes air jets at the base of the boiler to blow the fuel particles upward from the bed to be recombusted. In a power plant, this circulating action increases efficiency and reduces sulfur emissions by further extending the contact between fuel particles and limestone, thereby reducing the need for air pollution control devices to remove sulfur, fly ash and other pollutants.

Pulverized Coal Boilers (“PCB”).     The Global Power Group provides pulverized coal boilers, which are an important component in solid fuel power generation systems, particularly in underdeveloped nations. In a pulverized coal power plant, ground-up coal particles are burned, which heats water in tubes surrounding the boiler to produce steam. Due to the variability among different power plants such as size, expected operating rates and fuel types, boiler design is not standardized, and some degree of customization is required in every plant.

Auxiliary Equipment & Aftermarket Services.     The Global Power Group also manufactures and installs integral components of both natural gas and solid fuel power generation facilities, including surface condensers, feedwater heaters, coal pulverizers and nitrogen oxide reduction systems. The nitrogen oxide, or NOx, reduction systems include selective catalytic reduction equipment and low NOx burners and can significantly reduce nitrogen oxide emissions. These products have application in a wide range of steam generators. The Global Power Group also supplies replacement components, repair parts, boiler modifications and engineered solutions for steam generators worldwide.

Power.     The Company supplies advanced steam generation equipment for power plants. It also provides comprehensive engineering, procurement and construction services for the development of power generation plants.

Oil & Gas/Refinery.      The Company has been in the petroleum refining industry for over 75 years, designing and building grassroots facilities and upgrading existing plants for nearly all of the world’s major oil companies. The Company has extensive experience with virtually all petroleum refining technologies, including alkylation, catalytic cracking and reforming, delayed coking, distillation, isomerization, hydrocracking, hydrotreating and solvent deasphalting and visbreaking. The Company offers expertise in clean fuels in order to ensure that refined products and the refineries meet lower emission requirements cost effectively. The Company also has proprietary technologies and processes in the areas of delayed coking and hydrogen. In addition to servicing the downstream and oil refining segment, the Company provides complete design, engineering, procurement, construction and project management services for all aspects of oil and gas field development both onshore and offshore.

Pharmaceutical.     The Company engineers, designs and builds research laboratories, biotechnology facilities and a range of pharmaceutical bulk and finishing plants around the world. In addition, the Company provides clean room, containment, simulation and optimization, advanced enterprise and production resource planning to help clients optimize their operations. The Company also has expertise in regulatory validation, which streamlines the testing and paperwork required for Food and Drug Administration approval.

Chemical/Petrochemical.      The Company has over 60 years of experience in the chemical, petrochemical and polymer industries. The Company has used over 70 major chemical, petrochemical and polymer processes in raw materials, intermediate products and finished product plants worldwide. The Company also provides project management, plant operations and maintenance services to this industry. To provide greater resources to the Company’s chemicals clients, the Company is capable of utilizing most available process technologies from licensors or implementing a front-end engineering process to develop a technology for a particular project for unit operation.

LNG.     The Company provides services to the Liquefied Natural Gas (LNG) industry and has experience with major liquefaction projects. This is part of the Company’s expertise in providing services for gas monetization which includes gas gathering/processing and gas-to-liquids plants as well as LNG. The Company offers a complete range of services in this sector to meet client needs including project management, front-end design, project development, engineering, procurement, construction and commissioning, plant operations and maintenance.

Environmental.     The Company provides environmental engineering and consulting services. The Company provides private industry and federal, state and local governments with a broad range of hazardous, nuclear, and mixed waste assessments and investigations, design, remediation, program/project management, operations, risk-based management, regulatory compliance and permitting, ecological and geoscience services, ports, harbors and water way services, natural and water resources services, and environmental technologies and spent nuclear fuel storage systems products.

Power Production.     The Company provides services to build, own or lease, and operate cogeneration, independent power production and resource recovery facilities as well as facilities for the process and petrochemical industries. The Company generates revenues from operating activities pursuant to long-term sale of project outputs (i.e., electricity and steam contracts), operating and maintenance agreements.

Foster Wheeler markets its services and products through a worldwide staff of sales and marketing personnel, and through a network of sales representatives. The Company’s businesses are not seasonal and are not dependent on a limited group of clients. No single client accounted for ten percent or more of Foster Wheeler’s consolidated revenues in fiscal 2004, 2003 or 2002. Representative clients include national and independent oil companies, major petrochemical, chemical, LNG, and pharmaceutical clients, national and independent electric power generation companies, and government agencies, throughout the world.

Foster Wheeler owns and licenses patents, trademarks and know-how, which are used in each of its business groups. The life cycle of the patents and trademarks are of varying durations. Neither business group is materially dependent on any particular or related patent or trademark, although the Company does depend on its ability to protect its intellectual property rights to the technologies and know-how used in its proprietary products. See risk factor entitled “The Company may lose market share to its competitors and be unable to operate its business profitably if its patents and other intellectual property rights do not adequately protect its proprietary products” for further information. Foster Wheeler has granted licenses to companies throughout the world to manufacture stationary steam generators and related equipment and certain of its other products. Principal licensees are located in Japan and China. Royalty revenues approximate $5,000 per year.

The Company executes contracts on lump-sum, fixed-price bases, target-priced contracts with incentives, and on cost-reimbursable bases. Generally, contracts are awarded on the basis of price, delivery schedule, technical performance and service. E&C and Global Power’s clients often make a down payment at the time a contract is executed and continue to make progress payments until the contract is completed and the work has been accepted as meeting contract guarantees. Global Power’s products are custom designed and manufactured, and are not produced for inventory. The E&C Group frequently purchases materials, equipment, and third-party services at cost for clients on a cash neutral/reimbursable basis. Such “flow-through” amounts are recorded both as revenues and cost of operating revenues with no profit recognized.

Foster Wheeler’s unfilled orders, substantially all of which are represented by signed contracts, by business segment are as follows:

The dollar amount of unfilled orders is not necessarily indicative of the future earnings of the Company related to the performance of such work. The Company cannot predict with certainty the portion of unfilled orders that will be performed, or the timing of the projects’ execution.

Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the changes in unfilled orders for the periods presented.

The materials used in the Company’s manufacturing and construction operations are obtained from both domestic and foreign sources. Materials, which consist mainly of steel products and manufactured items, are heavily dependent on foreign sources, particularly overseas projects. Generally, lead-time for delivery of materials does not constitute a problem.

The Company’s subsidiaries are subject to certain foreign, federal, state and local environmental, occupational health and product safety laws. The Company believes that all its operations are in material compliance with those laws and does not anticipate any material capital expenditures or material adverse effect on earnings or cash flows as a result of maintaining compliance with those laws.

