<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-1228
Stone & Webster, Incorporated
(Exact name of registrant as specified in its charter)
Delaware 13-5416910
(State of Incorporation) (I.R.S. Employer Identification No.)
250 West 34th Street, New York, N.Y. 10119
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number (including area code)(212) 290-7500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: 14,694,321 shares as of October 31, 1994.
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Form 10-Q 2.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The consolidated financial statements required by this Item for Stone
& Webster, Incorporated and Subsidiaries are contained in Attachment A
which is filed herewith and made a part hereof.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The Management's Discussion and Analysis of Financial Condition and
Results of Operations required by this Item for Stone & Webster,
Incorporated and Subsidiaries is contained in Attachment A which is
filed herewith and made a part hereof.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
(a) As reported in Part II, Item 1, Legal Proceedings, of the registrant's
Form 10-Q for the quarter ended June 30, 1994, on April 22, 1994,
Robert A. G. Monks, Nell Minow, and The Lens Partners (in the
aggregate, holders of approximately 1% of the registrant's outstanding
shares of Common Stock), individually and as representative
shareholders of Stone & Webster, Incorporated filed a civil action
against the registrant, the registrant's Directors, Stone & Webster
Engineering Corporation (a subsidiary of the registrant), and The
Chase Manhattan Bank ("Chase") in the United States District Court for
the District of Massachusetts.
On June 29, 1994, the District Court entered a final judgment in
favor of the registrant on all counts, granting registrant's motion
for summary judgment on behalf of the Stone & Webster defendants, and
awarding costs to the registrant. Chase's motion to dismiss was also
allowed, with costs awarded to Chase. On July 27, 1994, plaintiffs
filed a Notice of Appeal. By motion dated August 31, 1994, plaintiffs
withdrew their appeal.
This action has now been finally resolved by judgment in favor
of all of the Stone & Webster defendants on all counts.
(b) As reported in Part I, Item 3, Legal Proceedings, of the registrant's
Form 10-K for the year ended December 31, 1993, Stone & Webster
Engineering Corporation ("SWEC") 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.
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Form 10-Q 3.
For the Quarter ended September 30, 1994 Stone & Webster, Incorporated
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 operation. 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.
Item 5. Other Information.
(a) Backlog
Backlog figures for the registrant's engineering, construction
and consulting services segment have not been considered by the
registrant to be indicative of any trend in these activities nor
material for an understanding of its business. Accordingly, the
registrant did not provide backlog information in the registrant's
annual report on Form 10-K for 1993 and prior years. 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 continually revise the scope of the services for which they
have contracted with subsidiaries of registrant. Scope increases and
decreases of substantial magnitude are commonplace and directly impact
backlog. Additionally, delays are commonplace in the construction
industry 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 earnings could be misleading unless
understood in light of the foregoing contingencies.
Nevertheless, in anticipation of disclosing engineering,
construction and consulting services backlog information in the
registrant's annual report on Form 10-K for 1994, the registrant has
been developing and testing its procedures for the compilation of such
data with respect to interim periods in 1994 (and comparable periods
in 1993). 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
September 30, 1994, December 31, 1993 and September 30, 1993.
The registrant's subsidiaries' backlog as of September 30, 1994
amounted to $1,436.5 million in comparison to $1,524.5 million as of
September 30, 1993, and $1,509.7 million as of December 31, 1993. The
reduction in backlog for the period between December 31, 1993 and
September 30, 1994 was primarily due to the reduction of scope in the
amount of $319 million at a TVA plant during the first quarter of
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Form 10-Q 4.
For the Quarter ended September 30, 1994 Stone & Webster, Incorporated
Item 5. Other Information. (cont'd.)
1994. Although the majority of our contracts may be reduced or
cancelled by the client at any time, reductions in scope of this
magnitude are unusual.
The September 30, 1994 backlog amount includes $406 million for
contracts won, but still under final negotiation.
Approximately 40% of the total backlog as of September 30, 1994
is expected to be realized within the next year.
