Foster Wheeler Reports Record Q4 Profits
Foster Wheeler has reported net income for the fourth quarter of 2008 of $99.9 million, or $0.75 per diluted share, compared with $78.1 million, or $0.54 per diluted share, in the fourth quarter of 2007. Net income in both quarterly periods was impacted by asbestos-related items. Excluding such items from both quarterly periods, net income in the fourth quarter of 2008 was $137.2 million, or $1.03 per diluted share, compared with $80.6 million, or $0.56 per diluted share, in the fourth quarter of 2007.
The non-cash asbestos provision in the fourth quarter of 2008 primarily reflected a revised 15-year estimate of projected defense costs for the period 2009 through 2023. Fourth-quarter 2008 consolidated EBITDA (earnings before interest expense, income taxes, depreciation and amortization) was $105.1 million, compared with $132.0 million in the fourth quarter of 2007. Consolidated EBITDA in both quarterly periods was also impacted by the asbestos-related items as noted above and as detailed in the attached table. Excluding such items from both quarterly periods, consolidated EBITDA in the fourth quarter of 2008 was $142.4 million, compared with $134.5 million in the fourth quarter of 2007. The following items also impacted the fourth quarter 2008 pretax results.
The company recorded a charge of $6.7 million for the favorable resolution of a previously disclosed legacy power project in Ireland. The resolution provides a full release from all existing claims related to the corrosion in the boilers and the emissions control equipment. The company also recorded a charge of $9.0 million for a restructuring program that it has begun to implement in its Global Power Group (GPG) and under which the business will right-size employment levels as necessary to support its expected 2009 workload. For the full year 2008, net income was a record $526.6 million, or $3.68 per diluted share, compared with $393.9 million, or $2.72 per diluted share, in 2007.
For the full year 2008, consolidated EBITDA was a record $686.1 million, compared with $591.9 million for 2007. Net income and consolidated EBITDA in 2008 and 2007 were impacted by asbestos-related items as detailed in the attached table. Excluding such items from both periods, net income in 2008 was $533.2 million, or $3.73 per diluted share, compared with $387.7 million, or $2.68 per diluted share, in 2007; and consolidated EBITDA for 2008 was $692.7 million, compared with $585.7 million in 2007. Commenting on the company’s full-year 2008 results, Foster Wheeler’s
Chairman and Chief Executive Officer, Raymond J. Milchovich, said, "As expected, the company's net income in 2008 reached an all-time high, based largely on the record-setting level of EBITDA generated by both of our operating groups: our Global Engineering and Construction (E&C) Group and our Global Power Group. Net income was aided by a lower effective tax rate in 2008 versus 2007, including a favorable $24.1 million year-end net change in valuation allowances."
Milchovich noted, "In the fourth quarter of 2008, both E&C and GPG generated strong operating results, which were partially offset by items described in the business group discussions below. Net income in the fourth quarter of 2008 was aided by the previously cited net change in valuation allowances. Relative to the year-ago quarter, earnings per share in the fourth quarter of 2008 reflected an approximate 8% reduction in the fully diluted share count primarily as a result of the company's share repurchase program. In addition, we are pleased by the resolution of the legacy power project in Ireland. This is a positive for us.
"New orders in the fourth quarter of 2008 were below the levels of recent quarters, although for reasons that differ somewhat between our two operating groups. In E&C, we believe the fundamentals of our business remain strong. However, the decline in new orders reflects the fact that clients are taking a more measured approach to project releases. Even so, in the fourth quarter we signed a contract for a major refinery expansion project in Colombia and, in December, we signed an initial limited-release work order for a petrochemical project in the Middle East that we expect will be a very large booking in the first half of 2009. In GPG, the situation is materially different. The decline in new orders reflects a continuation of weak market conditions for solid fuel boilers, especially in North America."
Milchovich added, "As we look at 2009, it is clear that our power business will not equal its 2008 performance, due to significant weakness in most of the global markets we serve, North America in particular. Through the restructuring program, we are taking steps to right-size our power business to match anticipated market conditions in 2009. In our E&C Group, the outlook for 2009 is much more favorable than it is for our power business, but it is not without challenges. Most of the large prospects we are pursuing are currently moving forward, although client deliberation on the timing of new contract awards has resulted in some delays. We expect our E&C business to have a very good year in 2009, but our actual results will depend in large measure on the timing of these client decisions. Even so, it is unlikely that our E&C Group will experience the same level of EBITDA performance that it enjoyed in 2008."
Share Repurchase Program
On September 12, 2008, the company announced that its board of directors had authorized a $750 million share repurchase program. To date, the company has purchased 18.1 million common shares and has approximately $264.8 million remaining under the existing authorization.
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