SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)..........
Report pursuant to Item 5 made at registrant's option
with respect to event announced October 21, 1996
STONE & WEBSTER, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 1-1228 13-5416910
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Number)
250 West 34th Street, New York, NY 10119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 290-7500
2.
Form 8-K Stone & Webster, Incorporated
Item 5. Other Events
(a) The text of registrant's Press Release dated October 21, 1996 relating
to the report of third quarter results and a major restructuring appears below.
FOR IMMEDIATE RELEASE
Contact: Mr. Jeremiah P. Cronin
Stone & Webster
212-290-7484
STONE & WEBSTER REPORTS THIRD QUARTER RESULTS
AND ANNOUNCES MAJOR RESTRUCTURING
-- Company To Combine New York And Boston Corporate Offices,
Auburn VPS Partnership Assets Transferred
and Plans Set to Realize Value Of Real Estate Holdings In New Jersey and Boston
BOSTON, Mass., OCTOBER 21, 1996 - Stone & Webster, Incorporated (NYSE:SW) today
reported its results for the third quarter and nine months ended September 30,
1996. Stone & Webster also announced a major operational and financial
restructuring that will enable the company to harvest its growing backlog with a
more efficient and entrepreneurial organization, a clear strategic focus, and a
strong balance sheet.
H. Kerner Smith, President and Chief Executive Officer of Stone & Webster, said:
"Since joining Stone & Webster last February, I have worked closely with our
senior management team and Board of Directors on an intensive review of all
aspects of the company's business, including its organizational structure,
strategic plan, and asset base. We have thoroughly evaluated our operations to
identify and provide for exposure items. Our next objective is to complete a
comprehensive business strategy and capitalization plan by the end of 1996 --
and we are on track to meet that target."
"The actions announced today reflect our conclusions to date regarding Stone &
Webster's real estate holdings and organizational structure. We believe these
initiatives will enable the company to realize value from underperforming
assets, achieve operational efficiencies through consolidation of office
locations, and increase accountability by flattening our organizational
structure. The final capitalization plan will be completed by year-end and will
encompass a review of all remaining non-core assets."
3.
Form 8-K Stone & Webster, Incorporated
The key components of the restructuring are as follows:
Headquarters Consolidation -- Stone & Webster's corporate headquarters
in New York will be consolidated with the Boston headquarters of the
company's principal operating subsidiary, Stone & Webster Engineering
Corporation. New York office space will be offered for sublease.
Certain functions of the company's management consulting and
engineering businesses will continue to be based in New York. This
consolidation is expected to be completed in the first half of 1997.
Streamlined Organization -- Stone & Webster's line management
structure has been flattened and broadened to improve accountability
and encourage a more entrepreneurial environment.
Real Estate Sale -- Stone & Webster intends to offer its 800,000 sq.
ft. building at 245 Summer Street in Boston for sale and will either
sell or restructure its ownership position in its other real estate
holdings in Boston. The company will also more aggressively market its
460,000 sq. ft. building in Cherry Hill, New Jersey. Stone & Webster
will continue to operate offices in both locations.
Auburn VPS Partnership -- The assets of the Auburn VPS Partnership
were transferred to the construction lenders in exchange for
cancellation of the partnership's debt.
With respect to the planned sale of real estate, Mr. Smith said, "While we are
committed to remaining in the Boston area and continuing to provide full service
to clients in the New York, New Jersey and Philadelphia regions, this commitment
does not require us to continue to own substantial real estate holdings or to
maintain extensive space in a high-cost midtown New York location. Although we
are reporting a write-down of real estate assets to fair market value this
quarter, our future real estate sales should ultimately achieve a cumulative
positive result, since we also plan to sell property which is carried at a book
value substantially below what we believe to be its current market value."