BACKLOG
Engineering, Construction and Consulting Services
(in Millions of Dollars)
As of New Changes Revenue As of
9/30/93 Work In Scope Recognized* 12/31/93
$1,524.5 $ 231.8 ($ 34.6) ($ 212.0) $1,509.7
As of New Changes Revenue As of
12/31/93 Work In Scope Recognized* 9/30/94
$1,509.7 $ 764.2 ($ 328.4) ($ 509.0) $1,436.5
*Revenue Recognized reflects gross revenues, whereas the registrant's
Consolidated Statement of Operations reflects gross earnings which is
gross revenues less direct contract costs.
Backlog figures in the cold storage industry are not necessarily
meaningful because of the nature of the food processing, storage and
distribution business.
(b) Clients
As stated in Part I, Item 1 of registrant's Form 10-K for the
year ended December 31, 1993, 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 gross earnings 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 consecutive years. The
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Form 10-Q 5.
For the Quarter ended September 30, 1994 Stone & Webster, Incorporated
(b) Clients (Cont'd.)
registrant's business is not necessarily dependent upon sustaining,
and the registrant does not necessarily expect to sustain in future
years, the level of gross earnings contributed by particular clients
in any given year or period of consecutive years. Historically the
registrant's subsidiaries have provided ongoing services to clients
following completion of major projects for them. 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.
Nonetheless, the registrant must obtain new engineering and
construction projects, whether from existing clients or new clients,
in order to generate gross earnings 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 and
accordingly, did not provide the names of clients who accounted for
10% or more of its consolidated gross earnings in the registrant's
annual report on Form 10-K for 1993 and prior years. In anticipation
of supplying such information in the registrant's annual report on
Form 10-K for 1994, the registrant provides such client information
for 1991, 1992, 1993 and the nine months ended September 30, 1994, as
follows. The engineering, construction and consulting services
segment had no client who accounted for 10% or more of consolidated
gross earnings in 1991 or 1992. The Tennessee Valley Authority was
the only client who accounted for more than 10% of consolidated gross
earnings in the nine months ended September 30, 1993 (19%), the twelve
months ended December 31, 1993 (17%), and the nine months ended
September 30, 1994 (12%); it is expected that this client will account
for more than 10% of consolidated gross earnings for the twelve months
ended December 31, 1994.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index
(4) Instruments defining the rights of security holders,
including indentures - As of September 30, 1994, registrant and its
subsidiaries had outstanding long-term debt (excluding current
portion) totaling approximately $80,142,000 principally in connection
with mortgages relating to real property for a subsidiary's corporate
office and business center in Tampa, Florida, for another
subsidiary's office building, and for the construction of a paper
fiber recycling plant of a limited partnership in which a subsidiary
owns a 94.3% interest, and in connection with capitalized lease
commitments for the acquisition of certain computer equipment. None
of these agreements are filed herewith because the amount of
indebtedness authorized under each such agreement does not exceed 10%
of the total assets of the registrant and its subsidiaries on a con-
solidated basis; the registrant hereby undertakes to furnish copies of
such agreements to the Commission upon request.
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Form 10-Q 6.
For the Quarter ended September 30, 1994 Stone & Webster, Incorporated
(b) Reports on Form 8-K
Registrant did not file any reports on Form 8-K during the
quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STONE & WEBSTER, INCORPORATED
By: WILLIAM M. EGAN
Dated: November 14, 1994 William M. Egan
Executive Vice President
(Duly authorized officer and
Principal Financial and Accounting
Officer)
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Form 10-Q 7.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
ATTACHMENT A
Stone & Webster, Incorporated
and Subsidiaries
Index
Page No.
Condensed Financial Statements: (Unaudited)
Consolidated Balance Sheet -
September 30, 1994 and December 31, 1993 8-9
Consolidated Statement of Operations and Retained Earnings -
Three Months Ended September 30, 1994 and 1993
Nine Months Ended September 30, 1994 and 1993 10
Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1994 and 1993 11
Notes to Consolidated Financial Statements 12-14
Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-19
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<TABLE>
Form 10-Q 8.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheet (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
<CAPTION>
September 30, December 31,
ASSETS 1994 1993
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 61,363 $ 64,141
U.S. Government securities, at cost, which
approximates market (Note E) 60,092 54,478
Accounts receivable (Note B) 94,035 99,127
Unbilled charges under contracts 58,259 66,731
Deferred income taxes (Note B) 5,883 6,334
Other 810 947
Total Current Assets 280,442 291,758
Investment Securities, at market value (Note F) 25,448 40,836
At cost: $1,763 (1993 - $2,413).
