KHD Khd Humboldt Wedag International Ltd

- Backlog at $842.8 million after adjustments - HONG KONG, March 27 /PRNewswire-FirstCall/ -- KHD Humboldt Wedag International Ltd. (NYSE:KHD) today announced results for the year ended December 31, 2008. Unless otherwise noted, all figures are in US dollars. For the year ended December 31, 2008, KHD reported revenues of $638.4 million with a net loss of $7.0 million or $0.23 per share diluted. The loss is largely due to recognition of a non-cash fair value loss on the preferred shares of former subsidiaries of $55.1 million and a loss from contract terminations associated with the international financial crisis of $32.0 million. In our opinion, the non-cash fair value loss and the contract terminations are non-recurring items. For the previous year ended December 31, 2007, KHD reported revenues of $580.4 million with a net income of $42.1 million or $1.39 per share on a diluted basis. KHD's balance sheet position at the close of 2008 provides management with a strong platform for transition through the financial crisis. KHD's cash and cash equivalents at year-end totaled $409.1 million; working capital was $279.9 million; and shareholders' equity was $261.9 million. KHD's current ratio was 1.65 and its long-term debt-to-equity ratio was 0.04. CEO Jim Busche commented, "In 2008, our revenues were at record levels and margins were 14.1 percent after booking provisions of $32.0 million for terminated contracts. The $32.0 million reflects approximately $17.0 million of purchase order commitments; $3.4 million in purchase order cancellation settlements with suppliers; approximately $11.3 million in write-downs of inventories and contracts-in-progress and other similar items. "The unexpected and sudden project terminations exposed a weakness in certain contract terms and credit insurance instruments relating to some of our customer contracts. We are amending our processes and procedures to remedy those weaknesses. Excluding these provisions, the margin for 2008 was 19.1 percent. The margin for 2007 was 14.8 percent and in 2006 the margin was 16.3 percent." The number of shares issued and outstanding as at December 31, 2008 was 30,522,645; the weighted average number of shares for the year ended December 31, 2008 was 30,401,018 on both a basic and diluted basis. For comparative purposes, all of the following amounts for order intake and backlog were translated directly from Euros to US dollars at 1.3920, the exchange rate prevailing on December 31, 2008. Order intake is defined as the total value of all orders received during the respective period, while order backlog is defined as the value of orders received but not yet fulfilled. At December 31, 2008, the total value of contracts officially cancelled amounted to $100.2 million. These orders were removed from the backlog and fourth-quarter order intake was reduced by the same amount. As a consequence of KHD's review of every project in its backlog, which included discussions with its customers and suppliers, KHD is now able to confirm that at December 31, 2008, the amount of contracts at risk included in its backlog was $159.2 million. Order intake for the year ended December 31, 2008 was $622.5 million, a decrease of 25 percent from 2007 and a decrease of 3 percent from 2006. Of that total, 57 percent came from Russia and Eastern Europe, 23 percent from Asia and 12 percent from the Middle East. Order backlog as of December 31, 2008 was $842.8 million, a decrease of 8 percent from December 31, 2007, and an increase of 40 percent over 2006. Of the backlog going into 2009, 43 percent is associated with projects in Russia and Eastern Europe, 25 percent from the Middle East, and 27 percent in Asia. The order backlog as of the date of this release is approximately $750.0 million. CEO Jim Busche added, "While the demand for new capital equipment has decreased in reaction to the tightening credit markets, we see opportunity in refocusing on our service business. The population of KHD machines around the world is substantial, so in our restructuring we have placed a renewed emphasis on, and dedicated resources to, significantly expanding this segment of our revenue stream." CFO Alan Hartslief commented, "These current economic conditions clearly require that we focus on preserving our cash and our shareholder value. "The preferred shares of former subsidiaries held on our balance sheet, like most financial instruments, have deteriorated in value. In connection with the preparation of our financial statements for the year ended