Many companies compete in the engineering and construction business. The Company estimates, based on an industry publication “Engineering News-Record,” that it is among the 20 largest of the many large and small companies engaged in designing, engineering and constructing petroleum refineries, petrochemical, chemical and pharmaceutical facilities in the world. Neither Foster Wheeler nor any other single company contributes a large percentage of the total design, engineering and construction business servicing the global businesses previously noted. Many companies also compete in the global energy business. E&C competitors include Bechtel Corporation, Fluor Corporation, Jacobs Engineering Group, Technip, Kellogg, Brown & Root, Chiyoda Corporation and JGC Corporation. Global Power competitors included GEC Alstom, Man B&W Diesel, Aker Kvaerner ASA, Babcock Power Inc., Babcock-Hitachi Europe GmbH, Lurgi PSI, and Austrian Energy & Environment AG.

Foster Wheeler employed 6,723 full-time employees as of December 31, 2004. The following table indicates the number of full-time employees in each of its business groups.

The Company’s website address is www.fwc.com. You may obtain free electronic copies of the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports at the investor relations website, www.fwc.com, under the heading “Investor Relations” by selecting the heading “SEC Filings.” These reports are available on the Company’s investor relations website as soon as reasonably practicable after electronically filing the reports with the SEC. The information disclosed on this website is not incorporated herein and does not form a part of this Report on Form 10-K.

The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room located at 450 Fifth Street NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains electronic versions of the Company’s reports on its website at www.sec.gov.

The Company’s business is subject to a number of risks and uncertainties, including those described below. The following discussion of risks relating to the Company’s business should be read carefully in connection with evaluating the Company’s business, prospects and the forward-looking statements contained in this Report on Form 10-K. For additional information regarding forward-looking statements, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Safe Harbor Statement.”

The consolidated financial statements of Foster Wheeler Ltd., for the fiscal year ended December 31, 2004, are prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company may not, however, be able to continue as a going concern. Realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the ability to return to profitability, to generate cash flows from operations, collections of receivables to fund its obligations, including those resulting from asbestos related liabilities, as

The Company’s domestic operating entities are cash flow positive. However, they do not generate sufficient cash flow to cover the costs related to the Company’s indebtedness, obligations to fund U.S. pension plans and corporate overhead expenses. As of December 31, 2004, the Company had aggregate indebtedness of $570,100, substantially all of which must be serviced from distributions from its operating subsidiaries and from the proceeds of financings. In addition, as of December 31, 2004, the Company had $559,900 of undrawn letters of credit, bank guarantees and surety bonds issued and outstanding, $56,700 of which were cash collateralized. As of December 31, 2004, the Company had cash, cash equivalents, short-term investments and restricted cash of approximately $390,200, of which approximately $319,600 was held by the non-U.S. subsidiaries. The Company’s 2005 forecast assumes total cash repatriation from its non-U.S. subsidiaries of approximately $107,000 from royalties, management fees, intercompany loans, debt service on intercompany loans and dividends. The Company will require these cash distributions from its non-U.S. subsidiaries to meet an anticipated $67,000 shortfall in the U.S. operations’ minimum working capital needs in 2005. There can be no assurance that the forecasted foreign cash repatriation will occur on a timely basis or at all, as there are significant contractual and statutory restrictions and the non-U.S. subsidiaries need to keep certain amounts available for working capital purposes, to pay known liabilities, and for other general corporate purposes. Such amounts exceed, and are not directly comparable to, the foreign component of restricted cash previously noted. In addition, certain of the Company’s non-U.S. subsidiaries are parties to loan and other agreements with covenants, and are subject to statutory requirements in their jurisdictions of organization that restrict the amount of funds that such subsidiaries may distribute. The repatriation of funds may also subject those funds to taxation. As a result of these factors, the Company may not be able to repatriate and utilize funds held by its non-U.S. subsidiaries in sufficient amounts to fund its U.S. working capital requirements, to repay debt, or to satisfy other obligations of its U.S. operations, which could limit the Company’s ability to continue as a going concern.

In connection with the preparation of its 2004 year-end financial statements, the Company detected a reporting deficiency in the measurement and tracking processes during the fourth quarter of 2004 at one of European Power’s lump-sum turnkey projects. The project was nearing completion during the fourth quarter and the worse than expected project performance compressed the time available to meet the scheduled completion dates. In an attempt to meet the completion dates, construction site personnel entered into additional commitments beyond the planned commitments for the project, and did not adequately communicate these updated commitments on a timely basis to the home office personnel, who were responsible for tracking actual and estimated costs of the project and the details of updated commitments being made in the field. Moreover, one of the two lead managers of the project responsible for monitoring the commitments made at the project site and relaying this information back to the home office, became ill and was absent during November and December of 2004. As a result, the project’s management did not have adequate control of outstanding commitments to third-party subcontractors and vendors during the fourth quarter of 2004, and therefore could not adequately track the ongoing financial results of the project until after the quarter had ended.

As stated in Management’s Report on Internal Control over Financial Reporting, management concluded that the control deficiency in reporting at the project represented a “material weakness” in its internal control over financial reporting as of December 31, 2004. A material weakness is defined as a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected. Management believes that the failure to adequately control outstanding commitments to third-party subcontractors and vendors on this project was the result of a deficiency in the project’s measurement processes that arose when the volume of activity increased substantially in the fourth quarter of 2004 combined with the absence of a member of the projects key oversight personnel. Additionally, management noted that there was no compensating control that detected this deficiency on a timely basis. Because of the overall magnitude of this project, this results in a deficiency in the Company’s internal control over financial reporting. These controls and procedures are designed to ensure that outstanding commitments are known, quantified and communicated to the appropriate project personnel responsible for estimating the project’s financial results.

The control deficiency was detected in the first quarter of 2005. At that time, management immediately implemented a detailed review of all costs incurred to date plus the estimate of costs to complete. Additional project management personnel were assigned to the project from the E&C Group as these operating units have more experience working on lump-sum turnkey projects, and specialists in negotiating subcontractor settlements were added to the project team. The Company has previously announced that its European Power operating unit will no longer undertake lump-sum turnkey projects for full power plants without the involvement of one of the Company’s E&C operating companies or a third-party partner, and there is no evidence that any similar problems managing third-party commitments exist on other projects.

The Company has assigned the highest priority to the assessment and remediation of this material weakness and is working together with the audit committee to resolve the issue. Management believes that its consolidated financial statements contained herein contain its best estimates of the project’s final estimated costs and that the appropriate compensating controls have been implemented at the particular site to ensure commitment information is adequately controlled and communicated on a timely basis. However, management believes more time must pass to adequately evidence that the new procedures at this project are operating as intended. If these actions are not successful in addressing this material weakness, the Company’s ability to report its financial results on a timely and accurate basis may be adversely affected. The Company has taken the actions described above, which it believes address the material weaknesses described above. If the Company is unable to successfully address the identified material weaknesses in its internal controls, its ability to report its financial results on a timely and accurate basis may be adversely affected.

