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, 1995
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: 14,490,569 shares as of April 30, 1995.
Form 10-Q 2.
For the quarter ended March 31, 1995 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 3, Legal Proceedings, in registrant's Form 10-K
for the year ended December 31, 1994, Stone & Webster Engineering
Corporation, a subsidiary of registrant, ("SWEC") provided design
engineering services to Chesapeake Paper Products Company
("Chesapeake") in Virginia in connection with a plant expansion.
After the completion of SWEC's services on its contract, Chesapeake
made a claim against SWEC in the amount of approximately $5,000,000,
claiming additional expenses due to design defects associated with the
structural electrical and mechanical design of the boiler and
evaporator. In April of 1993, Chesapeake brought suit against SWEC in
the United States District Court for the Eastern District of Virginia.
SWEC denied Chesapeake's allegations, claiming that it did not owe
Chesapeake anything, and instead, by way of counterclaim, that
Chesapeake owed SWEC $1,479,258 for the balance due for its services
on the project. The case was tried before a jury and completed on
December 8, 1993. At the close of the plaintiff's case, the Court
directed a verdict on SWEC's counterclaim in favor of SWEC for
approximately $1,580,000. Chesapeake's claim proceeded through trial
and was submitted to the jury. The jury returned a verdict in favor
of Chesapeake and against SWEC for $4,655,642.
SWEC filed an appeal to the Fourth Circuit Court of Appeals. On April
19, 1995, the decision of the District Court was affirmed.
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, 1995, registrant and its
subsidiaries had outstanding long-term debt (excluding current
portion) totaling approximately $93,952,000 principally in connection
with mortgages relating to real property for a subsidiary's corporate
office and business center in Tampa, Florida, for another
subsidiary's office building, and for 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%
Form 10-Q 3.
For the quarter ended March 31, 1995 Stone & Webster, Incorporated
Item 6. Exhibits and Reports on Form 8-K. (Cont'd.)
(a) Exhibit Index (Cont'd.)
of the total assets of the registrant and its subsidiaries on a con-
solidated 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.
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: JEREMIAH P. CRONIN
Dated: May 9, 1995 Jeremiah P. Cronin
Executive Vice President
(Duly authorized officer and
Principal Financial and Accounting
Officer)
Form 10-Q 4.
For the quarter ended March 31, 1995 Stone & Webster, Incorporated
ATTACHMENT A
Stone & Webster, Incorporated
and Subsidiaries
Index
Page No.
Condensed Financial Statements: (Unaudited)
Consolidated Statements of Operations -
Three Months Ended March 31, 1995 and 1994 5
Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994 6-7
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1995 and 1994 8
Notes to Consolidated Financial Statements 9-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-14
Form 10-Q 5.
For the quarter ended March 31, 1995 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
3 Months Ended March 31,
1995 1994
Revenues (Notes A and B) $222,529 $190,882
Cost of revenues (Note A) 204,568 196,291
Gross profit (loss) 17,961 (5,409)
Selling, general and administrative expenses (Note A) 10,427 14,279
Operating income (loss) (Notes B, D and G) 7,534 (19,688)
Other income (deductions) (Note A)
Interest income 1,784 730
Interest expense (942) (825)
Net interest income (expense) 842 (95)
Miscellaneous - net - 329
842 234
Income (loss) before provision (benefit) for income taxes 8,376 (19,454)
Income taxes provision (benefit) (Note C) 3,672 (6,533)
Net income (loss) (Notes D and G) $ 4,704 $(12,921)
Earnings (loss) per share (Notes D, G and J) $ .32 $(.86)
Dividends declared per share $ .15 $ .15
Average number of shares outstanding 14,520,000 14,978,000
See accompanying notes to consolidated financial statements.
Form 10-Q 6.
For the quarter ended March 31, 1995 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
March 31, December 31,
1995 1994
Assets
Current Assets:
Cash and cash equivalents $ 54,563 $ 55,650
U.S. Government securities, at amortized cost,
which approximates market. (Note E) 75,514 74,685
Accounts receivable 100,982 96,624
Costs and revenues recognized in
excess of billings 54,091 42,542
Deferred income taxes (Note C) 6,710 7,825
Other 709 657
Total Current Assets 292,569 277,983
Fixed assets 235,510 233,869
At cost, less accumulated depreciation,
depletion and amortization of $182,129
(1994-$179,566).
Land held for resale, at cost (Note F) 25,673 25,664
Prepaid pension cost (Note G) 104,825 101,131
Other assets 37,277 39,737
$695,854 $678,384
See accompanying notes to consolidated financial statements.
Form 10-Q 7.
