FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-1228
Stone & Webster, Incorporated
(Exact name of registrant as specified in its charter)
Delaware 13-5416910
(State of Incorporation) (I.R.S. Employer Identification No.)
250 West 34th Street, New York, N.Y. 10119
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number (including area code)(212) 290-7500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: 14,977,790 shares as of April 30, 1994.
Form 10-Q 2.
For the quarter ended March 31, 1994 Stone & Webster, Incorporated
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The consolidated financial statements required by this Item for Stone
& Webster, Incorporated and Subsidiaries are contained in Attachment A
which is filed herewith and made a part hereof.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The Management's Discussion and Analysis of Financial Condition and
Results of Operations required by this Item for Stone & Webster,
Incorporated and Subsidiaries is contained in Attachment A which is
filed herewith and made a part hereof.
PART II. OTHER INFORMATION
Item 4. Legal Proceedings.
On April 22, 1994, Robert A. G. Monks, Nell Minow, and The Lens
Partners (in the aggregate, holders of approximately 1% of the
Registrant's outstanding shares of Common Stock), individually and as
representative shareholders of Stone & Webster, Incorporated filed a
civil action against the Registrant, the Registrant's Directors, Stone
& Webster Engineering Corporation, the Registrant's subsidiary, and
The Chase Manhattan Bank (the "Chase") in the United States District
Court for the District of Massachusetts. As part of the relief, the
Plaintiffs had requested a preliminary injunction seeking delay of the
Registrant's Annual Meeting scheduled for May 12, 1994; however,
following the filing of the Defendant's answer, this request for
relief was withdrawn and the Registrant's Annual Meeting was held as
scheduled. The Plaintiffs allege fraud and misstatements in violation
of Sections 10b and 14 of the Securities Exchange Act of 1934 in
connection with the Registrant's 1993 Annual Report, the Registrant's
Proxy Statement for its 1994 Annual Meeting and the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993;
Registrant's breach of its fiduciary duty to inform its shareholders;
that Defendant Directors and the Chase, as trustee of the Registrant's
employee benefit plans (the "Plans"), have adopted policies and
procedures that have caused a disenfranchisement of the Registrant's
shareholders; that Chase, as trustee of the Registrant's Plans,
breached its fiduciary duty as controlling shareholder of the
Registrant; and violations under ERISA by Chase as trustee of the
Registrant's Plans. In the filings as amended, the Plaintiffs seek: a
restatement of the Registrant's 1993 Annual Report, the Registrant's
Proxy Statement for its 1994 Annual Meeting, and the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993; the
establishment of a policy of confidentiality for all shareholder
voting, the removal of the Chase, as trustee of the Registrant's
Form 10-Q 3.
For the Quarter ended March 31, 1994 Stone & Webster,Incorporated
Plans; the establishment of confidential voting for employee
participants in the Plans; and that a receiver be appointed to
marshall the Registrant's assets.
The Registrant intends vigorously to defend this suit, has meritorious
defenses against each allegation and is confident that it will
prevail.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index
(4) Instruments defining the rights of security holders,
including indentures - As of March 31, 1994, registrant and its
subsidiaries had outstanding long-term debt (excluding current
portion) totaling approximately $59,979,000 principally in connection
with mortgages relating to real property for a subsidiary's corporate
office and business center in Tampa, Florida and for another
subsidiary's office building, the construction of a paper fiber
recycling plant of a limited partnership in which a subsidiary owns a
94.3% interest, and in connection with capitalized lease commitments
for the acquisition of certain computer equipment. These agreements
are not filed herewith because the total amount of indebtedness
authorized thereunder does not exceed 10% of the total assets of the
registrant and its subsidiaries on a consolidated basis; the
registrant hereby undertakes to furnish copies of such agreements to
the Commission upon request.
(b) Reports on Form 8-K
Registrant did not file any reports on Form 8-K during the
quarter for which this report is filed.
Form 10-Q 4.
For the Quarter ended March 31, 1994 Stone & Webster,Incorporated
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STONE & WEBSTER, INCORPORATED
By: WILLIAM M. EGAN
Dated: May 15, 1994 William M. Egan
Executive Vice President
(Duly authorized officer and
Principal Financial and Accounting
Officer)
Form 10-Q 5.
