FORM 10 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 W. 34th Street, New York, N.Y. 10119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (212) 290-7500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Stock - $1 par New York Stock Exchange
Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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_____.
Form 10-K 1995 Stone & Webster, Incorporated
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date
within 60 days prior to the date of filing.
$415,000,000 approximately, based on the closing price on the New
York Stock Exchange Composite Transactions as of January 31, 1996.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Common Stock: 13,758,162 shares as of January 31, 1996.
The following documents, or portions thereof as indicated in the
following report, are incorporated by reference in the Parts of Form 10-
K indicated:
Part Document
III Proxy Statement in connection with the
registrant's 1996 Annual Meeting of
Shareholders
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Form 10-K 1995 Stone & Webster, Incorporated
PART I
Item 1. Business.
Registrant was incorporated as a Delaware corporation in
1929. Registrant, through its subsidiaries, is principally
engaged in providing professional engineering, construction and
consulting services. The Stone & Webster organization also owns
cold storage warehousing facilities in Atlanta and Rockmart,
Georgia; owns and operates the Stone & Webster office buildings in
Boston, Massachusetts, Cherry Hill, New Jersey, and Houston,
Texas; and develops, takes ownership interests in and operates
projects for which it may provide engineering, construction and
other services. Services of the nature inherent in these
businesses are provided to clients and customers.
The information relating to the business segments of the
registrant required by this Item is filed herewith under "Business
Segment Information" of the Financial Information section included
in Appendix A to this report. This information indicates the
amounts of revenues from sales to unaffiliated customers (from
which percentage of revenues information is available), operating
income and identifiable assets attributable to the registrant's
industry segments for the three years ended December 31, 1995.
Also see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" filed herein in Appendix A.
Engineering, Construction and Consulting Services
Registrant, through its subsidiaries, provides complete
engineering, design, construction and full environmental services
for power, process, governmental, industrial, transportation and
civil works projects. It also constructs from plans developed by
others, makes engineering reports and business examinations,
undertakes consulting engineering work, and offers information
management and computer systems expertise to clients. It also
offers a full range of services in environmental engineering and
sciences, including complete execution of environmental projects.
It remains active in the nuclear power business, for utility and
governmental clients, and continues to undertake a significant
amount of modification and maintenance work on existing nuclear
power plants. In addition, it offers advanced computer systems
development services and products in the areas of plant
scheduling, information systems, systems integration, computer-
aided design, expert systems, and database management. It also
develops projects in which registrant or its subsidiaries may take
an ownership position and for which other subsidiaries may provide
engineering, construction, management and operation and
maintenance services. Such projects have included those in the
power, pulp and paper, and other industries. Comprehensive
management consulting and financial services are also furnished
for business and industry, including public utility,
transportation, pipeline, land development, petroleum and
manufacturing companies, banking and financial institutions and
government agencies, and appraisals are performed for industrial
companies and utilities.
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Form 10-K 1995 Stone & Webster, Incorporated
During 1994, the registrant's engineering, construction and
consulting services segment modified its approach to its market
and strengthened its strategic plan by implementing a new
organizational structure. This organizational structure
established four "Global Business Units" (GBU) responsible for
marketing and executing projects within a sector on a worldwide
basis. Each GBU also is accountable for achieving goals
established for that market sector. These four GBUs are in the
power, process, government and industrial sectors. The new
structure enables the registrant to capitalize on its
international relationships, experience and abilities. Where
appropriate, lump sum, turnkey contracts will be employed as a
means of providing comprehensive services. Registrant's
engineering, construction and consulting business segment will
continue to focus on its strengths involving technology, for
example, in advanced applications in both refinery and ethylene
process work and in development of expert systems. In addition,
registrant's development activities will continue to involve
projects in which registrant's subsidiaries will hold equity
investments while at the same time providing engineering,
construction and plant operations opportunities for other units in
the organization.
Projects which may be wholly or jointly owned and operated
are being developed. Most projects include opportunities for
other subsidiaries of registrant to provide engineering,
construction and management services. Projects being developed
are in the power, pulp and paper, and other industries.
Cold Storage Services
Modern public cold storage warehousing, blast-freeze and
other refrigeration and consolidation services are offered in the
Atlanta, Georgia, metropolitan area to food processors and others
at three facilities with approximately 21.1 million cubic feet of
freezer and controlled temperature storage space, including a
facility in Rockmart, Georgia which has approximately 3.5 million
cubic feet of freezer and controlled temperature storage space.
In view of increased demand for services relating to food exports
this subsidiary's strategic plans resulted in the construction of
additional blast-freezing cells in 1995. During 1995, plans were
announced to expand the Rockmart facility by the addition of 3.7
million cubic feet of fully racked freezer space, which will bring
total capacity at the location to over 7 million cubic feet of
space. Construction is expected to be completed in the second
quarter of 1996. Offices and processing areas are leased to
customers. Comprehensive freezer services are offered to
customers. The Rockmart site has sufficient land to allow for
future expansion and to make additional space available to food
processors. In addition, the facility features direct loading of
product onto distribution trucks from railroad cars delivered on
two railroad lines which serve the Rockmart plant.
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Form 10-K 1995 Stone & Webster, Incorporated
Other
During 1995, registrant sold all of its natural gas and oil
properties and interests. It also sold its interests in a large
corporate office and business center in Tampa, Florida, in late
1995.
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Form 10-K 1995 Stone & Webster, Incorporated
Competition
The principal business activities of registrant in the
engineering, construction and consulting services segment are
highly competitive, with competition from a large number of well-
established concerns, some privately held and others publicly
held. Inasmuch as registrant is primarily a service organization,
it competes in its areas of interest by providing services of the
highest quality. Registrant believes it occupies a strong
competitive position but is unable to estimate with reasonable
accuracy the number of its competitors and its competitive
position in the engineering, construction and consulting services
industry.
The business activities of registrant in the cold storage
services segment are performed in the Atlanta and northwestern
areas of Georgia. Competition in this market area comes from a
relatively small number of companies offering similar types of
services. Registrant's subsidiary competes in this field by
providing services of the highest quality, emphasizing
responsiveness to the needs of its customers and to the end
receiver of the customers' product. As part of that commitment,
it provides modern data processing and communication equipment for
its customers. Registrant believes it occupies a strong
competitive position in this area.
Backlog
Backlog figures for the registrant's engineering,
construction and consulting services segment historically have not
been considered by the registrant to be indicative of any trend in
these activities nor material for an understanding of its
business. At any given date, the portion of engineering and
construction work to be completed within one year can only be
estimated subject to adjustments, which can in some instances be
substantial, based on a number of factors. Clients frequently
revise the scope of the services for which they have contracted
with subsidiaries of registrant, especially on projects subject to
regulatory approval or which require environmental
permitting/licensing. Scope increases and decreases of
substantial magnitude are commonplace on such projects and
directly affect backlog. Additionally, delays are common and
affect the timing of when backlog would be translated into
revenues. As a result, the aggregate of such figures in relation
to registrant's consolidated revenues could be misleading unless
understood in light of the foregoing contingencies.
The registrant's backlog information is calculated on the
basis of the total value to the registrant's subsidiaries of all
services to be rendered under the available contracts plus the
value of equipment, material, services and subcontracts for which
the contracting subsidiary has overall technical and commercial
responsibility. The following backlog information is provided as
of December 31, 1995 and December 31, 1994.
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Form 10-K 1995 Stone & Webster, Incorporated
The registrant's engineering subsidiaries' backlog as of
December 31, 1995 amounted to $1,917.0 million in comparison to
$1,541.8 million as of December 31, 1994. New work awards in 1995
were $1,209.1 million, approximately 33% of which came from
contract awards in the process sector. Although the majority of
the subsidiaries' contracts may be reduced or cancelled by the
client at any time, significant reductions in scope are unusual.
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Form 10-K 1995 Stone & Webster, Incorporated
The backlog at December 31, 1995 includes $251.0 million for
contracts won, but still under final negotiation.
Approximately 52% of the total backlog as of December 31,
1995 is expected to be realized within the next year.
In addition, approximately 37% of the December 31, 1995
backlog amount is from contracts with international clients.
BACKLOG
Engineering, Construction and Consulting Services
(in Millions of Dollars)
As of New Changes Revenue As of
12/31/94 Work In Scope Recognized* 12/31/95
$1,541.8 $1,209.1 $ 135.4 ($ 969.3) $1,917.0
*Revenue Recognized reflects revenues of the engineering
construction and consulting segment.
Backlog figures in the cold storage industry are not
provided since, in the registrant's opinion, such information is
not necessarily meaningful because of the nature of the food
processing, storage and distribution business where repetitive
services of short duration are the norm.
Clients
Although registrant's subsidiaries in the engineering,
construction and consulting services segment have numerous clients
and registrant historically has not had a continuing dependence on
any single client, one or a few clients has in the past and may in
the future contribute a substantial portion of the registrant's
consolidated revenues in any one year or over a period of several
consecutive years due to the size of major engineering and
construction projects. The registrant's business is not
necessarily dependent upon sustaining, and the registrant does not
necessarily expect to sustain in future years, the level of
revenues contributed by particular clients in any given year or
period of consecutive years. Once the subsidiary commences work
on a particular project, it is unlikely that the client would
terminate the involvement of the subsidiary prior to completion of
the project, unless the project itself is cancelled or postponed.
Historically the registrant's subsidiaries have provided ongoing
services to clients following completion of major projects for
them. Nonetheless, the registrant must obtain new engineering and
construction projects, whether from existing clients or new
clients, in order to generate revenues in future years as existing
projects are completed.
Consequently, the registrant has not considered the names
of clients to be material to investors' understanding of the
registrant's business taken as a whole. Prior to 1994, the
registrant reported this information on the basis of gross
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Form 10-K 1995 Stone & Webster, Incorporated
earnings (revenues less direct costs). Stated in terms of total
revenues (as described under Backlog, above), which is consistent
with registrant's financial reporting in this report, Tennessee
Valley Authority, which has been and continues to be a significant
client, accounted for approximately 22%, 18% and 13% of
consolidated revenues for 1993, 1994 and 1995, respectively. In
addition, in 1994 Indianapolis Power and Light Company contributed
11% of consolidated revenues.
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Form 10-K 1995 Stone & Webster, Incorporated
The cold storage and related activities segment had no
client who accounted for 10% or more of consolidated revenues in
1993, 1994, or 1995.
Environmental Compliance
Compliance by registrant and its subsidiaries with Federal,
State and local provisions regulating the discharge of materials
into the environment, or otherwise relating to the protection of
the environment, has had, and is expected to have, no material
adverse effect upon the capital expenditures, earnings and
competitive position of registrant and its subsidiaries. Also see
Note (L) to the consolidated financial statements as set forth
under "Notes to Consolidated Financial Statements" of the
Financial Information section filed herewith in Appendix A to this
report.
The engineering, construction and consulting services
segment has benefitted from the extensive amount of environmental
legislation and regulatory activity now in place because the
effect of such regulations on the businesses of the segment's
clients has increased the demand for environmental services
provided by registrant's subsidiaries. This demand for such
services to help clients in their own environmental compliance
efforts is expected to continue.
Employees
The registrant and its subsidiaries had approximately 5,000
regular employees as of December 31, 1995. In addition, there are
at times several thousand craft employees employed on projects by
subsidiaries of registrant. The number of such employees varies
in relation to the number and size of the projects actually
undertaken at any particular time.
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Form 10-K 1995 Stone & Webster, Incorporated
Executive Officers of the Registrant.
Name Age Position Held Held Since
H. Kerner Smith 51 President and 2/12/96
Chief Executive Officer
Director
Edward J. Walsh 44 Executive 8/15/95
Vice President
Director 8/31/95
Jeremiah P. Cronin 52 Executive
Vice President 3/1/95
Daniel P. Levy 47 Corporate Controller 7/19/95
Peter F. Durning 57 Secretary 7/20/94
Each of the executive officers listed above has held
executive or administrative positions with the registrant or one
or more of its subsidiaries for at least the last five years,
except that Mr. Smith, who joined the registrant in February 1996,
had been President and Chief Executive Officer of Deutsche Babcock
Technologies, Inc. and a managing director of Deutsche Babcock A G
during the last five years, Mr. Cronin, who joined the registrant
in 1995, had been Vice President-Finance and Chief Financial
Officer of Crane Co. since 1989, and Mr. Levy, who joined the
registrant in 1995, had been Vice President, Finance and
Administration, of Huttig Sash & Door Co. since 1991.
Each officer was elected to hold office until the first meeting
of the Board of Directors after the next Annual Meeting of the
Stockholders and until his successor is duly elected and qualified,
except that Mr. Levy was appointed to his office by the Board of
Directors. The next Annual Meeting of Stockholders is scheduled to
be held May 9, 1996.
Item 2. Properties.
The important physical properties of registrant and its
subsidiaries are as follows:
A. A 14 story office building with approximately 800,000
square feet of office space at 245 Summer Street, Boston,
Massachusetts, which serves as engineering headquarters
for the organization and is approximately 60% occupied by
registrant's subsidiaries with the balance held for
rental to others.
B. An 8 story office building with approximately 140,000
square feet of office space at 51 Sleeper Street, Boston,
Massachusetts, which is held for rental to others.
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Form 10-K 1995 Stone & Webster, Incorporated
C. A 6 story office building with approximately 450,000
square feet of office space at 3 Executive Campus, Cherry
Hill, New Jersey, which is approximately 50% occupied by
registrant's subsidiaries with the balance held for rental
to others.
D. A 6 story office building with approximately 320,000
square feet of office space at 1430 Enclave Parkway,
Houston, Texas which is substantially occupied by
subsidiaries of registrant.
E. Approximately 17.6 million cubic feet of cold storage
plant in two facilities in Atlanta, Georgia, and
approximately 3.5 million cubic feet of cold storage space
in a third facility near Rockmart, Georgia.
F. A 50 megawatt electrical co-generation plant in
Binghamton, New York, in which a subsidiary owns a 33%
interest.
G. A 200 ton per day paper fiber recycling plant in Auburn,
Maine, in which a subsidiary owns a 94.3% interest.
H. A plant for the production of oriented strand board
currently under construction in Miramichi, New Brunswick,
Canada, in which a subsidiary owns a 10.42% interest.
Except as specified above, all of the properties listed above
are owned in fee by subsidiaries of the registrant. In addition to
the foregoing, registrant and its subsidiaries occupy office space in
various cities, in premises leased from others for varying periods -
both long and short term - the longest of which extends to 2008.
Item 3. Legal Proceedings.
(a) Stone & Webster Engineering Corporation
("SWEC"), a subsidiary of the registrant, has been named as
a defendant, along with numerous other defendants, in a
number of complaints which seek damages arising out of
alleged personal injuries and/or wrongful death due to
exposure to asbestos products negligently utilized by the
defendants.
