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 September 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: 14,226,750 shares as of September 30, 1995.
Form 10-Q 2.
For the quarter ended September 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.
(a) As reported in Part I, Item 3, Legal Proceedings, in registrant's Form
10-K for the year ended December 31, 1994, in November 1990, Stone &
Webster Engineering Corporation ("SWEC") commenced an action in the
United States District Court for the District of Massachusetts against
Northbrook Insurance Company, several other insurance companies and
certain other parties. The complaint sought monetary damages,
attorneys' fees and costs, and a declaration that the insurance
company defendants must defend and indemnify SWEC against claims
asserted against it in another lawsuit which was settled in March,
1991.
In September, 1995, SWEC reached a settlement agreement with the
defendants pursuant to which SWEC received payment on claims made in
the aggregate gross amount of $16 million and the pending litigation
was dismissed.
(b) Registrant and two of its subsidiaries have been named as defendants,
along with others, in two legal actions brought by, and have received
other claims from, private parties seeking contribution for costs
incurred or to be incurred in remediation of sites under the
Comprehensive Environmental Response, Compensation and Liability Act
and similar state statutes. These matters relate to business
activities which took place generally in the first half of this
century. No governmental authority has sought similar redress from
registrant or its subsidiaries (except in the case of one subsidiary
in limited connection with claims made primarily with respect to
clients of that subsidiary) nor has the registrant been identified as
a Potentially Responsible Party by the Federal or any state or local
governmental authority, although some information has been requested
in connection with environmental matters. Based on presently known
facts and existing laws and regulations, registrant believes that it
has valid legal defenses to such actions and that the costs associated
with such matters, including legal costs, will not be material to the
business or financial condition of the registrant, and in any case
will be mitigated by the presence of other entities which will be
Potentially Responsible Parties, by contractual indemnities, and by
insurance coverage.
Form 10-Q 3.
For the quarter ended September 30, 1995 Stone & Webster, Incorporated
Item 1. Legal Proceedings. (Cont'd.)
In early October, 1995, one such action was settled by the filing of
mutual dismissals and the payment of $4 million by the registrant and
its subsidiaries. Certain of the insurance carriers of registrant and
its subsidiaries have made payments to the registrant and its
subsidiaries in the amount of $1.5 million relating primarily to
defense costs in connection with these actions. Registrant and one
subsidiary are plaintiffs in a separate action to recover damages,
attorneys' fees and other monetary relief from other insurance
carriers in connection with this and other such matters. No
recognition has been made in the financial statements for any
potentially recoverable amounts.
Because the facts and circumstances of the recently settled action
differ significantly from other such matters, registrant believes that
it would be inaccurate to evaluate or estimate liability based on the
recent settlement.
(c) Also see Note (C) to the consolidated financial statements filed
herewith.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index
(4) Instruments defining the rights of security holders,
including indentures - As of September 30, 1995, registrant and its
subsidiaries had outstanding long-term debt (excluding current
portion) totaling approximately $101,813,000 principally in connection
with mortgages relating to real property for a subsidiary's real
estate holdings 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% 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.
(10) Material contracts - Forms of agreements between registrant
and eleven (11) officers of registrant and its subsidiaries relating
to certain employment arrangements that would become operable only in
the event of a "change in control" (as defined in the agreements) and
that would have a potential aggregate cost to registrant (assuming
compensation levels of September 1, 1995) if triggered as provided in
the agreements of less than $5 million, are filed herewith as Exhibit
10.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
Registrant filed the following reports on Form 8-K during the
quarter ended September 30, 1995:
Date of Form 8-K Description
August 15, 1995 Submitted under Item 5, Other Events, the
text of registrant's Press Release dated
Form 10-Q 4.
For the quarter ended September 30, 1995 Stone & Webster, Incorporated
(b) Reports on Form 8-K (Cont'd.)
Date of Form 8-K Description
August 15, 1995 relating to the resignation of
Bruce C. Coles as Chairman of the Board of
Directors, President, and Chief Executive
Officer, the election of Kent F. Hansen as
non-executive Chairman of the Board, and the
appointment of Edward J. Walsh as acting
President and Chief Executive Officer.
