Foster Wheeler Reports Results for Second Quarter of 2013

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Foster Wheeler Reports Results for Second Quarter of 2013

ZUG, Switzerland--(BUSINESS WIRE)-- Foster Wheeler AG (NAS: FWLT) today reported income from continuing operations for the second quarter of 2013 of $68.3 million, or $0.68 per diluted share, compared with $30.4 million, or $0.29 per diluted share, in the second quarter of 2012.

Income from continuing operations in both quarterly periods was impacted by net asbestos-related gains and provisions, as detailed in an attached table. Excluding such items from both quarterly periods, adjusted income from continuing operations in the second quarter of 2013 was $54.6 million, or $0.54 per diluted share, compared with $33.7 million, or $0.32 per diluted share, in the year-ago quarter.


For the first six months of 2013, income from continuing operations was $85.2 million, or $0.83 per diluted share, compared with $71.9 million, or $0.66 per diluted share, for the first six months of 2012.

During the second quarter of 2013, Foster Wheeler's Board of Directors approved a plan to sell the company's wholly owned waste-to-energy facility in Camden, New Jersey. As a result of that decision, the results of operations of the facility are classified as discontinued operations.

The following tables present quarterly and average quarterly data for continuing operations, both as reported and as adjusted to exclude asbestos-related gains and provisions (as detailed in an attached table). The company believes that quarterly averages provide meaningful comparative relevance for certain key metrics in light of the significant quarter-to-quarter variability that is inherent in the company's financial results.

              
(dollars in millions, from continuing operations)   Q2 2013  Qtrly Avg. 2013  Q2 2012  Qtrly Avg. 2012
Income   $68  $43  $30  $37
Adjusted income   $55  $37  $34  $45
Consolidated revenues (FW Scope)   $642  $633  $685  $637
         

Foster Wheeler's Chief Executive Officer, Kent Masters, said, "Our adjusted income from continuing operations in the second quarter of 2013 was 22% above the average quarter of 2012, due largely to the strong performance of our Global Engineering and Construction (E&C) Group, which reported a 29% increase in EBITDA and a 12% increase in scope revenues. The E&C Group also reported a broad range of very favorable performance metrics, including robust bookings, an improved EBITDA margin and a near-record level of backlog in scope revenue."

The company's income from continuing operations in the second quarter of 2013 was also aided by a lower effective tax rate as compared with the average quarter of 2012, due primarily to favorable discrete tax items. In addition, the second quarter of 2013 included a $2.2 million after-tax benefit from the partial reversal of mark-to-market currency losses that had been reported in the first quarter of 2013.

Global Engineering and Construction (E&C) Group

              
(dollars in millions)   Q2 2013  Qtrly Avg. 2013  Q2 2012  Qtrly Avg. 2012
New orders booked (FW Scope)   $537  $436  $392  $599
Operating revenues (FW Scope)   $443  $434  $417  $397
Segment EBITDA   $62  $49  $40  $48
EBITDA Margin (FW Scope)   14.0%  11.2%  9.6%  12.1%
         
  • Scope new orders in the second quarter of 2013 were robust but below the average quarter of 2012, a year in which the Global E&C Group reported a record level of new orders.
  • Scope operating revenues in the second quarter of 2013 were 12% above the average quarter of 2012 due to an increased volume of work executed.
  • EBITDA in the second quarter of 2013 was 29% above the average quarter of 2012. In addition to the contribution from recently completed acquisitions, EBITDA reflected an improved utilization rate, increased profit enhancement opportunities and higher equity earnings from partially owned power assets in Italy. EBITDA in the second quarter of 2013 also included a $2.3 million pretax benefit from the partial reversal of mark-to-market currency losses that were recorded in the first quarter of 2013.

Global Power Group (GPG)

              
(dollars in millions, EBITDA and revenues from continuing operations)   Q2 2013  Qrtly Avg 2013  Q2 2012  Qtrly Avg. 2012
New orders booked (FW Scope)   $89  $142  $114  $145
Operating revenues (FW Scope)   $199  $199  $268  $241
Segment EBITDA   $46  $35  $42  $51
EBITDA Margin (FW Scope)   22.9%  17.6%  15.7%  21.3%
         
  • Scope new orders in the second quarter of 2013 were below the average quarter of 2012. Notable awards included a limited notice to proceed on a large boiler project - as well as orders for service work.
  • Scope operating revenues in the second quarter of 2013 were below the average quarter of 2012, reflecting the lagging impact of weak order levels in 2012 and the first half of 2013.
  • EBITDA in the second quarter of 2013 was below the average quarter of 2012 as a lower contribution from profit enhancements and reduced volumes were partly offset by $6 million of incremental equity income from a partially owned power plant in Chile.