Many of these complaints have been dismissed or
withdrawn, and SWEC has settled many of these cases for
amounts which, when taken together, do not have a material
impact on registrant's financial condition or results of
operations. Registrant believes that there has not been,
nor is there a probability that there will be, any accrual
of a material liability of the registrant as a result of the
asbestos claims received to the present.
SWEC believes that it has strong factual and
legal defenses to the remaining claims and intends to defend
vigorously.
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Form 10-K 1995 Stone & Webster, Incorporated
(b) Stone & Webster Engineering Corporation provided
engineering services to Vista Chemical Company ("Vista") at
ts Westlake, Louisiana chemical plant. In 1991, Vista
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Form 10-K 1995 Stone & Webster, Incorporated
filed suit against another company and SWEC, contending that
the engineering work performed by SWEC was performed late
and not in accordance with the standards of professional
practice. Vista is seeking to recover costs incurred to
complete the project in excess of the original estimate,
certain costs that it incurred to operate the plant, and
lost profits from its operations, but it has not specified
in writing the total amount of damages it is seeking. SWEC
has denied the material allegations contained in the plaintiff's
petition. SWEC believes that it has valid factual and legal
defenses to the claims asserted and that limitation of liability
provisions in the engineering contracts limit the amount of
recoverable damages in this case to the proceeds from insurance
with the limits specified in the contracts, plus compensation
received by SWEC for its work under the contracts. In the
latter part of 1994, SWEC, after consultation with counsel,
determined that it is probable that it has some liability in
this action and that it has a reasonable estimate of liability of
$5,000,000. It is probable that any liability in excess of
$5,000,000 would be covered by insurance. Consistent with such
determination and as stated in Note (L) to the consolidated
financial statements filed herewith, SWEC expensed $3,800,000
and $1,200,000 in 1994 and 1993, respectively, in connection
with this matter.
(c) Registrant and two of its subsidiaries have been
named as defendants, along with another company, in one pending
legal action brought in January 1994 by Blackstone Valley Electric
Company in the United States District Court for the District of
Massachusetts, and have received other claims from private parties
seeking contribution for costs incurred or to be incurred in
remediation of sites under the Federal 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 found to be a
Potentially Responsible Party by the Federal or any state or local
governmental authority, although some information has been requested
with regard to environmental matters. Based on presently known facts
and existing laws and regulations, registrant and its subsidiaries
believe that they have valid legal defenses to such action and that
the costs associated with such matters, including legal costs,
should be mitigated by the presence of other entities which may be
Potentially Responsible Parties, by contractual indemnities, and by
insurance coverage.
Registrant and one subsidiary are plaintiffs in a separate
action to recover damages, attorneys' fees and other monetary relief
from certain of their insurance carriers in connection with such
matters. No recognition has been made in the financial statements
for any potentially recoverable amounts.
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Form 10-K 1995 Stone & Webster, Incorporated
(d) Also see Note (L) to the consolidated financial
statements as set forth under "Notes to Consolidated
Financial Statements" of the Financial Information section
filed herewith in Appendix A to this report.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.
The information required by Item 5 is filed herewith under
"Market and Dividend Information" of the Financial Information
section included in Appendix A to this report.
Item 6. Selected Financial Data.
The information required by Item 6 is filed herewith under
"Selected Financial Data" of the Financial Information section
included in Appendix A to this report.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The information required by Item 7 is filed herewith under
"Management's Discussion and Analysis" of the Financial
Information section included in Appendix A to this report.
Item 8. Financial Statements and Supplementary Data.
The information required by Item 8 is filed herewith under
the Consolidated Financial Statements of Stone & Webster,
Incorporated and Subsidiaries together with the report of Coopers
& Lybrand L.L.P. dated February 20, 1996 of the Financial
Information section included in Appendix A to this report.
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure.
Not applicable.
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Form 10-K 1995 Stone & Webster, Incorporated
PART III
Item 10. Directors and Executive Officers of the Registrant.
In accordance with General Instruction G(3) to Form 10-K,
the information called for in this Item 10 with respect to
Directors is not presented here since such information is included
in the definitive proxy statement which involves the election of
directors which will be filed pursuant to Regulation 14A not later
than 120 days after the close of the fiscal year, and such
information is hereby incorporated by reference from Part I of
such proxy statement.
See also the section captioned "Executive Officers of the
Registrant" under Item 1 of Part I herein.
Item 11. Executive Compensation.
In accordance with General Instruction G(3) to Form 10-K,
the information called for in this Item 11 is not presented here
since such information is included in the definitive proxy
statement which involves the election of directors which will be
filed pursuant to Regulation 14A not later than 120 days after the
close of the fiscal year, and such information is hereby
incorporated by reference from Part I of such proxy statement,
except that the information included therein which is not required
to be "filed" in accordance with Regulation S-K, Item 402(a)(8),
including the Report of the Compensation Committee and the
Performance Graph, is not incorporated by reference as part of
this report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
In accordance with General Instruction G(3) to Form 10-K,
the information called for in this Item 12 is not presented here
since such information is included in the definitive proxy
statement which involves the election of directors which will be
filed pursuant to Regulation 14A not later than 120 days after the
close of the fiscal year, and such information is hereby
incorporated by reference from Part I of such proxy statement.
Item 13. Certain Relationships and Related Transactions.
In accordance with General Instruction G(3) to Form 10-K,
the information called for in this Item 13 is not presented here
since such information is included in the definitive proxy
statement which involves the election of directors which will be
filed pursuant to Regulation 14A not later than 120 days after the
close of the fiscal year, and such information is hereby
incorporated by reference from Part I of such proxy statement.
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Form 10-K 1995 Stone & Webster, Incorporated
PART IV
Item 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K.
(a) Documents filed as part of the report:
1. Financial Statements and Financial
Statement Schedule
The following items appear in the Financial Information
section included as Appendix A to this report:
Management's Discussion and Analysis
Financial Statements:
Consolidated Statements of Operations for the Three
Years Ended December 31, 1995
Consolidated Balance Sheets as at December 31,
1995 and 1994
Consolidated Statements of Shareholders' Equity
for the Three Years Ended December 31, 1995
Consolidated Statements of Cash Flows for the
Three Years Ended December 31, 1995
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
Selected Financial Data
Market and Dividend Information
Report of Management
Business Segment Information
Financial Statement Schedule:
Financial Statement Schedule for the Three
Years Ended December 31, 1995:
II. Valuation and Qualifying Accounts
Report of Independent Accountants
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Form 10-K 1995 Stone & Webster, Incorporated
2. Exhibits:
(3) Articles of Incorporation and By-laws -
(i) The Restated Certificate of
Incorporation of registrant which
appears in Exhibit (3)(a) to
registrant's Form 10-K for the fiscal
year ended December 31, 1990 is
hereby incorporated by reference.
(ii) The By-laws of registrant, as amended, are filed
herewith as Exhibit (3)(ii).
(4) Instruments defining the rights of security holders,
including indentures - As of December 31, 1995,
registrant and its subsidiaries had outstanding long-
term debt (excluding current portion) totaling
approximately $74,677,000 principally
in connection with mortgages relating to real
property for two subsidiaries' office buildings, 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.
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Form 10-K 1995 Stone & Webster, Incorporated
(10) Material contracts -
(a) The Restricted Stock Plan of Stone & Webster,
Incorporated, approved by the Stockholders of
registrant in 1976, as amended and approved by the
Stockholders of registrant in 1988, and the form of
grant under the Restricted Stock Plan (incorporated by
reference to Exhibit (10)(a) to registrant's Form 10-K
for the fiscal year ended December 31, 1988).
(b) 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)).*
(c) 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)).*
(d) Forms of agreements between registrant and eleven(11)
officers of registrant and its subsidiaries, entered
into as of September 1, 1995, relating to certain
employment arrangements that would become operable
only in the event of a "change of 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
(incorporated by reference to Exhibit 10 to the
registrant's Form 10-Q for the quarter ended September
30, 1995).*
(e) The following forms of agreements with H. Kerner Smith
relating to employment with registrant as President
and Chief Executive Officer: a form of Employment
Agreement filed herewith as Exhibit (10) (e)(i); a
form of Change of Control Employment Agreement filed
herewith as Exhibit 10 (e)(ii); and a form of Stock
Option Grant filed herewith as Exhibit 10 (e)(iii). *
(21) Subsidiaries of the registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule.
______________
* Exhibits 10 (b) through (e) are compensatory plans, contracts and
arrangements in which directors and certain executive officers
participate.
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Form 10-K 1995 Stone & Webster, Incorporated
(b) Reports on Form 8-K
Registrant filed the following reports on Form 8-K during
the last quarter of the period covered by this report:
Date of Form 8-K Description
October 19, 1995 Submitted under Item 5, Other
Events, reporting the text of a
resolution approved by the Board of
Directors of registrant to the
effect that the Board is not
evaluating any offers for the
registrant and is not seeking a sale
or merger of the registrant.
December 8, 1995 Submitted under Item 5, Other
Events, the text of registrant's
Press Release dated December 4, 1995
relating to an agreement to sell
commercial real estate business in
Tampa, Florida, and the resulting
impact on earnings for the fourth
quarter of 1995.
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Form 10-K 1995 Stone & Webster, Incorporated
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Jeremiah P. Cronin
Executive Vice President
(Duly Authorized Officer and
Chief Financial Officer)
DANIEL P. LEVY
Daniel P. Levy
Corporate Controller
(Principal Accounting Officer)
Date: March 8, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
March 8, 1996 H. KERNER SMITH
H. Kerner Smith
President and Chief Executive Officer
Director
" EDWARD J. WALSH
Edward J. Walsh
Executive Vice President
Director
" KENT F. HANSEN
Kent F. Hansen
Chairman of the Board
Director
" WILLIAM L. BROWN
William L. Brown
Director
21
Form 10-K 1995 Stone & Webster, Incorporated
March 8, 1996 FRANK J. A. CILLUFFO
Frank J. A. Cilluffo
Director
" DONNA R. FITZPATRICK
Donna R. Fitzpatrick
Director
" ELVIN R. HEIBERG III
Elvin R. Heiberg III
Director
" JOHN A. HOOPER
John A. Hooper
Director
" J. ANGUS MCKEE
J. Angus McKee
Director
" BERNARD W. REZNICEK
Bernard W. Reznicek
Director
" KENNETH G. RYDER
Kenneth G. Ryder
Director
22
Form 10-K 1995 Stone & Webster, Incorporated
APPENDIX A
STONE & WEBSTER, INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION APPENDIX
Page
Management's Discussion and Analysis of Financial
Condition and Results of Operations A-2
Financial Statements:
Consolidated Statements of Operations for the Three Years Ended
December 31, 1995 A-9
Consolidated Balance Sheets as at December 31, 1995 and 1994 A-10
Consolidated Statements of Shareholders' Equity for the Three Years
Ended December 31, 1995 A-12
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1995 A-13
Summary of Significant Accounting Policies A-14
Notes to Consolidated Financial Statements A-15
Selected Financial Data and Market and Dividend Information A-25
Report of Management A-26
Business Segment Information A-27
Financial Statement Schedule:
Financial Statement Schedule for the Three Years
Ended December 31, 1995:
II - Valuation and Qualifying Accounts A-28
Report of Independent Accountants A-29
A-1
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
RESULTS OF OPERATIONS
As discussed in the 1994 Annual Report to Shareholders, the Company changed its
reporting format and now reports revenue instead of gross earnings to be more
consistent with industry practice. Engineering, Construction and Consulting
revenue represents billings for the total value of all services including plant,
equipment, materials and subcontractors for which the engineering companies are
contractually responsible. 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 to Other Income (Deductions) from
Revenue. (See Note A to the Consolidated Financial Statements.)
1995 COMPARED WITH 1994
The Company had consolidated net income of $1.04 per share in 1995 compared with
a net loss of $.52 per share in 1994, an increase of $1.56 per share. Revenue
increased to $1,002,819 from $779,255 due to significantly improved performance
in the Company's core Engineering, Construction and Consulting segment.
Operating income was $35,041 in 1995 compared with an operating loss of $42,097
in 1994 reflecting both improved revenue performance and the effect of the
restructuring and expense reduction actions taken in 1994. Net income was
$14,880 compared with a net loss of $7,807 in 1994.
As a continuation of the Company's announced strategy of divesting non-core and
underperforming assets, the Company sold its Real Estate Development and Oil and
Gas Production businesses. These transactions resulted in an after-tax loss of
$.52 per share in the fourth quarter of 1995. The 1994 results include a loss of
$.84 per share due to severance and restructuring costs and a gain of $1.42 per
share on sale of investment securities.
Components of earnings per share in 1995 and 1994 were:
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Earnings per share before special items $ 1.04 $(1.64)
Severance -- (0.84)
Pension related items 0.52 0.54
Asset divestitures (0.52) 1.42
- --------------------------------------------------------------------------------
Earnings per share $ 1.04 $(0.52)
- --------------------------------------------------------------------------------
RESTRUCTURING ACTIONS - 1995 AND 1994
Throughout 1994, the Company took actions to reduce staff levels and operating
expenses and to achieve a better balance of workload and staffing. In addition,
the Company established a new organizational structure in which Global Business
Units are responsible for achieving goals in a market sector on a worldwide
basis. In connection with the organizational structure adopted in 1994, the
Company incurred $20,341 of severance expenses for the elimination of
approximately 1,000 positions. The payroll-related cost savings realized in 1995
from these reductions were approximately $35,000. No significant staff
adjustments were taken in the Engineering, Construction and Consulting segment
in 1995 other than those associated with the normal start up and completion of
projects or with normal staff reassignments.
In 1995, a voluntary Incentive Retirement Program was offered to and accepted by
employees of the parent company, Stone & Webster, Incorporated. These employees,
as a group, had not been eligible for earlier incentive retirement plans. The
Company incurred costs of $2,315 in connection with this program. The effects of
this program will be to reduce parent company staff by approximately 30 percent
and expenses annually by $2,000. The early retirements under this program will
generally be effective on March 1, 1996.
ENGINEERING, CONSTRUCTION AND CONSULTING SEGMENT
- --------------------------------------------------------------------------------
Percent
1995 1994 Incr/(Decr) Incr/(Decr)
- --------------------------------------------------------------------------------
Revenue $ 969,284 $ 748,614 $ 220,670 29%
Operating Income (Loss) 38,941 (37,709) 76,650 --
Operating Margin 4.0% (5.0)%
Identifiable Assets $ 595,699 $ 492,650 $ 103,049 21%
- --------------------------------------------------------------------------------
Late in 1994, the Company's principal segment was reorganized to establish four
Global Business Units serving different sectors of the market for Engineering,
Construction and Consulting services. The four Global Business Units established
under the 1994 restructuring are responsible for marketing and executing
projects within the Power, Process, Government and Industrial business sectors
on a worldwide basis. Each Global Business Unit has been held accountable for
achieving marketing and profitability plans in its sector. The improved
performance in 1995 is a direct result of the improved marketing focus and
accountability provided by the new organizational structure.
