Add
FWLT to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| FWLT > SEC Filings for FWLT > Form 10-K on 24-Feb-2009 | All Recent SEC Filings |
24-Feb-2009
Annual Report
The following is management's discussion and analysis of certain significant factors that have affected our financial condition and results of operations for the periods indicated below. This discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included in this annual report on Form 10-K.
Safe Harbor Statement
This management's discussion and analysis of financial condition and results of operations, other sections of this annual report on Form 10-K and other reports and oral statements made by our representatives from time to time may contain forward-looking statements that are based on our assumptions, expectations and projections about Foster Wheeler AG and the various industries within which we operate. These include statements regarding our expectations about revenues (including as expressed by our backlog), our 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. We caution that a variety of factors, including but not limited to the factors described under Item 1A, "Risk Factors" and the following, could cause business conditions and our results to differ materially from what is contained in forward-looking statements:
• benefits, effects or results of our redomestication;
• changes in the rate of economic growth in the United States and other major international economies;
• changes in investment by the oil and gas, oil refining, chemical/petrochemical and power industries;
• changes in the financial condition of our customers;
• changes in regulatory environments;
• changes in project design or schedules;
• contract cancellations;
• changes in our estimates of costs to complete projects;
• changes in trade, monetary and fiscal policies worldwide;
• compliance with laws and regulations relating to our global operations;
• currency fluctuations;
• war and/or terrorist attacks on facilities either owned by us or where equipment or services are or may be provided by us;
• interruptions to shipping lanes or other methods of transit;
• outcomes of pending and future litigation, including litigation regarding our liability for damages and insurance coverage for asbestos exposure;
• protection and validity of our patents and other intellectual property rights;
• increasing competition by non-U.S. and U.S. companies;
• compliance with our debt covenants;
• recoverability of claims against our customers and others by us and claims by third parties against us; and
• changes in estimates used in our 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 our control. You should consider the areas of risk described above in connection with any forward-looking statements that may be made by us.
In addition, this management's discussion and analysis of financial condition and results of operations contains several statements regarding current and future general global economic conditions. These statements are based on our compilation of economic data and analyses from a variety of external sources. While we believe these statements to be reasonably accurate, global economic conditions are difficult to analyze and predict and are subject to significant uncertainty and as a result, these statements may prove to be wrong.
We undertake 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 we make in proxy statements, quarterly reports on Form 10-Q, annual reports on Form 10-K and current reports on Form 8-K filed with the Securities and Exchange Commission.
Overview
We operate through two business groups - the Global Engineering & Construction Group, which we refer to as our Global E&C Group, and our Global Power Group. In addition to these two business groups, we also report corporate center expenses and expenses related to certain legacy liabilities, such as asbestos, in the Corporate and Finance Group, which we refer to as the C&F Group.
Since fiscal year 2007, we have been exploring acquisitions within the engineering and construction industry to strategically complement or expand on our technical capabilities or access to new market segments. During fiscal year 2008, we acquired a U.S.-based biopharmaceutical engineering company as part of our strategy to enhance our positioning in the pharmaceutical marketplace, especially in the U.S., and we acquired the majority of the assets and work force of an engineering design company, with an engineering center in Kolkata, India, which provides engineering services to the petrochemical, refining, upstream oil and gas and power industries. We are also exploring acquisitions within the power industry to complement our product offering. However, there is no assurance that we will consummate acquisitions in the future.
Subsequent to the fiscal year ended December 26, 2008, at a special court-ordered meeting of common shareholders held on January 27, 2009, the common shareholders of Foster Wheeler Ltd. approved a scheme of arrangement under Bermuda law. On February 9, 2009, after receipt of the approval of the scheme of arrangement by the Supreme Court of Bermuda and the satisfaction of certain other conditions, the transactions contemplated by the scheme of arrangement were effected. Pursuant to the scheme of arrangement, among other things, all previously outstanding whole common shares of Foster Wheeler Ltd. were cancelled and the common shareholders of Foster Wheeler Ltd. became common shareholders of Foster Wheeler AG, and Foster Wheeler Ltd. became a wholly-owned subsidiary of Foster Wheeler AG, a holding company that owns the stock of its various subsidiary companies. The steps of the scheme of arrangement together with certain related transactions, which are collectively referred to as the "Redomestication," effectively changed our place of incorporation from Bermuda to the Canton of Zug, Switzerland. Please refer to Item 1, "Business - Redomestication," and to Note 21 to the consolidated financial statements in this annual report on Form 10-K for further information related to the Redomestication including summary pro forma financial information as of December 26, 2008.