August 18, 1995 Submitted under Item 5, Other Events, the
text of registrant's Press Release dated
August 16, 1995 relating to the completion of
a strategic asset review and an increase in a
share repurchase authorization.
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: October 27, 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 September 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 September 30, 1995 and 1994
Nine Months Ended September 30, 1995 and 1994 6
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 7-8
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1994 9
Notes to Consolidated Financial Statements 10-14
Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-19
Form 10-Q 6.
For the quarter ended September 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 9 Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
Revenues (Notes A and B) $219,160 $193,783 $672,376 $574,083
Cost of revenues (Note A) 199,800 185,506 612,065 564,904
Gross Profit 19,360 8,277 60,311 9,179
Selling, general and
administrative expenses (Note A) 12,248 10,066 33,728 35,539
Operating income (loss) (Notes B, C and D) 7,112 (1,789) 26,583 (26,360)
Other income (deductions) (Note A)
Profit on investment securities (Note M) - 9,762 - 9,762
Interest income 1,674 1,119 5,094 2,611
Interest expense (958) (974) (3,073) (2,772)
Miscellaneous - net - 292 - 952
716 10,199 2,021 10,553
Income (loss) before provision (benefit)
for income taxes 7,828 8,410 28,604 (15,807)
Income tax provision (benefit) (Note E) 2,844 3,228 10,970 (4,079)
Net income (loss) (Notes C, D, F and I) $ 4,984 $ 5,182 $ 17,634 $(11,728)
Earnings (loss) per share (Notes F, I) $ .35 $ .35 $1.22 $(.78)
Dividends declared per share $ .15 $ .15 $ .45 $ .45
Average number of shares outstanding 14,326,000 14,970,000 14,439,000 14,975,000
See accompanying notes to consolidated financial statements.
Form 10-Q 7.
For the quarter ended September 30, 1995 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets
(All dollar amounts, except per share amounts, are in thousands.)
September 30, December 31,
1995 1994
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 31,825 $ 55,650
U.S. Government securities, at amortized cost,
which approximates market. (Note G) 63,776 74,685
Accounts receivable (Note C) 136,308 96,624
Costs and revenues recognized in
excess of billings 78,238 42,542
Deferred income taxes (Note E) 7,545 7,825
Other 2,669 657
Total Current Assets 320,361 277,983
Fixed assets 253,347 233,869
At cost, less accumulated depreciation,
depletion and amortization of $192,316
(1994-$179,566). (Note L)
Land held for resale, at cost (Note H) 25,673 25,664
Prepaid pension cost (Note I) 112,475 101,131
Other assets (Notes C and D) 25,869 39,737
$737,725 $678,384
See accompanying notes to consolidated financial statements.
Form 10-Q 8.
For the quarter ended September 30, 1995 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets
(All dollar amounts, except per share amounts, are in thousands.)
September 30, December 31,
1995 1994
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 15,898 $ 4,988
Accounts payable 35,855 23,996
Dividend payable 2,134 2,195
Billings in excess of costs and
revenues recognized 60,370 48,485
Accrued liabilities 55,574 55,702
Accrued taxes 11,327 6,070
Total Current Liabilities 181,158 141,436
Long-term debt (Note L) 101,813 89,642
Deferred income taxes (Note E) 53,527 48,580
Other liabilities 22,573 23,408
Shareholders' Equity:
Preferred stock - -
Authorized, 2,000,000 shares of no par value;
none issued.
Common stock, carried at (Note J) 65,210 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 2,869 2,860
Retained earnings 419,509 408,211
Cumulative translation adjustment (2,842) (3,072)
484,746 473,170
Less: Common stock in treasury, at cost (Notes J and K) 79,382 66,961
3,504,738 shares (1994-3,122,181).
Employee stock ownership and restricted
stock plans 26,710 30,891
106,092 97,852
Total Shareholders' Equity 378,654 375,318
$737,725 $678,384
See accompanying notes to consolidated financial statements.
Form 10-Q 9.
For the quarter ended September 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.)