One of the Company’s foreign subsidiaries is a party to a project-specific, Euro-denominated performance bonding facility, which as of December 31, 2004 had the equivalent of approximately $24,500 of performance bonds outstanding as of such date. This bonding facility required compliance by the subsidiary with a minimum equity ratio, as defined in the facility. During the second quarter of fiscal 2004, due to operating losses of this subsidiary, the subsidiary fell below the minimum equity ratio, breaching the covenant. On March 15, 2005, the project-specific bond expired and the banks funded the client and the Company reimbursed the banks. The bond is therefore no longer outstanding. It is the intention of the Company to issue a letter of credit under the new Senior Credit Agreement and thus recover the cash from the client.

In early August of 2004, in connection with the Company’s review of the performance bonding facility described above, it became aware for the first time that the same subsidiary was also in breach under a minimum equity ratio covenant contained in a separate performance bonding facility with one of the same financial institutions. This facility had the equivalent of approximately $10,100 of performance bonds outstanding as of December 31, 2004. The equity ratio covenant contained in this facility requires the subsidiary to maintain a minimum equity ratio, as defined in the facility. As a result of operating losses at the subsidiary during the second quarter of 2004, the subsidiary’s equity ratio fell below the required minimum,

In response to the discovery of this breach under the facility at such a late date, the Company undertook a review of its procedures relating to the monitoring of, and reporting of the status under, its subsidiaries’ financial covenants globally. Although the management of the subsidiary in question was aware of the covenant’s existence, they did not fully understand its implications. As a consequence, they did not notify the corporate center on a timely basis of the breach of the covenant. Further, the corporate center did not independently detect the breach on a timely basis. Management concluded that the failure to detect the covenant breach on a timely basis was the result of a deficiency in its disclosure controls and procedures, which are intended to be designed to ensure that this type of breach is detected on a timely basis. After reviewing the Company’s controls and procedures relating to covenant monitoring and reporting as of the end of fiscal 2003 and each of the two fiscal quarters in fiscal 2004, management concluded that the deficiency arose in February 2004.

The Company has given this issue the highest priority and has updated its disclosure controls and procedures relating to covenant compliance. In order to address this issue, during the third quarter of 2004 it:

In order for investors and the equity analyst community to make informed investment decisions and recommendations about the Company’s securities, it is important that it provide them with accurate and timely information in accordance with the Exchange Act and the rules promulgated thereunder.

If the Company is unable to implement these changes effectively or efficiently, it could adversely affect its ability to provide the public with timely and accurate material information about the Company, and could hurt its reputation and the prices of its debt and equity securities.

The Company has substantial international operations that are conducted through foreign and domestic subsidiaries, as well as through agreements with foreign joint-venture partners. The international operations accounted for approximately 80% of the Company’s fiscal year 2004 operating revenues and substantially all of the operating cash flow. The Company has international operations in Europe, the Middle East, Asia and South America. The foreign operations are subject to risks that could materially adversely affect the business and results of operations, including:

Because of these risks, the international operations may be limited, or disrupted; may be restricted in moving funds; may lose contract rights; foreign taxation may be increased; or may be limited in repatriating earnings. In addition, in some cases, applicable law and joint venture or other agreements may provide that

As of December 31, 2004, Foster Wheeler Ltd.’s total consolidated debt amounted to approximately $570,100. The Company may not have sufficient funds available to pay all of this long-term debt upon maturity.

Over the last five years, the Company has been required to allocate a significant portion of its earnings to pay interest on debt. After paying interest on debt, the Company has fewer funds available for working capital, capital expenditures, acquisitions and other business purposes. This could limit the Company’s ability to respond to changing market conditions, limit the ability to expand through acquisitions, increase the vulnerability to adverse economic and industry conditions and place the Company at a competitive disadvantage compared to competitors that have less indebtedness. The Company’s 2005 estimated cash debt service is $81,100.

The Company’s various debt agreements impose significant financial restrictions on the Company. These restrictions limit the ability to incur indebtedness, pay dividends or make other distributions, make investments and sell assets. Failure to comply with these covenants may allow lenders to elect to accelerate the repayment dates with respect to such debt. The Company would not be able to repay such indebtedness if accelerated and as a consequence may be unable to continue operating as a going concern. The failure to repay such amounts under its new Senior Credit Agreement and its other debt obligations would have a material adverse effect on the Company’s financial condition and operations and result in defaults under the terms of the Company’s other indebtedness.

One of Foster Wheeler’s subsidiaries is a party to a contract to construct a spent fuel processing facility for a U.S. government agency that will require the Company to obtain third-party project financing in excess of $100,000 and the posting of a performance bond in excess of $100,000 if the contract is not restructured or terminated. The Company has completed the first phase of the contract and is currently executing the second phase of the contract. Technical specification and detailed guidance from the U.S. government agency regarding U.S government agency-directed changes to the project scope remain outstanding. Resolution of the outstanding issues will be required before the second phase of the contract can be completed. The third phase would begin with the purchase of long-lead time items and is expected to last two years. The contract requires the Company to fund the construction cost of the project during the third phase, which cost is estimated to be in excess of $100,000. The contract also requires the Company to provide a surety bond for the full amount of the cost. Management is currently pursuing its alternatives with respect to this project and has engaged in discussions with the government about restructuring and termination alternatives. If the Company cannot successfully restructure the contract, and if the Company cannot obtain third-party financing or the required surety bond, the Company’s ability to perform its obligations under the contract is unlikely. If the company fails to perform its obligations under the contract, and as a result the government agency terminates the contract, and thereafter the government re-bids the contract under its exact terms and the resulting cost is greater than it would have been under the existing terms with the Company, the government may seek to hold the Company liable for this difference. This could result in a claim against the Company in

It is customary in the industries in which the Company operates to provide letters of credit, bank guarantees or performance bonds in favor of clients to secure obligations under contracts. The Company has traditionally obtained letters of credit or bank guarantees from banks, or performance bonds from a surety on an unsecured basis. Due to the Company’s financial condition, current credit ratings, as well as changes in the bank and surety markets, the Company is now required in certain circumstances to provide collateral to banks and sureties to obtain new letters of credit, bank guarantees and performance bonds. If the Company is unable to provide sufficient collateral to secure the letters of credit, bank guarantees, and performance bonds, the ability to enter into new contracts could be materially limited.

Providing security to obtain letters of credit, bank guarantees and performance bonds increases the Company’s working capital needs and limits the ability to provide bonds, guarantees, and letters of credit, and to repatriate funds or pay dividends. The Company may not be able to continue obtaining new letters of credit, bank guarantees, and performance bonds on either a secured or an unsecured basis in sufficient quantities to match the business requirements. If the Company’s financial condition further deteriorates, the Company may also be required to provide cash collateral or other security to maintain existing letters of credit, bank guarantees and performance bonds. If this occurs, the ability to perform under existing contracts may be adversely affected.