Fiscal Year 2008 Results
We earned record net income in fiscal year 2008, driven primarily by strong operating performance from both our Global E&C Group and our Global Power Group. During fiscal year 2008, we reported net income of
$526,600 compared to net income of $393,900 in fiscal year 2007. The increase in net income in fiscal year 2008, compared to fiscal year 2007, resulted primarily from the following:
• Increased contract profit of $151,300 mainly driven by the increased volume of operating revenues, excluding flow-through revenues which do not impact contract profit. See "- Results of Operations-Operating Revenues" below for a more detailed discussion of flow-through revenues. Additionally, the contract profit increase included the net impact of the following:
• A $7,500 commitment fee received in fiscal year 2008 for a contract that our Global Power Group was not awarded.
• The net impact to contract profit for charges of $6,700 and $30,000 in fiscal years 2008 and 2007, respectively, on a legacy project in our Global Power Group. Please refer to Note 19 to the consolidated financial statements in this annual report on Form 10-K for further information on this legacy project.
• A $9,600 increase in fiscal year 2007 for the contract profit portion of the favorable resolution of project claims, described below.
• Income earned in tax jurisdictions with tax rates lower than the U.S. statutory rate, which contributed to an approximate fourteen-percentage point reduction in the effective tax rate for fiscal year 2008.
• A net valuation allowance decrease consisting primarily of a reversal of our valuation allowance on deferred tax assets in one of our non-U.S. subsidiaries and a decrease in our valuation allowance because we recognized earnings in jurisdictions where we continue to maintain a full valuation allowance partially offset by the establishment of a valuation allowance on deferred tax assets in another of our non-U.S. subsidiaries. Total changes in our valuation allowance contributed to an approximate six-percentage point reduction in the effective tax rate for fiscal year 2008.
These increases were partially offset by the following:
• A net asbestos-related provision of $6,600 in our C&F Group in fiscal year 2008 on the revaluation of our asbestos liability and related asset resulting primarily from increased asbestos defense costs projected through year-end 2023 of $42,700 offset by gains of $36,100 on the settlement of coverage litigation with certain insurance carriers.
• A charge of $9,000 in our Global Power Group primarily for severance-related postemployment benefits in accordance with Statement of Financial Accounting Standards, or SFAS, No. 112, "Employers' Accounting for Postemployment Benefits an amendment of FASB Statements No. 5 and 43." The severance charge results from our efforts to right-size our power business to match anticipated market conditions in fiscal year 2009. The $9,000 charge decreased contract profit by $6,600, increased selling, general and administrative expenses by $2,100 and increased other deductions, net by $300.
• An increase in selling, general and administrative expenses of $37,600 in fiscal year 2008, compared to fiscal year 2007, inclusive of $2,100 of severance-related charges described above.
• A net asbestos-related gain of $6,100 in our C&F Group in fiscal year 2007, related to gains of $13,500 on the settlement of coverage litigation with certain asbestos insurance carriers and a charge of $7,400 on the revaluation of our asbestos liability and related asset.
• A $14,400 gain in our Global Power Group related to favorable resolution of project claims in fiscal year 2007. The $14,400 gain increased contract profit by $9,600 and interest income by $4,000 and reduced other deductions, net by $800.
Additional highlights included the following:
• Our consolidated operating revenues increased 34% to $6,854,300 in fiscal year 2008, as compared to $5,107,200 in fiscal year 2007. The increase in operating revenues in fiscal year 2008 reflects increased flow-through revenues of $1,376,400 and greater business activity in both our Global E&C Group and our Global Power Group.