For the quarter ended March 31, 1994 Stone & Webster, Incorporated
ATTACHMENT A
Stone & Webster, Incorporated
and Subsidiaries
Index
Page No.
Condensed Financial Statements: (Unaudited)
Consolidated Balance Sheet -
March 31, 1994 and December 31, 1993 6-7
Consolidated Statement of Operations and Retained Earnings -
Three Months Ended March 31, 1994 and 1993 8
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1994 and 1993 9
Notes to Consolidated Financial Statements 10-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-14
Form 10-Q 6.
For the quarter ended March 31, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheet (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
March 31, December 31,
ASSETS 1994 1993
Current Assets:
Cash and cash equivalents $ 47,554 $ 64,141
U.S. Government securities, at cost, which
approximates market. 51,100 54,478
Accounts receivable (Note B) 96,021 99,127
Unbilled charges under contracts 72,009 66,731
Deferred income taxes (Note B) 7,999 6,334
Other 865 947
Total Current Assets 275,548 291,758
Investment Securities, at market value 41,097 40,836
Property, Plant and Equipment 207,692 201,936
At cost, less accumulated depreciation,
depletion and amortization of $168,899
(1993-$164,709).
Land Held for Resale, at cost 23,626 23,626
Prepaid Pension Cost 90,589 87,540
Other Assets 34,513 34,146
$673,065 $679,842
See accompanying notes to consolidated financial statements.
Form 10-Q 7.
For the quarter ended March 31, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheet (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
Current Liabilities:
Bank loans $ 4,623 $ 5,677
Accounts payable 18,884 29,139
Dividend payable 2,247 2,247
Advance payments by clients 25,055 24,558
Current portion of long-term debt 4,684 4,492
Accrued taxes 7,646 5,449
Other accrued liabilities 54,435 46,831
Total Current Liabilities 117,574 118,393
Long-Term Debt (Note C) 59,979 47,739
Deferred Income Taxes (Note B) 60,809 64,859
Other Non-Current Liabilities 24,393 23,473
Stockholders' Equity:
Preferred stock - -
Authorized, 2,000,000 shares of no par value;
none issued.
Common stock, carried at 65,215 65,213
Authorized, 40,000,000 shares of $1 par value;
issued, 17,731,488 shares, including shares held
in treasury.
Capital in excess of carrying value of common stock 2,860 2,860
Retained earnings 409,612 424,723
Net unrealized gain on investment securities 25,145 24,975
Cumulative translation adjustment (3,164) (2,854)
499,668 514,917
Less: Common stock in treasury, at cost 54,980 54,979
2,753,674 shares (1993-2,753,638).
Employee stock ownership and restricted
stock plans 34,378 34,560
89,358 89,539
Total Stockholders' Equity 410,310 425,378
$673,065 $679,842
See accompanying notes to consolidated financial statements.
Form 10-Q 8.
For the quarter ended March 31, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statement of Operations and Retained Earnings (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
3 Months Ended March 31,
1994 1993
Gross Earnings:
Engineering, construction and
consulting services $ 42,972 $ 62,198
Cold storage and related activities 3,575 3,980
Oil and gas interests 2,278 2,566
Dividends and interest 1,059 1,086
Other 3,863 3,004
Total 53,747 72,834
Operating and General Expenses # (Note A) 62,175 56,674
Taxes, Other than Income Taxes 5,374 5,909
Provision for Depreciation, Depletion
and Amortization 4,827 5,173
Interest Expense 825 638
Total 73,201 68,394
(Loss) Income before Income Tax (Benefit) Provision (19,454) 4,440
Income Tax (Benefit) Provision (Note B) (6,533) 4,057
(Loss) Income before Cumulative Effect of a Change in
Accounting Principle (Note B) (12,921) 383
Cumulative Effect of a Change in Accounting
Principle on Prior Years (Note B) - 2,322
Net (Loss) Income (Note A) (12,921) 2,705
Retained Earnings at beginning of period 424,723 431,490
Income Tax Benefit of ESOP Dividends 57 67
Total 411,859 434,262
Dividends Declared 2,247 2,245
Retained Earnings at end of period $409,612 $432,017
Average Number of Shares Outstanding 14,978,000 14,969,000
(Loss) Income before Cumulative Effect of a Change in
Accounting Principle Per Share (Notes B and D) $(.86) $.02
Cumulative Effect of a Change in Accounting
Principle on Prior Years Per Share
(Notes B and D) - .16
Net (Loss) Income Per Share (Notes A and D) $(.86) $.18
Dividends Declared Per Share $ .15 $.15
# Includes cost of gas purchased for resale of: $308 $635
See accompanying notes to consolidated financial statements.
