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 June 30, 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: 14,972,631 shares as of July 31, 1994.
Form 10-Q 2.
For the quarter ended June 30, 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 1. Legal Proceedings.
As reported in Item 1, Legal Proceedings, of the registrant's Form
10- Q for the quarter ended March 31, 1994, 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 (a subsidiary of the registrant), and The Chase Manhattan
Bank ("Chase") in the United States District Court for the District
of Massachusetts.
On June 29, 1994, the District Court entered a final judgment in
favor of the registrant on all counts, granting registrant's motion
for summary judgment on behalf of the Stone & Webster defendants, and
awarding costs to the registrant. Chase's motion to dismiss was also
allowed, with costs awarded to Chase. On July 27, 1994, plaintiffs
filed a Notice of Appeal.
Registrant intends to continue vigorously to defend this suit,
has meritorious defenses against each allegation, and is confident
that it will prevail.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders of the registrant was held on May
12, 1994.
Form 10-Q 3.
For the quarter ended June 30, 1994 Stone & Webster,Incorporated
(b) At the Annual Meeting, Bruce C. Coles, William M. Egan, Donna R.
Fitzpatrick and Kent F. Hansen were re-elected as Directors for terms
expiring in 1997. The term of office as a Director of William F.
Allen, Jr., William L. Brown, J. Peter Grace, John A. Hooper, J. Angus
McKee, Kenneth G. Ryder, Meredith R. Spangler and Fred D. Thompson
continued after the Meeting.
(c) The Stockholders also ratified the selection of the firm of Coopers &
Lybrand, independent accountants, as auditor of the registrant and its
subsidiaries for the year 1994.
The total votes cast for, withheld or against, as well as the number
of abstentions and broker nonvotes, as to each such matter, were as
follows:
(1) Election of Directors.
Nominee Total Votes For Total Votes Withheld
Bruce C. Coles 13,251,274 630,659
William M. Egan 13,232,904 649,029
Donna R. Fitzpatrick13,244,919 637,014
Kent F. Hansen 13,209,691 672,242
(2) Selection of Independent Accountants.
Total Votes For 13,363,684
Total Votes Against 346,289
Total Abstentions 171,960
There were no broker non-votes for either proposal.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index
(4) Instruments defining the rights of security holders,
including indentures - As of June 30, 1994, registrant and its
subsidiaries had outstanding long-term debt (excluding current
portion) totaling approximately $72,511,000 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. None of these
agreements are filed herewith because the amount of indebtedness
authorized under each such agreement 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.
Form 10-Q 4.
For the Quarter ended June 30, 1994 Stone & Webster, Incorporated
(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.
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: August 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 June 30, 1994 Stone & Webster, Incorporated
ATTACHMENT A
Stone & Webster, Incorporated
and Subsidiaries
Index
Page No.
Condensed Financial Statements: (Unaudited)
Consolidated Balance Sheet -
June 30, 1994 and December 31, 1993 6-7
Consolidated Statement of Operations and Retained Earnings -
Three Months Ended June 30, 1994 and 1993
Six Months Ended June 30, 1994 and 1993 8
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 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 June 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheet (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
June 30, December 31,
ASSETS 1994 1993
Current Assets:
Cash and cash equivalents $ 51,253 $ 64,141
U.S. Government securities, at cost, which
approximates market. 48,906 54,478
Accounts receivable (Note B) 100,173 99,127
Unbilled charges under contracts 62,420 66,731
Deferred income taxes (Note B) 7,710 6,334
Other 827 947
Total Current Assets 271,289 291,758
Investment Securities, at market value (Note E) 36,484 40,836
At cost: $2,413 (1993 - $2,413)
Property, Plant and Equipment 219,524 201,936
At cost, less accumulated depreciation,
depletion and amortization of $173,677
(1993-$164,709).
Land Held for Resale, at cost 23,626 23,626
Prepaid Pension Cost (Note G) 93,090 87,540
Other Assets 34,516 34,146
$678,529 $679,842
See accompanying notes to consolidated financial statements.
Form 10-Q 7.