• We generated net cash from operating activities of $428,900.
• Our consolidated new orders, measured in terms of future revenues, were $4,056,000 in fiscal year 2008, as compared to $8,882,800 in fiscal year 2007.
• Our consolidated backlog of unfilled orders, measured in future revenues, as of December 26, 2008 was $5,504,400, as compared to $9,420,400 as of December 28, 2007.
• Our consolidated backlog, measured in terms of Foster Wheeler scope (as defined in the section entitled "- Backlog and New Orders" within this Item 7), as of December 26, 2008 was $2,539,300, as compared to $3,294,600 as of December 28, 2007.
Challenges and Drivers
Our primary operating focus continues to be booking quality new business and executing our contracts well. The global markets in which we operate are largely dependent on overall economic growth and the resultant demand for oil and gas, electric power, petrochemicals and refined products.
In our Global E&C business, long-term demand is forecasted to be strong for the end products produced by our clients, and is expected to continue to stimulate investment by our clients in new and expanded plants. Therefore, attracting and retaining qualified technical personnel to execute the existing backlog of unfilled orders and future bookings will continue to be a management priority. Equally important is ensuring that we maintain an appropriate management infrastructure to integrate and manage the technical personnel. We believe the primary drivers and constraints in our Global E&C market are: global economic growth, our clients' long-term view of oil and natural gas prices and end product demand, and scope and timing of client investments. See "- Results of Operations-Business Segments-Global E&C Group-Overview of Segment" below for an additional discussion of the challenges and drivers that impact our Global E&C Group, including our view of the current global economic outlook.
In our Global Power Group business, we believe the primary drivers and constraints in the global steam generator market are: economic growth, power plant price inflation, concern related to greenhouse gas emissions, entry into new geographic markets, impact of environmental regulation, and capacity constraints of electricity markets. These drivers differ across world regions, countries and provinces. See "- Results of Operations-Business Segments-Global Power Group-Overview of Segment" below for an additional discussion of the challenges and drivers that impact our Global Power Group, including our view of the current global economic outlook.
New Orders
The Global E&C Group's new orders, measured in future revenues, decreased to $2,707,500 in fiscal year 2008, as compared to $6,874,600 in fiscal year 2007. These new orders are inclusive of estimated flow-through revenues, as defined below, of $604,600 and $4,723,800 for fiscal years 2008 and 2007, respectively.
The Global Power Group's new orders decreased to $1,348,500 in fiscal year 2008, as compared to $2,008,200 in fiscal year 2007. Our new orders in fiscal year 2008 were impacted by the delays we have seen in some of the power markets that we serve.
The challenges and drivers for each of our Global E&C Group and our Global Power Group are discussed in more detail in the section entitled "- Business Segments," within this Item 7.
Results of Operations:
Operating Revenues:
Fiscal Years Ended
December 26, December 28, December 29,
2008 2007 2006
Amount $ 6,854,290 $ 5,107,243 $ 3,495,048
$ Change 1,747,047 1,612,195
% Change 34.2 % 46.1 %
|
The composition of our operating revenues varies from period to period based on the portfolio of contracts in execution during any given period. Our operating revenues are therefore dependent on our portfolio of contracts, the strength of the various geographic markets and industries we serve and our ability to address those markets and industries.
The geographic dispersion of our consolidated operating revenues for fiscal years 2008, 2007 and 2006 based upon where the project is being executed, were as follows:
2008 vs 2007 2007 vs 2006
2008 2007 $ Change % Change 2006 $ Change % Change
Asia $ 1,575,383 $ 964,006 $ 611,377 63 % $ 412,984 $ 551,022 133 %
Australasia* 1,745,039 709,073 1,035,966 146 % 616,700 92,373 15 %
Europe 1,451,670 1,329,971 121,699 9 % 997,440 332,531 33 %
Middle East 858,592 1,006,287 (147,695 ) (15 )% 470,746 535,541 114 %
North America 1,056,209 957,294 98,915 10 % 876,655 80,639 9 %
South America 167,397 140,612 26,785 19 % 120,523 20,089 17 %
Total $ 6,854,290 $ 5,107,243 $ 1,747,047 34 % $ 3,495,048 $ 1,612,195 46 %
|
* Australasia primarily represents Australia, New Zealand, and the Pacific islands.