Many of the Company’s contracts are lump-sum contracts and other shared-risk contracts that are inherently risky because the Company agrees to the selling price of the project at the time the Company enters the contracts. The selling price is based on estimates of the ultimate cost of the contract and the Company assumes substantially all of the risks associated with completing the project, as well as the post-completion warranty obligations. In 2004, 2003 and 2002, the Company recorded charges of approximately $42,200, $30,800 and $216,700, respectively, relating to underestimated costs on lump-sum contracts.

The Company assumes the project’s technical risk, meaning that the Company must tailor products and systems to satisfy the technical requirements of a project even though, at the time the project is awarded, the Company may not have previously produced such a product or system. The Company also assumes the risks related to revenue, cost and gross profit realized on such contracts which can vary, sometimes substantially, from the original projections due to changes in a variety of other factors, including but not limited to:

These risks are exacerbated as most projects are long-term which result in increased risk that the circumstances upon which the Company based its original bid will change in a manner that increases its

The Company also performs government contracts containing fixed labor rates that are subject to audit by governmental agencies. These audits can occur several years after completion of the project and could result in claims for reimbursement from the Company. These reimbursement amounts could be materially different than estimated which could have a negative impact on the Company’s results of operations and cash flows.

In order to mitigate future charges due to underestimated costs on lump-sum contracts and to otherwise reduce operating costs, the Company has implemented a series of management performance enhancements. This initiative may not be successful and the Company may record significant charges and its operating costs may increase in the future.

The Company plans to expand the operations of its Engineering and Construction Group which may increase the size and number of lump-sum turnkey contracts, sometimes in countries where the Company has limited previous experience. The Company may bid for and enter into such contracts through partnerships or joint ventures with third parties that have greater bonding capacity than the Company. This would increase the Company’s ability to bid for the contracts. Entering into these partnerships or joint ventures will expose the Company to credit and performance risks of those third-party partners which could have a negative impact on the business and results of operations if these parties fail to perform under the arrangements.

The Company’s business requires a significant amount of working capital and the U.S. operations, including the corporate center, are expected to continue to be cash flow negative in the near future. In some cases, significant amounts of working capital are required to finance the purchase of materials and performance of engineering, construction and other work on projects before payment is received from customers. In some cases, the Company is contractually obligated to its customers to fund working capital on its projects. Moreover, the Company may need to incur additional indebtedness in the future to satisfy its working capital needs. In addition, the $11,400 of 2005 Senior Notes will need to be repaid or refinanced on or prior to November 2005. As a result, the Company is subject to risks associated with debt financing, including increased interest expense, insufficient cash flow to meet required debt payments, inability to meet credit facility covenants and inability to refinance or repay debt as it becomes due.

The Company’s working capital requirements may increase if the Company is required to give its customers more favorable payment terms under contracts in order to compete successfully for certain projects. These terms may include reduced advance payments from customers and payment schedules from customers that are less favorable to the Company. In addition, the working capital requirements of the Company have increased in recent years because the Company has had to advance funds to complete projects under lump-sum contracts and have been involved in lengthy arbitration or litigation proceedings to recover these amounts from customers. All of these factors may result, or have resulted, in increases in the amount of contracts in process and receivables and short-term borrowings. Continued increases in working capital requirements would have a material adverse effect on the Company’s financial condition and results of operations.

The dollar amount of backlog does not necessarily indicate future earnings related to the performance of that work. Backlog refers to expected future revenues under signed contracts, contracts awarded but not finalized and legally binding letters of intent which management has determined are likely to be performed. Backlog projects represent only business that is considered firm, although cancellations or scope adjustments may occur. Most contracts require clients to pay for work performed to the point of contract cancellation. Due to changes in project scope and schedule, the Company cannot predict with certainty when or if backlog will be performed. In addition, even where a project proceeds as scheduled, it is possible that contracted parties may default and fail to pay amounts owed. Any delay, cancellation or payment default could materially harm the Company’s cash flow, revenues and/or earnings.

Backlog at the end of 2004 declined 10% as compared to the end of year 2003. This decline is primarily attributable to operating revenues exceeding new orders during 2004. Backlog may continue to decline.

Some of the Company’s subsidiaries are named as defendants in numerous lawsuits and out-of-court administrative claims pending in the United States in which the plaintiffs claim damages for bodily injury or death arising from exposure to asbestos in connection with work performed or heat exchange devices assembled, installed and/or sold by those subsidiaries. The Company expects these subsidiaries to be named as defendants in similar suits and claims brought in the future. For purposes of the Company’s financial statements, the Company has estimated the indemnity payments and defense costs to be incurred in resolving pending and forecasted domestic claims through year-end 2019. Although the Company believes its estimates are reasonable, the actual number of future claims brought against the Company and the cost of resolving these claims could be substantially higher than the estimates. Some of the factors that may result in the costs of these claims being higher than current estimates include:

The total liability recorded on the balance sheet is based on estimated indemnity payments and defense costs expected to be incurred through year-end 2019. The Company believes that it is likely that there will be new claims filed after 2019, but in light of uncertainties inherent in long-term forecasts, the Company does not believe that it can reasonably estimate the indemnity payments and defense costs which might be incurred after 2019. The forecast contemplates new claims requiring indemnity will decline from year to year. Failure

The forecast is based on a regression model, which employs the statistical analysis of the Company’s historical claims data to generate a trend line for future claims and in part on an analysis of future disease incidence. Although the Company believes this forecast method is reasonable, other forecast methods that attempt to estimate the population of living persons who could claim they were exposed to asbestos at worksites where the Company’s subsidiaries performed work or sold equipment, could also be used and might project higher numbers of future claims than forecast.

All of these factors could cause the actual claims, indemnity payments and defense costs to exceed estimates. The Company periodically updates its forecasts to take into consideration recent claims experience and other developments, such as legislation, that may affect the Company’s estimates of future asbestos-related costs. The announcement of increases to asbestos reserves as a result of revised forecasts, adverse jury verdicts or other negative developments involving asbestos litigation may cause the value or trading prices of the Company’s securities to decrease significantly. These negative developments could also cause the Company to default under covenants in its indebtedness or cause the Company’s credit ratings to be downgraded, restrict the Company’s access to the capital markets or otherwise have a material adverse effect on the Company’s financial condition, results of operations, cash flows and liquidity.