For the quarter ended June 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheet (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
Current Liabilities:
Bank loans $ 1,877 $ 5,677
Accounts payable 18,643 29,139
Dividend payable 2,246 2,247
Advance payments by clients 31,473 24,558
Current portion of long-term debt 4,710 4,492
Accrued taxes 6,599 5,449
Other accrued liabilities 56,313 46,831
Total Current Liabilities 121,861 118,393
Long-Term Debt (Note C) 72,511 47,739
Deferred Income Taxes (Note B) 57,965 64,859
Other Non-Current Liabilities 24,925 23,473
Stockholders' Equity:
Preferred stock - -
Authorized, 2,000,000 shares of no par value;
none issued.
Common stock, carried at 65,193 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 403,434 424,723
Net unrealized gain on investment securities 22,146 24,975
Cumulative translation adjustment (3,077) (2,854)
490,556 514,917
Less: Common stock in treasury, at cost (Note D) 55,122 54,979
2,758,857 shares (1993-2,753,638).
Employee stock ownership and restricted
stock plans 34,167 34,560
89,289 89,539
Total Stockholders' Equity 401,267 425,378
$678,529 $679,842
See accompanying notes to consolidated financial statements.
Form 10-Q 8.
For the quarter ended June 30, 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 June 30, 6 Months Ended June 30,
1994 1993 1994 1993
Gross Earnings:
Engineering, construction and
consulting services $ 45,490 $ 66,051 $ 88,462 $128,249
Cold storage and related activities 4,297 4,309 7,872 8,289
Oil and gas interests 2,261 2,678 4,539 5,244
Dividends and interest 1,093 957 2,152 2,043
Other 2,949 4,226 6,812 7,230
Total 56,090 78,221 109,837 151,055
Operating and General Expenses# (Notes A and G) 59,880 77,020 132,256 144,776
Interest Expense 973 766 1,798 1,404
Total 60,853 77,786 134,054 146,180
(Loss) Income before Income Tax (Benefit)
Provision (4,763) 435 (24,217) 4,875
Income Tax (Benefit) Provision (Note B) (774) 358 (7,307) 4,415
(Loss) Income before Cumulative Effect of a
Change in Accounting Principle (3,989) 77 (16,910) 460
Cumulative Effect of a Change in Accounting
Principle on Prior Years (Note B) - - - 2,322
Net (Loss) Income (3,989) 77 (16,910) 2,782
Retained Earnings at beginning of period 409,612 432,017 424,723 431,490
Income Tax Benefit of ESOP Dividends 57 67 114 134
Total 405,680 432,161 407,927 434,406
Dividends Declared 2,246 2,249 4,493 4,494
Retained Earnings at end of period $403,434 $429,912 $403,434 $429,912
Average Number of Shares Outstanding 14,976,000 14,978,000 14,977,000 14,974,000
(Loss) Income before Cumulative Effect of a
Change in Accounting Principle Per Share
(Note I) $(.27) $ .01 $(1.13) $.03
Cumulative Effect of a Change in Accounting
Principle on Prior Years Per Share
(Notes B and I) - - - .16
Net (Loss) Income Per Share (Note I) $(.27) $ .01 $(1.13) $.19
Dividends Declared Per Share $ .15 $ .15 $ .30 $.30
# Includes cost of gas purchased for resale of: $271 $590 $579 $1,225
See accompanying notes to consolidated financial statements.
Form 10-Q 9.
For the quarter ended June 30, 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.)
6 Months Ended June 30,
1994 1993
Cash Flows from Operating Activities:
Net (Loss) Income $(16,910) $ 2,782
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation, depletion and amortization 9,777 10,298
Deferred income taxes (5,463) (569)
Cumulative effect of a change in
accounting principle - (2,322)
Prepaid pension cost (5,550) (7,064)
Incentive Retirement Program - 9,081
Amortization of market value of shares issued
under Restricted Stock Plan 336 580
Amortization of net cost of ESOP plan 780 781
Changes in operating assets and liabilities:
Accounts receivable 1,667 8,747
Unbilled charges under contracts 4,311 (24,644)
Other assets (370) (2,076)
Accounts payable (10,496) (5,326)
Advance payments by clients 6,915 2,580
Other accrued liabilities 7,033 2,120
Other (70) 1,185
Net cash used by operating activities (8,040) (3,847)
Cash Flows from Investing Activities:
Maturities of U.S. Government securities 54,478 50,723
Purchases of U.S. Government securities (48,554) (43,825)
Purchases of property, plant and equipment (27,365) (15,831)
Equity contribution to joint venture - (5,000)
Net cash used by investing activities (21,441) (13,933)
Cash Flows from Financing Activities:
Proceeds from long-term debt 27,409 -
Repayments of long-term debt (2,419) (1,589)
Increase in bank loans - 12,026
Decrease in bank loans (3,800) (2,084)
Purchase of common stock for treasury (103) (61)
Dividends paid (4,494) (4,491)
Net cash provided by financing activities 16,593 3,801
Net Decrease in Cash and Cash Equivalents (12,888) (13,979)
Cash and Cash Equivalents at Beginning of Period 64,141 48,732
Cash and Cash Equivalents at End of Period $ 51,253 $ 34,753
See accompanying notes to consolidated financial statements.