A-2
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
New orders (net of cancellations) for 1995 improved over 1994 by 72%. The new
order rate was sufficiently strong to allow both a 29% increase in revenue and a
substantial increase in backlog. Revenue, new orders and backlog in 1995 and
1994 were:
- --------------------------------------------------------------------------------
1995 1994 % Increase
- --------------------------------------------------------------------------------
Beginning backlog $1,541,800 $1,509,700 --
New orders 1,344,500 780,700 72%
Revenue (969,300) (748,600) 29%
- --------------------------------------------------------------------------------
Ending backlog $1,917,000 $1,541,800 24%
- --------------------------------------------------------------------------------
The revenue increase reflects an increase of $14,886 for domestic and $205,784
for export and international projects. Increases in international work were
largely in the Power business unit. The domestic and international mix of work
in 1995 and 1994 was:
- --------------------------------------------------------------------------------
% Increase/
1995 1994 (Decrease)
- --------------------------------------------------------------------------------
United States - domestic $629,379 $614,493 2%
United States - export 111,486 50,893 119%
International 228,419 83,228 174%
- --------------------------------------------------------------------------------
Total export and international 339,905 134,121 153%
- --------------------------------------------------------------------------------
Total engineering revenue $969,284 $748,614 29%
- --------------------------------------------------------------------------------
Percent export and international 35% 18%
- --------------------------------------------------------------------------------
All of the Global Business Units achieved increases in revenue in 1995. The
effectiveness at both generating revenue and building backlog reflects the
improved market focus of the Global Business Units and their ability to
concentrate the necessary technical and management resources on both proposal
opportunities and contract execution. Major improvements in orders and revenue
in 1995 were in the domestic and international power sectors and in the domestic
process market. New orders in 1995 by business unit were:
[PIE CHART]
Power 47%
Process 30%
Government 15%
Industrial 8%
Engineering, Construction and Consulting operating income improved to $38,941
from 1994's operating loss of $37,709, an improvement of $76,650. The turnaround
in the Company's core business is due to:
Reduced indirect and overhead cost structures.
Improved revenue performance, enabling fuller utilization of engineering
staff and a better balance of staffing with workload.
Increased management focus on profitability - particularly at the business
unit and contract execution level.
A year-to-year comparison of operating margins, adjusting for pension income and
one-time expenses or income is shown below:
- ------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------
Revenue $ 969,284 $ 748,614
- ------------------------------------------------------------------------------
Operating Income (Loss) - as reported $ 38,941 $ (37,709)
- ------------------------------------------------------------------------------
Deduct (add):
Pension related items 14,206 12,946
Severance -- (20,341)
Net recovery of insurance claim 7,220 --
Write-down of technology investment (6,500) --
Provision for settlement of lawsuits (2,500) (4,700)
- ------------------------------------------------------------------------------
Operating Income (Loss) - adjusted $ 26,515 $ (25,614)
- ------------------------------------------------------------------------------
Operating Margin - as reported 4.0% (5.0)%
Operating Margin - adjusted 2.7% (3.4)%
- ------------------------------------------------------------------------------
Several nonrecurring items affected Engineering, Construction and Consulting
operating income in 1995. In the third quarter, a settlement of $16,000 was
obtained in an action taken to recover damages, attorneys' fees and other
monetary relief from insurance carriers. This settlement, after deduction for
current and deferred legal expenses, was recognized as a gain of $7,220 in the
third quarter. The Company settled two contract-related lawsuits in 1994 for
$900 and expensed $3,800 in anticipation of a loss on another contract-related
suit. A settlement was reached in the third quarter of 1995 relating to
environmental matters for which a charge of $2,500 was incurred, representing
the amount of the settlement net of cash received from insurance recoveries of
$1,500.
Also in the third quarter, 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 began in 1993, would be recoverable from
revenue generated over the period 1995-2000. Based on a number of external
events occurring in the third quarter that reduced the potential market for this
technology, management determined that it would be unlikely that any revenue
would be generated from this investment in the near term, necessitating a
revaluation of the net realizable value of the asset.
A-3
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
COLD STORAGE SEGMENT
- ------------------------------------------------------------------------------
Percent
1995 1994 Incr/(Decr) Incr/(Decr)
- ------------------------------------------------------------------------------
Revenue $21,188 $17,280 $3,908 23%
Operating Income 7,783 5,927 1,856 31%
Operating Margin 36.7% 34.3%
Identifiable Assets $35,143 $35,798 $(655) (2)%
- ------------------------------------------------------------------------------
Revenue from Cold Storage and related activities increased by 23% in 1995 to
$21,188 from $17,280 in 1994. Revenue increased due to higher demand for
services relating to food exports and to increased reliance, by food processors,
on cold storage logistics services. The Cold Storage segment offers extensive
logistics services including freight consolidation and stock rotation that
enable it to compete effectively with other organizations offering only
refrigerated warehouse space. Additional blast freezing capacity was added in
1995. Operating margins improved on the higher volume. Since much of the cost of
the cold storage operation is related to capacity, as additional volume is
generated, the margin rate improves. Full utilization of existing capacity was
reached at several points during 1995.
Due to additional demand for services from frozen food manufacturers and poultry
producers, in the fourth quarter of 1995, a decision was made to add 3.7 million
cubic feet of capacity at the Company's most modern facility in Rockmart,
Georgia. This capacity is currently under construction and will be available for
commercial use in the second quarter of 1996. The cost of adding this capacity
will be approximately $8,000 and will be funded from operations. Additional
freezing capacity, when added, will use the most current energy efficient
construction and cooling processes; therefore, as capacity is added, the average
cost of the capacity declines.
OTHER SEGMENT AND GENERAL CORPORATE EXPENSES
The Other segment consists of the Oil and Gas Production and Real Estate
Development businesses, both of which were divested in the fourth quarter of
1995. Revenue from this segment declined to $12,347 in 1995 from 1994 revenue of
$13,361. Operating income improved from $395 in 1994 to $1,244 in 1995. The 1994
operating income included a write-off of goodwill of $862 in an Oil and Gas
subsidiary.
General Corporate expenses increased by $2,217 from 1994. This increase was due
primarily to the one-time cost associated with implementing the Incentive
Retirement Program. (See Note Q to the Consolidated Financial Statements.)
ASSET DIVESTITURES
In 1994, the Company announced the planned divestiture of several non-core and
underperforming assets with the intent of focusing on the Engineering,
Construction and Consulting segment. For 1994, the Company reported a gain on
the sale of investment securities of $32,102 and dividends from these securities
of $1,045.
In 1995, the Company reported a loss on the sale of assets of $12,443 consisting
of the loss on the sale of the Real Estate Development business of $18,570 and a
gain on the sale of the Oil and Gas Production business of $6,127. In the fourth
quarter, the Real Estate Development business was sold for $42,500 in cash.
Proceeds were, in part, used to retire $26,360 of related mortgage debt. The
assets sold consisted primarily of land held for resale and buildings in a 1,000
acre office park development near Tampa, Florida. In preparation for this
transaction, the Company purchased a 50% ownership interest and related mortgage
debt in one building from a joint venture partner for a net cash investment of
$2,458 and assumption of mortgage debt of $7,360. This interest was subsequently
resold to the purchaser of the property.
Also in the fourth quarter, the Company completed the sale of its Oil and Gas
Production business for $16,500 in cash. A summary of the effect of asset
divestitures in 1995 and 1994 on pre-tax and net income is:
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Pre-tax gain (loss) on sale
Investment securities $ -- $32,102
Oil and Gas Production business 6,127 --
Real Estate Development business (18,570) --
- --------------------------------------------------------------------------------
Gain (loss) before provision for income tax $(12,443) $32,102
- --------------------------------------------------------------------------------
After-tax gain (loss) on sale
Investment securities -- 21,208
Oil and Gas Production business 4,434 --
Real Estate Development business (11,945) --
- --------------------------------------------------------------------------------
Net gain (loss) on asset sales $ (7,511) $21,208
- --------------------------------------------------------------------------------
Net income (loss) per share $ (0.52) $ 1.42
- --------------------------------------------------------------------------------
A-4
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
PENSION RELATED ITEMS
In prior years, foreign pension plans were not separately disclosed due to
materiality considerations. For 1995, the Company has changed the presentation
of pension related items to include the foreign plans. The following table
presents total pension related items and shows, separately, the effect of net
pension credit, early retirement incentives, curtailment gains, and foreign
pension expense.
- -------------------------------------------------------------------------------
(Income)/Expense 1995 1994 1993
- -------------------------------------------------------------------------------
Net pension credit as previously
reported (1) $(15,175) $(13,234) $(13,953)
Foreign pension expense (2) 752 454 636
Incentive Retirement Program 2,112 -- 8,992
Curtailment gain -- (357) (1,072)
- -------------------------------------------------------------------------------
Total pension related items as
currently reported (3) $(12,311) $(13,137) $ (5,397)
- -------------------------------------------------------------------------------
After-tax total pension related items $ (7,529) $ (8,035) $ (3,332)
- -------------------------------------------------------------------------------
Total pension related items per share $ (0.52) $ (0.54) $ (0.22)
- -------------------------------------------------------------------------------
(1) SFAS No. 87 income on qualified U.S. plan.
(2) SFAS No. 87 expense on qualified foreign plans.
(3) See Note Q to the Consolidated Financial Statements.
The pension credit principally results from a plan that is funded in excess of
the projected benefit obligation. The plan is overfunded primarily due to
favorable asset performance.
INCOME TAX PROVISION
The income tax provision resulted in effective tax rates (benefits) of 36.6% in
1995 and (11.0%) in 1994, respectively. In 1995, the effective tax rate is
higher than the U.S. statutory tax rate primarily due to the 5% impact of state
and local income taxes, net of U.S. tax effect, partially offset by a (2%) net
tax benefit from international operations, and a (2%) tax benefit resulting from
a capital loss carryforward on the sale of subsidiaries. In 1994, the benefit
was lower than the U.S. statutory rate due to foreign taxes applicable to
certain foreign projects which are calculated based on gross receipts and
accounted for 12% of the 1994 increase in the effective tax rate. In addition,
the decrease in the benefit in 1994 was also due to state income taxes which
accounted for 8% of the decrease.
1994 COMPARED WITH 1993
The Company had a consolidated net loss of $7,807, or $.52 per share in 1994
compared with net income of $1,952, or $.13 per share in 1993. Revenue decreased
to $779,255 from $1,046,309 in 1993 due in part to a major contract cancellation
by the Tennessee Valley Authority. The Company reported an operating loss of
$42,097 in 1994 compared with operating income of $6,813 in 1993. The operating
loss was due to a decline in revenue, significant severance expense, lower
profit margins and intensified competition in the Company's core Engineering,
Construction and Consulting segment.
Components of earnings per share in 1994 and 1993 were:
- -------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------
Earnings per share before special items $(1.64) $ 0.08
Severance (0.84) (0.33)
Pension related items 0.54 0.22
Asset divestitures 1.42 --
Accounting changes (1) -- 0.16
- -------------------------------------------------------------------------------
Earnings per share $(0.52) $ 0.13
- -------------------------------------------------------------------------------
(1) Cumulative Effect of adoption of SFAS No. 109.
The Company took actions throughout the year to reduce staff levels and
operating costs. During 1994, the Company implemented a new organizational
structure. This organizational structure established four Global Business Units,
each responsible for marketing and executing projects within a sector on a
worldwide basis. Workforce reductions were also made to achieve a better balance
of staff levels and skills with workload.
ENGINEERING, CONSTRUCTION AND CONSULTING SEGMENT
- ------------------------------------------------------------------------------
Percent
1994 1993 Incr/(Decr) Incr/(Decr)
- ------------------------------------------------------------------------------
Revenue $748,614 $1,013,265 $(264,651) (26)%
Operating Income (Loss) (37,709) 8,819 (46,528) --
Operating Margin (5.0)% 0.9%
Identifiable Assets $492,650 $ 477,905 $ 14,745 3%
- ------------------------------------------------------------------------------
The decrease in revenue in 1994 was attributable, in large part, to a decrease
in nuclear power work with the Tennessee Valley Authority due to the reduction
in scope of its nuclear program. In addition, a
A-5
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
reduction in expenditures for plant equipment and materials purchased for
projects in the United Kingdom and Abu Dhabi and a lower level of work activity
in Malaysia and other foreign operations also contributed to the decrease in
revenue. Other factors affecting revenue in 1994 were primarily the result of a
lower volume of work available for execution from backlog. Selling, general and
administrative expenses increased by $5,793 due primarily to higher bid and
proposal expenses incurred in seeking new work.
The backlog as of December 31, 1994 amounted to $1,541,800 in comparison with
$1,509,700 as of December 31, 1993. Approximately 40% of the 1994 backlog amount
was from contracts with international clients. Although the total value of the
backlog was relatively unchanged, many of the projects were at reduced levels of
activity because they were either at the early stages of initiation or nearing
completion. Relatively fewer projects were at a stage of peak activity and many
of the current projects extended over relatively long periods with services
furnished on demand.
The revenue decrease reflects a decrease of $135,168 for domestic and $129,483
for export and international projects. Decreases in international work were
largely in the Power segment. The domestic and international mix of work in 1994
and 1993 was:
- -------------------------------------------------------------------------------
% Increase/
1994 1993 (Decrease)
- ------------------------------------------------------------------------------
United States - domestic $614,493 $ 749,661 (18)%
United States - export 50,893 39,041 30 %
International 83,228 224,563 (63)%
- ------------------------------------------------------------------------------
Total export and international 134,121 263,604 (49)%
- ------------------------------------------------------------------------------
Total engineering revenue $748,614 $1,013,265 (26)%
- ------------------------------------------------------------------------------
Percent export and international 18% 26%
- ------------------------------------------------------------------------------
A year-to-year comparison of operating margins, adjusting for pension related
items and one-time expenses or income, is shown below:
- ------------------------------------------------------------------------------
1994 1993
- ------------------------------------------------------------------------------
Revenue $748,614 $1,013,265
- ------------------------------------------------------------------------------
Operating Income (Loss) - as reported $(37,709) $ 8,819
- ------------------------------------------------------------------------------
Deduct (add):
Pension related items 12,946 5,311
Severance (20,341) (7,476)
Provision for settlement of lawsuits (4,700) (5,200)
- ------------------------------------------------------------------------------
Operating Income (Loss) - adjusted $(25,614) $ 16,184
- ------------------------------------------------------------------------------
Operating Margin - as reported (5.0)% 0.9%
Operating Margin - adjusted (3.4)% 1.6%
- ------------------------------------------------------------------------------
The operating margin was adversely impacted in 1994 due to declining activity
levels and the need to retain staff until job obligations were complete. The
Company settled two contract-related lawsuits in 1994 for $900 and had another
case where it was probable that the final outcome would result in a loss. Based
on opinion from counsel, the Company expensed $3,800 and $1,200 in 1994 and
1993, respectively. It is probable that any liability in excess of the amounts
expensed would be fully covered and paid by applicable insurance. Losses in
excess of existing insurance coverage are considered unlikely. In 1993, the
Company offered an Incentive Retirement Program in which in excess of 200
employees elected to retire. This Program reduced net pension related items by
$8,992.
