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, 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: 14,415,672 shares as of July 31, 1995.
Form 10-Q 2.
For the quarter ended June 30, 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 Part II, Item 1, Legal Proceedings, in registrant's
Form 10-Q for the quarter ended March 31, 1995, the decision of the
United States District Court for the Eastern District of Virginia in
the action brought by Chesapeake Paper Products Company against Stone
& Webster Engineering Corporation ("SWEC"), a subsidiary of
registrant, was affirmed on appeal. SWEC made payment of $4,935,904
representing satisfaction of the judgment (including costs and
interest) on May 22, 1995.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders of the registrant was held on May
11, 1995.
(b) At the Annual Meeting, Frank J. A. Cilluffo, J. Angus McKee and
Meredith R. Spangler were re-elected as Directors for terms expiring
in 1998. The term of office as a Director of William L. Brown, Bruce
C. Coles, Donna R. Fitzpatrick, Kent F. Hansen, Elvin R. Heiberg III,
John A. Hooper and Kenneth G. Ryder continued after the Meeting.
(c) At the Annual Meeting, the Shareholders also:
- ratified the selection of the firm of Coopers & Lybrand, L.L.P.,
independent accountants, as auditor of the registrant and its
subsidiaries for the year 1995;
- approved the 1995 Stock Option Plan of Stone & Webster,
Incorporated covering certain of the Directors, officers and
employees of the Corporation and its subsidiaries;
- approved the 1995 Stock Plan for Non-Employee Directors of Stone
& Webster, Incorporated; and
- did not approve the proposal submitted by a shareholder as
discussed in the Proxy Statement for the 1995 Annual Meeting.
Form 10-Q 3.
For the quarter ended June 30, 1995 Stone & Webster, Incorporated
The total votes cast for, withheld or against, as well as the number
of abstentions and broker non-votes as to each such matter were as
follows:
(1) Election of Directors.
Nominee Total Votes For Total Votes Withheld
Frank J. A. Cilluffo 13,185,689 442,478
J. Angus McKee 11,247,507 2,380,660
Meredith R. Spangler 12,783,626 844,541
There were no broker non-votes.
(2) Selection of Independent Accountants.
Total Votes For 13,083,399
Total Votes Against 475,148
Total Abstentions 69,620
There were no broker non-votes.
(3) 1995 Stock Option Plan of Stone & Webster, Incorporated.
Total Votes For 9,723,096
Total Votes Against 3,155,969
Total Abstentions 169,726
There were 579,376 broker non-votes.
(4) 1995 Stock Plan for Non-Employee Directors of Stone & Webster,
Incorporated.
Total Votes For 9,830,762
Total Votes Against 3,033,577
Total Abstentions 184,452
There were 579,376 broker non-votes.
(5) Proposal of a shareholder.
Total Votes For 4,546,165
Total Votes Against 8,222,053
Total Abstentions 280,623
There were 579,326 broker non-votes.
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, 1995, registrant and its
subsidiaries had outstanding long-term debt (excluding current
portion) totaling approximately $95,818,000 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 4.
For the quarter ended June 30, 1995 Stone & Webster, Incorporated
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.
(10) Material Contracts.
(i) 1995 Stock Option Plan of Stone & Webster,
Incorporated (incorporated by reference to Exhibit 4-b to
the registrant's Registration Statement on Form S-8 filed
on June 22, 1995 (File No. 33-60489)).*
(ii) 1995 Stock Plan for Non-Employee Directors of Stone
& Webster, Incorporated (incorporated by reference to
Exhibit 4-b to the registrant's Registration Statement on
Form S-8 filed on June 22, 1995 (File No. 33-60483)).*
_________
* Exhibits 10(i) and 10(ii) are compensatory plans,
contracts and arrangements in which directors and named
executive officers participate.
(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: August 1, 1995 Jeremiah P. Cronin
Executive Vice President
(Duly authorized officer and
Chief Financial Officer)
DANIEL P. LEVY
Daniel P. Levy
Corporate Controller
(Principal Accounting Officer)
Form 10-Q 5.