Fiscal Year 2008 vs. Fiscal Year 2007
The increase in operating revenues in fiscal year 2008, compared to fiscal year 2007, was driven by our Global E&C Group, which experienced an operating revenue increase of $1,466,000, representing 84% of the consolidated operating revenue increase. The operating revenue increase is the result of our Global E&C Group's success in meeting the strong market demand in the oil and gas, petrochemical and refining industries that stimulated investment by our customers. In fiscal year 2008, our Global E&C Group operating revenues from these three industries increased by $1,622,500 while operating revenues from the other industries we serve declined by $156,500. Please refer to the section entitled "- Business Segments," within this Item 7 for a discussion of our view of the outlook for the oil and gas, petrochemical and refining industries.
Our Global E&C Group's operating revenues in fiscal year 2008 included $2,914,100 of flow-through revenues. Flow-through revenues increased by $1,377,000 from fiscal year 2007, representing 94% of the increase in our Global E&C Group's operating revenues and 79% of the increase in consolidated operating revenues. Flow-through revenues and costs result when we purchase materials, equipment or third-party services on behalf of our customer on a reimbursable basis with no profit on the materials, equipment or third-party services and where we have the overall responsibility as the contractor for the engineering specifications and procurement or procurement services for the materials, equipment or third-party services included in flow through costs. Flow-through revenues and costs do not impact contract profit or net earnings.
Our Global Power Group, which predominantly serves the power generation industry, contributed $281,100, or 16%, to the increase in consolidated operating revenues in fiscal year 2008. The increase in operating revenues in our Global Power Group was primarily attributable to the execution of projects located in Europe, North America and South America.
Please refer to the section entitled "- Business Segments," within this Item 7 for further information.
Fiscal Year 2007 vs. Fiscal Year 2006
The increase in operating revenues in fiscal year 2007, compared to fiscal year 2006, was driven by our Global E&C Group, which experienced an operating revenues increase of $1,462,200, representing 91% of the consolidated operating revenues increase. In fiscal year 2007, our Global E&C Group's operating revenues increase was driven by the oil and gas, petrochemical and refining industries, the operating revenues from which increased by $1,554,400, while operating revenues from the other industries experienced a slight decline.
Our Global E&C Group's operating revenues in fiscal year 2007 included $1,537,100 of flow-through revenues, an increase in flow-through revenues of $848,300 from fiscal year 2006, representing 58% of the increase in our Global E&C Group's operating revenues and 53% of the increase in consolidated operating revenues.
Our Global Power Group contributed $150,000, or 9%, to the increase in consolidated operating revenues in fiscal year 2007. The increase in operating revenues in our Global Power Group was primarily attributable to the execution of projects located in Europe and Asia.
Contract Profit:
Fiscal Years Ended
December 26, December 28, December 29,
2008 2007 2006
Amount $ 895,646 $ 744,321 $ 507,787
$ Change 151,325 236,534
% Change 20.3 % 46.6 %
|
Contract profit is computed as operating revenues less cost of operating revenues. "Flow-through" amounts are recorded both as operating revenues and cost of operating revenues with no contract profit. Contract profit margins are computed as contract profit divided by operating revenues. Flow-through revenues reduce the contract profit margin calculation as they are included in operating revenues without any corresponding impact on contract profit. As a result, we analyze our contract profit margins excluding the impact of flow-through revenues as we believe that this is a more accurate measure of our operating performance.
Fiscal Year 2008 vs. Fiscal Year 2007
The increase in contract profit in fiscal year 2008, compared to fiscal year 2007, resulted primarily from the net impact of the following:
• Our Global E&C Group experienced increased contract profit mainly driven by the increased volume of operating revenues. Additionally, our Global E&C Group experienced increased contract profit margins, excluding the impact on contract profit margins of flow-through revenues.