December 31, 2008, we took steps to determine the fair value of these preferred shares, which cannot be readily determined as they do not trade on an active public market. Our determination of fair value considered various assumptions, including time value, yield curve and other relevant economic measures. At December 31, 2008, we used a discount rate of 30% in our valuation model, based on observable current market transactions in instruments with similar characteristics, with modifications for market liquidity and the features of the preferred shares. As a result, we recognized a fair value loss of $55.1 million on our investment in the preferred shares of Mass Financial and one of its former subsidiaries. Although we had initially intended to distribute to our shareholders the economic value of the preferred shares of Mass Financial, we have concluded that such a distribution would be too complex, too costly and could not be achieved in a tax-efficient and commercially reasonable manner. "Our response to the international financial crisis will include a restructuring cost, minimization actions, efficiency measures, and the write-downs of inventories, contracts in progress and similar items. Our objective is to ensure that costs are reduced in proportion to the anticipated reduction in future revenue. We currently estimate the 2009 restructuring charges related to facilities, staff reductions and other expense cuts to be in the range of $25.0 million to $30.0 million. The majority of these costs will be recorded in the latter half of 2009. "We are also expecting a substantial reduction in the royalty associated with our passive interest in the Wabush iron ore mine, due to falling demand and a general weakening in the price for iron ore. "We are taking proactive steps to address, in a timely fashion, the changes in the economic environment and in our markets. Our objective has always been cash generation and we will continue to focus on cash preservation. Our cash forecast confirms that our reserves are adequate to meet all of our cash requirements in 2009 without adding debt." CEO Jim Busche concluded, "As a result of the international financial crisis, our customer base has had to re-think their capital expenditure plans. KHD expects the consequence to be a decrease in order intake in 2009 and a resulting dramatic decrease in revenues for 2010. Because of these economic conditions and the poor visibility in the credit markets, we are not in a position to give 2009 guidance. We have developed restructuring plans to adapt to this change and anticipate reducing our staff by approximately 50 percent, and divesting our coal and minerals group in Germany, India, China, South Africa and Australia. We have also decided to close our manufacturing facility in Germany to further reduce our fixed cost base and enhance our flexibility to provide equipment and spare parts from low cost platforms and logistically advantageous locations. At the same time, we have put restructuring initiatives in place to reduce costs through standardization of designs, bidding procedures and procurement activities, and to make investments in our future through a dedicated and focused research and development plan. While these are difficult times, such times often present opportunities and we believe our restructuring plans will result in KHD being well positioned to take advantage of these opportunities." Shareholders are encouraged to read the entire Form 20-F, which has been filed with the SEC, for a greater understanding of KHD. The Form 20-F is also available on the Company's website. The Company's annual report for the fiscal year ended December 31, 2008 on Form 20-F was filed with the Securities and Exchange Commission (SEC) on March 27, 2009. The Company will provide a hard copy of the Company's complete audited financial statements included in the annual report, free of charge upon request. Requests can be sent by mail to: KHD Humboldt Wedag International Ltd., Suite 702, 7th Floor, Ruttonjee House, Ruttonjee Centre, 11 Duddell Street, Central, Hong Kong SAR, China. Today at 10:00 a.m. EDT (7:00 a.m. PDT), a conference call will be held to review the Company's results; this call will be broadcast live over the Internet at http://www.khdhumboldt.com/ or http://www.earnings.com/. An online archive will be available immediately following the call and will continue for seven days or to listen to the audio replay by phone, dial: 1 (888) 286 8010 using conference ID number: 33256219. International callers should dial: 1 (617) 801 6888. About