For the quarter ended June 30, 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 June 30, 1995 and 1994
Six Months Ended June 30, 1995 and 1994 6
Consolidated Balance Sheets -
June 30, 1995 and December 31, 1994 7-8
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1994 9
Notes to Consolidated Financial Statements 10-12
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-16
Form 10-Q 6.
For the quarter ended June 30, 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 June 30, 6 Months Ended June 30,
1995 1994 1995 1994
Revenues (Notes A and B) $230,687 $189,418 $453,216 $380,300
Cost of revenues (Note A) 207,697 183,107 412,265 379,398
Gross Profit 22,990 6,311 40,951 902
Selling, general and
administrative expenses (Note A) 11,053 11,194 21,480 25,473
Operating income (loss) (Notes B, D and G) 11,937 (4,883) 19,471 (24,571)
Other income (deductions) (Note A)
Interest income 1,636 762 3,420 1,492
Interest expense (1,173) (973) (2,115) (1,798)
Net interest income (expense) 463 (211) 1,305 (306)
Miscellaneous - net - 331 - 660
463 120 1,305 354
Income (loss) before provision (benefit)
for income taxes 12,400 (4,763) 20,776 (24,217)
Income tax provision (benefit) (Note C) 4,454 (774) 8,126 (7,307)
Net income (loss) (Notes D and G) $ 7,946 $ (3,989) $ 12,650 $(16,910)
Earnings (loss) per share (Notes D, G and K) $.55 $(.27) $.87 $(1.13)
Dividends declared per share $.15 $ .15 $.30 $.30
Average number of shares outstanding 14,472,000 14,976,000 14,496,000 14,977,000
See accompanying notes to consolidated financial statements.
Form 10-Q 7.
For the quarter ended June 30, 1995 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
June 30, December 31,
1995 1994
Assets
Current Assets:
Cash and cash equivalents $ 32,278 $ 55,650
U.S. Government securities, at amortized cost,
which approximates market. (Note E) 72,187 74,685
Accounts receivable 119,896 96,624
Costs and revenues recognized in
excess of billings 52,750 42,542
Deferred income taxes (Note C) 4,220 7,825
Other 1,664 657
Total Current Assets 282,995 277,983
Fixed assets 240,003 233,869
At cost, less accumulated depreciation,
depletion and amortization of $185,781
(1994-$179,566).
Land held for resale, at cost (Note F) 25,673 25,664
Prepaid pension cost (Note G) 108,520 101,131
Other assets 39,253 39,737
$696,444 $678,384
See accompanying notes to consolidated financial statements.
Form 10-Q 8.
For the quarter ended June 30, 1995 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
June 30, December 31,
1995 1994
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 9,251 $ 4,988
Accounts payable 29,735 23,996
Dividend payable 2,166 2,195
Billings in excess of costs and
revenues recognized 47,051 48,485
Accrued liabilities 51,869 55,702
Accrued taxes 6,989 6,070
Total Current Liabilities 147,061 141,436
Long-term debt 95,818 89,642
Deferred income taxes (Note C) 50,799 48,580
Other liabilities 23,643 23,408
Shareholders' Equity:
Preferred stock - -
Authorized, 2,000,000 shares of no par value;
none issued.
Common stock, carried at (Note H) 65,248 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 416,612 408,211
Cumulative translation adjustment (2,897) (3,072)
481,823 473,170
Less: Common stock in treasury, at cost (Notes H and I) 72,468 66,961
3,289,772 shares (1994-3,122,181).
Employee stock ownership and restricted
stock plans 30,232 30,891
102,700 97,852
Total Shareholders' Equity 379,123 375,318
$696,444 $678,384
See accompanying notes to consolidated financial statements.
Form 10-Q 9.
For the quarter ended June 30, 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.)