COLD STORAGE SEGMENT
- --------------------------------------------------------------------------------
Percent
1994 1993 Incr/(Decr) Incr/(Decr)
- --------------------------------------------------------------------------------
Revenue $17,280 $16,914 $366 2%
Operating Income 5,927 5,274 653 12%
Operating Margin 34.3% 31.2%
Identifiable Assets $35,798 $35,015 $783 2%
- -------------------------------------------------------------------------------
Revenue from Cold Storage and related activities increased by 2% in 1994 to
$17,280 from $16,914 in 1993. Revenue increased primarily due to increased
demand for services by food exporters. The improvement in operating income was
attributable to higher revenue as well as a decrease in cost of revenue. Direct
labor and maintenance expense decreased due to improved warehouse management.
Selling, general and administrative expenses remained relatively constant in
1994.
OTHER SEGMENT AND GENERAL CORPORATE EXPENSES
The Other segment consists of Oil and Gas Production and Real Estate Development
businesses. Revenue of this segment declined to $13,361 in 1994 from 1993
revenue of $16,130. Operating income declined to $395 in 1994 from $1,306 in
1993. This decrease, along with the decline in segment revenues, was due
primarily to a significant decline in the number of gas marketing sales by its
natural gas gathering and transporting company. In 1994, the Company evaluated
the carrying value of the gas gathering and transporting company and wrote off
goodwill of $862.
General corporate expenses increased by $2,124 from 1993. This increase was due
primarily to increased legal expenses and fees to outside advisors.
A-6
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
PENSION RELATED ITEMS
Pension related items, which reduced operating costs, were $13,137 in 1994
compared to $5,397 for 1993. These amounts increased net income by $8,035, or
$.54 per share in 1994 and by $3,332, or $.22 per share for 1993.
DIVESTITURE AND OTHER INCOME
Other income (deductions) in 1994 included pre-tax gains of $32,102 from the
sale of investment securities. There were no such sales in the prior year.
Interest income increased in 1994 due to increased interest earned on U. S.
Government securities, partially offset by a decrease in dividend income.
INCOME TAX PROVISION
The income tax provision resulted in effective tax rates (benefit) of (11%) and
104% for 1994 and 1993, respectively. The benefit for 1994 was lower than the U.
S. statutory rate and the effective rate for 1993 was higher than the U. S.
statutory rate, primarily due to foreign taxes applicable to certain foreign
projects which are calculated based on gross receipts and which accounted for
12% and 34% increases, respectively, in the effective tax rates recorded. The
decrease in the benefit in 1994 was also due to state income taxes, which
accounted for 8% of the decrease. The increase in 1993 over the statutory rate
was also due to settlement with the IRS of prior years' federal income tax
returns, amounting to 24% and an increase in the Company's net deferred tax
liabilities, amounting to 13%, due to the change in the federal statutory income
tax rate from 34% to 35%.
In the first quarter of 1993, the Company adopted SFAS No. 109 - Accounting for
Income Taxes. As a result of this accounting change, the cumulative effect from
prior periods increased net income for 1993 by $2,322, or $.16 per share.
FINANCIAL CONDITION AND LIQUIDITY
Cash and cash equivalents, as shown in the Consolidated Statements of Cash
Flows, increased by $12,767 during 1995. Net cash used by operating activities
of $4,640 largely reflects an increase in operating working capital necessary to
support the increase in business activity. While operating working capital
increased by $42,020, the increase was in proportion to the increased volume,
since days operating working capital outstanding remained at 1994 levels.
Operating working capital and days operating working capital outstanding follow:
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Accounts receivable $ 165,836 $ 94,372
Costs and revenue recognized in excess of billings 64,494 42,542
Accounts payable (56,901) (23,996)
Billings in excess of costs and
revenue recognized (66,976) (48,485)
- -------------------------------------------------------------------------------
Operating working capital $ 106,453 $ 64,433
- -------------------------------------------------------------------------------
4th Quarter revenue $ 330,443 $ 205,172
- -------------------------------------------------------------------------------
Days operating working capital outstanding 29 29
- -------------------------------------------------------------------------------
The decrease in accrued liabilities of $8,029 is largely due to the payment of
severance for which the liability was accrued in 1994. Net cash provided by
investing activities of $48,769 reflects the divestiture of non-core assets net
of investment in various development projects. Asset divestitures in the fourth
quarter of 1995 generated cash proceeds of $59,000, of which $26,360 from the
sale of the Real Estate Development business was used to satisfy related
mortgage debt. As a prerequisite to the sale of the Real Estate Development
business, the Company purchased a joint venture partner's 50% interest in a
specific building which was subsequently sold to the purchaser of the Real
Estate Development business. The cash effect of the asset divestiture
transactions in 1995 is summarized as follows:
- -------------------------------------------------------------------------------
Proceeds from sale of Oil and Gas Production business $ 16,500
Proceeds from sale of Real Estate
Development business 42,500
- -------------------------------------------------------------------------------
Proceeds from asset divestitures 59,000
Settlement of real estate mortgage debt (26,360)
Purchase of joint venture partner's
interest in building (2,458)
Selling and other transaction costs (3,110)
- -------------------------------------------------------------------------------
Cash proceeds from asset divestitures $ 27,072
- -------------------------------------------------------------------------------
The remaining cash from the asset sales was used to fund repurchases of the
Company's shares as well as for general corporate purposes.
Investments in property, plant and equipment includes approximately $17,000 for
construction of a wastepaper recycling plant in Auburn, Maine. In 1994, the
Company began construction of this facility with the objective of developing the
project and selling its majority ownership position once the facility is in
operation. As of December 31, 1995, the facility was mechanically complete and
was undergoing provisional acceptance testing. Once performance testing is
completed, the $65,000 construction loans will be converted to permanent
financing. The financing for the wastepaper recycling facility is described in
Note I to the Consolidated Financial Statements.
A-7
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
In July 1994, the Company's Board of Directors authorized the repurchase of
1,000,000 shares of the Company's common stock. In July 1995, the Company's
Board of Directors authorized the repurchase of an additional 1,500,000 shares.
The Company reserves the right to discontinue the repurchase program at any
time. (See Note M to the Consolidated Financial Statements.) Share repurchase
transactions and total shares outstanding for 1995 and 1994 were:
- --------------------------------------------------------------------------------
Total
1995 1994 Program
- --------------------------------------------------------------------------------
Shares outstanding
beginning of year 14,609,307 14,977,850 14,977,850
Shares repurchased under program (754,443) (363,324) (1,117,767)
Other share transactions 1,052 (5,219)(1) (4,167)
- --------------------------------------------------------------------------------
Shares outstanding, December 31 13,855,916 14,609,307 13,855,916
- --------------------------------------------------------------------------------
Percentage of outstanding
shares purchased 5.2% 2.4% 7.5%
Repurchase cost $ 25,370 $ 11,839 $ 37,209
Average repurchase cost per share $ 33.63 $ 32.59 $ 33.29
- --------------------------------------------------------------------------------
(1) 3,219 shares purchased prior to inception of repurchase program and 2,000
shares forfeited under Restricted Stock Plan.
A quarterly history of progress in the share repurchase program is shown below:
[BAR CHART]
- -------------------------------------------------------------------------------------------------
Shares Repurchased
In Thousands
1994 1995
June Sept Dec March June Sept Dec
- -------------------------------------------------------------------------------------------------
Total Program Objective 0 1,000 1,000 1,000 1,000 2,500 2,500
Achieved 0 33 363 472 537 745 1,118
- -------------------------------------------------------------------------------------------------
Management believes that the types of businesses in which the Company 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, share repurchase and capital expenditure needs. Cash on hand and
temporary investments provide adequate operating liquidity. Additional liquidity
is provided through lines of credit and revolving credit facilities which
totaled $41,377, of which $33,177 was available at December 31, 1995.
Net cash balances (defined as cash and Government securities minus total debt)
relative to business activity for the years ended December 31, 1995 and 1994
are:
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Cash, cash equivalents
and U.S. Government securities $ 123,316 $130,335
Total debt 103,821 94,630
- -------------------------------------------------------------------------------
Net cash $ 19,495 $ 35,705
- -------------------------------------------------------------------------------
Revenue $1,002,819 $779,255
Net cash to revenue 1.9% 4.6%
- -------------------------------------------------------------------------------
The level of net cash, relative to business activity has been reduced during
1995. Outstanding debt consisted of the following:
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Mortgage debt-company occupied buildings $ 28,844 $ 32,094
Mortgage debt-real estate development -- 19,663
Construction loans 65,000 39,989
Lease debt (primarily for office equipment) 1,777 2,884
Subsidiary working capital bank loans 8,200 --
- --------------------------------------------------------------------------------
Total debt $103,821 $ 94,630
- --------------------------------------------------------------------------------
During 1995, the Board of Directors approved a long-range Financial Strategic
Plan, developed in conjunction with outside advisors, oriented toward increasing
value for the Company's Shareholders. The plan anticipates, among other actions,
divestiture of non-core and underperforming assets, repurchase of up to
2,500,000 shares of common stock, continued participation, as an equity partner,
in development projects, and improved operating margins in the core Engineering,
Construction and Consulting segment. Significant actions taken in 1995 to
implement this plan include the divestiture of the Oil and Gas Production and
Real Estate Development businesses, the authorized increase in the share
repurchase program, and the improved operating margins in the Engineering,
Construction and Consulting segment.
Management expects to continue implementation of this plan with the dual
objectives of maintaining a strong capital structure and providing increased
value to Shareholders. The Company anticipates that cash flow from operations
will be sufficient to fund ongoing business activities and to proceed with the
share repurchase program as defined in the Financial Strategic Plan.
In March 1995, the Financial Accounting Standards Board issued SFAS 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 believes that it will not have a material impact on the
Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123 -
Accounting for Stock-Based Compensation, which is effective for the fiscal years
ending after December 15, 1996. The Company will elect to adopt the disclosure
requirements of this new accounting standard beginning in 1996.
A-8
Stone & Webster, Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(All dollar amounts, except per share amounts, are in thousands.)
Years ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Revenue (Note A) $1,002,819 $779,255 $1,046,309
Cost of Revenue 918,169 773,479 999,485
- ------------------------------------------------------------------------------------------------------------------------------
Gross Profit 84,650 5,776 46,824
Selling, General and Administrative Expenses 49,609 47,873 40,011
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 35,041 (42,097) 6,813
Other Income (Deductions) (Note A)
Gain (Loss) on sale of assets (Note C) (12,443) 32,102 --
Interest income 6,422 4,078 2,935
Interest expense (Note D) (5,549) (3,900) (2,606)
Miscellaneous - net -- 1,045 1,311
- ------------------------------------------------------------------------------------------------------------------------------
Income (Loss) before Provision (Benefit) for Income Taxes 23,471 (8,772) 8,453
Income Tax Provision (Benefit) (Note E) 8,591 (965) 8,823
- ------------------------------------------------------------------------------------------------------------------------------
Income (Loss) before Cumulative Effect of a Change in Accounting Principle 14,880 (7,807) (370)
Cumulative Effect of a Change in Accounting Principle (Note E) -- -- 2,322
- ------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 14,880 $ (7,807) $ 1,952
- ------------------------------------------------------------------------------------------------------------------------------
Income (Loss) before Cumulative Effect of a Change in Accounting Principle Per Share $ 1.04 $ (.52) $ (.03)
Cumulative Effect of a Change in Accounting Principle Per Share (Note E) $ -- $ -- $ .16
Net Income (Loss) Per Share $ 1.04 $ (.52) $ .13
Dividends Declared Per Share $ .60 $ .60 $ .60
Average Number of Shares Outstanding (in thousands) 14,376 14,907 14,978
- ------------------------------------------------------------------------------------------------------------------------------
See Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements.
A-9
Stone & Webster, Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(All dollar amounts, except per share amounts, are in thousands.)
December 31,
ASSETS 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 68,417 $ 55,650
U. S. Government securities, at amortized cost, which approximates market (Note F) 54,899 74,685
Accounts receivable, principally trade 165,836 94,372
Costs and revenue recognized in excess of billings 64,494 42,542
Deferred income taxes (Note E) 7,202 7,825
Other 3,153 2,909
- ---------------------------------------------------------------------------------------------------------------
Total Current Assets 364,001 277,983
Fixed Assets, at cost, less accumulated depreciation, depletion and amortization (Note G) 212,596 233,869
Land Held for Resale, at cost -- 25,664
Prepaid Pension Cost (Note Q) 114,194 101,131
Other Assets 25,981 39,737
- ---------------------------------------------------------------------------------------------------------------
$716,772 $678,384
- ---------------------------------------------------------------------------------------------------------------
See Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements.
A-10
Stone & Webster, Incorporated and Subsidiaries
December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
- -----------------------------------------------------------------------------------------------------
Current Liabilities:
Bank loans (Note H) $ 8,200 $ --
Current portion of long-term debt (Note I) 20,944 4,988
Accounts payable, principally trade 56,901 23,996
Dividend payable 2,078 2,195
Billings in excess of costs and revenue recognized 66,976 48,485
Accrued liabilities (Note J) 43,308 55,702
Accrued taxes 7,955 6,070
- -----------------------------------------------------------------------------------------------------
Total Current Liabilities 206,362 141,436
Long-Term Debt (Note I) 74,677 89,642
Deferred Income Taxes (Note E) 51,262 48,580
Other Liabilities (Note K) 22,800 23,408
Commitments and Contingencies (Note L)
Shareholders' Equity:
Preferred stock -- --
Authorized, 2,000,000 shares of no par value; none issued
Common stock (Notes N, O and P) 17,731 17,731
Authorized, 40,000,000 shares of $1 par value; issued, 17,731,488 shares,
including shares held in treasury
Capital in excess of par value of common stock (Note N) 50,360 50,300
Retained earnings 414,724 408,211
Cumulative translation adjustment (3,039) (3,072)
- -----------------------------------------------------------------------------------------------------
479,776 473,170
- -----------------------------------------------------------------------------------------------------
Less: Common stock in treasury, at cost (Notes M, O and P) 92,292 66,961
3,875,572 shares (1994 - 3,122,181)
Employee stock ownership and restricted stock plans (Note O) 25,813 30,891
- -----------------------------------------------------------------------------------------------------
118,105 97,852
- -----------------------------------------------------------------------------------------------------
Total Shareholders' Equity 361,671 375,318
- -----------------------------------------------------------------------------------------------------
$716,772 $678,384
- -----------------------------------------------------------------------------------------------------
A-11
Stone & Webster, Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(All dollar amounts, except per share amounts, are in thousands.)