Some of the Company’s subsidiaries in the U.K. have received claims alleging personal injury arising from exposure to asbestos in connection with work performed and heat exchange devices assembled, installed and/or sold by those subsidiaries. The total number of claims received to date in the U.K. is 446 of which 255 remain open at December 31, 2004. The Company expects these subsidiaries to be named as defendants in similar suits and claims brought in the future. The Company has recorded an estimated liability to resolve pending and future forecasted claims through year-end 2019 of $44,300 as of December 31, 2004 and a corresponding asset for probable insurance recoveries in the same amount. To date, insurance policies have provided coverage for substantially all of the costs incurred in connection with the Company resolving asbestos claims in the U.K. The Company’s ability to continue to recover under these insurance policies is dependant upon, among other things, the timing and amount of asbestos claims which may be made in the future, the financial solvency of the insurers, and the amount which may be paid to resolve the claims. These factors could materially limit insurance recoveries, which could have a material adverse effect on the Company’s financial condition, results of operations and cash flows.

The Company believes that a significant portion of its subsidiaries’ liability and defense costs for asbestos claims will be covered by insurance. The Company’s balance sheet as of December 31, 2004, includes as an asset an aggregate of approximately $385,500 in probable insurance recoveries relating to a liability for pending and expected future asbestos claims through year-end 2019. Under an interim funding agreement in place with a number of its insurers from 1993 through June 12, 2001 covering certain subsidiaries, insurers paid a substantial portion of the costs incurred prior to 2002, and a portion of the costs incurred in connection with resolving asbestos claims during 2002 and 2003. The interim funding agreement was terminated in 2003. On February 13, 2001, litigation was commenced against certain subsidiaries of the Company by certain insurers that were parties to the interim funding agreement seeking to recover from other insurers amounts previously paid by them under the interim funding agreement and to adjudicate their rights and responsibilities under the subsidiaries’ insurance policies. As a result of the termination of the interim

After the termination of the interim funding agreement, the Company’s subsidiaries entered into several settlement agreements calling for insurers to make lump-sum payments, as well as payments over time, for use by the subsidiaries to fund asbestos-related indemnity and defense costs and, in certain cases, for reimbursement for portions of out-of-pocket costs previously incurred. The Company intends to negotiate additional settlements in order to minimize the amount of future costs the Company will be required to fund out of working capital. If the Company and its subsidiaries cannot achieve settlements in amounts necessary to cover their future costs, the Company and its subsidiaries will continue to fund a portion of future costs out of pocket, which will reduce cash flow and working capital and will adversely affect liquidity.

Although the Company continues to believe that insurers eventually will reimburse its subsidiaries for a significant portion of their prior and future asbestos-related liability and defense costs, their ability ultimately to recover a substantial portion of asbestos-related costs from insurance is dependent on successful resolution of outstanding coverage issues related to their insurance policies. These issues include:

An adverse outcome in the insurance litigation on these coverage issues could materially limit the Company’s insurance recoveries. In this regard, on January 10, 2005, a New York state trial court entered an order finding that New York, rather than New Jersey, law applies in the litigation described above regarding the allocation of liability for asbestos-related personal injury claims among the Foster Wheeler entities and their various insurers. Since the inception of this litigation, the Company has calculated estimated insurance recoveries applying New Jersey law. However, the application of New York, rather than New Jersey, law would result in the Company’s subsidiaries realizing lower insurance recoveries. Thus, as a result of this decision, the Company recorded a charge to earnings in the fourth quarter of 2004 of approximately $75,800 and reduced the year-end carrying value of its probable insurance recoveries by a similar amount. Unless this decision is reversed on appeal, the Company expects that it will be required to fund a portion of its asbestos liabilities from its own cash beginning in 2010. The amount and timing of these funding requirements will be dependent upon, among other things, litigated or negotiated resolution of the various disputes between the Company and the insurers with whom it has not yet settled. On February 16, 2005, the Company’s subsidiaries filed separate motions seeking (i) the re-argument of this decision and (ii) an appeal of this decision to a higher court. There can be no assurances as to the timing or the outcome of these motions.

In addition, even if these coverage issues are resolved in a manner favorable to the Company, it may not be able to collect all of the amounts due under its insurance policies. The recoveries will be limited by insolvencies among its insurers. The Company is aware of at least two of its significant insurers which are currently insolvent. Other insurers may become insolvent in the future and its insurers may also fail to reimburse amounts owed to the Company on a timely basis. If the Company does not receive timely payment from its insurers, it may be unable to make required payments under settlement agreements with asbestos plaintiffs or to fund amounts required to be posted with the court in order to appeal trial judgments. If the Company is unable to file such appeals, the Company’s subsidiaries may be ordered to pay large damage awards arising from adverse jury verdicts, and such awards may exceed their available cash. Any failure to realize expected insurance recoveries, and any delays in receiving from its insurers amounts owed to the subsidiaries, will reduce cash flow and adversely affect liquidity and could have a material adverse effect on the Company’s financial condition.

Although no specific federal legislation has been formally passed in the United States Congress, a possibility exists that a bill entitled Fairness in Asbestos Injury Resolution Act of 2005 currently being discussed by members of the Senate Judiciary Committee may be enacted. Because the Company has been named as a defendant in a significant number of asbestos related bodily injury claims it would be a “defendant participant” in a proposed national trust fund should such enabling legislation become law. As a result of this proposed legislation, all current and future asbestos claims will be removed from the tort system and claimants’ exclusive remedy will be payment from a national trust fund. The Company, as a defendant participant in the fund, would be required to make annual contributions to this fund for a period of up to 30 years. While the exact amount the Company may be required to pay over this period of time is unknown, the Company expects that it will materially exceed costs it will incur, net of insurance, to defend and resolve claims in the tort system. This proposed legislation, should it become law in its present form, would adversely impact the Company’s domestic liquidity and its results of operations for a thirty-year period.

Project claims are claims brought by the Company against project owners for additional costs exceeding the contract price or amounts not included in the original contract price. These claims typically arise 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 labor and material costs associated with the performance of the additional work, 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 cost overruns pending the resolution of the relevant project claims. Project claims may continue in the future.

The Company also faces a number of counterclaims brought against it by certain project owners in connection with several of the project claims described above. If the Company were found liable for any of these counterclaims, the Company would have to incur write-downs and charges against earnings to the extent a reserve is not established. Failure to recover amounts under these claims and charges related to counterclaims could have a material adverse impact on the Company’s liquidity and financial condition.

The Company derives a significant amount of revenues from services provided to corporations that are concentrated in four industries: power, oil and gas, chemical/petrochemical and pharmaceuticals. Unfavorable economic or other developments in one or more of these industries could adversely affect the Company’s clients and could have a material adverse effect on financial condition, results of operations and cash flows.

The Company operates in more than 55 countries around the world, with approximately 5,400, or 81%, of its employees located outside of the United States. In order to manage its day-to-day operations, management must overcome cultural and language barriers and assimilate different business practices. In addition, the Company is required to create compensation programs, employment policies and other administrative programs that comply with the laws of multiple countries. Failure to successfully manage geographically-diverse operations could impair the Company’s ability to react quickly to changing business and market conditions and comply with industry standards and procedures.