6 Months Ended June 30,
1995 1994
Cash Flows from Operating Activities:
Net Income (loss) $ 12,650 $(16,910)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization 9,607 9,777
Deferred income taxes 5,832 (5,463)
Prepaid pension cost (7,389) (5,550)
Amortization of market value of shares issued
under Restricted Stock Plan 71 336
Amortization of net cost of
Employee Stock Ownership Plan 778 780
Changes in operating assets and liabilities:
Accounts receivable (23,727) 1,464
Costs and revenues recognized
in excess of billings (10,208) 5,340
Other assets 484 (370)
Accounts payable 5,739 (10,496)
Billings in excess of costs
and revenues recognized (1,434) 6,089
Accrued liabilities (3,660) 7,033
Other (267) (70)
Net cash used by operating activities (11,524) (8,040)
Cash Flows from Investing Activities:
Maturities of U.S. Government securities 77,598 54,478
Purchases of U.S. Government securities (74,426) (48,554)
Purchases of fixed assets (15,741) (27,365)
Net cash used by investing activities (12,569) (21,441)
Cash Flows from Financing Activities:
Proceeds from long-term debt 12,860 27,409
Repayments of long-term debt (2,421) (2,419)
Decrease in bank loans - (3,800)
Payment to Employee Stock Ownership Trust (2,462) -
Payment received from Employee Stock Ownership Trust 2,753 -
Purchase of common stock for treasury (5,638) (103)
Dividends paid (4,371) (4,494)
Net cash provided by financing activities 721 16,593
Net Decrease in Cash and Cash Equivalents (23,372) (12,888)
Cash and Cash Equivalents at Beginning of Period 55,650 64,141
Cash and Cash Equivalents at End of Period $ 32,278 $ 51,253
See accompanying notes to consolidated financial statements.
Form 10-Q 10.
For the quarter ended June 30, 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 $134,342 and $273,320 for the second
quarter and six months ended June 30, 1994, respectively. 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 $1,014 and $2,857,
operating expenses increased by $79 and decreased by $705, and other
income (deductions) increased by $1,093 and $2,152, for the three and six
months ended June 30, 1994, respectively, with no effect on net income.
(B) Revenues and operating income (loss) by business segment were the following
for the three and six months ended June 30, 1995 and 1994:
Three Months Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
Revenues
Engineering, construction and
consulting services $222,216 $181,672 $436,651 $365,435
Cold storage and
related activities 5,463 4,297 10,658 7,872
Other 3,008 3,449 5,907 6,993
Total revenues $230,687 $189,418 $453,216 $380,300
Operating income (loss)
Engineering, construction and
consulting services $ 12,643 $ (4,021) $ 21,042 $(22,363)
Cold storage and
related activities 2,197 1,458 4,177 2,373
Other 272 266 224 799
15,112 (2,297) 25,443 (19,191)
General corporate expenses (3,175) (2,586) (5,972) (5,380)
Total operating income (loss) $ 11,937 $ (4,883) $ 19,471 $(24,571)
(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
valuation allowance at the end of the first quarter was $14,067. The net
change in the second quarter of 1995 was a decrease of $635, primarily due
to the utilization of a foreign net operating loss carryfoward which was
fully reserved, for a total valuation allowance of $13,432 at June 30,
1995. The valuation allowance at June 30, 1995 comprises $7,842 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 11.
For the quarter ended June 30, 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, 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 1994 pre-tax
charge of $5,500 for severance costs, which decreased net income by
$3,400, or $.23 per share. In the second quarter of 1994, 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. Severance payments of $5,222 of the
$8,508 accrued balance at December 31, 1994 were made by Stone & Webster
Engineering Corporation in the first six months of 1995, leaving an
accrued balance of $3,286. 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 June 30, 1995 and December 31, 1994 was $72,336 and
$74,624, respectively, the amortized cost basis at June 30, 1995 and
December 31, 1994 was $72,187 and $74,685, respectively, and the net
unrealized holding gain (loss) at June 30, 1995 and December 31, 1994 was
$149 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, which reduced operating costs, were $3,695 and
$7,389 for the three and six month periods of 1995 compared to $2,745
and $5,550 for the prior year. These credits increased net income by
$2,260, or $.15 per share, and $4,519, or $.31 per share, for the three
and six month periods and by $1,678, or $.12 per share, and $3,394, or
$.23 per share for the prior year.