For the quarter ended March 31, 1995 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
March 31, December 31,
1995 1994
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 5,069 $ 4,988
Accounts payable 28,349 23,996
Dividend payable 2,176 2,195
Billings in excess of costs and
revenues recognized 54,872 48,485
Accrued liabilities 55,245 55,702
Accrued taxes 8,359 6,070
Total Current Liabilities 154,070 141,436
Long-term debt 93,952 89,642
Deferred income taxes (Note C) 49,755 48,580
Other liabilities 22,953 23,408
Shareholders' Equity:
Preferred stock - -
Authorized, 2,000,000 shares of no par value;
none issued.
Common stock, carried at 65,240 65,171
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 410,786 408,211
Cumulative translation adjustment (3,028) (3,072)
475,858 473,170
Less: Common stock in treasury, at cost (Note H) 70,463 66,961
3,225,261 shares (1994-3,122,181).
Employee stock ownership and restricted
stock plans 30,271 30,891
100,734 97,852
Total Shareholders' Equity 375,124 375,318
$695,854 $678,384
See accompanying notes to consolidated financial statements.
Form 10-Q 8.
For the quarter ended March 31, 1995 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
3 Months Ended March 31,
1995 1994
Cash Flows from Operating Activities:
Net Income (Loss) $ 4,704 $(12,921)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization 4,960 4,827
Deferred income taxes 2,290 (3,798)
Prepaid pension cost (3,694) (2,805)
Amortization of market value of shares issued
under Restricted Stock Plan 32 182
Amortization of net cost of
Employee Stock Ownership Plan 389 390
Changes in operating assets and liabilities:
Accounts receivable (5,568) 4,674
Costs and revenues recognized
in excess of billings (11,549) (5,488)
Other assets 2,460 (611)
Accounts payable 4,353 (10,255)
Billings in excess of costs
and revenues recognized 6,387 294
Accrued liabilities 860 6,379
Other 1,089 282
Net cash provided (used) by operating activities 6,713 (18,850)
Cash Flows from Investing Activities:
Maturities of U.S. Government securities 29,075 21,416
Purchases of U.S. Government securities (29,128) (17,701)
Purchases of fixed assets (6,601) (10,583)
Net cash used by investing activities (6,654) (6,868)
Cash Flows from Financing Activities:
Proceeds from long-term debt 5,580 13,620
Repayments of long-term debt (1,189) (1,188)
Decrease in bank loans - (1,054)
Payment to Employee Stock Ownership Trust (2,462) -
Payment received from Employee Stock Ownership Trust 2,753 -
Purchase of common stock for treasury (3,633) -
Dividends paid (2,195) (2,247)
Net cash (used) provided by financing activities (1,146) 9,131
Net Decrease in Cash and Cash Equivalents (1,087) (16,587)
Cash and Cash Equivalents at Beginning of Period 55,650 64,141
Cash and Cash Equivalents at End of Period $ 54,563 $ 47,554
See accompanying notes to consolidated financial statements.
Form 10-Q 9.
For the quarter ended March 31, 1995 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) As discussed in the 1994 Annual Report to Stockholders, the Company
changed its presentation of reporting gross earnings to a format
reflecting total revenues, cost of revenues and selling, general and
administrative expenses to be more consistent with industry practice,
primarily in its engineering, construction and consulting business. As
a result of these reclassifications, both total revenues, previously
reported as gross earnings, cost of revenues and selling, general and
administrative expenses increased by $138,978 for the three months ended
March 31, 1994. In 1995, the Company further changed its reporting to
present operating income (loss) and has reclassified dividend and
interest income from revenues to a new caption - Other income
(deductions). Certain other miscellaneous revenues were reclassified to
operating costs. As a result of these reclassifications, total revenues
decreased by $1,843, operating costs decreased by $784 and other income
(deductions) increased by $1,059 for the three months ended March 31,
1994. These reclassifications had no effect on net income for either
period.
(B) Revenues and operating income (loss) by business segment were the
following for the three months ended March 31, 1995 and 1994:
Three Months
Ended March 31,
1995 1994
Revenues
Engineering, construction and
consulting services $214,435 $183,763
Cold storage and
related activities 5,195 3,575
Other 2,899 3,544
Total revenues $222,529 $190,882
Operating income (loss)
Engineering, construction and
consulting services $ 8,399 $(18,342)
Cold storage and
related activities 1,980 915
Other (48) 533
10,331 (16,894)
General corporate expenses (2,797) (2,794)
Total operating income (loss) $ 7,534 $(19,688)
(C) The Company had a valuation allowance of $14,084 at December 31, 1994 for
the deferred tax assets related to net operating loss carryforwards. The
net change in the valuation allowance for the first quarter of 1995 was
a decrease of $17 for a total valuation allowance of $14,067 at March 31,
1995. The valuation allowance at March 31, 1995 comprises $8,477
relating to the net operating loss carryforwards of several of the
Company's foreign subsidiaries and $5,590 relating to state net operating
loss carryforwards.