Restructuring and Special Charges
As a result of the actions announced today, Stone & Webster's third quarter and
nine month results include a restructuring and special charge of $28.5 million,
or $2.14 per share. This charge consists of the following components:
Write-down of real estate assets to be sold and recognition of
anticipated sublease losses on underutilized leased facilities. The
company reported a charge of $30.5 million before tax ($20.0 million
after tax, or $1.49 per share) to write down certain Boston and New
Jersey properties to fair market value and to provide for anticipated
sublet losses in its New York office.
Recognizing write-downs on several contracts and other operational
issues. This special charge primarily consists of provisions for
write-downs on specific contracts booked in previous years and
settlement of contract and employment disputes. These provisions total
$12.4 million on a pre-tax basis ($7.6 million after tax, or $0.57 per
share.)
Liquidation of Auburn VPS Partnership assets and cancellation of
related debt. As previously reported, the Auburn VPS Partnership,
which is 94.3% owned by Stone & Webster, has been unable to meet its
debt service requirements since the end of the first quarter of 1996,
resulting in ongoing discussions with its lenders regarding
restructuring its debt. In an agreement reached with the partnership's
lenders, the assets of the partnership were transferred to the lenders
in return for cancellation of the related construction debt. The net
impact of the agreement with its lenders is a loss of $1.0 million or
$0.08 per share, which includes an operating loss of $11.5 million
($7.8 million after tax) to write-down the Auburn VPS plant to fair
market value and an extraordinary gain of $6.8 million after tax for
the extinguishment of the construction debt.
All restructuring and special charges were incurred in the Engineering,
Construction and Consulting segment. A summary of the effect of the
restructuring and special charges on third quarter results follows.
4.
Form 8-K Stone & Webster, Incorporated
Stone & Webster, Incorporated
Summary of Restructuring and Special Charges
For the Quarter Ended September 30, 1996
(In thousands, except per share amounts)__
Contract
Auburn VPS Real Estate Adjustments
Partnership Adjustments and Other Total
Operating (Loss) $ (11,538) $ (30,509) $ (12,377) $ (54,424)
Net (Loss) before Extraordinary Item (7,776) (19,974) (7,553) (35,303)
Extraordinary Item -
gain on debt extinguishment 6,787 - - 6,787
Net (Loss) including Extraordinary
Item (989) (19,974) (7,553) (28,516)
(Loss) per Share before
Extraordinary Item $ (0.59) $ (1.49) $ (0.57) $ (2.65)
(Loss) per Share including
Extraordinary Item $ (0.08) $ (1.49) $ (0.57) $ (2.14)
Third Quarter Results
Stone & Webster reported a net loss of $24.9 million including extraordinary
items, or $1.86 per share, for the quarter ended September 30, 1996, compared to
net income of $5.0 million, or $.35 per share, for the same period in 1995.
Excluding the restructuring and special charges, net income was $3.6 million or
$0.28 per share, and operating income for the quarter was $5.2 million, compared
to operating income of $7.1 million a year ago.
Revenue for the quarter was $282.2 million, an increase of 29 percent over the
$219.2 million reported in the third quarter of 1995. Backlog decreased in the
quarter by $143 million, or 5 percent, to $2.7 billion, reflecting the
cancellation of some projects and the slippage of certain awards to a later
date.
Stone & Webster reported a net loss for the first nine months of 1996 of $15.6
million including extraordinary items, or $1.17 per share, compared to net
income of $17.6 million, or $1.22 per share, for the same period in 1995.
Excluding the restructuring and special charges, net income was $12.9 million or
$0.97 per share for the first nine months of 1996, and operating income was
$22.8 million, compared to operating income of $26.6 million for the same period
in 1995.
Revenue for the nine months was $856.8 million, an increase of 27 percent over
the $672.4 million reported in the first nine months of 1995. Backlog has grown
from the $1.9 billion reported at year-end 1995 to $2.7 billion.
5.