(H) On May 11, 1995, the shareholders approved a 1995 Stock Option Plan and
a 1995 Stock Plan. Under the 1995 Stock Option Plan, key employees are
eligible to receive options either as incentive stock options as defined
under the Internal Revenue Code, or as nonqualified options to purchase
shares of the Company's common stock. Non-employee directors only may be
granted nonqualified options. The exercise price of any option granted
under the Stock Option Plan may not be less than the fair market value as
of the date of grant and such options may not be exercisable later than
ten years from the date of grant. Nonqualified options to purchase 2,000
shares were granted to each non-employee director as of the effective date
of the Stock Option Plan and will be granted to each new non-employee
director upon initial election or appointment to the Board of Directors.
Thereafter on a yearly basis, nonqualified options to purchase 1,000 shares
will be granted to each non-employee director. The total number of shares
to be issuable under the Stock Option Plan may not exceed 750,000 shares.
On May 11, 1995, nonqualified options for 18,000 shares were awarded to
non-employee directors at an exercise price of $30.25, nonexercisable for
the first six months. On June 20, 1995, nonqualified options for 137,500
shares were awarded to designated key employees at an exercise price of
$31.00, nonexercisable for the first three years.
Form 10-Q 12.
For the quarter ended June 30, 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.)
Under the 1995 Stock Plan, non-employee directors of the Company will
receive grants of shares of common stock in payment of their annual
retainer and may elect to receive director meeting fees in common stock.
The total number of shares to be issued under the Stock Plan may not
exceed 100,000 shares. As of July 1, 1995, each non-employee director
received a number of shares equivalent to one-half of the annual
retainer of $8,000.
(I) 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 173,591
shares in the six months ended June 30, 1995, bringing total purchases
to 536,915 shares under this program. As of June 30, 1995, the Company
had 14,441,716 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.
(J) 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. With respect to the contract-related
lawsuit discussed in Note M of the Company's 1994 Annual Report, on
April 19, 1995 the decision of the lower court was affirmed on appeal
and payment of $4,936 (including costs and interest) was made in
May, 1995, representing satisfaction of the judgment.
(K) Earnings per share are based on the average number of shares outstanding
during the periods.
(L) 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 13.
For the quarter ended June 30, 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.
For the second quarter ended June 30, 1995, Stone & Webster reported net
income of $7,946 or $.55 per share, compared to a net loss of $3,989 or $.27
per share, for the same period in 1994. Operating income was $11,937 compared
to an operating loss of $4,883 a year ago. Second quarter revenues increased
22 percent to $230,687.
Net income for the first six months of 1995 was $12,650 or $.87 per share,
compared to a net loss of $16,910 or $1.13 per share, in the same period in
1994. Operating income was $19,471 compared to an operating loss of $24,571.
Revenues in the first half were $453,216, an increase of 19 percent from
$380,300 in the first six months of 1994.
There continued to be strong gains in revenues and operating profit in the
Company's major business segments, with the principal business segment -
engineering, construction and consulting - showing the most improvement. This
segment reported operating income of $12,643 for the second quarter ended June
30, 1995 compared to a loss of $4,021 for the same period last year.
Second quarter revenues increased 22 percent to $222,216. For the six month
period, operating income was $21,042 compared to a loss of $22,363 in 1994 on
a 19 percent improvement in revenues to $436,651. The improvement in revenues
was primarily due to an increase in materials expenditures for clients where
the Company is responsible for procuring such materials under contracts with
its clients. Included in last year's second quarter and six months results
were pre-tax charges of $3,100 and $8,600, respectively, 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 is estimated
that $21,000 in payroll-related cost savings were realized in the first six
months of 1995, which helped contain the increase in cost of revenues and
lowered selling, general and administrative expenses compared with 1994. The
savings expected over the remainder of 1995 may not be in proportion to the
savings experienced during the first six months because the cost reduction
actions initiated in the first half of 1994 resulted in reduced costs for the
second half of 1994. The second quarter 1995 results continue to reflect the
improvement in operating income experienced in the first quarter and can be
attributed to the better balance of staffing and workload, lower indirect
expenses and increased revenue. Operating income margins were approximately
5 percent for both the quarter and six months. The Process and Power business
units continued to be strong during the first six months of 1995, primarily
due to increased international work in the Middle East and Pacific Rim areas.
The Power business units performance was also strong domestically. New
Form 10-Q 14.