Years ended December 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
Common Stock (Note N):
Balance at beginning and end of year $ 17,731 $ 17,731 $ 17,731
- -----------------------------------------------------------------------------------------------------------------------
Capital in Excess of Par Value of Common Stock (Note N):
Balance at beginning of year 50,300 50,342 50,426
Excess of market value over cost of treasury shares
issued (forfeited) under Restricted Stock Plan, net 28 (17) (9)
Tax benefit (charge) for shares issued under Restricted Stock Plan, net 11 (25) (75)
Excess of market value over cost of treasury shares issued under the Stock Plan 21 -- --
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year 50,360 50,300 50,342
- -----------------------------------------------------------------------------------------------------------------------
Retained Earnings:
Balance at beginning of year 408,211 424,723 431,490
Income tax benefit of Employee Stock Ownership Plan dividends 188 227 268
Net income (loss) 14,880 (7,807) 1,952
Dividends declared (per share: 1995, 1994 and 1993 - $.60) (8,555) (8,932) (8,987)
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year 414,724 408,211 424,723
- -----------------------------------------------------------------------------------------------------------------------
Unrealized Gain on Investment Securities, net:
Balance at beginning of year -- 24,975 --
Adjustment for the year -- (24,975) 24,975
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year -- -- 24,975
- -----------------------------------------------------------------------------------------------------------------------
Cumulative Translation Adjustment:
Balance at beginning of year (3,072) (2,854) (2,649)
Adjustments for the year 33 (218) (205)
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year (3,039) (3,072) (2,854)
- -----------------------------------------------------------------------------------------------------------------------
Common Stock in Treasury (Notes M, O and P):
Balance at beginning of year (66,961) (54,979) (55,078)
Cost of treasury shares:
Issued under Stock Plan (shares: 1995 - 2,252) 52 -- --
Issued under Restricted Stock Plan (shares: 1995 - 6,000 and 1993 - 22,000) 131 -- 440
Forfeited under Restricted Stock Plan
(shares: 1995 - 7,200, 1994 - 2,000 and 1993 - 7,200) (144) (40) (133)
Purchased (shares: 1995 - 754,443, 1994 - 366,543 and 1993 - 7,363 ) (25,370) (11,942) (208)
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year (92,292) (66,961) (54,979)
- -----------------------------------------------------------------------------------------------------------------------
Employee Stock Ownership and Restricted Stock Plans (Note O):
Balance at beginning of year (30,891) (34,560) (38,782)
Payments received from Employee Stock Ownership Trust (principal only) 4,981 3,091 3,587
Market value of shares forfeited (issued) under Restricted Stock Plan, net (15) 57 (298)
Amortization of market value of shares issued under Restricted Stock Plan 112 521 933
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year (25,813) (30,891) (34,560)
- -----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $361,671 $375,318 $425,378
- -----------------------------------------------------------------------------------------------------------------------
See Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements.
A-12
Stone & Webster, Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts are in thousands.)
Years ended December 31,
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income (loss) $ 14,880 $ (7,807) $ 1,952
Adjustments to reconcile net income (loss) to net cash (used)
provided by operating activities:
Depreciation, depletion and amortization 19,239 19,717 20,135
Deferred income taxes 3,305 (4,343) 559
Write-down of technology investment 6,500 -- --
Cumulative effect of a change in accounting principle -- -- (2,322)
Pension plan curtailment gain -- (357) (1,072)
Pension credit (15,175) (13,234) (13,953)
Incentive Retirement Program 2,315 -- 9,081
Loss (gain) on sale of assets 12,443 (32,102) --
Amortization of market value of shares issued under Restricted Stock Plan 112 521 933
Amortization of net cost of Employee Stock Ownership Plan 1,555 1,560 1,562
Changes in operating assets and liabilities:
Accounts receivable (71,464) 12,267 15,984
Costs and revenue recognized in excess of billings (21,952) 20,071 4,133
Accounts payable 32,905 (5,143) (868)
Billings in excess of costs and revenue recognized 18,491 20,190 7,103
Accrued liabilities (8,029) 8,075 (458)
Other 235 (1,841) (3,821)
- --------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (4,640) 17,574 38,948
- --------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Maturities of U.S. Government securities 147,050 103,032 109,289
Purchases of U.S. Government securities (126,861) (122,404) (108,301)
Proceeds from asset divestitures and disposals 59,000 35,040 1,599
Purchase of joint venture, net of cash acquired (1) (2,458) -- --
Increases in fixed assets (27,962) (52,344) (31,679)
(Purchase) sale of land held for resale -- (2,038) 731
Equity investment in joint venture -- (3,565) (5,000)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 48,769 (42,279) (33,361)
- --------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from long-term debt 25,013 68,988 20,760
Repayments of long-term debt (31,419) (3,922) (23,964)
Increase in bank loans 8,200 1,093 26,330
Decrease in bank loans -- (29,437) (4,933)
Payments to Employee Stock Ownership Trust (9,084) (4,046) (6,395)
Payments received from Employee Stock Ownership Trust 9,970 4,464 7,217
Purchase of common stock for treasury (25,370) (11,942) (208)
Dividends paid (8,672) (8,984) (8,985)
- --------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (31,362) 16,214 9,822
- --------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 12,767 (8,491) 15,409
Cash and Cash Equivalents at Beginning of Year 55,650 64,141 48,732
- --------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 68,417 $ 55,650 $ 64,141
- --------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 5,629 $ 3,910 $ 2,558
Income taxes $ 4,740 $ 5,368 $ 7,742
- --------------------------------------------------------------------------------------------------------------------
(1) In 1995, purchase of joint venture, net of cash acquired, of $2,458 includes
fair value of assets acquired of $10,206 and liabilities assumed of $7,748.
See Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements.
A-13
Stone & Webster, Incorporated and Subsidiaries
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(All dollar amounts, except per share amounts, are in thousands.)
BASIS OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and all subsidiaries. The accounts of subsidiaries
outside the United States and Canada are included in the consolidated financial
statements on the basis of fiscal years ending on November 30 to facilitate
timely interim and year-end financial reporting. Investments in joint ventures,
where the Company owns 50% or less, are accounted for by the equity method.
CONSOLIDATED STATEMENTS OF CASH FLOWS. The Company considers U.S. Government
securities purchased with a maturity of three months or less to be cash
equivalents.
FOREIGN CURRENCY TRANSLATION. Assets and liabilities of operations outside the
United States are translated into U.S. dollars at current exchange rates, while
income statement items are translated at average monthly exchange rates. Gains
or losses on such translations are accumulated in a separate component of
Shareholders' Equity and are excluded from net income. Transaction gains and
losses, which were not material, resulting from the settlement of receivables or
payables, or the conversion of currency, are included in the determination of
net income.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation generally is provided on
a straight-line basis (accelerated methods for income taxes) over the estimated
useful lives of the assets. Depreciation and depletion of oil and gas producing
properties and natural gas pipeline systems generally were provided on the unit
of production method. Amortization is provided for leased property and equipment
on a straight-line basis over the life of the lease.
LONG-TERM CONTRACTS. The Company recognizes engineering and construction revenue
on a percentage-of-completion method, primarily based on contract costs incurred
compared with total estimated costs. (Contract costs include both direct and
indirect costs.) When the Company is contractually responsible for materials,
craft labor, equipment and subcontractor costs, these items are included in
revenue and cost of revenue. Revisions to total estimated contract cost or
losses, if any, are recognized in the period in which they are determined.
Certain contracts contain provisions for performance incentives. Such incentives
are included in revenue when realization is assured. Contract change orders in
excess of agreed contract prices are included in revenue when approved by the
client.
Revenue recognized in excess of amounts billed is classified in current assets.
Accounts receivable include amounts representing retainages under long-term
contracts which are due within one year, and are not significant. The Company
anticipates that substantially all of its costs and revenue recognized in excess
of billings will be billed and collected over the next twelve months and there
were no significant amounts included in accounts receivable or costs and revenue
recognized in excess of billings under contracts for claims subject to
uncertainty as to their ultimate realization. Billings in excess of revenue
recognized are classified in current liabilities.
ESTIMATES. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. The most significant estimates are related to long-term contracts,
pension plans, income taxes and contingencies. Actual results could differ from
these estimates.
FOREIGN EXCHANGE CONTRACTS. The Company enters into foreign exchange forward
contracts to hedge transactions related to firm commitments to purchase
equipment in connection with engineering and procurement service contracts.
These contracts reduce currency risk from exchange movements. Gains and losses
are deferred and accounted for as part of the underlying transactions. In
entering into these contracts, the Company has assumed the risk which might
arise from the possible inability of counterparties to meet the terms of their
contracts. The Company does not expect any losses as a result of counterparty
defaults.
INCOME TAXES. Undistributed earnings of foreign subsidiaries for which the
Company has not provided deferred U.S. income taxes, because a taxable
distribution of these earnings is not anticipated, aggregated approximately
$4,178 at December 31, 1995. This amount represents the accumulated earnings of
consolidated foreign subsidiaries which are being permanently reinvested in
their operations.
INCOME PER SHARE. Per share amounts are based on the weighted average number of
common and common equivalent shares (stock options) outstanding during the year.
RECLASSIFICATIONS. Certain reclassifications have been made in the prior years'
consolidated financial statements to conform with the 1995 presentation.
A-14
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
(A) REVENUE
In 1995, the Company changed its presentation of financial results to show
operating income or loss and has reclassified certain items, previously
classified as revenue, to other captions. These changes in presentation have had
no effect on net income. A reconciliation of previously and currently reported
revenue follows:
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Revenue - as previously reported $818,221 $1,053,095
Less:
Gain on sale of assets 32,102 --
Dividend income 1,045 1,311
Interest income 4,078 2,935
Other 1,741 2,540
- --------------------------------------------------------------------------------
Revenue - as currently reported $1,002,819 $779,255 $1,046,309
- --------------------------------------------------------------------------------
Revenue from gains on sale of assets and dividend and interest income has been
reclassified to Other Income (Deductions) in the Consolidated Statements of
Operations.
(B) SEVERANCE COSTS
In 1994 and 1993, the Company took a number of actions to lower operating costs,
including the elimination of approximately 1,000 positions. Severance costs
decreased operating income by $20,341 and $7,476, in 1994 and 1993,
respectively.
All positions were eliminated by December 31, 1994. Severance payments of
$19,226, of the $20,341 accrued in 1994, were made in 1994 and 1995.
(C) SALE OF NON-CORE ASSETS
During 1995 and 1994, the Company completed several transactions involving the
disposal of non-core and underperforming assets. In the fourth quarter of 1995,
the Company completed the divestiture of the Oil & Gas Production business and
the Real Estate Development business. Both businesses were sold for cash. In
1994, in the third and fourth quarters, the Company sold securities held for
investment. The effect of these transactions was:
- --------------------------------------------------------------------------------
1995 1994
------------------------------ ----------
Oil & Gas Real Estate Investment
Production Development Total Securities
- --------------------------------------------------------------------------------
Sale proceeds $16,500 $42,500 $59,000 $34,515
Pre-tax gain (loss)
on sale 6,127 (18,570) (12,443) 32,102
After-tax gain (loss)
on sale 4,434 (11,945) (7,511) 21,208
Gain (loss) per share $ .31 $ (.83) $ (.52) $ 1.42
- --------------------------------------------------------------------------------
The gain or (loss) on these transactions is reported as Other Income
(Deductions) in the Consolidated Statements of Operations.
(D) INTEREST EXPENSE
Interest expense for 1995, 1994 and 1993 excludes $3,471, $1,392 and $439,
respectively, which was capitalized as part of the construction cost for a
wastepaper recycling plant and a new office facility.
(E) INCOME TAXES
The Company reported taxable income of $5,927 in 1995 and was able to utilize
the entire federal net operating loss carryforward balance of $4,934, created in
1994, in order to reduce substantially its current federal tax liability. The
Company incurred a federal alternative minimum tax (AMT) in 1995, which produced
a credit that can be carried forward indefinitely to reduce future federal
income taxes payable. As a result, the AMT credit carryforward increased to
$5,069.
The income tax provision (benefit) consists of the following:
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Current tax expense (benefit)
United States $1,201 $ 469 $3,528
State and local 1,407 1,458 1,355
Foreign (1) 2,678 1,451 3,381
- --------------------------------------------------------------------------------
Total current 5,286 3,378 8,264
- --------------------------------------------------------------------------------
Deferred tax expense (benefit)
United States 2,804 (706) 457
State and local 963 (3,631) 260
Foreign (462) (6) (158)
- --------------------------------------------------------------------------------
Total deferred 3,305 (4,343) 559
- --------------------------------------------------------------------------------
Total provision (benefit) $8,591 $ (965) $8,823
- --------------------------------------------------------------------------------
(1) Includes taxes, in lieu of income taxes, of $798 in 1995, $870 in 1994 and
$2,292 in 1993 on foreign projects which are calculated based on gross
receipts.
A-15
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
Deferred tax liabilities (assets) are composed of the following:
- --------------------------------------------------------------------------------
December 31,
1995 1994
- --------------------------------------------------------------------------------
Long-term liabilities:
Depreciation $20,201 $20,719
Retirement 47,372 44,553
Other 1,116 3,039
- --------------------------------------------------------------------------------
Total long-term liabilities 68,689 68,311
- --------------------------------------------------------------------------------
Long-term assets:
Deferred rent (2,605) (2,050)
Employee Stock Ownership Plan interest
payments and contributions (4,901) (5,801)
Incentive Retirement Program (3,458) (3,690)
AMT credit carryforward (5,069) (4,367)
Foreign net operating loss carryforward (7,058) (8,494)
Federal net operating loss carryforward -- (1,622)
State net operating loss carryforwards (4,546) (5,590)
Capital loss carryforward (561) --
Other (833) (2,201)
- --------------------------------------------------------------------------------
Total long-term assets (29,031) (33,815)
- --------------------------------------------------------------------------------
Net operating loss valuation allowance 11,604 14,084
- --------------------------------------------------------------------------------
Net long-term deferred tax liabilities $51,262 $48,580
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Current liabilities:
Other $ -- $ 1,386
Current assets:
Vacation pay (3,800) (4,072)
Severance pay (760) (3,417)
State net operating loss carryforwards (402) (200)
Other (2,240) (1,522)
- --------------------------------------------------------------------------------
Total current assets (7,202) (9,211)
- --------------------------------------------------------------------------------
Net current deferred tax assets $(7,202) $(7,825)
- --------------------------------------------------------------------------------
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 1995 was a decrease of $2,480 for a total
valuation allowance of $11,604 at December 31, 1995. This decrease was caused by
the use of net operating loss carryforwards relating to one of the Company's
U.K. subsidiaries and the use of state net operating tax loss carryforwards for
which valuation allowances had previously been provided. The valuation allowance
at December 31, 1995 comprises $7,058 relating to the carryforwards of the U.K.
subsidiary and $4,546 relating to state net operating loss carryforwards.
