Foster Wheeler AG (Nasdaq: FWLT) today reported income from continuing
operations for the second quarter of 2014 of $85.6 million, or $0.85 per
diluted share, compared with $68.3 million, or $0.68 per diluted share,
in the second quarter of 2013.
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 2014 was $86.8
million, or $0.86 per diluted share, compared with $54.6 million, or
$0.54 per diluted share, in the year-ago quarter.
Results for the second quarter of 2014 include the impact of three
additional items: a favorable $32.5 million, or $0.32 per diluted share,
settlement in connection with the terms related to the expiration of a
steam generator technology license; the benefit of $22.3 million, or
$0.22 per diluted share, from the reversal of interest, penalties and
tax provision as a result of settlements with non-U.S. tax authorities;
and $3.9 million, or $0.03 per share, of third-party transaction costs
in connection with the previously announced acquisition of Foster
Wheeler by AMEC plc. Excluding the impact of these three items and the
asbestos provision, income from continuing operations in the second
quarter of 2014 was $35.9 million, or $0.35 per diluted share.
For the first six months of 2014, income from continuing operations was
$102.7 million, or $1.02 per diluted share, compared with $85.2 million,
or $0.83 per diluted share, for the first six months of 2013.
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.
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(dollars in millions, from continuing operations)
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Q2 2014
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Qtrly Avg. 2014
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Q2 2013
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Qtrly Avg. 2013
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Income
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$86
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$51
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$68
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$24
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Adjusted income
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$87
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$53
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$55
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$32
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Consolidated revenues (FW Scope)
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$725
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$674
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$642
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$648
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Foster Wheeler’s Chief Executive Officer, Kent Masters, said, “Our
adjusted income from continuing operations in the second quarter of 2014
was more than double the average quarter of 2013, due largely to the
technology license settlement and the tax settlements. Operationally,
our Global Engineering and Construction (E&C) Group reported a sharp
increase in scope revenues and EBITDA as compared to the average quarter
of 2013, a very solid level of new orders and nearly $3 billion in scope
backlog.”
Masters said, “We continue to expect that our Global E&C Group will
report sharply higher scope revenues for the full-year 2014 as compared
to the full-year 2013. However, in our Global Power Group, we now
believe that scope revenue is likely to be down modestly for the
full-year 2014 as compared to the full-year 2013. We believe the
expected decline in GPG scope revenue is a reflection of the timing of
new orders; nevertheless, we continue to see solid booking prospects in
GPG for this year and beyond.”
Global Engineering and Construction (E&C) Group
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(dollars in millions)
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Q2 2014
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Qtrly Avg. 2014
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Q2 2013
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Qtrly Avg. 2013
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New orders booked (FW Scope)
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$545
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$515
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$537
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$686
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Operating revenues (FW Scope)
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$522
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$483
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$443
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$452
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Segment EBITDA
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$56
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$48
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$62
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$46
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EBITDA Margin (FW Scope)
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10.8%
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10.0%
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14.0%
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10.2%
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-
Scope new orders in the second quarter of 2014 remained at a robust
level.
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Scope operating revenues in the second quarter of 2014 were above the
average quarter of 2013 due to an increased volume of work executed.
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EBITDA in the second quarter of 2014 was above the average quarter of
2013, aided by the increased volume of work and a reduced level of
sales pursuit costs, partially offset by lower profit enhancement
opportunities. EBITDA in the second quarter of 2013 also included the
favorable impact of a $3.0 million pretax litigation settlement.
Global Power Group (GPG)
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(dollars in millions; EBITDA and revenues from continuing
operations)
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Q2 2014
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Qtrly Avg. 2014
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Q2 2013
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Qtrly Avg. 2013
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New orders booked (FW Scope)
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$89
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$285
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$89
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$173
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Operating revenues (FW Scope)
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$204
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$191
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$199
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$196
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Segment EBITDA
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$64
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$46
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$46
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$37
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EBITDA Margin (FW Scope)
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31.5%
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24.3%
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22.9%
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18.8%
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Scope new orders in the second quarter of 2014 were below the average
quarter of 2013, reflecting slippage in the expected booking date for
several prospects. Scope new orders for the average quarter of 2014
were well above the average quarter of 2013 due to a very strong level
of new orders in the first quarter of 2014.
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Scope operating revenues in the second quarter of 2014 were modestly
above the average quarter of 2013, reflecting the timing and mix of
work executed.
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EBITDA in the second quarter of 2014 was above the average quarter of
2013 due to the $32.5 million technology license settlement referenced
above.
Share Repurchase Program
The company did not purchase any of its shares during the second quarter
of 2014.
Definitive Agreement with AMEC plc
As previously announced, the company entered into an Implementation
Agreement with AMEC plc on February 13, 2014 (subsequently amended,
including by a Deed of Amendment dated May 28, 2014), pursuant to which
AMEC will make an offer to acquire all the issued and to be issued
registered shares of the company. For additional information about the
terms of the Implementation Agreement, please see the company’s Current
Reports on Form 8-K, filed with the U.S. Securities and Exchange
Commission on February 13, 2014 (including the complete text of the
Implementation Agreement, which is attached as Exhibit 2.1 thereto) and
on May 28, 2014 (including the complete text of the Deed of Amendment,
which is attached as Exhibit 2.1 thereto), available at www.sec.gov.
Definitions
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 (generally accepted accounting principles)
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 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 website 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, which was filed with the U.S. Securities and
Exchange Commission on February 27, 2014, and the following, could cause
the Company’s business conditions and results to differ materially from
what is contained in forward-looking statements including: the timing
and success of the proposed offer and acquisition of the Company by AMEC
plc, the risk that the Company’s business will be adversely impacted
during the pending proposed offer and acquisition of the Company by AMEC
plc, benefits, effects or results of the Company’s redomestication to
Switzerland, 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 with or furnished to the Securities and Exchange
Commission.
Additional Information
THE COMPANY'S SHAREHOLDERS ARE URGED TO READ ANY DOCUMENTS (INCLUDING
ANY EXHIBITS THERETO) RELATING TO THE OFFER BY AMEC PLC WHEN SUCH
DOCUMENTS BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION
ABOUT AMEC'S OFFER.
The offer has not commenced. At the time the offer is commenced, AMEC
will file with the SEC a registration statement on Form F-4, which will
include a prospectus of AMEC in respect of the AMEC Shares to be issued
in the offer, and a tender offer statement on Schedule TO (together with
related documents, including a related letter of transmittal), and the
company will file with the SEC a Recommendation Statement on Schedule
14D-9 with respect to the offer. These documents will contain important
information about the offer that should be read carefully before any
decision is made with respect to the offer. These materials will be made
available to the shareholders of the company at no expense to them.
Investors and security holders will be able to obtain the documents
(when available) free of charge at the SEC’s web site, www.sec.gov,
after they have been filed. Any materials filed with the SEC may also be
obtained without charge at the company's website, www.fwc.com.
This announcement is for informational purposes only and does not
constitute or form part of an offer to sell or the solicitation of an
offer to buy or subscribe to any securities, nor shall there be any sale
of securities in any jurisdiction in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. This announcement is not an
offer of securities for sale into the United States. No offering of
securities shall be made in the United States except pursuant to
registration under the US Securities Act of 1933, or an exemption
therefrom.
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