• Our Global Power Group experienced increased volume of operating revenues and markedly increased contract profit margins in fiscal year 2008, as compared to fiscal year 2007, excluding the items noted below, which impacted contract profit of our Global Power Group.
• A $7,500 increase in contract profit for a commitment fee received in fiscal year 2008 for a contract that our Global Power Group was not awarded.
• A $6,600 decrease in contract profit for severance-related postemployment benefits in accordance with SFAS No. 112.
• The net impact to contract profit for charges of $6,700 and $30,000 in fiscal years 2008 and 2007, respectively, on a legacy project in our Global Power Group. Please refer to Note 19 to the consolidated financial statements in this annual report on Form 10-K for further information.
• A $9,600 increase in contract profit for a gain in fiscal year 2007 related to the favorable resolution of project claims in our Global Power Group.
Fiscal Year 2007 vs. Fiscal Year 2006
The increase in contract profit in fiscal year 2007, compared to fiscal year 2006, resulted primarily from the net impact of the following:
• Our Global E&C Group experienced increased contract profit mainly driven by the increased volume of operating revenues. Additionally, our Global E&C Group experienced increased contract profit margins, excluding the impact on contract profit margins of flow-through revenues.
• Our Global Power Group experienced increased volume of operating revenues and increased contract profit margins in fiscal year 2007, as compared to fiscal year 2006, excluding the items noted below, which impacted contract profit of our Global Power Group.
• A $9,600 increase in contract profit for a gain in fiscal year 2007 related to the favorable resolution of project claims in our Global Power Group.
• The net impact to contract profit for charges of $30,000 and $25,000 in fiscal years 2007 and 2006, respectively, on a legacy project in our Global Power Group. Please refer to Note 19 to the consolidated financial statements in this annual report on Form 10-K for further information.
Please refer to the section entitled "- Business Segments," within this Item 7 for further information.
Selling, General and Administrative (SG&A) Expenses:
Fiscal Years Ended
December 26, December 28, December 29,
2008 2007 2006
Amount $ 283,883 $ 246,237 $ 225,330
$ Change 37,646 20,907
% Change 15.3 % 9.3 %
|
SG&A expenses include the costs associated with general management, sales pursuit, including proposal expenses, and research and development costs.
Fiscal Year 2008 vs. Fiscal Year 2007
The increase in SG&A expenses in fiscal year 2008, compared to fiscal year 2007, results from increases in sales pursuit costs of $17,200, general overhead costs of $17,700, research and development costs of $700 and severance-related postemployment benefits in accordance with SFAS No. 112 in our Global Power Group of $2,100. The increase in general overhead costs was primarily attributable to the increased volume of business in fiscal year 2008, which drove an increase in the number of non-technical support staff and related costs. The general overhead costs increase also includes charges related to the settlement of pension obligations for certain former employees of $900. Please refer to Note 8 to the consolidated financial statements included in this annual report on Form 10-K for further information.
Fiscal Year 2007 vs. Fiscal Year 2006
The increase in SG&A expenses in fiscal year 2007, compared to fiscal year 2006, results from increases in sales pursuit costs of $10,300, general overhead costs of $7,400 and research and development costs of $3,200. The increase in SG&A expenses in fiscal year 2007, compared to fiscal year 2006, was primarily
attributable to the increased volume of business in fiscal year 2007, which drove an increase in the number of non-technical support staff and related costs.
Other Income, net:
Fiscal Years Ended
December 26, December 28, December 29,
2008 2007 2006
Amount $ 53,001 $ 61,410 $ 48,610
$ Change (8,409 ) 12,800
% Change (13.7 )% 26.3 %
|
Fiscal Year 2008
Other income, net in fiscal year 2008 consisted primarily of $33,400 in equity earnings generated from our ownership interests in build, own and operate projects in Italy and Chile (as described further in Note 5 to the consolidated financial statements in this annual report on Form 10-K), a $9,600 gain . . .
|
|