Property, Plant and Equipment 224,950 201,936
At cost, less accumulated depreciation,
depletion and amortization of $176,836
(1993-$164,709).
Land Held for Resale, at cost (Note J) 23,626 23,626
Prepaid Pension Cost (Note H) 97,516 87,540
Other Assets 33,422 34,146
$685,404 $679,842
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
Form 10-Q 9.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheet (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
<CAPTION>
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
<S> <C> <C>
Current Liabilities:
Bank loans $ - $ 5,677
Accounts payable 22,383 29,139
Dividend payable 2,244 2,247
Advance payments by clients 40,484 24,558
Current portion of long-term debt 4,728 4,492
Accrued taxes 7,236 5,449
Other accrued liabilities 49,324 46,831
Total Current Liabilities 126,399 118,393
Long-Term Debt (Note C) 80,142 47,739
Deferred Income Taxes (Note B) 54,519 64,859
Other Non-Current Liabilities 24,354 23,473
Stockholders' Equity:
Preferred stock - -
Authorized, 2,000,000 shares of no par value;
none issued.
Common stock, carried at 65,194 65,213
Authorized, 40,000,000 shares of $1 par value;
issued, 17,731,488 shares, including shares held
in treasury.
Capital in excess of carrying value of common stock 2,860 2,860
Retained earnings 406,429 424,723
Net unrealized gain on investment securities 15,396 24,975
Cumulative translation adjustment (2,834) (2,854)
487,045 514,917
Less: Common stock in treasury, at cost (Note D) 56,103 54,979
2,788,873 shares (1993-2,753,638).
Employee stock ownership and restricted
stock plans 30,952 34,560
87,055 89,539
Total Stockholders' Equity 399,990 425,378
$685,404 $679,842
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
Form 10-Q 10.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statement of Operations and Retained Earnings (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <S> <S> <S> <S>
Gross Earnings:
Engineering, construction and
consulting services $ 39,768 $ 53,185 $128,230 $181,434
Cold storage and related activities 4,547 4,420 12,419 12,709
Oil and gas interests 2,212 3,250 6,751 8,494
Dividends and interest 1,411 999 3,563 3,042
Profits on investment securities (Note I) 9,762 - 9,762 -
Other 3,863 3,585 10,675 10,815
Total 61,563 65,439 171,400 216,494
Operating and General Expenses# (Notes A and H) 52,179 60,362 184,435 205,138
Interest Expense 974 558 2,772 1,962
Total 53,153 60,920 187,207 207,100
Income (Loss) before Income Tax
Provision (Benefit) 8,410 4,519 (15,807) 9,394
Income Tax Provision (Benefit) (Note B) 3,228 3,306 (4,079) 7,721
Income (Loss) before Cumulative Effect of a
Change in Accounting Principle 5,182 1,213 (11,728) 1,673
Cumulative Effect of a Change in Accounting
Principle on Prior Years (Note B) - - - 2,322
Net Income (Loss) 5,182 1,213 (11,728) 3,995
Retained Earnings at beginning of period 403,434 429,912 424,723 431,490
Income Tax Benefit of ESOP Dividends 57 67 171 201
Total 408,673 431,192 413,166 435,686
Dividends Declared 2,244 2,246 6,737 6,740
Retained Earnings at end of period $406,429 $428,946 $406,429 $428,946
Average Number of Shares Outstanding 14,970,000 14,985,000 14,975,000 14,978,000
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Income (Loss) before Cumulative Effect of a
Change in Accounting Principle Per Share
(Note K) $ .35 $ .08 $ (.78) $ .11
Cumulative Effect of a Change in Accounting
Principle on Prior Years Per Share
(Notes B and K) - - - .16
Net Income (Loss) Per Share (Note K) $ .35 $ .08 $ (.78) $ .27
Dividends Declared Per Share $ .15 $ .15 $ .45 $ .45
# Includes cost of gas purchased for resale of: $296 $1,250 $875 $2,475
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
Form 10-Q 11.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
<CAPTION>
9 Months Ended September 30,
1994 1993
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $(11,728) $ 3,995
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation, depletion and amortization 14,724 15,216
Deferred income taxes (3,913) 2,208
Cumulative effect of a change in
accounting principle - (2,322)
Prepaid pension cost (9,472) (10,500)
Pension plan curtailment gain (504) (1,072)