9 Months Ended September 30,
1995 1994
Cash Flows from Operating Activities:
Net Income (loss) $ 17,634 $(11,728)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization 14,216 14,724
Deferred income taxes 5,227 (3,913)
Prepaid pension cost (11,344) (9,472)
Pension plan curtailment gain - (504)
Profits on investment securities - (9,762)
Write-down of capitalized costs 6,500 -
Amortization of market value of shares issued
under Restricted Stock Plan 88 460
Amortization of net cost of
Employee Stock Ownership Plan 1,167 1,170
Changes in operating assets and liabilities:
Accounts receivable (40,460) (1,926)
Costs and revenues recognized
in excess of billings (35,696) 14,919
Other assets 7,332 724
Accounts payable 11,809 (6,756)
Billings in excess of costs
and revenues recognized 11,885 19,160
Accrued liabilities 2,858 2,865
Other 1,466 91
Net cash (used) provided by operating activities (7,318) 10,052
Cash Flows from Investing Activities:
Maturities of U.S. Government securities 95,340 77,102
Purchases of U.S. Government securities (83,198) (82,162)
Purchase of joint venture, net of cash acquired (2,458) -
Proceeds from sale of investment securities - 10,412
Purchases of fixed assets (23,522) (37,738)
Net cash used by investing activities (13,838) (32,386)
Cash Flows from Financing Activities:
Proceeds from long-term debt 19,302 36,297
Repayments of long-term debt (3,618) (3,658)
Increase in bank loans - 68
Decrease in bank loans - (5,745)
Payments to Employee Stock Ownership Trust (6,598) (4,046)
Payments received from Employee Stock Ownership Trust 7,217 4,464
Purchase of common stock for treasury (12,435) (1,084)
Dividends paid (6,537) (6,740)
Net cash (used) provided by financing activities (2,669) 19,556
Net Decrease in Cash and Cash Equivalents (23,825) (2,778)
Cash and Cash Equivalents at Beginning of Period 55,650 64,141
Cash and Cash Equivalents at End of Period $ 31,825 $ 61,363
Supplemental Disclosures of Investing and Financing Activities:
Fair value of assets acquired $ 10,206 $ -
Liabilities assumed 7,748 -
Cash paid for acquisition $ 2,458 $ -
See accompanying notes to consolidated financial statements.
Form 10-Q 10.
For the quarter ended September 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 $143,831 and $417,151 for the third quarter and nine months
ended September 30, 1994, respectively. In 1995, the Company further
changed its reporting to present operating income (loss) and has
reclassified profits on investment securities and 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 $11,611 and
$14,468, operating expenses decreased by $438 and $1,143, and other income
(deductions) increased by $11,173 and $13,325, for the three and nine
months ended September 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 nine months ended September 30, 1995 and 1994:
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
Revenues
Engineering, construction and
consulting services $210,736 $185,876 $647,387 $551,311
Cold storage and
related activities 5,331 4,547 15,989 12,419
Other 3,093 3,360 9,000 10,353
Total revenues $219,160 $193,783 $672,376 $574,083
Operating income (loss)
Engineering, construction and
consulting services $ 6,886 $ (1,757) $ 27,928 $(24,120)
Cold storage and
related activities 1,825 1,497 6,002 3,870
Other 520 298 744 1,097
9,231 38 34,674 (19,153)
General corporate expenses (2,119) (1,827) (8,091) (7,207)
Total operating income (loss) $ 7,112 $ (1,789) $ 26,583 $(26,360)
Form 10-Q 11.
For the quarter ended September 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.)
(C) With respect to the legal actions referred to in Note M of the Company's
Annual Report to Stockholders for the year 1994, several matters have been
resolved. In May 1995, payment was made of $4,936 representing
satisfaction of the judgment against a subsidiary of the Company. This
payment did not affect 1995 operating results as a reserve had been
established for this settlement in prior years. In the third quarter, a
settlement was reached relating to environmental matters in which a charge
of $2,500 was incurred, representing the amount of the settlement, net of
insurance recoveries of $1,500. In another legal action taken to recover
damages, attorney's fees and other monetary relief from insurance carriers,
a settlement was reached in which $16,000 was received shortly after the
end of the third quarter. This settlement, after reduction for current and
deferred legal expenses of $8,780, was recognized as a gain of $7,220 in
the third quarter of 1995. Although the Company continues to have possible
liabilities related to environmental pollution, management believes, on the
basis of its examination of these liabilities and other legal matters,
including consultation with counsel, that neither current legal actions nor
liabilities resulting from these, if any, would have a material adverse
effect on the consolidated financial statements.