Form 10-Q 9.
For the quarter ended March 31, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
3 Months Ended March 31,
1994 1993
Cash Flows from Operating Activities:
Net (Loss) Income $(12,921) $ 2,705
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation, depletion and amortization 4,827 5,173
Deferred income taxes (3,798) 1,338
Cumulative effect of a change in
accounting principle - (2,322)
Prepaid pension cost (3,049) (3,525)
Amortization of market value of shares issued
under Restricted Stock Plan 182 282
Amortization of net cost of ESOP plan 390 391
Changes in operating assets and liabilities:
Accounts receivable 4,261 13,047
Unbilled charges under contracts (5,278) (21,430)
Other assets (367) (546)
Accounts payable (10,255) 1,267
Advance payments by clients 497 1,872
Other accrued liabilities 6,379 4,867
Other 282 2,990
Net cash (used) provided by operating activities (18,850) 6,109
Cash Flows from Investing Activities:
Maturities of U.S. Government securities 21,416 21,129
Purchases of U.S. Government securities (17,701) (17,729)
Purchases of property, plant and equipment (10,583) (6,531)
Equity contribution to joint venture - (5,000)
Net cash used by investing activities (6,868) (8,131)
Cash Flows from Financing Activities:
Proceeds from long-term debt 13,620 -
Repayments of long-term debt (1,188) (801)
Increase in bank loans - 4,604
Decrease in bank loans (1,054) (50)
Dividends paid (2,247) (2,245)
Net cash provided by financing activities 9,131 1,508
Net Decrease in Cash and Cash Equivalents (16,587) (514)
Cash and Cash Equivalents at Beginning of Period 64,141 48,732
Cash and Cash Equivalents at End of Period $ 47,554 $ 48,218
See accompanying notes to consolidated financial statements.
Form 10-Q 10.
For the quarter ended March 31, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
(A) In March 1994, the Corporation announced that its subsidiary, Stone &
Webster Engineering Corporation, was taking a number of actions to
further lower operating costs. These included the elimination of
approximately 350 positions resulting in a first quarter pre-tax charge
of $5,500 for severance costs, which decreased net income by $3,400, or
$.23 per share. In April 1994, the Corporation announced that due to
continued delays in the start-up of new work and the suspension of a
significant project, the subsidiary will be required to make a further
reduction of management and other staff positions which could amount to
additional severance costs of approximately $10,000. In accordance with
a Securities and Exchange Commission directive, the recording of the
$10,000 in additional severance cost will not be made until the terms of
the termination are communicated to the affected individual employees.
The Corporation expects to report a loss for the year.
(B) The Corporation incurred a taxable loss of $16,430 in the first quarter
of 1994 and was able to carryback $8,849 of this loss to offset taxable
income generated in the years 1991 through 1993. As a result of the
carryback, current taxes receivable of $3,009 is included in Accounts
Receivable. A benefit of $2,577 as a result of the carryforward of the
federal net operating loss has been included as a deferred tax asset
which is presented as a reduction of the long-term deferred tax liability
on the balance sheet.
Effective January 1, 1993, the Corporation adopted FASB Statement No.
109, Accounting for Income Taxes. As a result of this accounting change,
the cumulative effect from prior periods increased net income for the
three months ended March 31, 1993 by $2,322, or $.16 per share. Other
than the cumulative effect, the accounting change had no material effect
on the results for the first quarter of 1993.
The Corporation had a valuation allowance of $10,351 at December 31, 1993
for the deferred tax assets related to the net operating loss
carryforwards. The net change in the valuation allowance for the first
quarter of 1994 was an increase of $470 for a total valuation allowance
of $10,821 at March 31, 1994. The valuation allowance at March 31, 1994
comprises $7,386 relating to the carryforwards of several of the
Corporation's foreign subsidiaries and $3,435 relating to state net
operating loss carryforwards.