Form 10-Q 10.
For the quarter ended June 30, 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 would 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, severance costs cannot
be recorded until the subsidiary of the Corporation adopts a formal
severance plan which includes identifying and communicating the terms
of termination to the affected employees. In the second quarter, the
subsidiary had reductions of approximately 220 positions resulting in a
second quarter pre-tax charge of $3,100 for severance costs, which
decreased net income by $1,900 or $.12 per share. All 570 positions have
been terminated as of June 30, 1994. Severance payments of $4,206, of
the $8,600 accrued by the Stone & Webster Engineering Corporation in
1994, were made during the first six months of 1994. Workload levels
will continue to be monitored and the subsidiary will adjust its staff
size accordingly, which may result in additional severance costs during
the remainder of the year. The Corporation continues to expect a loss
for the year.
(B) The Corporation incurred a taxable loss of $24,114 in the first six
months of 1994 and was able to carry-back $8,849 of this loss to offset
taxable income generated in the years 1991 through 1993. As a result of
the carry-back, current taxes receivable of $3,009 is included in
Accounts Receivable. A benefit of $5,190 as a result of the carry-
forward 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 six
months ended June 30, 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 six months 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 carry-
forwards. The valuation allowance at the end of the first quarter of
1994 was $10,821. The net change in the second quarter of 1994 was an
increase of $184 for a total valuation allowance of $11,005 at June 30,
1994. The valuation allowance at June 30, 1994 comprises $7,570 relating
to the carry-forwards of several of the Corporation's foreign
subsidiaries and $3,435 relating to state net operating loss carry-
forwards.
Form 10-Q 11.
For the quarter ended June 30, 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.)
(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, of which $28,515
was outstanding at June 30, 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 with
interest payable monthly on the average outstanding balance based on
LIBOR and commercial paper rates. The loan is expected to be paid in
December 1995, at which time, long-term financing will be obtained. At
June 30, 1994, the balance outstanding was $21,076 which was included in
long-term debt.
(D) In July 1994, the Board of Directors of the Corporation authorized a
stock repurchase program for up to 1 million shares of common stock in
open market transactions at prevailing prices. As of July 31, 1994, the
Corporation had 14,972,631 shares outstanding. The amount and timing of
stock repurchases will depend upon market conditions, share price, as
well as other factors. The Corporation reserves the right to discontinue
the repurchase program at any time.
(E) The Corporation's investment securities consist only of equity
securities. The gross unrealized holding gain was $34,071 and $38,423,
before deferred income taxes of $11,925 and $13,448 at June 30, 1994 and
December 31, 1993, respectively.
(F) With respect to the legal actions referred to in Note K of the
Corporation's Annual Report on Form 10-K for the year ended 1993, as well
as probable contingent liabilities related to environmental pollution,
the Corporation believes, on the basis of management's examination and
consideration of these actions and such probable contingencies, including
consultation with counsel, that neither these actions nor such probable
contingencies will result in payments of amounts, if any, which would
have a material adverse effect on the consolidated financial statements
of the Corporation.
(G) On March 17, 1993, the Corporation announced an Incentive Retirement
Program for employees of two of its subsidiaries, Stone & Webster
Engineering Corporation and Stone & Webster Management Consultants, Inc.
In excess of two hundred employees elected to retire under this Program.
Total costs of $9,081 ($5,460, or $.36 per share, after tax) associated
with the Program, representing the actuarially determined present value
of Program benefits, were charged to operating and general expenses in
the second quarter of 1993 with a corresponding offset to prepaid pension
cost.
(H) The Corporation purchased 3,219 shares of its common stock, at a total
cost of $103 in the first six months of 1994, which were added to its
holdings of treasury stock.
Form 10-Q 12.
For the quarter ended June 30, 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.)
(I) Earnings per share are based on the average number of shares outstanding
during the periods.