The Company is engaged in highly competitive businesses in which customer contracts are often awarded through bidding processes based on price and the acceptance of certain risks. The Company competes with other general and specialty contractors, both foreign and domestic, including large international contractors and small local contractors. Some competitors have greater financial and other resources than Foster Wheeler and may have significantly more favorable leverage ratios. Because financial strength is a factor in deciding whether to grant a contract in the business, the Company’s competitors’ more favorable leverage ratios give them a competitive advantage and could prevent the Company from obtaining contracts for which the Company has bid.

The ability to attract and retain qualified engineers and other professional personnel, as well as joint-venture partners, advisors and subcontractors, will be an important factor in determining future success. The market for these professionals, joint-venture partners, advisors and subcontractors is competitive, and the Company may not be successful in efforts to attract and retain these professionals, joint-venture partners, advisors and subcontractors. In addition, success depends in part on the Company’s ability to attract and retain skilled laborers. Failure to attract or retain these workers could have a material adverse effect on the Company’s business and results of operations.

Operations are subject to U.S., European and other laws and regulations governing the generation, management, and use of regulated materials, the discharge of materials into the environment, the remediation of environmental contamination, or otherwise relating to environmental protection. These laws include U.S. federal statutes, such as the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), the Clean Water Act, the Clean Air Act and similar state and local laws, and European laws and regulations including those promulgated under the Integrated Pollution Prevention and Control Directive issued by the European Union in 1996, and the 1991 directive dealing with waste and hazardous waste and laws and regulations similar to those in other countries in which the Company operates. Both the E&C Group and Global Power Group make use of and produce as wastes or byproducts substances that are considered to be hazardous under the laws and regulations referred to above. The Company may be subject to liabilities for environmental contamination as an owner or operator of a facility or as a generator of hazardous substances without regard to negligence or fault, and the Company is subject to additional liabilities if the Company does not comply with applicable laws regulating such hazardous substances, and, in either case, such liabilities can be substantial.

The Company may be subject to significant costs, fines and penalties and/or compliance orders if the Company does not comply with environmental laws and regulations including those referred to above. Some environmental laws, including CERCLA, provide for joint and several strict liabilities for remediation of releases of hazardous substances, which could result in a liability for environmental damage without regard to negligence or fault. These laws and regulations and common laws principles could expose the Company to liability arising out of the conduct of current and past operations or conditions, including those associated with formerly owned or operated properties caused by the Company or others, or for acts by the Company or others which were in compliance with all applicable laws at the time the acts were performed. In some cases, the Company has assumed contractual indemnification obligations for environmental liabilities associated with some formerly owned properties. Additionally, the Company may be subject to claims alleging personal injury, property damage or natural resource damages as a result of alleged exposure to or contamination by hazardous substances. The ongoing costs of complying with existing environmental laws and regulations can be substantial. Changes in the environmental laws and regulations, remediation obligations, enforcement actions or claims for damages to persons, property, natural resources or the environment, could result in material costs and liabilities.

The efficient operation of the Company’s business is dependent on computer hardware and software systems. The Company relies on its information systems to communicate and store customer and project information, to track new bookings and inventory, to procure materials and equipment for projects, to perform computerized design and engineering drawings, to perform project scheduling and cost tracking, to maintain internet and extranet web sites, to maintain the Company’s proprietary research and development data and to effectively manage accounting and financial functions.

Information systems are vulnerable to security breaches by computer hackers and cyber terrorists. The Company relies on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on its information systems. However, these measures and technology may not always be adequate to properly prevent security breaches. Moreover, advances in computing capabilities or other developments may result in a compromise or breach of the technology used by the Company to protect its systems.

In February 2005, the Company experienced a security breach in the computer systems that service the Company’s North America operations. The Company is currently conducting an investigation into the breach, which investigation extends to, among other things, the extent and impact of the breach. At present, the preliminary findings of the investigation indicate that about ten percent of the Company’s North American servers were accessed and that information, including, but not limited to, proposal files, drawing files, financial information and business plans, was copied. Although, it does not appear that the Company’s primary financial information system was accessed, or that the integrity of the Company’s financial information was compromised, the Company cannot ensure that this is the case. Upon identifying the unauthorized access, security measures were immediately taken to “lock out” the intruder and no further breaches have been identified. The Company has retained a third-party consultant to assist in the investigation and to assess and provide recommendations concerning the Company’s security technology and this investigation is ongoing.

This breach, as well as any future compromises of the Company’s security systems, could expose the Company to a risk of loss or litigation and possible liability, which could substantially harm the Company’s business and results of operations. Further, anyone who is able to circumvent the Company’s security measures could misappropriate proprietary or confidential information, as the Company believes occurred in the February 2005 breach, which could adversely affect the Company’s ability to effectively compete for new business or could cause interruptions in the Company’s operations. Because of the nature and magnitude of the Company’s projects, the Company may be the target of cyber terrorists or be the subject of industrial espionage. Although the Company maintains property and liability insurance, the insurance may not cover potential losses and/or claims of this type or may not be adequate to cover all related costs or liability that may be incurred.

In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated could disrupt the Company’s business and could result in decreased performance and increased overhead costs, causing the Company’s business and results of operations to suffer. The Company’s information systems are vulnerable to damage or interruption from:

Any significant interruption or failure of the Company’s information systems or any significant breach of security, including the one that occurred in February 2005, could adversely affect the Company’s business and results of operations.

The Company’s success depends significantly on its ability to protect its intellectual property rights to the technologies and know-how used in its proprietary products. The Company relies on patent protection, as well as a combination of trade secret, unfair competition and similar laws and nondisclosure, confidentiality and other contractual restrictions to protect its proprietary technology. However, these legal means afford only limited protection and may not adequately protect the Company’s rights or permit the Company to gain or keep any competitive advantage. The Company’s issued patents and those that may be issued in the future may be challenged, invalidated or circumvented, which could limit the Company’s ability to stop competitors from marketing related products. Although the Company has taken steps to protect its intellectual property and proprietary technology, there is no assurance that third parties will not be able to design around the patents. The Company also relies on unpatented proprietary technology. The Company cannot provide assurance that it can meaningfully protect all its rights in its unpatented proprietary technology or that others will not independently develop substantially equivalent proprietary products or processes or otherwise gain access to the Company’s unpatented proprietary technology. The Company seeks to protect its trade secrets, know-how and other unpatented proprietary technology, in part with confidentiality agreements and intellectual property assignment agreements with its employees, independent distributors and consultants. However, such agreements may not be enforceable or may not provide meaningful protection for the Company’s trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements or in the event that the Company’s competitors discover or independently develop such trade secrets or other proprietary information.