Form 8-K Stone & Webster, Incorporated
Components of earnings per share for the third quarter and the nine months
year-to-date are:
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Earnings per Share from:
Operations $ 0.20 $ 0.18 $ 1.01 $ 0.76
Pension Related Items 0.21 0.17 0.48 0.46
Auburn VPS Partnership Operations (0.13) -- (0.52) --
Earnings per Share before
Restructuring and Special Charges 0.28 0.35 0.97 1.22
Restructuring and Special Charges (2.14) -- (2.14) --
Earnings per Share $ (1.86) $ 0.35 $ (1.17) $ 1.22
Segment Information
Stone & Webster's Engineering, Construction and Consulting segment reported
revenue of $276.0 million in the third quarter of 1996, up 31 percent from the
$210.7 million for the same period last year. The industrial and process
business units continue to provide most of the revenue growth. Operating income
for this segment was $8.1 million, before Auburn VPS operating losses of $2.0
million and restructuring and special charges of $54.4 million, compared to $6.9
million in the third quarter of 1995.
For the nine month period, the Engineering, Construction and Consulting segment
had revenue of $840.7 million, an increase of 30 percent from the prior year.
Operating income for the first nine months was $33.6 million, before Auburn VPS
Partnership operating losses of $7.6 million and restructuring and special
charges of $54.4 million, compared to $27.9 million for the first nine months of
1995.
New orders for the Engineering, Construction and Consulting segment for the
third quarter and first nine months of 1996 were $133 million and $1,580
million, respectively compared to $234 million and $794 million for the same
periods of 1995. Net orders were impacted by the cancellation of an $80 million
power order originally recorded in 1995. Backlog remained stable for the third
quarter at $2.7 billion compared to $2.8 billion at June 30, 1996 and was up
substantially from $1.9 billion at December 31, 1995.
Stone & Webster's Cold Storage segment reported operating income of $2.1 million
and $4.5 million for the third quarter and first nine months of 1996 compared to
$1.8 million and $6.0 million for the prior year. Revenue increased by 17
percent in the third quarter due to the opening of the 3.7 million cubic foot
expansion at the Rockmart, Ga. facility.
The Other segment consisted of the Oil and Gas Production Operations and the
Real Estate Development businesses, both of which were divested in the fourth
quarter of 1995. Interest income for the quarter of $0.5 million was lower than
for the prior year by $1.1 million due to lower cash balances available for
investment. Interest expense increased by $0.8 million primarily due to
construction loan interest of the Auburn VPS Partnership. The extraordinary gain
of $6.8 million represents the after tax effect of the extinguishment of the
Auburn VPS Partnership debt.
6.
Form 8-K Stone & Webster, Incorporated
As of September 30, 1996, Stone & Webster's cash and government securities
balance was $37.8 million compared to $123.3 million at December 31, 1995. The
major uses of cash since year-end were for increased working capital and the
company's ongoing share repurchase program. Total debt of $37.1 million compares
to $103.8 million at year-end 1995. The significant decrease in total debt is
due to the extinguishment of $48.8 million of Auburn VPS Partnership debt.
Repurchases of 403,300 and 1,011,000 shares were made during the third quarter
and nine months respectively, decreasing total shares outstanding on September
30, 1996 to 12,859,000.
Outlook
"We are pleased with the success of our efforts to win new business, increase
our profit margins, and strengthen our business performance," Mr. Smith said.
"We expect earnings from operations to strengthen in the fourth quarter,
enabling us to meet or exceed our previously announced earnings target for the
year of $1.75 per share before the restructuring items and the impact of the
Auburn VPS Partnership operations."
"We are also pleased that the Auburn VPS Partnership situation has been resolved
and that the Partnership will no longer be a drain on Stone & Webster's
earnings. As a result of the significant losses sustained by Stone & Webster,
the Auburn VPS Partnership, and its lenders, we have implemented new policies to
ensure that Stone & Webster does not again participate in development projects
outside of our core business in which the company accepts significant market
risk."