Approximately $108,057 (with a tax benefit of $12,006) of the net operating loss
carryforwards remains at December 31, 1995, of which $21,388 (with a tax benefit
of $7,058) is applicable to foreign subsidiaries and the remaining $86,669 (with
a tax benefit of $4,948) relates to state net operating loss carryforwards. Use
of the foreign net operating loss carryforward is limited to future taxable
earnings of the U.K. subsidiary. Although this net operating loss carryforward
never expires, due to the uncertainty of the realization of this benefit, no
benefit has been recognized in the consolidated financial statements.
The state net operating loss carryforwards of $86,669 are applicable to many
states and will expire as follows:
- --------------------------------------------------------------------------------
1996 $ 3,156
1997 4,730
1998 3,798
1999 19,710
2000 1,199
2001 7,004
2002 1,128
2003 4,048
Thereafter 41,896
- --------------------------------------------------------------------------------
$86,669
- --------------------------------------------------------------------------------
The Company has determined that it will be able to realize a tax benefit of $402
relating to these state net operating loss carryforwards and the remaining net
operating loss carryforwards (with a tax benefit of $4,546, which is fully
reserved for) are expected to expire unused.
The following is an analysis of the difference between the United States
statutory income tax rate and the Company's effective income tax rate:
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
United States statutory income
tax rate 35.0% (35.0)% 35.0%
Increase (decrease) resulting from:
State and local income taxes,
net of United States tax effect 4.9 7.7 5.3
Dividend received deduction -- (2.9) (3.8)
Write-off/amortization of goodwill -- 4.9 1.7
Meals and entertainment 2.0 5.5 2.3
Difference in effective tax rate
of foreign operations and
projects, net of United States
tax effect 4.3 12.1 33.8
Adjustment of prior years'
federal income tax accruals,
net of interest effect .9 .7 23.8
Adjustment of prior years' state
income tax accruals, net of
United States tax effect -- 2.0 7.1
Utilization of net operating loss
carryforwards of
foreign operations (6.1) -- (15.9)
Deferred taxes-- impact of
increase in federal statutory
rate on prior years -- -- 12.6
Sale of subsidiaries-- capital
loss carryforward (2.4) -- --
Other (2.0) (6.0) 2.5
- --------------------------------------------------------------------------------
Effective income tax rate 36.6% (11.0)% 104.4%
- --------------------------------------------------------------------------------
Income (loss) before income taxes and cumulative effect of a change in
accounting principle were:
A-16
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Domestic $15,861 $(9,548) $3,046
Foreign 7,610 776 5,407
- --------------------------------------------------------------------------------
$23,471 $(8,772) $8,453
- --------------------------------------------------------------------------------
On January 1, 1993, the Company adopted SFAS No. 109 - Accounting for Income
Taxes. As a result of this accounting change, the cumulative effect from prior
periods increased net income for 1993 by $2,322, or $.16 per share.
In 1993, the Company settled all issues raised in connection with the
examination of the Company's income tax returns for the years 1985 and 1987
through 1989. The settlement of these issues resulted in an additional net
charge of $2,015 in 1993. The Company's income tax returns for years through
1991 have been examined with no significant effect on the consolidated financial
statements.
The Omnibus Budget Reconciliation Act of 1993 raised the statutory federal
income tax rate on corporations from 34% to 35%. The effect of this 1% increase
in the tax rate on the Company's net deferred tax liabilities was a charge to
income of $1,131, or $.08 per share in 1993.
(F) U.S. GOVERNMENT SECURITIES
U.S. Government securities are debt securities comprised of U.S. Treasury bills
and notes, which the Company intends to hold to maturity. These U.S. Treasury
bills and notes have maturity dates of one year or less. The aggregate fair
market value of U.S. Government securities at December 31, 1995 and 1994 was
$54,722 and $74,624, respectively, the amortized cost basis at December 31, 1995
and 1994 was $54,899 and $74,685, respectively, and the net unrealized holding
loss at December 31, 1995 and 1994 was $177 and $61, respectively.
(G) FIXED ASSETS
Following is a summary of fixed assets at December 31:
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Office buildings and other real estate $132,413 $161,571
Furniture and equipment 137,666 133,006
Cold storage property, plant and equipment 52,219 50,568
Oil and gas properties -- 29,657
Wastepaper recycling property, plant and equipment 55,418 450
Construction in progress -- 38,183
- --------------------------------------------------------------------------------
377,716 413,435
Less accumulated depreciation,
depletion and amortization 165,120 179,566
- --------------------------------------------------------------------------------
Fixed assets, net $212,596 $233,869
- --------------------------------------------------------------------------------
Fixed assets includes computer equipment under capital leases of $6,934 at
December 31, 1995 and $7,037 at December 31, 1994; related amounts included in
accumulated depreciation, depletion and amortization were $4,525 at December 31,
1995 and $3,742 at December 31, 1994. Depreciation expense was $16,785 for 1995,
$18,133 for 1994, and $18,349 for 1993. At December 31, 1994 office buildings
and other real estate included property of a subsidiary's office and business
center in Tampa, Florida of $29,331 and related accumulated depreciation of
$7,439.
(H) BANK LOANS
In 1995, a subsidiary of the Company entered into a $14,750 credit agreement
with a bank for financing of the subsidiary's activities performed under a
client's contract for engineering services. The agreement was collateralized by
an assignment of the contract to the bank and payments received from the client
are applied to outstanding borrowings which incur interest based on one quarter
of one percent above the London Interbank Offered Rate (LIBOR). At December 31,
1995, there was $8,200 outstanding under the credit agreement. The weighted
average interest rate was 6.25% for 1995.
(I) LONG-TERM DEBT
Long-term debt consists of the following at December 31:
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Mortgage loans:
Due in 1996, interest at 9.13% $ 2,188 $ 4,180
Due in 1998, interest at 7.35% -- 19,663
Due in 2009, interest at 6.44% 26,656 27,914
Construction loans 65,000 39,989
Capitalized lease obligations 1,777 2,884
- --------------------------------------------------------------------------------
95,621 94,630
Less current portion 20,944 4,988
- --------------------------------------------------------------------------------
Total long-term debt $74,677 $89,642
- --------------------------------------------------------------------------------
In March 1994, a limited partnership in which a subsidiary of the Company owns a
94.3% interest, entered into an agreement with various lending institutions for
a nonrecourse construction loan of $62,500 for the construction of a wastepaper
recycling plant with interest payable monthly on the average outstanding balance
based on LIBOR and commercial paper rates. In December 1994, an additional loan
agreement was entered into for $2,500, bringing the total construction loans to
$65,000. The loans are collateralized by the plant. As of December 31, 1995,
interest rates on outstanding borrowings ranged from 7.10% to 9.29%. As of
December 31, 1994, interest rates on outstanding borrowings ranged from 6.94% to
9.81%. Upon completion of the provisional acceptance test, the construction
loans will be converted to a senior loan and a subordinated loan. The senior
loan will have an eight-year term and be for $32,500 at either a fixed or
variable interest rate based upon current market rates at the date of
conversion. The subordinated loan will have an eleven-year term and be for
$16,250 at a fixed rate based upon current market rates at the date of
conversion. The senior loan will require principal payments of $2,600 for 1996
and $3,575 for 1997 through 2000. The balance of the construction loans will be
paid by cash equity contributions of $16,250 in 1996. This amount is included as
a component of the current portion of long-term debt.
A-17
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
The Company and its subsidiaries have mortgage loans collateralized by office
buildings and other real estate with a net book value of $49,075 at December 31,
1995. The 9.13% mortgage loan was incurred in connection with a subsidiary's
purchase of an office building and principal and interest is payable monthly. A
subsidiary of the Company has a 6.44% mortgage loan obtained to finance the
acquisition of land and the construction of an office building occupied by an
engineering subsidiary of the Company. The office building was completed and
opened in early 1994. Principal payments required on long-term debt in the years
1996 through 2000 are $4,694, $1,667, $1,750, $1,783, and $1,736, respectively.
(J) ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Salaries and benefits $15,995 $14,905
Insurance premiums 13,820 12,670
Severance 1,467 9,047
Other 12,026 19,080
- --------------------------------------------------------------------------------
Total accrued liabilities $43,308 $55,702
- --------------------------------------------------------------------------------
(K) OTHER LIABILITIES
Other liabilities include the accrued cost of the Employee Stock Ownership Plan
of $11,815 at December 31, 1995 and $14,016 at December 31, 1994.
(L) COMMITMENTS AND CONTINGENCIES
Rental expense was $5,900 in 1995, $7,200 in 1994 and $12,600 in 1993. The
Company and subsidiaries have leases for office space, computer equipment and
other office equipment with varying lease terms. All noncancelable leases have
been categorized as either capital or operating and under most leasing
arrangements the Company and subsidiaries pay the property taxes, insurance and
maintenance and expenses related to the leased properties. Future minimum lease
payments, net of sublease income, under long-term leases as of December 31, 1995
are as follows:
- --------------------------------------------------------------------------------
Capital Operating
Leases Leases
- --------------------------------------------------------------------------------
1996 $1,239 $ 7,100
1997 253 5,500
1998 237 5,300
1999 158 4,600
2000 -- 3,800
2001 and thereafter -- 27,900
- --------------------------------------------------------------------------------
Total minimum lease payments 1,887 $54,200
-------
Amount representing interest 110
- -----------------------------------------------
Present value of minimum lease payments $1,777
- --------------------------------------------------------------------------------
The current portion of the present value of the minimum lease obligations under
capital leases as of December 31, 1995 amounted to $1,170.
The Company and certain subsidiaries have been named as defendants, along with
others, in legal actions claiming damages in connection with engineering and
construction projects and other matters. Most such actions involve claims for
personal injury or property damage which occur from time to time in connection
with services performed relating to project or construction sites, and for which
coverage under appropriate insurance policies usually applies; other actions
arise in the normal course of business including employment-related claims and
contractual disputes for which insurance coverage or other contractual
provisions may or may not apply. Such contractual disputes normally involve
claims relating to the performance of equipment design or other engineering
services or project construction services provided by subsidiaries of the
Company, and often such matters may be resolved without going through a complete
and lengthy litigation process. In 1994, a subsidiary of the Company settled two
contract-related lawsuits for $900, which were expensed in 1994. In addition,
with respect to another case involving performance on a client contract, it is
probable that the final outcome of the case will result in a liability. Based on
opinion of counsel, $3,800 and $1,200 was expensed in 1994 and 1993,
respectively. Management believes it is probable that any liability in excess of
the amounts expensed would be fully covered and paid by applicable insurance
carriers. Losses in excess of existing insurance coverage are considered
unlikely.
Several of the legal matters referred to in Note M in the Annual Report to
Shareholders for the year 1994 have been resolved. In 1993, in a contract
related lawsuit, a jury returned a verdict against a subsidiary of the Company
for which a provision had been made. As a result, in May of 1995, payment was
made of $4,936 representing satisfaction of a judgment against a subsidiary of
the Company. In another legal action to recover damages, attorneys' fees and
other monetary relief from insurance carriers, a settlement in which a
subsidiary of the Company received $16,000 was reached in the third quarter of
1995. 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.
The Company continues to have possible liabilities relating to environmental
pollution. In the third quarter of 1995, a settlement was recorded relating to
environmental matters for which a charge of $2,500 was incurred, representing
the amount of the settlement net of cash received from insurance carriers of
$1,500.
The Company and two of its subsidiaries are named as defendants, along with
others, in one legal action 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 Federal Comprehensive Environmental Response,
Compensation and Liability Act and similar state statutes. No governmental
authority has sought similar redress from the Company or its subsidiaries
(except in the case of one subsidiary in limited connection with claims made
with respect to clients of that subsidiary) nor has the Company been found to be
a Potentially Responsible Party by the Federal or any
A-18
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
state or local governmental authority, although some information has been
requested with regard to environmental matters. Based on presently known facts
and existing laws and regulations, management believes that it has valid legal
defenses to such actions and that the costs associated with such matters,
including legal costs, should be mitigated by the presence of other entities
which may be Potentially Responsible Parties, by contractual indemnities, and by
insurance coverage.
Management believes, on the basis of its examination and consideration of these
matters and such possible liabilities, including consultation with counsel, that
none of 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.
A subsidiary of the Company owns a 94.3% interest in a limited partnership which
is constructing a wastepaper recycling plant in Auburn, Maine. The Company has
outstanding bank letters of credit in the amount of $19,001 at December 31, 1995
in favor of the banks financing the project to assure that certain financial
obligations with respect to the project will be met.
A subsidiary of the Company is a partner in a joint venture in an electric
cogeneration facility, which commenced operations in late 1992. An additional
equity investment of $5,000 was made in 1993 resulting in a total investment of
$6,000 which approximates the carrying value at December 31, 1995. The Company
has obtained bank letters of credit amounting to $1,500 at December 31, 1995 and
1994, in favor of the bank financing the project to assure that certain
financial obligations with respect to the project will be met.
Another subsidiary of the Company is a partner in a joint venture to construct
an oriented-strand board mill in New Brunswick, Canada. An equity investment of
$3,565 was made in 1994, which approximates the carrying value at December 31,
1995. No additional investments were made in 1995.
In 1995, a subsidiary of the Company entered into an agreement with a bank for a
line of credit totaling $15,000. Borrowings under this agreement are to be used
for general corporate purposes and incur interest based on 1/4% above LIBOR. At
December 31, 1995, no amounts were outstanding under the line of credit.
Foreign subsidiaries of the Company have an overdraft banking facility of $3,100
and lines of credit totaling $8,600, which are used for general corporate
purposes. The overdraft banking facility incurs interest based on 1% over the
bank's published rate. A commitment fee of 1/8% per annum is paid to the banks
on the unused portion of the lines of credit. At December 31, 1995, no amounts
were outstanding under the lines of credit or the overdraft banking facility.
At December 31, 1995, subsidiaries of the Company have contingent liabilities of
approximately $17,735 arising from guarantees to banks for credit facilities
extended to affiliates for general operating purposes.
The Company and its subsidiaries place their cash and cash equivalents and U.S.
Government securities with high credit quality financial institutions and, by
policy, limit the amount of credit exposure to any one financial institution.
(M) TREASURY STOCK
In July 1994, the Board of Directors authorized a program to repurchase
1,000,000 shares of Company Common Stock. In July 1995, the Board of Directors
authorized an increase in the share repurchase program to 2,500,000 shares. The
amount and timing of share purchases will depend on market conditions, share
price, as well as other factors. The Company reserves the right to discontinue
the repurchase program at any time. The Company acquired 754,443 shares under
the program in 1995. In 1994, 366,543 shares were acquired, of which 363,324
represent purchases under the program.