Furthermore, the laws of foreign countries may not protect the Company’s intellectual property rights to the same extent as the laws of the United States. If the Company cannot adequately protect its intellectual property rights in these foreign countries, the Company’s competitors may be able to compete more directly with the Company, which could adversely affect the Company’s competitive position and business.

The Company also hold licenses from third parties that are necessary to utilize certain technologies used in the design and manufacturing of some of the Company’s products. The loss of such licenses would prevent the Company from manufacturing and selling these products, which could harm the Company’s business.

Foster Wheeler Ltd.’s bye-laws contain provisions that could make it more difficult for a third-party to acquire it without the consent of its Board of Directors. These provisions provide for:

These provisions could make it more difficult for a third-party to acquire Foster Wheeler Ltd., even if the third-party’s offer may be considered beneficial by many shareholders. As a result, shareholders may be limited in their ability to obtain a premium for their shares.

As a result of the Company’s delisting from the NYSE, the trading price of the Company’s common shares may decline substantially and shareholders may experience a significant decrease in the liquidity of the common shares. Securities that trade on the Over-the-Counter Bulletin Board, including the Company’s common shares, may also be subject to higher transaction costs for trades and have reduced liquidity compared to securities that trade on the NYSE and other organized markets and exchanges. The Company may not be able to successfully list the common shares

Foster Wheeler Ltd. is a Bermuda exempted company. As a result, the rights of shareholders are governed by Bermuda law and the memorandum of association and bye-laws of Foster Wheeler Ltd. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions. A substantial portion of the assets of Foster Wheeler Ltd. are located outside the United States. It may be difficult for investors to enforce in the United States judgments obtained in U.S. courts against Foster Wheeler Ltd. or its directors based on the civil liability provisions of the U.S. securities laws. Uncertainty exists as to whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States against the Company or its directors or officers, under the securities laws of those jurisdictions or entertain actions in Bermuda under the securities laws of other jurisdictions.

Foster Wheeler Ltd.’s bye-laws contain a broad waiver by its shareholders of any claim or right of action, both individually and on Foster Wheeler Ltd.’s behalf, against any of its officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against Foster Wheeler Ltd.’s officers and directors unless the act or failure to act involves fraud or dishonesty.

The following chart provides the name of the subsidiary that owns or leases the property, the location and general use of each of the Company’s properties as of December 31, 2004, and the business segment in which each property is grouped.

Locations of less than 10,000 square feet are not listed. Except as noted above, the properties set forth are owned in fee. All or part of the listed properties may be leased or subleased to other affiliates. All properties are in good condition and adequate for their intended use.

Some of the Company’s U.S. subsidiaries, along with many non-related companies, are codefendants in numerous asbestos-related lawsuits and administrative claims 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 the work allegedly performed by the Company’s subsidiaries during the 1970’s and prior. As of December 31, 2004, the Company has determined that the subsidiaries are named defendants in lawsuits involving approximately 58,800 plaintiffs. Claims by approximately 22,300 of those plaintiffs have been stayed or placed on inactive dockets by courts. Claims that have not been settled and are six or more years old are considered abandoned and are no longer valued in the estimated liability. There were approximately 9,100 of such cases at December 31, 2004. The Company’s subsidiaries also are respondents in approximately 109,000 open administrative claims. The total number of open cases involves approximately 167,800 claimants.

All of the open administrative claims have been filed under blanket administrative agreements the Company has with various law firms representing claimants and do not specify monetary damages sought. Based on management’s analysis of open lawsuits, approximately 81% do not specify the monetary damages sought or merely recite that the amount of monetary damages sought meets or exceeds the required jurisdictional minimum in the jurisdiction in which suit is filed. Approximately 8% request damages ranging from $10 to $50; approximately 7% request damages ranging from $50 to $1,000; approximately 3% request damages ranging from $1,000 to $10,000; and the remaining 1% request damages ranging from $10,000 to, in a very small number of cases, $50,000.

In all cases, requests for monetary damages are asserted against multiple named defendants, typically ranging from 25 to 250, in a single complaint.

On February 13, 2001, litigation was commenced against certain domestic subsidiaries of the Company by certain insurers that were parties to an interim funding agreement seeking to recover from other insurers amounts previously paid by them under the interim funding agreement and to adjudicate their rights and responsibilities under the subsidiaries’ insurance policies. An adverse outcome in the insurance litigation on these coverage issues could materially limit the Company’s insurance recoveries. In this regard, on January 10, 2005, a New York state trial court entered an order finding that New York, rather than New Jersey, law applies in a lawsuit regarding the allocation of liability for asbestos-related personal injury claims among the Company’s subsidiaries and their various insurers. On February 16, 2005, the Company’s subsidiaries filed separate motions seeking (i) the re-argument of this decision and (ii) an appeal of this decision to a higher court. There can be no assurances as to the timing and the outcome of these matters.

Some of the Company’s U.K. subsidiaries have also received claims alleging personal injury arising from exposure to or use of asbestos. The number of asbestos-related claims received increased in 2004. To date, 446 claims have been brought against the U.K. subsidiaries, of which 255 remain open at December 31, 2004. Insurance policies have provided coverage for substantially all of the costs incurred in connection with resolving asbestos claims in the U.K with the proceeds from these policies paid directly to plaintiffs. None of the settled claims has resulted in material costs to the Company. The Company has considered the asbestos claims in the U.K. and the viability and legal obligations of its insurance carriers and believes the insurers will continue to adequately fund asbestos claims and related defense costs. The Company’s ability to continue to recover under these insurance policies is dependant upon, among other things, the timing and amount of asbestos claims which may be made in the future, the financial solvency of the insurers, and the amount which may be paid to resolve the claims. These factors could materially limit insurance recoveries, which could have a material adverse effect on the Company’s financial condition, results of operations and cash flows.

In the ordinary course of business, the Company and its subsidiaries are parties to litigation involving clients and subcontractors arising out of project contracts. Such litigation includes claims and counterclaims by the Company for additional costs incurred in excess of current contract provisions, as well as for back charges for alleged breaches of warranty and other contract commitments. If the Company were found to be liable for any of the claims/counterclaims against it, the Company would have to incur a write-down or charge against earnings to the extent a reserve has not been established for the matter in its accounts. Amounts ultimately realized on claims/counterclaims by the Company could differ materially from the balances included in the Company’s financial statements, resulting in a charge against earnings to the extent profit has already been accrued on a project contract. Such charges could have a material adverse impact on the Company’s liquidity and financial condition. The Company believes, after consultation with counsel, that such litigation should not have a material adverse effect upon the Company’s financial position or liquidity, after giving effect to the provisions already recorded.