KHD Humboldt Wedag International Ltd. KHD Humboldt Wedag International Ltd. owns companies that operate internationally in the industrial plant engineering and equipment supply industry, and specializes in the cement, coal and minerals processing industries. To obtain further information on the Company, please visit our website at http://www.khdhumboldt.com/ Disclaimer for Forward-Looking Information Certain statements in this release are forward-looking statements, which reflect the expectations of management regarding the Company's future growth, results of operations, performance and business prospects and opportunities. The worldwide macroeconomic downturn has resulted in the prolonging or cancellation of some of our customers' projects and may negatively affect our customers' ability to make timely payment to us. Further, it may result in a further decrease in the demand for our products or services. Any of these may have a material adverse effect on our operating results and financial condition. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations or intentions regarding the future. No assurance can be given that any of the events anticipated by the forward-looking statements will occur or, if they do occur, what benefits the Company will obtain from them. These forward-looking statements reflect management's current views and are based on certain assumptions. These assumptions, which include management's current expectations, estimates and assumptions about certain projects and the markets the Company operates in, the global economic environment, interest rates, exchange rates and our ability to attract and retain customers and to manage our assets and operating costs, may prove to be incorrect. A number of risks and uncertainties could cause the Company's actual results to differ materially from those expressed or implied by the forward-looking statements, including: (1) a downturn in general economic conditions in Asia, Europe, Russia, Eastern Europe, the Middle East, the United States and internationally including, the worldwide economic downturn resulting from the effects of the subprime lending and general credit market crises, volatile energy costs, decreased consumer confidence and other factors, (2) a decreased demand for the Company's products, including the renegotiation, delay and/or cancellation of projects by our customers and the reduction in the number of project opportunities, (3) a decrease in the demand for cement, minerals and related products, (4) the number of competitors with competitively priced products and services, (5) product development or other initiatives by the Company's competitors, (6) shifts in industry capacity, (7) fluctuations in foreign exchange and interest rates, (8) fluctuations in availability and cost of raw materials or energy, (9) delays in the start of projects included in the Company's forecasts, (10) delays in the implementation of projects included in our forecasts and disputes regarding the performance of the Company's services, (11) the uncertainty of government regulation and politics in Asia and the Middle East and other markets, (12) potential negative financial impact from regulatory investigations, claims, lawsuits and other legal proceedings and challenges, (13) the timing and extent of the Company's restructuring program and the restructuring charges to be incurred in connection therewith, and (14) other factors beyond the Company's control. Additional information about these and other assumptions, risks and uncertainties are set out in the "Risk Factors" section in our Form 20-F filed with the Securities and Exchange Commission and the "Risks and Uncertainties" section in our MD&A filed with Canadian security regulators. Contact Information: Allen & Caron Inc. Rene Randall Joseph Allen (investors) KHD Humboldt Wedag 1 (212) 691-8087 International Ltd. 1 (604) 683-8286 ext 224 or Brian Kennedy (media) 1 (212) 691-8087 - FINANCIAL TABLES FOLLOW - KHD HUMBOLDT WEDAG INTERNATIONAL LTD. CONSOLIDATED BALANCE SHEETS December 31, 2008 and 2007 (U.S. Dollars in Thousands) ASSETS 2008 2007 -------- -------- Current Assets Cash and cash equivalents $409,087 $354,397 Securities 2,987 15,510 Restricted cash 32,008 24,116 Accounts receivable, trade 62,760 62,074 Other receivables 28,313 18,585 Inventories 110,161 124,980 Contract deposits, prepaid and other 58,694 33,775 Future income tax assets 7,679 825 -------- -------- 711,689 634,262 Non-current Assets Property, plant and equipment 2,489 2,957 Interest in resource property 24,861 32,865 Equity