(N) COMMON STOCK
The Company had previously credited Common Stock with the excess of market value
over the cost of treasury stock issued under the Company's various stock plans
and with certain other amounts in excess of par value received as consideration
for issued shares of Common Stock. In 1995, the Company reduced Common Stock and
increased Capital in Excess of Par Value of Common Stock with the total of the
amount in excess of the par value of all issued shares. This reclassification
resulted in a decrease in Common Stock and a corresponding increase in Capital
in Excess of Par Value of Common Stock of $47,440 at December 31, 1994 and
$47,482 at December 31, 1993, respectively. There is no change in total
Shareholders' Equity resulting from this reclassification.
(O) EMPLOYEE STOCK OWNERSHIP AND
RESTRICTED STOCK PLANS
Under the terms of the Employee Stock Ownership Plan, the Company and
participating subsidiaries make contributions to a trust which can acquire from
the Company up to 5,000,000 shares of Common Stock of the Company, for the
exclusive benefit of participating employees.
The notes receivable from the Employee Stock Ownership Trust (ESOT), received as
consideration by the Company for the 4,000,000 shares of Common Stock sold to
the Trust in prior years, are payable in level payments of principal and
interest over 20 years. The last sale of shares to the ESOT by the Company
occurred in 1985. At December 31, 1995, the balance of the notes receivable from
the Trust was $25,477. The unamortized cost of the shares is being funded by
annual contributions necessary to enable the Trust to meet its current
obligations, after taking into account dividends received on the Common Stock
held by the Trust. The net cost of the Plan is being amortized over 20-year
periods from the dates of acquisition of shares. The charge to income was $1,555
in 1995, $1,560 in 1994 and $1,562 in 1993.
A-19
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
In May 1995, the number of shares of Common Stock remaining available for future
awards under the Restricted Stock Plan was reduced. Under the terms of the Plan,
which will terminate June 1, 1998 unless extended, the Company may award up to a
total of 250,000 shares after giving effect to the reduction mentioned above of
the Common Stock of the Company to key employees. Restricted Stock Plan awards
of 6,000 shares in 1995 and 22,000 shares in 1993, previously held in the
Treasury, were granted subject to the restrictions described in the Plan. There
were no such awards granted in 1994. The market value of the shares awarded is
being charged to income over the vesting period of five years. At December 31,
1995, 1,723,000 shares have been awarded, net of shares forfeited, and the
unamortized portion of the market value was $336.
(P) STOCK OPTION PLAN AND STOCK PLAN
On May 11, 1995, the Shareholders approved the 1995 Stock Option Plan and the
1995 Stock Plan for Non-Employee Directors. 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 may be
granted only 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
have been or 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. During 1995, nonqualified options for
20,000 shares were awarded to non-employee directors at exercise prices ranging
from $30.25 to $36.00, nonexercisable for the first six months. Nonqualified
options for 142,500 shares were awarded to designated key employees at exercise
prices ranging from $31.00 to $36.50, and are nonexercisable for the first three
years. During 1995, options with respect to 27,000 shares terminated
unexercised.
A summary of stock option transactions follows:
- --------------------------------------------------------------------------------
1995
- --------------------------------------------------------------------------------
Outstanding January 1 --
Options granted 162,500
Options cancelled 27,000
Options exercised --
- --------------------------------------------------------------------------------
Outstanding December 31 135,500
- --------------------------------------------------------------------------------
At December 31, 1995, options for 16,000 shares were exercisable and 614,500
shares were available for grant. Per share option prices ranged from $30.25 to
$36.50.
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. During
1995, 2,252 shares were issued to non-employee directors.
(Q) RETIREMENT PLANS
The Company and its domestic subsidiaries have a noncontributory defined benefit
plan covering executive, administrative, technical and other employees. The
benefits of this plan are based primarily on years of service and employees'
career average pay. The Company's policy is to make contributions which are
equal to current year cost plus amortization of prior service cost, except as
limited by full funding restrictions. Plan assets consist principally of common
stocks, bonds and U.S. Government obligations.
The Company's foreign subsidiaries in the United Kingdom and Canada have defined
benefit plans covering executive, administrative, technical and other employees.
The U.K. plan is contributory and the benefits are based primarily on years of
service and employees' average pay during their last ten years of service. The
Canada plan is noncontributory and the benefits are based primarily on years of
service and employees' career average pay. The Company's policy is to make
contributions which are equal to the current year cost plus amortization of
prior service cost. Plan assets consist principally of common stocks and bonds.
Pension related items for the plans include the following components:
- --------------------------------------------------------------------------------
1995 Domestic Foreign Total
- --------------------------------------------------------------------------------
Service cost-benefits earned
during the year $ 6,557 $1,346 $ 7,903
Interest cost on projected
benefit obligation 29,757 3,078 32,835
Actual return on assets (112,938) (3,376) (116,314)
Net amortization and deferral 61,449 (296) 61,153
- --------------------------------------------------------------------------------
Net pension cost (credit) (15,175) 752 (14,423)
Incentive Retirement Program charges 2,112 -- 2,112
- --------------------------------------------------------------------------------
Total pension related items $(13,063) $ 752 $(12,311)
- --------------------------------------------------------------------------------
A-20
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
1994 Domestic Foreign Total
- --------------------------------------------------------------------------------
Service cost-benefits earned
during the year $ 7,630 $1,395 $ 9,025
Interest cost on projected
benefit obligation 28,593 2,930 31,523
Actual return on assets 1,518 329 1,847
Net amortization and deferral (50,975) (4,200) (55,175)
- --------------------------------------------------------------------------------
Net pension cost (credit) (13,234) 454 (12,780)
Curtailment gain (357) -- (357)
- --------------------------------------------------------------------------------
Total pension related items $(13,591) $ 454 $(13,137)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1993 Domestic Foreign Total
- --------------------------------------------------------------------------------
Service cost- benefits earned
during the year $ 8,561 $1,455 $10,016
Interest cost on projected
benefit obligation 27,332 2,941 30,273
Actual return on assets (56,275) (3,401) (59,676)
Net amortization and deferral 6,429 (359) 6,070
- --------------------------------------------------------------------------------
Net pension cost (credit) (13,953) 636 (13,317)
Incentive Retirement Program charges 8,992 -- 8,992
Curtailment gain -- (1,072) (1,072)
- --------------------------------------------------------------------------------
Total pension related items $(4,961) $ (436) $(5,397)
- --------------------------------------------------------------------------------
In the fourth quarter of 1995, a voluntary Incentive Retirement Program was
offered to and accepted by employees of the parent company, Stone & Webster,
Incorporated. Total Program costs of $2,315 ($1,416, or $.10 per share, after
tax), including $203 for incentive benefits from a nonqualified Supplemental
Retirement Plan, representing the actuarially determined present value of
Program benefits, were charged to costs and expenses with corresponding offsets
to prepaid pension cost of $2,112 and $203 to accrued liabilities.
In 1994, the Company recorded a curtailment gain of $357 resulting from employee
terminations. The curtailment was determined as of July 1, 1994. The employee
terminations caused a significant reduction in defined benefit accruals for
present employees' future services. The net credit of $357 attributable to the
curtailment comprises two components: a curtailment gain of $4,206 resulting
from a reduction in the projected benefit obligation of the curtailed group and
a loss of $3,849 due to accelerated recognition of prior service costs for the
terminated employees.
In 1993, the Company offered an Incentive Retirement Program for employees of
two of its subsidiaries. In excess of two hundred employees elected to retire
under this Program. Total Program costs of $9,081 ($5,460, or $.36 per share,
after tax), including $89 for incentive benefits from a nonqualified
Supplemental Retirement Plan, representing the actuarially determined present
value of Program benefits, were charged to costs and expenses with a
corresponding offset to prepaid pension cost of $8,992 and $89 to accrued
liabilities.
In 1993, a foreign subsidiary of the Company recorded a curtailment gain of
$1,072, resulting from employee terminations. The terminations caused a
significant reduction in defined benefit accruals for present employees' future
services.
Fluctuations in the actual return on plan assets reflect fluctuations in the
market prices of equity securities as well as debt securities owned by the
pension plan. These fluctuations account for most of the variation in the net
amortization and deferral component of pension cost. This component also
includes amortization of the transition asset amounting to $10,383.
A reconciliation of the domestic plan's funded status to the balance sheet
prepaid pension cost is as follows at December 31:
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Actuarial present value of benefits:
Vested benefit obligation $(413,459) $(330,993)
- --------------------------------------------------------------------------------
Accumulated benefit obligation $(417,779) $(333,719)
- --------------------------------------------------------------------------------
Projected benefit obligation $(437,128) $(348,706)
Plan assets at fair value 545,734 454,757
- --------------------------------------------------------------------------------
Excess of assets over projected
benefit obligation 108,606 106,051
Unrecognized prior service cost 14,268 16,061
Unrecognized net loss 21,735 19,818
Unrecognized net transition (asset) (30,415) (40,799)
- --------------------------------------------------------------------------------
Prepaid pension cost $ 114,194 $ 101,131
- --------------------------------------------------------------------------------
The plan's funded status as of any measurement date is based on prevailing
market conditions as to discount rate and plan assets, and is accordingly
subject to volatility. The projected benefit obligation was determined using
assumed discount rates of 7.25% at December 31, 1995, and 8.75% at December 31,
1994 and assumed long-term rate of compensation increases of 4.5%, and 5% at
December 31, 1995, and December 31, 1994, respectively. Pension cost was
determined using an assumed long-term rate of return on plan assets of 9.75% at
January 1, 1995, 9.75% at July 1, 1994 and 9.5% at January 1, 1994 and 10% for
1993.
A-21
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
A reconciliation of the foreign plans' funded status to the balance sheet
accrued pension cost is as follows at December 31:
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Actuarial present value of benefits:
Vested benefit obligation $(34,898) $(31,909)
- --------------------------------------------------------------------------------
Accumulated benefit obligation $(34,898) $(31,909)
- --------------------------------------------------------------------------------
Projected benefit obligation $(42,265) $(37,796)
Plan assets at fair value 42,625 39,606
- --------------------------------------------------------------------------------
Excess of assets over projected
benefit obligation 360 1,810
Unrecognized prior service cost 193 227
Unrecognized net loss 1,530 304
Unrecognized net transition (asset) (2,371) (2,693)
- --------------------------------------------------------------------------------
Accrued pension cost $ (288) $ (352)
- --------------------------------------------------------------------------------
Accrued pension cost is included in the consolidated balance sheets in accrued
liabilities. The plans' funded status as of any measurement date is based on
prevailing market conditions as to discount rate and plan assets, and is
accordingly subject to volatility. The projected benefit obligation was
determined using an assumed weighted discount rate of 8% at December 31, 1995
and 1994, and an assumed weighted long-term rate of compensation increase of
6.1%. Pension cost was determined using an assumed long-term rate of return on
plan assets of 8.7% for 1995, 1994 and 1993.
(R) INTERNATIONAL SUBSIDIARIES
The net income (loss) and net assets of international subsidiaries amounted to
$5,173 and $14,153 in 1995, $(844) and $8,959 in 1994 and $2,551 and $10,615 in
1993, respectively.
(S) BUSINESS SEGMENTS
The Company, through its subsidiaries, is principally engaged in providing
professional engineering, design, construction, consulting and full
environmental services for power, process, industrial and governmental projects
worldwide. The Company's cold storage business offers consolidated distribution
of frozen products for food processors and others throughout the southeastern
United States. Although the Company has numerous clients and is not dependent on
any single client, one or a few clients may contribute a substantial portion of
the Company's consolidated revenue in any one year or over a period of several
consecutive years due to the size of major engineering and construction projects
and the progress accomplished on those projects in that year or period of years.
The Engineering, Construction and Consulting services segment had clients who
accounted for 10% or more of consolidated revenue as follows: one client in 1995
- - 13%; two clients in 1994 - 11% and 18% and one client in 1993 - 22%. The Cold
Storage and related activities business segment had no single client providing
10% or more of consolidated revenue.
Information regarding business segments is shown on page A-27 and is
incorporated herein.
A-22
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
(T) QUARTERLY FINANCIAL DATA (Unaudited)
- ------------------------------------------------------------------------------------------------------
1995 First Second Third Fourth Total
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------
Revenue $222,529 $230,687 $219,160 $330,443 $1,002,819
Operating Income 7,534 11,937 7,112 8,458 35,041
Income (Loss) before Income Taxes 8,376 12,400 7,828 (5,133) 23,471
Net Income (Loss) 4,704 7,946 4,984 (2,754)(2) 14,880
Net Income (Loss) per Share (1) 0.32 0.55 0.35 (0.18) 1.04
- ------------------------------------------------------------------------------------------------------
(1) Net income (loss) per share includes the following special items:
Pension related items 0.15 0.14 0.16 0.07 0.52
Asset divestitures -- -- -- (0.52) (0.52)
- ------------------------------------------------------------------------------------------------------
Total special items 0.15 0.14 0.16 (0.45) --
(2) Includes after-tax loss on sale of Oil and Gas Production and Real Estate
Development businesses of $7,511.
- -------------------------------------------------------------------------------------------------------
1994 First Second Third Fourth Total
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------
Revenue $190,882 $189,418 $193,783 $205,172 $779,255
Operating Income (19,688) (4,883) (1,789) (15,737) (42,097)
Income (Loss) before Income Taxes (19,454) (4,763) 8,410 7,035 (8,772)
Net Income (Loss) (12,921) (3,989) 5,182(4) 3,921(4) (7,807)
Net Income (Loss) per Share (3) (0.86) (0.27) 0.35 0.26 (0.52)
- -------------------------------------------------------------------------------------------------------
(3) Net income (loss) per share includes the following special items:
Severance (0.25) (0.14) (0.03) (0.42) (0.84)
Pension related items 0.11 0.11 0.18 0.14 0.54
Asset divestitures -- -- 0.43 0.99 1.42
- -------------------------------------------------------------------------------------------------------
Total special items (0.14) (0.03) 0.58 0.71 1.12
(4) Includes after-tax gain on sale of investment securities of $6,449 in the
third quarter and $14,759 in the fourth quarter.
A substantial portion of the Company's business is derived from long-term
engineering and construction contracts. Revenue is determined on the
percentage-of-completion method. Under this method, revisions to earnings
estimates recorded in any quarterly period may be adjustments to revenue and
cost of revenue recognized in prior periods and may in turn be further adjusted
during subsequent quarters. Accordingly, historical results may vary from
quarter to quarter.
A-23
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
(U) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at December 31,
1995 follow:
The carrying amounts for cash and cash equivalents and U.S. Government
securities approximate their fair values because of the short maturity of the
instruments.
Long-term debt, excluding capital lease obligations, consists of construction
loans relating to a wastepaper recycling plant in Auburn, Maine and mortgage
loans relating to office buildings. The fair value of the construction loans
approximates the carrying value at December 31, 1995. The carrying value of the
mortgage loans for a subsidiary's office buildings was $28,844 compared with a
fair value of $28,564 based on quoted market prices for similar issues or on
current rates available to the Company for debt with similar terms and
maturities.