(D) In the third quarter of 1995, a subsidiary of the Company recorded a write-
down of $6,500 in capitalized costs associated with purchased technology in
a standardized, pre-certified design for nuclear power plants. The Company
had originally estimated that this investment which commenced in 1993,
would be recoverable from revenues generated over a three to five year
period beginning at the end of 1995. Based on a number of external events
that occurred in the third quarter, management has determined that it was
unlikely that any revenues would be generated from the investment in the
near term, necessitating a revaluation of the net realizable value of the
investment.
(E) 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 second quarter of 1995 was $13,432.
The net change in the third quarter of 1995 was a decrease of $162,
primarily due to the utilization of a foreign net operating loss
carryfoward which was fully reserved, for a total valuation allowance of
$13,270 at September 30, 1995. The valuation allowance at September 30,
1995 comprises $7,680 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 12.
For the quarter ended September 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.)
(F) 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 and third quarters of 1994, the subsidiary had reductions of
approximately 320 positions resulting in a pre-tax charge of $3,800 for
severance costs, which decreased net income by $2,300, or $.15 per share.
Severance payments of $6,468 of the $8,508 accrued balance at December 31,
1994 were made by Stone & Webster Engineering Corporation in the first nine
months of 1995, leaving an accrued balance of $2,040. All amounts accrued
relate to positions which were terminated as of December 31, 1994.
(G) 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 September 30, 1995 and December 31, 1994 was $63,896 and
$74,624, respectively, the amortized cost basis at September 30, 1995 and
December 31, 1994 was $63,776 and $74,685, respectively, and the net
unrealized holding gain (loss) at September 30, 1995 and December 31, 1994
was $120 and $(61), respectively.
(H) 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.
(I) Pension plan credits, which reduced operating costs, were $3,955 and
$11,344 for the three and nine month periods of 1995 compared to $3,922 and
$9,472 for the prior year. These credits increased net income by $2,419,
or $.17 per share, and $6,938, or $.48 per share, for the three and nine
month periods of 1995 and by $2,399, or $.16 per share, and $5,793, or $.39
per share for the prior year.
(J) 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
Form 10-Q 13.
For the quarter ended September 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.)
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 and September 20, 1995, nonqualified options for 18,000
and 2,000 shares respectively, were awarded to non-employee directors at
an exercise price of $30.25 and $36.25, respectively, 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. In the third quarter of
1995, options with respect to 27,000 shares terminated unexercised. These
shares are available for future awards under the Plan. 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 became entitled to a number of
shares equivalent to one-half of the annual retainer of $8.
(K) In August 1995, the Board of Directors of the Company authorized an
increase in the share repurchase program from 1 million to 2.5 million
shares of common stock in open market transactions at prevailing prices.
The Company acquired 382,581 shares in the nine months ended September 30,
1995, bringing total purchases to 745,905 shares under this program. As of
September 30, 1995, the Company had 14,226,750 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.
(L) In the third quarter of 1995, a subsidiary of the Company acquired its
partner's 50% interest in a real estate joint venture to facilitate a
possible sale of the subsidiary. The subsidiary now wholly owns the
entity, which is included in the consolidated financial statements. The
assets, amounting to $10,206 related primarily to an office building and
land, and liabilities, amounting to $7,748 related primarily to a mortgage
loan. The net cash investment for this acquisition was $2,458. The
Company had previously co-signed a note for the mortgage loan of the 50%
owned joint venture. As a result of the acquisition of the joint venture,
the mortgage loan is included in the Company's consolidated financial
statements and the contingent liability has been removed.
(M) Profits on investment securities represents the sale of investment
securities, which after income taxes resulted in net income of $6,449 or
$.43 per share, for the three and nine months ended September 30, 1994.
The cost of securities sold is determined by average cost.
(N) Earnings per share are based on the average number of shares outstanding
during the periods.
Form 10-Q 14.
For the quarter ended September 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.)