(C) As discussed in the 1993 Annual Report to Stockholders a subsidiary of
the Corporation had a mortgage loan for an office building in the amount
of $22,667 at December 31, 1993. In the first quarter of 1994,
additional borrowings of $6,333 were recorded by the subsidiary in long-
term debt bringing the total mortgage loan to $29,000 at March 31, 1994.
In the first quarter of 1994, a limited partnership in which a subsidiary
of the Corporation owns a 94.3% interest, obtained a non-recourse
construction loan of $62,500. At March 31, 1994, the balance outstanding
was $7,286 which was included in long-term debt.
Form 10-Q 11.
For the quarter ended March 31, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
(D) Earnings per share are based on the average number of shares outstanding
during the periods.
(E) These statements are unaudited, and in the opinion of management, include
all adjustments, consisting of normal recurring adjustments necessary for
a fair statement of the results for the interim periods. The year end
balance sheet data was derived from audited financial statements, but
does not include all disclosures required by generally accepted
accounting principles. Reference is made to the explanatory notes in the
Corporation's annual report to stockholders.
Interim results of operations are not necessarily indicative of the
results for a full year.
Form 10-Q 12.
For the quarter ended March 31, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts are in thousands.)
Gross Earnings and Expenses
Consolidated gross earnings for the first quarter of 1994 decreased by
$19,087 compared with the prior year period. Consolidated operating and
general expenses increased by $1,464 for the first three months ended 1994
compared with the same prior year period, before severance costs of $5,808 and
$1,771 for the first quarter of 1994 and 1993, respectively.
Gross earnings from domestic engineering, construction and consulting
services decreased by $19,541 for the first quarter of 1994 compared with the
same period in 1993. The decline in gross earnings is primarily attributable
to the completion of a number of assignments in prior periods which have not
been replaced by a comparable level of new awards. Some of the new work
awarded has been affected by delays in client authorization to initiate start-
up. These factors resulted in a significant drop in billable hours in the
first quarter of 1994. Operating and general expenses of our domestic
engineering, construction and consulting services increased by $2,872 over the
same period in 1993, before a $5,500 charge in 1994 and a $1,475 charge in
1993 for severance costs associated with workforce reductions. This increase
is primarily due to higher bid and proposal costs because of increased
activity on international proposals. It was expected that the savings in
payroll and related expenses for those employees who elected to retire in 1993
under the Incentive Retirement Program would have lowered operating and
general expenses. However, these savings were not realized because of the
drop in workload in the second half of 1993, continuing into the first quarter
of 1994, and staff could not be placed on billable projects as expected.
Pension plan credits of $2,835 in 1994 and $3,450 in 1993 are included in
operating and general expenses.
As previously reported in the 1993 Annual Report to Stockholders, the
Corporation said that the effect of lower profit margins, delays in the start-
up of new work and other factors would negatively impact financial results for
the first half of 1994. In March 1994, the Corporation announced that its
subsidiary, Stone & Webster Engineering Corporation, was taking a number of
actions to further lower operating costs. These included the elimination of
approximately 350 positions resulting in a first quarter pre-tax charge of
$5,500 for severance. Due to continued delays in the start-up of new work and
a reduction in scope of TVA's nuclear program, including the suspension of
work at a TVA plant, which will significantly reduce our work at TVA plants,
the subsidiary will be required to make a further reduction of management and
other staff positions which could amount to additional severance costs of
approximately $10,000. In accordance with a Securities and Exchange
Commission directive, the recording of the $10,000 in additional severance
cost will not be made until the terms of the termination are communicated to
the affected individual employees. These actions are being taken to improve
the subsidiary's competitive position and to more closely align the
subsidiary's personnel with present market conditions while still maintaining
the full engineering and construction resources necessary to serve clients.
Form 10-Q 13.
For the quarter ended March 31, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts are in thousands.)