(J) 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 13.
For the quarter ended June 30, 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 six months ended June 30, 1994
decreased by $41,218 and by $22,131 in the second quarter of 1994 compared
with the prior year periods. Consolidated operating and general expenses,
after excluding the cost of the Incentive Retirement Program in 1993 and
severance costs in 1993 and 1994, decreased by $7,785 and $8,368 for the six
months ended June 30, 1994 and second quarter of 1994, respectively. The cost
of the Incentive Retirement Program was $9,081 for both periods in 1993 and
severance costs were $9,179 and $4,833 for the six months ended June 30, 1994
and 1993, respectively, and $3,371 and $3,062 for the second quarters of 1994
and 1993, respectively. In the first quarter of 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 first six months ended June 30, 1993 by $2,322, or $.16 per
share.
Gross earnings from domestic engineering, construction and consulting
services decreased by $36,420 for the six months ended June 30, 1994 and by
$16,879 for the second quarter of 1994 compared with the same periods in 1993.
These decreases are primarily due to the effect of lower profit margins,
delays in start-up of new work, reduced levels of new awards and a reduction
in the scope of the Tennessee Valley Authority's (TVA) nuclear program,
including a significant reduction of work at a TVA plant. The reduced level
of activity will continue to affect the results of operations over the
remainder of the year. Operating and general expenses of our domestic
engineering, construction and consulting services, after excluding the cost
Form 10-Q 14.
For the quarter ended June 30, 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)
of the Incentive Retirement Program in 1993 and severance costs in 1993 and
1994, decreased by $4,898 for the first six months of 1994 and by $7,045 for
the second quarter of 1994. These decreases are primarily due to a reduction
in salary and employee benefits costs resulting from the reduction in staff,
offset in part by higher bid and proposal costs because of increased activity
on international proposals. The cost of the Incentive Retirement Program was
$9,081 in both periods in 1993 and severance costs were $8,808 and $3,804 for
the six months ended June 30, 1994 and 1993, respectively, and $3,308 and
$2,329 for the second quarter of 1994 and 1993, respectively.
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 further 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 half of 1994, and staff could not be
placed on billable projects as expected, resulting in additional severance
costs in 1994. Pension plan credits reduced operating and general expenses
and contributed to operating income by $5,670 and $6,900 for the six months
ended June 30, 1994 and 1993, respectively, and $2,835 and $3,450 for the
second quarters of 1994 and 1993, respectively. Favorable asset performance
in the past ten years is the primary reason that the pension plan is
overfunded.
Form 10-Q 15.
For the quarter ended June 30, 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)
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 costs. Due to the significant decrease in gross earnings
as previously described, in April 1994 the subsidiary reported that it would
be required to make a further reduction of management and other staff
positions which could amount to additional severance costs of approximately
$10,000 on a pre-tax basis. In accordance with a Securities and Exchange
Commission directive, severance costs cannot be recorded until the subsidiary
of the Corporation adopts a formal severance plan which includes identifying
and communicating the terms of termination to the affected employees. In the
second quarter, the subsidiary had reductions of approximately 220 positions
resulting in a pre-tax charge of $3,100 for severance costs. For the six
months ended June 30, 1994, the subsidiary reported reductions of
approximately 570 positions resulting in a pre-tax charge of $8,600 for
severance costs. All 570 positions have been terminated as of June 30, 1994.
These actions are being taken to improve the subsidiary's competitive position
and to more closely align its personnel with present market conditions while
still maintaining the full engineering and construction resources necessary
to serve clients. Workload levels will continue to be monitored and the
subsidiary will adjust its staff size accordingly, which may result in
Form 10-Q 16.
For the quarter ended June 30, 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)
additional severance costs during the remainder of the year. The Corporation
continues to expect a loss for the year.
Gross earnings from our foreign subsidiaries' engineering, construction
and consulting services decreased by $3,367 for the six months ended June 30,
1994 and by $3,682 for the second quarter of 1994 compared with the same
periods of 1993. These decreases were mainly due to reductions of workload
and reduced earnings on completed contracts, offset by the favorable impact
of settlements of outstanding claims on two substantially completed foreign
projects included in the prior year periods. Operating and general expenses
from our foreign subsidiaries' engineering, construction and consulting
services decreased by $3,276 for the six months ended June 30, 1994 and by
$1,955 in the second quarter of 1994 compared with prior year periods
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.