To manage its exposure to fluctuations in foreign currency exchange rates, a
subsidiary of the Company entered into several foreign exchange forward
contracts in connection with the purchase of equipment under engineering and
procurement service contracts. The foreign exchange forward contracts have
varying maturities with none exceeding one year. As of December 31, 1995 the
notional amount of foreign exchange forward contracts outstanding was $3,397.
The fair value and unrealized loss on these contracts was $142 and $220,
respectively, at December 31, 1995.
The Company and its subsidiaries have entered into other financial agreements in
the normal course of business. These agreements, which by their nature contain
potential risk of loss, include lines of credit, letters of credit, performance
bonds and performance guarantees. The fair values of the lines of credit,
letters of credit, performance bonds and performance guarantees are estimated at
$265 based on the fees paid to obtain the obligations.
(V) RECLASSIFICATIONS
In 1995, the Company changed its reporting to present Operating Income (Loss)
and has reclassified profits on investment securities and dividend and interest
income from revenue to a new caption - Other Income (Deductions). Certain other
miscellaneous revenue was reclassified to operating costs. As a result of these
reclassifications, total revenue decreased by $38,966 and $6,786, operating
expenses decreased by $1,741 and $2,540, and other income (deductions) increased
by $37,225 and $4,246, for 1994 and 1993, respectively, with no effect on net
income.
In 1995, the Company restated its Common Stock account to reflect the amount
equal to the par value of the shares issued. The account Capital in Excess of
Par Value of Common Stock reflects the excess over par value of the amount of
consideration received for issued shares and the excess of the market value over
the cost of shares issued from treasury stock under Company plans. There is no
change in total Shareholders' Equity.
In 1994, the Company changed its presentation of reporting gross earnings to a
format reflecting total revenue, costs of revenue and selling, general and
administrative expenses to be more consistent with industry practice, in its
Engineering, Construction and Consulting business.
A-24
Stone & Webster, Incorporated and Subsidiaries
SELECTED FINANCIAL DATA
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
Revenue: (6)
Engineering, Construction and Consulting services $ 969,284 $ 748,614 $ 1,013,265 $ 944,787 $ 927,226
Cold Storage and related activities 21,188 17,280 16,914 15,698 15,348
Other 12,347 13,361 16,130 15,689 16,211
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue $ 1,002,819 $ 779,255 $ 1,046,309 $ 976,174 $ 958,785
- ---------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) (4 and 6) $ 35,041 $ (42,097) $ 6,813 $ 17,335 $ 24,447
Income (Loss) from Continuing Operations $ 14,880 $ (7,807) $ (370) $ 9,340 $ 16,417
Net Income (Loss) (1, 2, 3 and 4) $ 14,880 $ (7,807) $ 1,952 $ 12,815 $ 17,605
- ---------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding 14,376,000 14,907,000 14,978,000 14,999,000 15,055,000
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations Per Share $ 1.04 $ (.52) $ (.03) $ .62 $ 1.08
Net Income (Loss) Per Share (1, 2, 3 and 4) $ 1.04 $ (.52) $ .13 $ .85 $ 1.17
- ---------------------------------------------------------------------------------------------------------------------------
Dividends Declared Per Share $ .60 $ .60 $ .60 $ .60 $ .60
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets (5) $ 716,772 $ 678,384 $ 683,579 $ 623,493 $ 609,828
- ---------------------------------------------------------------------------------------------------------------------------
Long-Term Debt $ 74,677 $ 89,642 $ 47,739 $ 24,768 $ 28,022
- ---------------------------------------------------------------------------------------------------------------------------
Notes: (1) Reflects gain or loss on sale of assets, which decreased net
income by $7,511, or $.52 per share in 1995, increased net income
by $21,208, or $1.42 per share in 1994 as explained in Note C to
the Consolidated Financial Statements and $2,802, or $.19 per
share in 1992.
(2) Includes an extraordinary item from utilization of foreign
subsidiaries' net operating loss carryforwards, which increased
net income by $246, or $.02 per share in 1992, and $1,188, or $.09
per share in 1991.
(3) Includes cumulative effect of a change in accounting principle,
which increased net income by $2,322, or $.16 per share in 1993
and $3,229, or $.21 per share in 1992.
(4) Includes costs associated with the Incentive Retirement Program of
$1,416, or $.10 per share in 1995, pension curtailment gains which
increased net income by $218, or $.02 per share in 1994 and by
$1,072, or $.07 per share in 1993, severance costs which decreased
net income by $12,596, or $.84 per share in 1994, $4,967, or $.33
per share in 1993 and by $1,881, or $.13 per share in 1992, and
costs which decreased net income in 1993 as follows: $5,460, or
$.36 per share, associated with the Incentive Retirement Program;
$1,131, or $.08 per share, relating to an increase in the
statutory federal income tax rate on corporations from 34% to 35%;
$2,340, or $.16 per share, relating to a judgment against a
subsidiary of the Company and $2,015, or $.13 per share, relating
to an IRS settlement in connection with prior years' income tax
returns .
(5) Total assets at December 31, 1993 includes an increase of $38,423,
as a result of carrying investment securities at a fair market
value of $40,836, due to the adoption of SFAS No. 115 - Accounting
for Certain Investments in Debt and Equity Securities.
(6) Certain reclassifications have been made in the prior years' data
to conform with the 1995 presentation. See Notes A and V to the
Consolidated Financial Statements.
- --------------------------------------------------------------------------------
MARKET AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------
Principal Market - New York Stock Exchange
- --------------------------------------------------------------------------------
SALES PRICE OF DIVIDENDS PAID
COMMON SHARES PER SHARE
- --------------------------------------------------------------------------------
1995 1994 1995 1994
- --------------------------------------------------------------------------------
Quarter High Low High Low
- --------------------------------------------------------------------------------
First 34 1/8 31 1/4 31 5/8 27 1/4 $.15 $.15
Second 32 27 1/4 33 7/8 29 5/8 .15 .15
Third 40 29 1/2 33 3/4 31 7/8 .15 .15
Fourth 38 1/8 32 5/8 34 31 3/4 .15 .15
- --------------------------------------------------------------------------------
The Company has purchased and may continue to purchase from time to time
additional shares of its Common Stock for general corporate purposes on the New
York Stock Exchange, or otherwise. However, there is no assurance that the
Company will continue to purchase shares of its Common Stock. Also see Note M to
the Consolidated Financial Statements. The approximate number of record holders
of Common Stock as of December 31, 1995 was 6,200. The Common Stock is also
listed for trading on the Boston Stock Exchange.
A-25
Stone & Webster, Incorporated and Subsidiaries
REPORT OF
MANAGEMENT
The management of Stone & Webster, Incorporated is responsible for the
preparation of the financial statements and related notes included in this
annual report to shareholders. The financial statements have been prepared in
conformity with generally accepted accounting principles and accordingly include
certain amounts which represent management's best estimates and judgments.
Management maintains internal systems to assist it in fulfilling its
responsibility for financial reporting, including careful selection of
personnel, segregation of duties and the maintenance of formal accounting and
reporting policies and procedures. While no system can ensure elimination of all
errors and irregularities, the systems have been designed to provide reasonable
assurance that assets are safeguarded, policies and procedures are followed and
transactions are properly executed and reported. These systems are reviewed and
modified in response to changing conditions. Management believes that the
Company's system of internal controls is adequate to accomplish the objectives
discussed herein.
The system is supported by an internal auditing function that operates worldwide
and reports its findings to management throughout the year. The Company's
independent accountants are engaged to express an opinion on the year-end
financial statements. The independent accountants review and test the system of
internal accounting controls and the data contained in the financial statements
to the extent required by generally accepted auditing standards as they deem
necessary to arrive at an opinion on the fairness of the financial statements
presented herein.
The Audit Committee of the Board of Directors, which is comprised of outside
directors, meets regularly with management, the internal auditors and the
independent accountants to discuss the adequacy of internal controls, the
reported financial results and the results of the auditors' examinations. The
internal auditors and the independent accountants have direct access to the
Audit Committee and meet privately with the Committee.
Edward J. Walsh Jeremiah P. Cronin
Acting President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
A-26
Stone & Webster, Incorporated and Subsidiaries
BUSINESS SEGMENT INFORMATION
(See Note S to Consolidated Financial Statements.
All dollar amounts are in thousands.)
BUSINESS SEGMENTS
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
REVENUE (1)
Engineering, Construction and
Consulting services $ 969,284 $748,614 $1,013,265
Cold Storage and related
activities 21,188 17,280 16,914
Other (2) 12,347 13,361 16,130
- --------------------------------------------------------------------------------
Total Revenue $1,002,819 $779,255 $1,046,309
- --------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (3)
Engineering, Construction and
Consulting services $ 38,941 $(37,709) $ 8,819
Cold Storage and related
activities 7,783 5,927 5,274
Other (2) 1,244 395 1,306
General Corporate (12,927) (10,710) (8,586)
- --------------------------------------------------------------------------------
Operating Income (Loss) $ 35,041 $(42,097) $ 6,813
- --------------------------------------------------------------------------------
Interest and Dividend Income 6,422 5,123 4,246
Interest Expense (5,549) (3,900) (2,606)
Gain (Loss) on sale of assets (12,443) 32,102 --
- --------------------------------------------------------------------------------
Income before Taxes $ 23,471 $ (8,772) $ 8,453
- --------------------------------------------------------------------------------
IDENTIFIABLE ASSETS (4)
Engineering, Construction and
Consulting services $ 595,699 $492,650 $ 477,905
Cold Storage and related
activities 35,143 35,798 35,015
Other (2) 1,273 68,679 68,981
General Corporate 84,657 81,257 101,678
- --------------------------------------------------------------------------------
Total Identifiable Assets $ 716,772 $678,384 $ 683,579
- --------------------------------------------------------------------------------
DEPRECIATION, DEPLETION
AND AMORTIZATION
Engineering, Construction and
Consulting services $ 14,219 $ 14,904 $ 15,182
Cold Storage and related
activities 1,972 1,951 2,025
Other (2) 3,048 2,862 2,928
- --------------------------------------------------------------------------------
Total Depreciation, Depletion
and Amortization $ 19,239 $ 19,717 $ 20,135
- --------------------------------------------------------------------------------
CAPITAL EXPENDITURES
Engineering, Construction and
Consulting services $ 24,127 $ 47,637 $ 29,389
Cold Storage and related
activities 1,715 2,439 863
Other (2) 2,120 2,268 1,427
- --------------------------------------------------------------------------------
Total Capital Expenditures $ 27,962 $ 52,344 $ 31,679
- --------------------------------------------------------------------------------
GEOGRAPHIC AREAS
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
REVENUE
United States - Domestic $ 659,926 $642,321 $ 780,032
United States - Export (5) 111,486 50,893 39,041
- --------------------------------------------------------------------------------
United States - Total 771,412 693,214 819,073
- --------------------------------------------------------------------------------
International (5) 231,407 86,041 227,236
- --------------------------------------------------------------------------------
Total Revenue $1,002,819 $779,255 $1,046,309
- --------------------------------------------------------------------------------
OPERATING INCOME (LOSS)
United States $ 40,660 $(32,386) $ 9,766
International 7,308 999 5,633
General Corporate (12,927) (10,710) (8,586)
- --------------------------------------------------------------------------------
Operating Income (Loss) $ 35,041 $(42,097) $ 6,813
- --------------------------------------------------------------------------------
IDENTIFIABLE ASSETS (4)
United States $ 567,843 $553,096 $ 539,378
International 64,272 44,031 42,523
General Corporate 84,657 81,257 101,678
- --------------------------------------------------------------------------------
Total Identifiable Assets $ 716,772 $678,384 $ 683,579
- --------------------------------------------------------------------------------
(1) Total segment revenue includes revenue from unaffiliated customers as
reported in the Consolidated Statements of Operations.
(2) The Other segment includes the Oil and Gas Production and Real Estate
Development businesses.
(3) The pension related items included in Operating Income (Loss) are:
- --------------------------------------------------------------------------------
(Income) Expense 1995 1994 1993
- --------------------------------------------------------------------------------
Engineering, Construction and
Consulting services $(14,206) $(12,946) $(5,311)
Cold Storage and related activities 91 81 144
Other (65) (68) (71)
General Corporate 1,869 (204) (159)
- --------------------------------------------------------------------------------
Total pension related items $(12,311) $(13,137) $(5,397)
- --------------------------------------------------------------------------------
Pension related items include the effect of curtailment gains and incentive
retirement programs. Domestic and foreign pension related items are
presented in Note Q to the Consolidated Financial Statements.
(4) Identifiable assets are those assets used in the operation of each segment.
General corporate assets are composed primarily of cash and U.S. Government
securities. General corporate assets at December 31,1993, includes an
increase of $38,423 as a result of carrying investment securities at fair
market value.
(5) Revenue principally to Asia/Pacific Rim, Canada, Europe and Middle East.
Revenue did not exceed 10% of total revenue for any one geographic area.
(6) Certain reclassifications have been made in prior years' data to conform
with the 1995 presentation. See Notes A and V to the Consolidated Financial
Statements.
A-27
Stone & Webster, Incorporated and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(All dollar amounts are in thousands.)
Col. A Col. B Col. C Col. D Col. E
Additions
Balance at Charged Charged Balance at
Beginning of to Costs to Other End of
Description Period and Expenses Accounts Deductions Period
Allowance deducted from
asset to which it applies:
Allowance for doubtful
accounts:
Year ended December 31, 1995 $3,723 $712 $ -- $ 668 (A) $3,767
Year ended December 31, 1994 2,957 647 289 170 (A) 3,723
Year ended December 31, 1993 4,529 498 354 2,424 (A) 2,957
Note A - Uncollected receivables written off, net of recoveries
A-28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of
Directors of Stone & Webster, Incorporated:
We have audited the consolidated financial statements and the financial
statement schedule of Stone & Webster, Incorporated and Subsidiaries listed in
the index on page A-1 of the Form 10-K. These financial statements and the
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Stone & Webster,
Incorporated and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. In addition , in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
As discussed in Note E to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993.
Coopers & Lybrand L.L.P.
New York, New York
February 20, 1996
A-29
Form 10-K 1995 Stone & Webster, Incorporated
EXHIBIT INDEX
No. Exhibit
(3) (i) Restated Certificate of Incorporation
(incorporated by reference)
(ii) By-Laws (filed herewith)
(10) (a) Material contracts - Restricted Stock
Plan and form of grant (incorporated by reference)
(b) Material contracts - 1995 Stock Option Plan
(incorporated by reference)
(c) Material contracts - 1995 Stock Plan for Non-Employee
Directors (incorporated by reference)
(d) Material contracts - Form of change of control
agreement (incorporated by reference)
(e) Material contracts - Forms of agreement with H. Kerner
Smith relating to (i) Employment Agreement; (ii) Change
of Control Employment Agreement; and (iii) Stock Option
Grant (filed herewith)
(21) Subsidiaries of the Registrant (filed herewith)
(23) Consent of Independent Accountants (filed herewith)
(27) Financial Data Schedule (filed herewith)
23