In addition to the matters described above, an arbitration has been commenced against the Company arising out of a compact circulating fluidized-bed boiler that the Company engineered, supplied and erected

The Company has been notified of a claim by its client with respect to a thermal electric power plant in South America that the Company designed, supplied and erected as a member of a consortium with other parties. The plant’s concrete foundations have experienced cracking, allegedly due to out-of-specification materials used in the concrete poured by the consortium’s subcontractor. The client has adopted a plan to repair the foundations and is seeking reimbursement of its costs (approximating $11,000) from the consortium. Additional damages could be alleged if the matter proceeds to an adversary proceeding. The Company is investigating the claim, as well as any rights that it may have to seek reimbursement for the damages from third parties. Valid legal defenses to the claim appear to exist. However, it is premature to predict the outcome of this matter.

One of the Company’s project subsidiaries, Camden County Energy Recovery Associates, LP (“CCERA”), owns and operates a waste-to-energy facility in Camden County, New Jersey (the “Project”). In 1997, the United States Supreme Court effectively invalidated New Jersey’s long-standing municipal solid waste flow rules and regulations, eliminating the guaranteed supply of municipal solid waste to 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. Since the ruling, those market-based revenues have not been, and are not expected to be, sufficient to service the debt on outstanding bonds, which were issued by the Pollution Control Finance Authority of Camden County (“PCFA”) to finance the construction of the Project and to acquire a landfill for Camden County’s use.

In 1998, the CCERA filed suit against the PCFA and other parties seeking, among other things, to void the applicable contracts and agreements governing the Project (Camden County Energy Recovery Assoc. v. 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 they became due. The bonds outstanding on the Camden Project were issued by the PCFA, not the Company or CCERA, and the bonds are not guaranteed by the Company or CCERA. Pursuant to the loan agreement between PCFA and CCERA, proceeds from the bonds were used to finance the construction of the facility and accordingly these proceeds were recorded as debt on CCERA’s balance sheet and therefore are included in the Company’s consolidated balance sheet. CCERA’s obligation to service the debt obtained pursuant to the loan agreement is limited to depositing all tipping fees and electric revenues received with the trustee of the PCFA bonds. The trustee is required to pay CCERA its service fees prior to servicing PCFA bonds. CCERA has no further debt repayment obligations under the loan agreement with the PCFA. In the litigation, the defendants have asserted, among other things, that an equitable portion of the outstanding debt on the Project should be allocated to CCERA even though CCERA did not guarantee the bonds. At this time, management cannot determine the ultimate outcome of the foregoing and the potential effects on CCERA and the Project. If the State were to fail to subsidize 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, by among other things, seizing the collateral securing the bonds. The Company does not believe this collateral includes CCERA’s plant.

Under U.S. federal statutes, such as the Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), the Clean Water Act and

The 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 in excess of those for which reserves have been established.

The Company also may receive claims, pursuant to indemnity obligations from owners of recently sold facilities, which 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 materially in excess of those reserves which it has established. 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 has been notified that it was a potentially responsible party (a “PRP”) under CERCLA or similar state laws at three off-site facilities. 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.

In February 1988, one of the Company’s subsidiaries, Foster Wheeler Energy Corporation (“FWEC”), entered into a Consent Agreement and Order (“Order”) with the United States Environmental Protection Agency (“USEPA”) and the Pennsylvania Department of Environmental Protection (“PADEP”) regarding its former manufacturing facility in Mountaintop, Pennsylvania. The Order essentially required FWEC to investigate and remediate as necessary contaminants, including trichloroethylene (“TCE”), in the soil and groundwater at the facility. Pursuant to the Order, FWEC in 1993 installed a “pump and treat” system to remove TCE from the groundwater. It is not possible at the present time to predict how long FWEC will be required to operate and maintain the system. The annual cost of operating and maintaining the system has not been material.

In September 2004, FWEC sampled the domestic water supply of approximately 16 residences in Mountaintop, and it received validated testing data regarding that sampling in October 2004. The residences are located approximately one mile to the southwest of the historic source of the TCE at FWEC’s former facility, and it is believed the residences use private wells for domestic water. The results of this sampling indicated that TCE was present in the water at several of the residences at levels in excess of Safe Drinking Water Act standards. Since the initial round of testing in September 2004, FWEC has tested more wells. As of February 2005, the number of wells in the area containing TCE in excess of the standards is approximately 30, and FWEC believes the boundaries of the affected area have been delineated.

The source of the TCE in the wells has not yet been determined. FWEC is working closely with the appropriate regulatory authorities in responding to this situation. FWEC first provided the affected residences with temporary replacement water and then arranged to have filters installed on the residences’ water system to remove the TCE. FWEC has also arranged to have the filters periodically tested and maintained. The cost of the foregoing is not expected to be material. If the source of the TCE is determined to be from a third-

For additional information on asbestos claims and other material litigation affecting the Company, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Application of Critical Accounting Policies” and Note 23 to the consolidated financial statements in this Form 10-K.

On November 29, 2004, the Company held a special general meeting of common shareholders and a joint annual and special general meeting of all shareholders.

The voting results of the two general meetings of shareholders were as follows (after reflecting the reverse stock split):

 

The Company’s common stock and 9% FW Preferred Capital Trust I securities are quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under the ticker symbols “FWHLF.OB” and “FWLRP.OB,” respectively.

On November 29, 2004, the Company’s shareholders approved a series of capital alterations including the consolidation of the authorized common share capital at a ratio of one-for-twenty and a reduction in the par value of the common shares and preferred shares (see Item 4, “Submission of Matters to a Vote of Security Holders,” for additional information). As a result of these capital alterations, all references to common stock prices, share capital, the number of shares, per share amounts, cash dividends, and any other reference to shares in this annual report on Form 10-K, unless otherwise noted, have been adjusted to reflect such capital alterations on a retroactive basis.

The common stock prices shown below for the quarters prior to the Company’s de-listing from the NYSE reflect the high and low sales prices for each such quarter as reported in the consolidated transaction reporting system. The common stock prices shown for quarters ended subsequent to the Company’s NYSE de-listing reflect the high and low bid prices as reported on the OTCBB System. The over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.

The Company had 5,631 common shareholders of record and 40,542,898 common shares outstanding as of December 31, 2004.

Under Bermuda law, the consent of the Bermuda Monetary Authority (“BMA”) is required prior to the transfer by non-residents of Bermuda of a Bermuda company’s shares. Because the Company is not listed on a national stock exchange, the Company obtained the consent of the BMA for transfers between non-residents so long as the Company’s shares continue to be quoted on the OTCBB. The Company believes that this consent will continue to be available.

The Board of Directors of the Company discontinued the common stock dividend in July 2001. The Company was prohibited from paying dividends under its prior Senior Credit Facility and therefore, the Company paid no dividends on common shares during 2004. Additionally, the Company does not expect to pay dividends on the common shares for the foreseeable future.