Form 10-Q 10.
For the quarter ended March 31, 1995 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) In March 1994, a subsidiary of the Company, Stone & Webster Engineering
Corporation, took a number of actions to further lower its operating
costs. These included the elimination of approximately 350 positions
resulting in a 1994 first quarter pre-tax charge of $5,500 for severance
costs, which decreased net income by $3,400, or $.23 per share.
Severance payments of $3,383 of the $8,508 accrued balance at December
31, 1994 were made by Stone & Webster Engineering Corporation in the
first three months of 1995, leaving an accrued balance of $5,125. All
amounts accrued relate to positions which were terminated as of December
31, 1994.
(E) U.S. Government securities are debt securities issued by the U.S.
Treasury comprised entirely of U.S. Treasury bills and notes, which the
Company intends to hold to maturity. These securities have maturity
dates of one year or less. The aggregate fair market value of U.S.
Government securities at March 31, 1995 and December 31, 1994 was $75,536
and $74,624, respectively, the amortized cost basis at March 31, 1995 and
December 31, 1994 was $75,514 and $74,685, respectively, and the net
unrealized holding gain (loss) at March 31, 1995 and December 31, 1994
was $22 and $(61), respectively.
(F) Land held for resale is stated at the lower of cost or estimated net
realizable value and, in determining net realizable value, the Company
uses independent appraisals and/or internal estimates which, among other
things, include historical sales data, estimates of future sales prices
and related transactional costs.
(G) Pension plan credits of $3,694 and $2,805 for the three months ended
March 31, 1995 and 1994, respectively, reduced operating costs and
contributed to net income by $2,259, or $.16 per share, and $1,716, or
$.11 per share, for the three months ended March 31, 1995 and 1994,
respectively.
(H) In July 1994, the Board of Directors of the Company authorized a share
repurchase program for up to 1 million shares of common stock in open
market transactions at prevailing prices. The Company acquired 109,080
shares in the three months ended March 31, 1995, bringing total purchases
to 472,404 shares under this program. As of March 31, 1995, the Company
had 14,506,227 shares outstanding. The amount and timing of stock
repurchases will depend upon market conditions, share price, as well as
other factors. The Company reserves the right to discontinue the
repurchase program at any time.
(I) With respect to the legal actions referred to in Note M of the Company's
Annual Report to Stockholders for the year 1994, as well as possible
liabilities related to environmental pollution, management believes, on
the basis of its examination and consideration of these matters and such
possible liabilities, including consultation with counsel, that neither
these legal actions, nor such possible liabilities, will result in
payment of amounts, if any, which would have a material adverse effect
on the consolidated financial statements.
(J) Earnings per share are based on the average number of shares outstanding
during the periods.
Form 10-Q 11.
For the quarter ended March 31, 1995 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
(K) 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
Company'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, 1995 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.)
Results of Operations
As discussed in the 1994 Annual Report to Stockholders, the Company changed
its presentation of reporting gross earnings to a format reflecting total
revenues, cost of revenues and selling, general and administrative expenses
to be more consistent with industry practice, primarily in its engineering,
construction and consulting business. In 1995, the Company further changed
its reporting to present operating income. Refer to Note A to the
consolidated financial statements.
Consolidated net income was $4,704, or 32 cents per share, for the three
months ended March 31, 1995 compared to a net loss of $12,921, or 86 cents per
share, for the same period last year. Consolidated revenues for the first
quarter were $222,529, up 17 percent from the 1994 period.
Operating income improved in the Company's major business segments, with the
largest improvement coming in the engineering, construction and consulting
operations. This segment reported operating income of $8,399 for the first
quarter of 1995 compared to a loss of $18,342 for the same period last year
on a 17 percent improvement in revenues to $214,435. The increase in revenues
was primarily due to an increase in expenditures for plant equipment and
materials purchased for client projects. Included in last year's first
quarter results was a $5,500 pre-tax charge for severance costs associated
with workforce reductions in the Company's largest subsidiary, Stone & Webster
Engineering Corporation. The subsidiary continues to expect that
approximately $35,000 of payroll-related cost savings will be realized in 1995
from staff reductions implemented throughout 1994. It estimates that $12,000
in payroll-related cost savings were realized in the first quarter of 1995,
which helped contain the increase in cost of revenues and lowered selling,
general and administrative expenses compared with 1994. With a better balance
of staffing and workload, lower indirect expenses and improved revenue, first
quarter 1995 operating income margins for this segment reached 4 percent. The
power and process sectors were particularly strong during the period. New
orders for the first quarter of 1995 for the engineering, construction and
consulting business segment were $218,000. New orders for the first quarter
of 1994 and backlog at March 31, 1994 were adversely affected due to the
reduction of scope in the amount of $319,000 at a Tennessee Valley Authority
plant during the first quarter of 1994. Backlog was $1,546,000 at March 31,
1995 compared to $1,095,000 at March 31, 1994 and $1,542,000 at year-end.