"We are continuing to implement actions aimed at increasing our future
profitability," Mr. Smith continued. "We have raised our operating margin target
to 5 percent for new business and set a strategic goal of reaching a return on
equity of 15 percent after tax. We have also continued to strengthen our
management team, hiring seasoned and respected executives to bolster our design
and construction business and our project finance and treasury functions. We are
confident that these actions, coupled with our financial and organizational
restructuring, will leave Stone & Webster well positioned for profitable growth
and enhanced shareholder value."
Safe Harbor statement under the Private Securities Litigation Reform Act of
1995: Any forward-looking statements made in this release represent management's
best judgment as to what may occur in the future. However, the company's actual
results for the current and future fiscal periods and other corporate
developments will depend upon a number of economic, competitive and other
factors including some which will be outside the control of the company and such
factors could cause the company's actual results for these periods to differ
materially from those expressed in any forward-looking statements made in this
release.
- - TABLES FOLLOW - -
7.
Form 8-K Stone & Webster, Incorporated
STONE & WEBSTER, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ---------------------------------
1996 1995 1996 1995
Revenue
Engineering, construction and
consulting services $275,999 $210,736 $840,748 $647,387
Cold storage and related activities 6,211 5,331 16,004 15,989
Other - 3,093 - 9,000
Total revenue 282,210 219,160 856,752 672,376
Operating income (loss)
Engineering, construction and
consulting services (a,b) (48,386) 6,886 (28,432) 27,928
Cold storage and related activities 2,092 1,825 4,544 6,002
Other (35) 520 (163) 744
(46,329) 9,231 (24,051) 34,674
General corporate expenses (2,939) (2,119) (7,534) (8,091)
Operating income (loss) (a,b,c) (49,268) 7,112 (31,585) 26,583
Other income (deductions)
Interest income 549 1,674 2,544 5,094
Interest expense (1,745) (958) (6,160) (3,073)
Other income (deductions) (1,196) 716 (3,616) 2,021
Income (loss) before provision
for income taxes (a,b,c) (50,464) 7,828 (35,201) 28,604
Income tax provision (benefit) (18,784) 2,844 (12,793) 10,970
Income (loss) before extraordinary item (31,680) 4,984 (22,408) 17,634
Extraordinary item, net of taxes of
$3,496 (b) 6,787 - 6,787 -
Net income (loss) (a,b,c) $(24,893) $ 4,984 $(15,621) $ 17,634
Earnings per share (a,b,c) $(1.86) $.35 $(1.17) $1.22
Average number of shares outstanding 13,137 14,326 13,364 14,439
<FN>
(a) Includes restructuring and special charges totaling $54,424 for the quarter and nine months ended September 30, 1996,
relating to the write-down of certain real estate assets, transfer of assets of the Auburn VPS Partnership (see note (b)),
contract related and other items.
(b) The transfer of the Auburn VPS Partnership assets to the construction lenders resulted in a charge to operating income
of $11,538 ($7,776 net of tax, or $0.59 per share) for a write-down of the fixed assets to fair market value and an
extraordinary gain of $10,283 ($6,787 net of tax, or $0.51 per share) for extinguishment of the related debt. The net
effect of the transfer of the Partnership assets was a loss of $989 net of tax, or $0.08 per share.
(c) Includes pension related items, which reduced operating costs by $4,462 and $10,406 for the three and nine month
periods of 1996 compared to $3,778 and $10,886 for the prior year. These items increased net income by $2,729, or
$.21 per share, and $6,364, or $.48 per share, for the three and nine month periods and by $2,311, or $.17 per share, and
$6,658, or $.46 per share for the prior year. Pension related items include a net pension credit for the company's
domestic subsidiaries and a net pension cost for its foreign subsidiaries.
</FN>
8.