method investments 325 654 Future income tax assets 6,339 24,658 Investment in preferred shares of former subsidiaries 19,125 91,960 Other non-current assets 830 1,955 -------- -------- 53,969 155,049 -------- -------- $765,658 $789,311 ======== ======== KHD HUMBOLDT WEDAG INTERNATIONAL LTD. CONSOLIDATED BALANCE SHEETS (cont'd) December 31, 2008 and 2007 (U.S. Dollars in Thousands) 2008 2007 LIABILITIES -------- -------- Current Liabilities Accounts payable and accrued expenses $178,582 $147,869 Progress billing above costs and estimated earnings on uncompleted contracts 171,843 184,830 Advance payments received from customers 11,331 9,190 Income tax liabilities 9,112 20,658 Deferred credit, future income tax assets 4,212 0 Accrued pension liabilities, current portion 2,158 2,205 Provision for warranty costs, current portion 30,856 31,503 Provision for supplier commitments on terminated customer contracts 23,729 0 -------- -------- 431,823 396,255 Long-term Liabilities Long-term debt 11,313 13,920 Accrued pension liabilities, less current portion 29,209 30,981 Provision for warranty costs, less current portion 7,524 11,799 Deferred credit, future income tax assets 4,176 15,712 Future income tax liability 7,646 2,593 Other long-term liabilities 8,344 4,931 -------- -------- 68,212 79,936 -------- -------- Total liabilities 500,035 476,191 MINORITY INTERESTS 3,709 5,926 SHAREHOLDERS' EQUITY Common stock, without par value; authorized unlimited number 143,826 138,359 Treasury stock (93,793) (93,793) Contributed surplus 7,623 4,319 Retained earnings 155,681 162,633 Accumulated other comprehensive income 48,577 95,676 -------- -------- 261,914 307,194 -------- -------- $765,658 $789,311 ======== ======== KHD HUMBOLDT WEDAG INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF INCOME (LOSS) For Years Ended December 31, 2008 and 2007 (U.S. Dollars in Thousands, Except per Share Data) 2008 2007 ---------- ---------- Revenues $638,354 $580,391 Cost of revenues 516,631 494,432 Loss on terminated customer contracts 31,966 0 ---------- ---------- Gross profit 89,757 85,959 Income from interest in resource property 27,185 18,132 General and administrative expense (56,156) (46,700) Stock-based compensation - general and administrative (4,401) (4,381) ---------- ---------- Operating income 56,385 53,010 Interest income 21,449 13,155 Interest expense (2,291) (2,668) Foreign currency transactions (losses), net 2,149 (2,003) Fair value loss on investment in preferred shares in former subsidiaries (55,076) 0 Share of profit (loss) of equity method investees (272) 142 Other income (expenses), net (9,912) 4,169 ---------- ---------- Income before income taxes from continuing operations 12,432 65,805 Provision for income taxes: Income taxes (12,800) (8,278) Resource property revenue taxes (5,864) (4,161) ---------- ---------- (18,664) (12,439) ---------- ---------- Income (loss) before minority interests, continuing operations (6,232) 53,366 Minority interests (720) (2,386) ---------- ---------- Income (loss) from continuing operations (6,952) 50,980 Loss from discontinued operations, net of tax 0 (9,351) Extraordinary gain, net of tax 0 513 ---------- ---------- Net income (loss) $(6,952) $42,142 ========== ========== Basic earning (loss) per share from continuing operations $(0.23) $1.71 from discontinued operations 0.00 (0.31) extraordinary gain 0.00 0.02 ---------- ---------- $(0.23) $1.42 ========== ========== Diluted earnings (loss) per share from continuing operations $(0.23) $1.68 from discontinued operations 0.00 (0.31) extraordinary gain 0.00 0.02 ---------- ---------- $(0.23) $1.39 ========== ========== Weighted average of common shares outstanding, basic 30,401,018 29,895,468 Weighted average of common shares outstanding, diluted 30,401,018 30,402,130 KHD HUMBOLDT WEDAG INTERNATIONAL LTD. FINANCIAL SUMMARY As of December 31, 2008 (U.S. Dollars in Thousands, Except per Share Data and Ratios) Cash and cash equivalents $409,087 Short-term securities 2,987 Restricted cash 32,008 Working capital 279,866 Total assets 765,658 Shareholders' equity 261,914 Book value per share 8.58 Current ratio 1.65 Long-term debt to equity ratio 0.04 DATASOURCE: KHD Humboldt Wedag International Ltd. CONTACT: investors, Joseph Allen, +1-212-691-8087, , or media, Brian Kennedy, +1-212-691-8087, , both of Allen & Caron Inc., for KHD Humboldt Wedag International Ltd.; or Rene Randall of KHD Humboldt Wedag International Ltd., +1-604-683-8286, ext. 224, Web Site: http://www.khdhumboldt.com/

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