Gross Earnings and Expenses (continued)
Gross earnings from our foreign subsidiaries' engineering, construction
and consulting services increased by $315 in the first quarter of 1994
compared with the first quarter of 1993. Operating and general expenses from
our foreign subsidiaries' engineering, construction and consulting services
decreased by $1,263 in the first three months of 1994 compared with the same
prior year period primarily due to the downsizing of our United Kingdom
operations in the second quarter of 1993, which resulted in lower salary, rent
and contract staff costs in the first quarter of 1994.
Gross earnings from cold storage and related activities decreased by $405
in the first quarter of 1994 compared with the same prior year period
primarily due to reduced customer volume which resulted in lower handling and
rental revenue. Operating and general expenses decreased by $127 in the first
quarter of 1994 compared with 1993.
Gross earnings from oil and gas interests decreased by $288 in the first
quarter of 1994 compared with 1993. Operating and general expenses decreased
by $250 in the first quarter of 1994 compared with the prior year period.
These decreases resulted directly from competitive factors which caused a
decline in the number of gas marketing sales by our natural gas gathering and
transporting company reducing gross earnings and causing a corresponding
decrease in the purchases of gas for resale reducing operating and general
expenses.
Gross earnings from dividends and interest remained relatively unchanged
in the first quarter of 1994 compared with 1993.
Gross earnings from all other activities increased by $859 in the first
quarter of 1994 compared with 1993 primarily due to higher rental income on
available space in company-owned office buildings in the Northeast, previously
used for engineering operations. Gross earnings and operating results of our
real estate operations in Tampa, Florida continued to be affected by the
adverse conditions prevailing in the commercial real estate market in the
United States. Occupancy in company-owned buildings at our Sabal Park
properties remains at approximately 96%.
The income tax (benefit) provision resulted in an effective rate of (34)%
for the first three months of 1994 and 91% for the first three months of 1993.
The 1993 effective rate was higher than the U.S. statutory rate primarily due
to foreign taxes applicable to certain foreign projects which are calculated
based on gross receipts (there was a sharp decrease in these taxes in the
first quarter of 1994), losses from foreign subsidiaries with no tax benefit
and higher state and local income taxes.
Form 10-Q 14.
For the quarter ended March 31, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts are in thousands.)
Gross Earnings and Expenses (continued)
The loss for the three months ended March 31, 1994 of $12,921 compares
with income before cumulative effect of a change in accounting principle of
$383 for the same prior year period. The loss in the first quarter of 1994
is primarily attributable to our domestic engineering, construction and
consulting operations which experienced a significant reduction in gross
earnings in the first quarter, combined with a pre-tax charge of $5,500 for
severance which decreased net income by $3,400. The Corporation does not
expect gross earnings in our engineering, construction and consulting
operations to increase significantly in the near term and expects to report
a loss for 1994.
Financial Condition
Cash and cash equivalents decreased by $16,587 during the first three
months of 1994 primarily due to operating activities which reflected a loss
for the period and a reduction in accounts payable resulting from the pay down
of job liabilities. Net cash used by investing activities reflects purchases
of property, plant and equipment primarily related to expenditures for the
construction of a paper fiber recycling plant and the construction of a new
office facility which was completed and opened in early 1994. Net cash
provided by financing activities primarily represents borrowings to finance
capital expenditures as noted above. Dividends paid amounted to $2,247. The
Corporation believes that the types of businesses in which it is engaged
require that it maintain a strong financial condition. The Corporation has
on hand and access to sufficient sources of funds to meet its anticipated
operating, dividend and capital needs. Cash on hand and temporary investments
provide adequate operating liquidity. Additional liquidity is provided
through lines of credit and revolving credit facilities which totaled $40,000,
of which $35,376 was available at March 31, 1994. The Corporation and its
subsidiaries have obtained financing for our real estate operations, the
construction of a paper fiber recycling plant and a new office facility which
was completed and opened in early 1994. In the first quarter of 1994, a
limited partnership in which a subsidiary of the Corporation owns a 94.3%
interest, obtained a non-recourse construction loan of $62,500 for the
partnership's planned paper fiber recycling plant. The cost of the plant is
expected to be $65,000. Upon completion of construction, long-term financing
of $48,750 will be obtained and the partners will make an equity contribution
of $16,250, of which the subsidiary of the Corporation's share is $15,300.
As stated in Note E to the consolidated financial statements, interim
results of operations are not necessarily indicative of the results for a full
year.