Gross earnings from cold storage and related activities decreased by $417
for the six months ended June 30, 1994 and by $12 for the second quarter of
1994 compared with the same periods in 1993. The decrease for the six months
of 1994 is primarily due to reduced customer volume experienced in the first
quarter of 1994 while business volume improved in the second quarter of 1994.
Operating and general expenses decreased by $315 for the six months ended June
30, 1994 and by $166 for the second quarter of 1994 compared with prior year
17.
Form 10-Q
For the quarter ended June 30, 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)
periods primarily due to decreases in operating and maintenance costs.
Gross earnings from oil and gas interests decreased by $705 for the six
months ended June 30, 1994 and by $417 for the second quarter of 1994 compared
with prior year periods primarily due to competitive factors which caused a
decline in the number of gas marketing sales by our natural gas gathering and
transporting company. Operating and general expenses decreased by $364 for
the six months ended June 30, 1994 and increased by $6 for the second quarter
of 1994 compared with prior year periods. The decrease in the six months
ended June 30, 1994 is primarily due to a decrease in gas purchases by our
natural gas gathering and transporting company offset in part by higher
exploration costs of our other oil and gas operations.
Gross earnings from dividends and interest increased for the six months
ended June 30, 1994 and for the second quarter of 1994 compared with prior
year periods primarily due to increased interest income on temporary
investments, reflecting higher interest rates.
Gross earnings from all other activities decreased by $418 for the six
months ended June 30, 1994 and by $1,277 for the second quarter of 1994
compared with prior year periods primarily due to a reduction in income from
equity investments and miscellaneous other income in 1994. Rental income on
available space in company-owned office buildings in the Northeast, previously
used for engineering operations increased in both periods of 1994. Operations
Form 10-Q 18.
For the quarter ended June 30, 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)
of our Tampa, Florida real estate holdings improved for the six months of 1994
compared to 1993. The improvement is attributable to higher gross earnings
from rents, lower interest expense on mortgages, and a decline in bad debt
expense. Occupancy in company owned and operated properties in Sabal Park
continues to be high with a vacancy rate of 3%.
The income tax (benefit) provision resulted in effective rates of (30)%
and (16)% for the six months ended June 30, 1994 and the second quarter of
1994, respectively, and 91% and 82% for the six months ended June 30, 1993 and
the second quarter of 1993, respectively. The 1994 effective rates were lower
than the U.S. statutory rate primarily due to foreign taxes, which are based
upon gross receipts impacted the effective rate by 3% and 12%, and state income
taxes which impacted the effective rate by 3% and 9% for the six months and
second quarter ended June 30, 1994, respectively. The 1993 effective rate
for the six months ended June 30, 1993 was higher than the U.S. statutory rate
primarily due to higher levels of foreign taxes applicable to certain foreign
projects which are calculated based on gross receipts impacted the effective
rate by 39% (there was a sharp decrease in these taxes in the first six
months of 1994) and higher state and local income taxes, which impacted the
effective rate by 12%.
Financial Condition
Cash and cash equivalents decreased by $12,888 during the first six
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. Severance payments of $4,206, of the $8,600 accrued by
the Stone & Webster Engineering Corporation in 1994, were made during the
Form 10-Q 19.
For the quarter ended June 30, 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.)
Financial Condition (Continued)
first six months of 1994. The balance of severance costs not yet paid will
be funded from cash on hand and temporary investments. 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. A subsidiary of the Corporation has a
material commitment for capital expenditures relating to the paper fiber
recycling plant. The financing for the paper fiber recycling plant as well
as the source of funding for the subsidiary's share of the equity investment
is described below. Net cash provided by financing activities primarily
represents borrowings to finance capital expenditures as noted above.
Dividends paid amounted to $4,494. The Corporation believes that the types of
businesses in which it is engaged require that it maintains a strong financial
condition. The Corporation has on hand and access to sufficient sources of
funds to meet its anticipated operating, dividend and capital expenditure
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 $45,417, of which $43,540 was
available at June 30, 1994.
The Corporation and its subsidiaries have obtained financing for their
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
Form 10-Q 20.
For the quarter ended June 30, 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.)
Financial Condition (Continued)
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 investment of $16,250, of which the subsidiary of the Corporation's
share is $15,300. The Corporation intends to invest in additional equity
participation investments.
As stated in Note J to the consolidated financial statements, interim
results of operations are not necessarily indicative of the results for a full
year.