(O) 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 15
For the quarter ended September 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 third quarter ended September 30, 1995, Stone & Webster reported net
income of $4,984 or $.35 per share, compared to net income of $5,182 or $.35
per share, for the same period in 1994. The 1994 results included gains from
the sale of investment securities of $6,449, or $.43 per share, and severance
expense of $400, or $.03 per share. Operating income was $7,112, an increase
of $8,901 from the third quarter of 1994, when the company had an operating
loss of $1,789. Third quarter revenues increased 13 percent to $219,160.
The Company's net income for the first nine months of 1995 was $17,634, or
$1.22 per share, compared to a net loss of $11,728 or $.78 per share, in the
same period a year ago. The 1994 results included gains from the sale of
investment securities of $6,449, or $.43 per share, and severance costs of
$5,700, or $.38 per share. Operating income was $26,583 compared to an
operating loss of $26,360. Revenues in the first nine months of 1995 were
$672,376, an increase of 17 percent from $574,083 in the first nine months of
1994.
This is the third consecutive quarter that the Company has reported higher
revenues and operating income than in the comparable period in the prior year.
The Company's principal business segment - Engineering, Construction and
Consulting - is continuing to experience significant improvement.
ENGINEERING, CONSTRUCTION AND CONSULTING
The Engineering, Construction and Consulting segment reported operating income
of $6,886 for the third quarter ended September 30, 1995 compared to a loss
of $1,757 for the same period last year. Third quarter revenues increased 13
percent to $210,736. For the nine month period, operating income was $27,928
compared to a loss of $24,120 in 1994 on a 17 percent improvement in revenues
to $647,387. The improvement in revenues for both periods is primarily due
to an increase in materials expenditures for clients where the Company is
responsible for procuring such materials under contracts with its clients.
In the third quarter, a settlement was reached relating to environmental
matters, in which a charge of $2,500 was incurred, representing the amount of
the settlement, net of insurance recoveries of $1,500. In another legal
Form 10-Q 16
For the quarter ended September 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)
action taken to recover damages, attorney's fees and other monetary relief
from insurance carriers, a settlement was reached in which $16,000 was
received shortly after the end of the third quarter. This settlement, after
reduction for current and deferred legal expenses of $8,780, was recognized
as a gain of $7,220 in the third quarter of 1995.
A subsidiary of the Company recorded a write-down of $6,500 in capitalized
costs associated with purchased technology in a standardized, pre-certified
design for nuclear power plants. The Company had originally estimated that
this investment which commenced in 1993 would be recoverable from revenues
generated over a three to five year period beginning at the end of 1995.
Based on a number of external events that occurred in the third quarter,
management has determined that it was unlikely that any revenues would be
generated from the investment in the near term, necessitating a revaluation
of the net realizable value of the investment.
Included in last year's third quarter and nine months results were pre-tax
charges of $700 and $9,300, 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
approximately $30,000 in payroll-related cost savings were realized in the
first nine months of 1995, which helped contain the increase in cost of
revenues and lowered selling, general and administrative expenses. The
savings expected over the remainder of 1995 will not be in proportion to the
savings experienced during the first nine months because the cost reduction
actions initiated in the first nine months of 1994 resulted in reduced costs
for the fourth quarter of 1994. The third quarter 1995 results continue to
reflect the improvement in operating income experienced in the first half and
are a result of a better balance of staffing and workload and improved
contract execution. Operating income margins are running at a rate of 4.3
percent of revenues through nine months of 1995. The Process and Power
business units continued to be strong during the first nine months of 1995,
primarily due to increased international work in the Middle East and Pacific
Rim. The Power business unit's performance was also strong in North America.
New orders for the engineering, construction and consulting segment for the
third quarter and first nine months of 1995 were $234,000 and $794,000,
respectively, primarily from work in the Power and Process business units.
New orders for the third quarter of 1994 were $468,000. New orders for the
first nine months of 1994 and backlog at September 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.
Form 10-Q 17
For the quarter ended September 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)
Backlog on September 30, 1995 was $1,688,000 compared to $1,437,000 on
September 30, 1994 and $1,542,000 at year end.