Outlook/Guidance

Masters said, "We are raising our full-year earnings guidance. We now expect our full-year 2013 adjusted diluted earnings per share from continuing operations to be moderately above $1.54, due in part to the company's strong performance in the second quarter of 2013." The company's previous guidance was that 2013 results were expected to be flat to moderately below $1.54.

In commenting on the company's Global E&C Group, Masters said, "We continue to expect full-year scope revenues in 2013 to be up materially as compared with 2012, and we expect the full-year 2013 EBITDA margin on scope revenues in this business to be in the range of 10% to 12%. We now expect EBITDA to be more favorable than previously forecasted and that the EBITDA margin in 2013 could be near or above the high end of the full-year range."

Masters said, "In our Global Power Group, we now expect that full-year 2013 EBITDA margin on scope revenues is likely to be in the range of 17% to 19% on a material decline in sequential-year scope revenues from continuing operations. The revised guidance -- higher margins on reduced revenues -- has resulted in a modest increase in the company's expectations for Global Power Group EBITDA in 2013."

Share Repurchase Program

Including the previously reported $66 million of stock repurchased during April 2013, the company repurchased a total of 5,092,700 shares for approximately $116 million during the second quarter of 2013. As of June 30, 2013, the company had approximately $270 million remaining under its authorized share repurchase program.

Conference Call Information

Foster Wheeler AG plans to hold a conference call today, Thursday, August 8, at 4:00 p.m. Central European Summer Time (10:00 a.m. Eastern Daylight Time in the U.S.) to discuss its financial results for the second quarter ended June 30, 2013. The call will be accessible to the public by telephone or webcast, and the company will post an accompanying slide presentation in the investor relations section of its website (www.fwc.com). To listen to the call by telephone, dial 973-935-8752 (conference I.D. No. 99977936) approximately ten minutes before the call. The conference call will also be available over the Internet at www.fwc.com or through StreetEvents at www.streetevents.com. A replay of the call will be available on the company's web site for four weeks following the call.

Income from Continuing Operations

All references to income from continuing operations in this news release refer to "Income from continuing operations attributable to Foster Wheeler AG" as reported in our consolidated financial statements.

Adjusted Income from Continuing Operations and Adjusted Earnings per Share from Continuing Operations

The company believes that adjusted income from continuing operations and adjusted earnings per share from continuing operations are important measures of performance because such adjusted figures exclude the variable impact of periodic asbestos-related gains and provisions. The company believes that the line item on its consolidated statement of operations entitled "Net Income attributable to Foster Wheeler AG" and "diluted earnings per share attributable to Foster Wheeler AG" are the most directly comparable GAAP financial measures to adjusted income from continuing operations and adjusted earnings per share from continuing operations.

Calculation of EBITDA

EBITDA is a supplemental financial measure not defined in generally accepted accounting principles, or GAAP. The company defines EBITDA as net income attributable to Foster Wheeler AG before interest expense, income taxes, depreciation and amortization. The company has presented EBITDA because it believes it is an important supplemental measure of operating performance. Certain covenants under our senior unsecured credit agreement use EBITDA, as defined in such agreement, in the covenant calculations, which is different from EBITDA as presented herein . The company believes that the line item on its consolidated statement of operations entitled "net income attributable to Foster Wheeler AG" is the most directly comparable GAAP financial measure to EBITDA. Since EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net income attributable to Foster Wheeler AG as an indicator of operating performance or any other GAAP financial measure.

EBITDA, as calculated by the company, may not be comparable to similarly titled measures employed by other companies. In addition, this measure does not necessarily represent funds available for discretionary use, and is not necessarily a measure of the company's ability to fund its cash needs. As EBITDA excludes certain financial information that is included in net income attributable to Foster Wheeler AG, users of this financial information should consider the type of events and transactions that are excluded.

The company's non-GAAP performance measure, EBITDA, has certain material limitations as follows:

• It does not include interest expense. Because the company has borrowed money to finance some of its operations, interest is a necessary and ongoing part of its costs and has assisted the company in generating revenue. Therefore, any measure that excludes interest expense has material limitations;

• It does not include taxes. Because the payment of taxes is a necessary and ongoing part of the company's operations, any measure that excludes taxes has material limitations; and

• It does not include depreciation and amortization. Because the company must utilize property, plant and equipment and intangible assets in order to generate revenues in its operations, depreciation and amortization are necessary and ongoing costs of its operations. Therefore, any measure that excludes depreciation and amortization has material limitations.

Calculation of EBITDA Margin

Segment EBITDA margin is calculated by dividing business unit operating revenues in Foster Wheeler Scope into business unit EBITDA.