Form 8-K Stone & Webster, Incorporated
STONE & WEBSTER, INCORPORATED
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands) X
September 30, December 31,
1996 1995 1995
Assets
Current Assets:
Cash and U.S. Government securities $ 37,767 $ 95,601 $123,316
Accounts receivable 163,625 134,898 165,836
Costs and revenue recognized in
excess of billings 115,839 78,238 64,494
Deferred income taxes 7,163 7,545 7,202
Other 1,739 4,079 3,153
Total Current Assets 326,133 320,361 364,001
Fixed assets 144,232 253,347 212,596
Land held for resale - 25,673 -
Prepaid pension cost 125,182 112,475 114,194
Other assets 24,232 25,869 25,981
Total Assets $619,779 $737,725 $716,772
Liabilities and Shareholders' Equity
Current Liabilities:
Bank loans $ 10,000 $ - $ 8,200
Current portion of long-term debt 2,437 15,898 20,944
Accounts payable 73,706 35,855 56,901
Dividend payable 1,929 2,134 2,078
Billings in excess of costs and
revenues recognized 65,140 60,370 66,976
Accrued liabilities 61,629 55,574 43,308
Accrued taxes 6,182 11,327 7,955
Total Current Liabilities 221,023 181,158 206,362
Long-term debt 24,681 101,813 74,677
Deferred income taxes 40,226 53,527 51,262
Other liabilities 22,585 22,573 22,800
Common shareholders' equity 311,264 378,654 361,671
Liabilities and Shareholders' Equity $619,779 $737,725 $716,772
9.
Form 8-K Stone & Webster, Incorporated
(b) The text of registrant's Press Release dated October 17, 1996 relating
to organizational changes appears below.
FOR IMMEDIATE RELEASE
Contact: Mr. Jeremiah P. Cronin
Stone & Webster
212-290-7484
STONE & WEBSTER ORGANIZATIONAL CHANGES
BOSTON, MA, October 17, 1996 -- Stone & Webster, Incorporated (NYSE: SW)
announced today several organizational changes to improve the company's
effectiveness in the worldwide engineering and construction industry.
Stone & Webster has combined certain corporate functions of the holding company
with those of its principal subsidiary, Stone & Webster Engineering Corporation.
H. Kerner Smith will continue to be President and Chief Executive Officer of the
company's worldwide operations. Jeremiah P. Cronin, Stone & Webster's CFO, will
take on the additional duties of Chief Administrative Officer and all corporate
financial functions.
Stone & Webster has created two new global business groups and appointed two
senior Stone & Webster executives to lead them. Edward J. Walsh has been
appointed Group President, Power & Government and Regional Executive, Americas
and India. Robert C. Wiesel has been appointed Group President, Process &
Industrial and Regional Executive, Asia, Europe, and Middle East.
Mr. Walsh's responsibilities will now include the Power and Government Global
Business Units, Stone & Webster Canada Ltd., the company's Procurement and
Quality Assurance functions, and regional marketing activities throughout North
and South America and India. In addition to his responsibilities for certain
engineering units in North America, Mr. Walsh will have responsibility for the
development of Stone & Webster's continued global expansion in India.
Mr. Wiesel's responsibilities include Stone & Webster's Process and Industrial
Global Business Units, Stone & Webster Engineering, Ltd. (UK), the company's
System Development function, and regional marketing activities throughout Asia,
Europe, and the Middle East. Mr. Wiesel will have responsibility for certain
engineering centers in Europe and North America and development of Stone &
Webster's continued global expansion in the Pacific Rim and China.
Edward P. Rosol was appointed to the position of Executive Vice President,
Worldwide Construction and will lead Stone & Webster's construction activities.
Mr. Rosol joins the company from Raytheon Engineers & Constructors where he was
most recently Vice President of Construction.
Gerard A Halpin was appointed Corporate Treasurer. Mr. Halpin joins Stone &
Webster from the General Electric Company, where he specialized in project and
trade financing.
Stone & Webster is a global leader in engineering, construction and consulting
for the power, process, government and industrial markets.
* * * *
10.
Form 8-K Stone & Webster, Incorporated
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STONE & WEBSTER, INCORPORATED
BY: JEREMIAH P. CRONIN
Jeremiah P. Cronin
Executive Vice President
Date: October 25, 1996