COLD STORAGE AND RELATED ACTIVITIES
The Cold Storage segment reported operating income of $1,825 and $6,002 for
the quarter and nine months of 1995 compared to $1,497 and $3,870 for the
prior year periods. Revenues were up by 17 percent in the third quarter and
29 percent in the nine month period, due largely to increased demand for
freezing services for food destined for export. Lower labor and other direct
costs improved cold storage operating margins, resulting in substantially
higher operating income compared to 1994.
OTHER
Operating income of the "Other" segment was $222 higher in the third quarter
of 1995 compared to 1994 but decreased for the nine month period, from $1,097
in 1994 to $744 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. As previously announced, the Company is
pursuing the sale of its real estate and oil and gas subsidiaries which
comprise the "Other" business segment.
Pension plan credits, which reduced operating costs, were $3,955 and $11,344
for the three and nine month periods in 1995 compared to $3,922 and $9,472 for
the same periods in the prior year. These credits increased net income by
$2,419 or $.17 per share, and $6,938, or $.48 per share for the three and nine
month periods in 1995 and by $2,399, or $.16 per share, and $5,793, or $.39
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) decreased during the third quarter and first nine
months of 1995 because both prior year periods included pre-tax gains of
$9,762 from the sale of investment securities.
The income tax provision (benefit) resulted in effective rates of 36 percent
and 38 percent for the third quarter and nine months ended September 30, 1995,
respectively, and 38 percent and (26 percent) for the third quarter and nine
months ended September 30, 1994, respectively. The effective tax rate for the
nine months ended September 30, 1995 was higher than the U. S. statutory rate
primarily due to state income taxes which accounted for a 3 percent increase,
Form 10-Q 18
For the quarter ended September 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)
net of federal benefit. The effective tax rate for the three months ended
September 30, 1994 was higher than the U. S. statutory rate primarily due to
foreign taxes which are based on gross receipts and accounted for a 4 percent
increase in the effective tax rate recorded. The effective rate (benefit) for
the nine months ended September 30, 1994 was lower than the U. S. statutory
rate primarily due to foreign taxes applicable to certain foreign projects
which are calculated based on gross receipts which accounted for a 3 percent
reduction in the effective tax rate (benefit) recorded. State income taxes,
net of federal benefit, also impacted the effective rate by 2 percent for the
nine months ended September 30, 1994.
Financial Condition
Cash and cash equivalents, as shown in the Consolidated Statements of Cash
Flows, decreased by $23,825 during the first nine months of 1995. Net cash
used by operating activities of $7,318 reflected increases in accounts
receivable and costs and revenues recognized in excess of billings primarily
resulting from increased business activity. The increase in accounts
receivable includes $17,200 of receivables related to insurance recoveries on
legal settlements. Cash outlays for amounts previously included in accrued
liabilities include $4,936 representing satisfaction of a judgment in a
lawsuit and severance payments of $6,468. 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 and increases
in billings in excess of costs and revenues recognized due to the timing of
billing milestones on lump sum jobs compared with the timing of costs
incurred. In addition, other assets decreased due to a reduction in deferred
legal costs and the write-down of capitalized costs. Severance payments of
$6,468 of the $8,508 accrued balance at December 31, 1994 were made by Stone
& Webster Engineering Corporation in the first nine months of 1995, leaving
an accrued balance of $2,040 which will be funded from cash on hand and
temporary investments. Net cash used by investing activities of $13,838
primarily reflects purchases of fixed assets related to expenditures for the
construction of a paper fiber recycling plant and the purchase of a joint
venture. The recycling plant is a development type project in which a
subsidiary of the Company, holds an ownership interest. Net cash used by
financing activities of $2,669 is primarily due to repayments of long-term
debt, purchases of common stock for treasury as explained in Note K to the
consolidated financial statements and dividends paid, offset in part by
proceeds from long-term debt representing construction loans to finance the
paper fiber recycling plant previously discussed.
Form 10-Q 19
For the quarter ended September 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)
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 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
$26,921, all of which were available at September 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 pursue additional development projects such as this, which will involve
additional equity investments.
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.
In October 1995, the Financial Accounting Standards Board issued statement No.
123 - Accounting for Stock - based Compensation, which is effective for the
fiscal years ending after December 15, 1996. The Company is presently
analyzing this new accounting standard and believes that it would not have a
material impact on the Company's financial position or results of operations.