Foster Wheeler Scope

Foster Wheeler Scope represents that portion of backlog, new orders booked and operating revenues on which profit can be earned. Foster Wheeler Scope excludes revenues relating to third-party costs incurred by the company as agent or principal on a reimbursable basis.

Foster Wheeler AG is a global engineering and construction company and power equipment supplier delivering technically advanced, reliable facilities and equipment. The company employs approximately 13,000 talented professionals with specialized expertise dedicated to serving its clients through one of its two primary business groups. The company's Global Engineering and Construction Group designs and constructs leading-edge processing facilities for the upstream oil and gas, LNG and gas-to-liquids, refining, chemicals and petrochemicals, power, minerals and metals, environmental, pharmaceuticals, biotechnology and healthcare industries. The company's Global Power Group is a world leader in combustion and steam generation technology that designs, manufactures and erects steam generating and auxiliary equipment for power stations and industrial facilities and also provides a wide range of aftermarket services. The company is based in Zug, Switzerland, and its operational headquarters office is in Reading, United Kingdom. For more information about Foster Wheeler, please visit our Web site at www.fwc.com.

Safe Harbor Statement

Foster Wheeler AG news releases may contain forward-looking statements that are based on management's assumptions, expectations and projections about the Company and the various industries within which the Company operates. These include statements regarding the Company's expectations about revenues (including as expressed by its backlog), its liquidity, the outcome of litigation and legal proceedings and recoveries from customers for claims and the costs of current and future asbestos claims and the amount and timing of related insurance recoveries. Such forward-looking statements by their nature involve a degree of risk and uncertainty. The Company cautions that a variety of factors, including but not limited to the factors described in the Company's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, which was filed with the U.S. Securities and Exchange Commission, and the following, could cause the Company's business conditions and results to differ materially from what is contained in forward-looking statements: benefits, effects or results of the Company's redomestication to Switzerland, benefits, effects or results of the Company's strategic renewal initiative, further deterioration in global economic conditions, changes in investment by the oil and gas, oil refining, chemical/petrochemical and power generation industries, changes in the financial condition of its customers, changes in regulatory environments, changes in project design or schedules, contract cancellations, the changes in estimates made by the Company of costs to complete projects, changes in trade, monetary and fiscal policies worldwide, compliance with laws and regulations relating to the Company's global operations, currency fluctuations, war, terrorist attacks and/or natural disasters affecting facilities either owned by the Company or where equipment or services are or may be provided by the Company, interruptions to shipping lanes or other methods of transit, outcomes of pending and future litigation, including litigation regarding the Company's liability for damages and insurance coverage for asbestos exposure, protection and validity of the Company's patents and other intellectual property rights, increasing global competition, compliance with its debt covenants, recoverability of claims against the Company's customers and others by the Company and claims by third parties against the Company, and changes in estimates used in its critical accounting policies. Other factors and assumptions not identified above were also involved in the formation of these forward-looking statements and the failure of such other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond the Company's control. You should consider the areas of risk described above in connection with any forward-looking statements that may be made by the Company. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any additional disclosures the Company makes in proxy statements, quarterly reports on Form 10-Q, annual reports on Form 10-K and current reports on Form 8-K filed or furnished with to the Securities and Exchange Commission.

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Foster Wheeler AG and Subsidiaries

Consolidated Statement of Operations

(in thousands of dollars, except share data and per share amounts)

(unaudited)

 
Quarter Ended June 30,Six Months Ended June 30,
2013201220132012
 
Operating revenues$863,407$936,462$1,653,551$1,864,052
Cost of operating revenues 709,800  797,529  1,380,498  1,585,036 
Contract profit153,607138,933273,053279,016
 
Selling, general and administrative expenses89,80185,289180,133168,430
Other income, net(18,014)(10,515)(22,765)(18,653)
Other deductions, net10,49012,17415,80216,237
Interest income(1,482)(2,947)(2,944)(6,114)
Interest expense3,9164,2496,5887,665
Net asbestos-related (gain)/provision (13,750) 3,713  (11,750) 5,710 
Income from continuing operations before income taxes82,64646,970107,989105,741
Provision for income taxes 13,319  12,291  18,479  27,175 
Income from continuing operations 69,327  34,679  89,510  78,566 
Discontinued operations:
Income/(loss) from discontinued operations before income taxes2,383438(1,495)(406)
Provision for income taxes from discontinued operations -  -  -  - 
Income/(loss) from discontinued operations 2,383  438  (1,495) (406)
Net income71,71035,11788,01578,160
Less: Net income attributable to noncontrolling interests 1,011  4,258  4,290  6,655 
Net income attributable to Foster Wheeler AG$70,699 $30,859 $83,725 $71,505