Operating income in the cold storage segment was also up significantly, from
$915 for the first quarter of 1994 to $1,980 for the first quarter of 1995 on
a 45 percent revenue increase, reflecting higher levels of customer storage
rentals and increased demand for blast freezing and related services for food
exports. Higher cold storage operating income margins resulted in record
operating income for the first quarter of 1995. Selling, general and
administrative expenses remained relatively constant.
Other segment operating income decreased from $533 in the first quarter of
1994 to a loss of $48 in 1995 primarily due to the abandonment of two gas
wells and a decrease in gas prices in oil and gas operations. The decrease
in other segment revenues from $3,544 in 1994 to $2,899 in 1995 was also
Form 10-Q 13.
For the quarter ended March 31, 1995 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.)
Results of Operations (Continued)
attributed to a decline in oil and gas activity because of the decrease in gas
prices.
Pension plan credits of $3,694 and $2,805 for the three months ended March 31,
1995 and 1994, respectively, reduced operating costs and contributed to net
income by $2,259, or 16 cents per share, and $1,716, or 11 cents per share,
for the three months ended March 31, 1995 and 1994, respectively. The
increase in the pension plan credit was primarily due to a change in the
discount rate used to calculate the projected benefit obligation. Favorable
asset performance in the past ten years is the primary reason that the pension
plan is overfunded.
Other income (deductions) improved from $234 to $842 because of higher
interest income due to higher cash balances, including U.S. Government
Securities, and investment rates compared to the first quarter of last year.
Dividend income in the first quarter of 1994 was $329. There was no dividend
income in 1995 because all of the Company's investment securities were sold
in the third and fourth quarters of 1994.
The income tax provision (benefit) resulted in effective tax rates of 44
percent and (34) percent for the three months ended March 31, 1995 and March
31, 1994, respectively. The effective tax rate for the three months ended
March 31, 1995 was higher than the U.S. statutory tax rate primarily due to
state income taxes, net of federal benefit, which increased the rate by 5
percent. Foreign taxes applicable to certain foreign projects which are
calculated based on gross receipts accounted for a 4 percent increase in the
effective tax rate. The 1994 effective tax rate benefit was 1 percent below
the U.S. statutory tax rate primarily due to foreign taxes which are
calculated based on gross receipts.
Financial Condition
Cash and cash equivalents, as shown in the Consolidated Statements of Cash
Flows, decreased by $1,087 during the first three months of 1995. Net cash
provided by operating activities of $6,713 reflected income from operations
before noncash charges, increased accounts payable and billings in excess of
costs and revenues, partially offset by increases in costs and revenues
recognized in excess of billings and accounts receivable. Severance payments
of $3,383 of the $8,508 accrued balance at December 31, 1994 were made by
Stone & Webster Engineering Corporation in the first three months of 1995,
leaving an accrued balance of $5,125 which will be funded from cash on hand
and temporary investments. Net cash used by investing activities of $6,654
primarily reflects purchases of fixed assets related to expenditures for the
construction of a paper fiber recycling plant. This plant is a development
type project in which a subsidiary of the Company, Stone & Webster Development
Corporation, holds an ownership interest. Net cash used by financing
activities of $1,146 primarily represents repayments of long-term debt,
purchases of common stock for treasury as explained in Note H to the
consolidated financial statements and dividends paid, offset in part by
proceeds from long-term debt representing borrowings to finance the
construction of the paper fiber recycling plant previously discussed. The
Company believes that the types of businesses in which it is engaged require
that it maintain a strong financial condition. The Company 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 total
$26,800, all of which were available at March 31, 1995.
Form 10-Q 14.
For the quarter ended March 31, 1995 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)
The Company and its subsidiaries have obtained financing for their real estate
operations and the construction of a paper fiber recycling plant. A
subsidiary of the Company owns a 94.3 percent interest in a limited
partnership for construction of this paper fiber recycling plant. The cost
of the plant, which is collateral for the construction loan, is expected to
be $65,000. Upon completion of construction, which is expected to be December
1995, the construction loans will be paid by term debt of $48,750 and the
partners will make an equity investment of $16,250, of which the subsidiary
of the Company's share is $15,324. The Company intends to invest in
additional equity participation investments such as this in the future.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121 - Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, which under the current FASB schedule is effective
for the fiscal years beginning after December 15, 1995. The Company is
presently analyzing this new accounting standard as to the impact it may have
on the Company's financial position or results of operations.