Incentive Retirement Program - 9,081
Profits on investment securities (9,762) -
Amortization of market value of shares issued
under Restricted Stock Plan 460 724
Amortization of net cost of ESOP plan 1,170 1,172
Changes in operating assets and liabilities:
Accounts receivable 7,755 18,406
Unbilled charges under contracts 8,472 (18,536)
Other assets 724 543
Accounts payable (6,756) (2,127)
Advance payments by clients 15,926 9,642
Other accrued liabilities 2,865 (5,039)
Other 91 1,608
Net cash provided by operating activities 10,052 22,999
Cash Flows from Investing Activities:
Maturities of U.S. Government securities 77,102 70,652
Purchases of U.S. Government securities (82,162) (70,902)
Proceeds from sale of investment securities 10,412 -
Purchases of property, plant and equipment (37,738) (22,796)
Equity contribution to joint venture - (5,000)
Net cash used by investing activities (32,386) (28,046)
Cash Flows from Financing Activities:
Proceeds from long-term debt 36,297 20,760
Repayments of long-term debt (3,658) (23,154)
Increase in bank loans 68 21,128
Decrease in bank loans (5,745) (3,100)
Payment to Employee Stock Ownership Trust (4,046) (3,956)
Payment received from Employee Stock Ownership Trust 4,464 4,464
Purchase of common stock for treasury (1,084) (61)
Dividends paid (6,740) (6,738)
Net cash provided by financing activities 19,556 9,343
Net (Decrease) Increase in Cash and Cash Equivalents (2,778) 4,296
Cash and Cash Equivalents at Beginning of Period 64,141 48,732
Cash and Cash Equivalents at End of Period $ 61,363 $ 53,028
See accompanying notes to consolidated financial statements.
</TABLE>
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Form 10-Q 12.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
(A) In March 1994, the Corporation announced that its subsidiary, Stone &
Webster Engineering Corporation, was taking a number of actions to
further lower operating costs. These included the elimination of
approximately 350 positions resulting in a first quarter pre-tax charge
of $5,500 for severance costs, which decreased net income by $3,400, or
$.23 per share. In April 1994, the Corporation announced that due to
continued delays in the start-up of new work and the suspension of a
significant project, the subsidiary would be required to make a further
reduction of management and other staff positions which could amount to
additional severance costs of approximately $10,000. In accordance with
Emerging Issues Task Force Issue 94-3, severance costs cannot be recorded
until the subsidiary of the Corporation adopts a formal severance plan
which includes identifying and communicating the terms of termination
to the affected employees. In the second and third quarters, the
subsidiary had reductions of approximately 320 positions resulting in a
pre-tax charge of $3,800 for severance costs, which decreased net income
by $2,300 or $.15 per share. All 670 positions have been terminated as
of September 30, 1994. Severance payments of $6,475, of the $9,300
accrued by the subsidiary in 1994, were made during the first nine months
of 1994. A pension plan curtailment gain of $504 was recorded by the
subsidiary in the third quarter of 1994 as a result of employee
reductions. Subsequent to September 30, 1994, the subsidiary has been
in the process of making further reductions of approximately 300
positions which will result in an additional pre-tax charge of
approximately $8,000 for severance costs in the fourth quarter of 1994.
The Corporation continues to expect a loss for the year, excluding
profits from the sale of investment securities.
(B) The Corporation incurred a taxable loss of $21,503 in the first nine
months of 1994 and was able to carry-back $5,830 of this loss to offset
taxable income generated in the years 1991 through 1993. As a result of
the carry-back, current taxes receivable of $1,982 is included in
Accounts Receivable. A benefit of $5,329 as a result of the carry-
forward of the excess current period federal net operating loss has been
included as a deferred tax asset, which is presented as a reduction of
the long-term deferred tax liability on the balance sheet.