For the quarter ended June 30, 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)
orders for the engineering, construction and consulting segment for the second
quarter and first six months of 1995 were $342,000 and $560,000, respectively,
primarily from work in the Power and Government business units. New orders
for the second quarter of 1994 were $241,000. New orders for the first six
months of 1994 and backlog at June 30, 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 on June 30, 1995 was
$1,665,000 compared to $1,155,000 on June 30, 1994 and $1,542,000 at year end.
Operating income in the cold storage segment was at record levels for both
periods in 1995. For the second quarter, operating income was $2,197 compared
to $1,458 for the same period last year on a 27 percent increase in revenues
to $5,463. For the six month period, operating income went from $2,373 in
1994 to $4,177 in 1995 on a 35 percent revenue increase. Higher revenues for
both periods are due to additional customer storage rental and increased
demand for freezing services for food destined for export.
Operating income of the "other" segment remained relatively unchanged for the
second quarter of 1995 compared to 1994. There was a decrease in operating
income for the six month period, from $799 in 1994 to $224 in 1995. This
decrease was primarily due to the abandonment of two gas wells and the
continued decrease in gas prices in the oil and gas operations. The decrease
in the "other" segment revenues for both periods in 1995 was also attributed
to the decline in oil and gas activity due to the continuing decrease in gas
prices. Pension plan credits, which reduced operating costs, were $3,695 and
$7,389 for the three and six month periods in 1995 compared to $2,745 and
$5,550 for the same periods in the prior year. These credits increased net
income by $2,260 or $.15 per share, and $4,519, or $.31 per share for the
three and six month periods in 1995 and by $1,678, or $.12 per share, and
$3,394, or $.23 per share for the prior year. The increase in the pension
credit for both periods in 1995 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) increased in the quarter and year to date
comparisons because of higher interest income due to higher average cash
balances and investment rates.
The income tax provision (benefit) resulted in effective rates of 36 percent
and 39 percent for the second quarter and six months ended June 30, 1995,
respectively, and (16) percent and (30) percent for the second quarter and six
months ended June 30, 1994, respectively. The effective rates for the second
quarter and six months ended June 30, 1995 were higher than the U.S. statutory
tax rate primarily due to state income taxes, net of federal benefit, which
increased the effective tax rate by 4 percent and 5 percent, respectively.
Form 10-Q 15.
For the quarter ended June 30, 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.)
Result of Operations (Continued)
The effective rate for the three months ended June 30, 1994 was lower than the
U.S. statutory rate primarily due to foreign taxes which are calculated based
on gross receipts which accounted for an 11 percent reduction in the effective
tax rate recorded. State income taxes, net of federal benefit, also impacted
the effective rate by 6 percent for the three months ended June 30, 1994. The
effective rate for the six months ended June 30, 1994 was lower than the U.S.
statutory tax rate primarily due to foreign taxes applicable to certain
foreign projects which are calculated based on gross receipts.
Cash and cash equivalents, as shown in the Consolidated Statements of Cash
Flows, decreased by $23,372 during the first six months of 1995. Net cash
used by operating activities of $11,524 reflected increases in accounts
receivable and costs and revenues recognized in excess of billings resulting
from increased business activity and a payment of $4,936 representing
satisfaction of a judgment in a lawsuit. These items were partially offset
by net cash provided by income from operations and increases in accounts
payable for expenditures related to job materials and equipment. Severance
payments of $5,222 of the $8,508 accrued balance at December 31, 1994 were
made by Stone & Webster Engineering Corporation in the first six months of
1995, leaving an accrued balance of $3,286 which will be funded from cash on
hand and temporary investments. Net cash used by investing activities of
$12,569 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 provided by
financing activities of $721 is primarily due to proceeds from long-term debt
representing borrowings to finance the construction of the paper fiber
recycling plant previously discussed, offset in part by repayments of long-
term debt, purchases of common stock for treasury as explained in Note I to
the consolidated financial statements and dividends paid. 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 has access
Form 10-Q 16.
For the quarter ended June 30, 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)
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 $6,378, all of which
were available at June 30, 1995. 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 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's share will be
funded by cash on hand and temporary investments. 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 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.