Effective January 1, 1993, the Corporation adopted FASB Statement No.
109, Accounting for Income Taxes. As a result of this accounting change,
the cumulative effect from prior periods increased net income for the
nine months ended September 30, 1993 by $2,322, or $.16 per share, offset
in part by a charge of $1,131, or $.08 per share, for the effect of the
change in the statutory federal income tax rate on the Corporation's net
deferred tax liabilities. Other than the cumulative effect and the
change in the statutory rate, the accounting change had no material
effect on the results for the first nine months of 1993.
The Corporation had a valuation allowance of $10,351 at December 31, 1993
for the deferred tax assets related to net operating loss carry-forwards.
The valuation allowance at the end of the second quarter of 1994 was
$11,005. The net change in the third quarter of 1994 was a decrease of
$382 for a total valuation allowance of $10,623 at September 30, 1994.
The valuation allowance at September 30, 1994 comprises $7,512 relating
to the carry-forwards of several of the Corporation's foreign
subsidiaries and $3,111 relating to state net operating loss carry-
forwards.
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Form 10-Q 13.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
(C) As discussed in the 1993 Annual Report to Stockholders, a subsidiary of
the Corporation had a mortgage loan for an office building in the amount
of $22,667 at December 31, 1993. In the first quarter of 1994,
additional borrowings of $6,333 were recorded by the subsidiary in long-
term debt bringing the total mortgage loan to $29,000, of which $28,217
was outstanding at September 30, 1994. In the first quarter of 1994, a
limited partnership in which a subsidiary of the Corporation owns a 94.3%
interest, obtained a non-recourse construction loan of $62,500 with
interest payable monthly on the average outstanding balance based on
LIBOR and commercial paper rates. The loan is expected to be paid in
December 1995, at which time, long-term financing will be obtained. At
September 30, 1994, the balance outstanding was $29,964 which was
included in long-term debt.
(D) In July 1994, the Board of Directors of the Corporation authorized a
stock repurchase program for up to 1 million shares of common stock in
open market transactions at prevailing prices. As of September 30, 1994,
the Corporation had 14,942,615 shares outstanding. The amount and timing
of stock repurchases will depend upon market conditions, share price, as
well as other factors. The Corporation reserves the right to discontinue
the repurchase program at any time. The Corporation purchased 33,235
shares of its common stock, at a total cost of $1,084 in the first nine
months of 1994, which were added to its holdings of treasury stock.
(E) U.S. Government Securities are debt securities issued by the U.S.
Treasury comprised entirely of U.S. Treasury bills, which the Corporation
intends to hold to maturity. Aggregate fair market value of U. S.
Government securities at September 30, 1994 and December 31, 1993 was
$60,069 and $54,488, respectively; the amortized cost basis at September
30, 1994 and December 31, 1993 was $60,092 and $54,478, respectively and;
the gross unrealized holding gain (loss) at September 30, 1994 and
December 31, 1993 was $(23) and $10, respectively.
(F) The Corporation's investment securities consist only of equity
securities. The gross unrealized holding gain was $23,685 and $38,423,
before deferred income taxes of $8,289 and $13,448 at September 30, 1994
and December 31, 1993, respectively. The Corporation reduced its
holdings of investment securities during the first nine months of 1994.
(G) With respect to the legal actions referred to in Note K of the
Corporation's Annual Report on Form 10-K for the year ended 1993, as well
as probable liabilities related to environmental pollution, the
Corporation believes, on the basis of management's examination and
consideration of these actions and such probable liabilities, including
consultation with counsel, that neither these actions nor such probable
liabilities will result in payments of amounts, if any, which would have
a material adverse effect on the consolidated financial statements of the
Corporation.
<PAGE>
Form 10-Q 14.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(All dollar amounts, except per share amounts, are in thousands.)
(H) Pension plan credits reduced operating and general expenses and
contributed to operating income by $9,472 and $10,500 for the nine months
ended September 30, 1994 and 1993, respectively. On March 17, 1993, the
Corporation announced an Incentive Retirement Program for employees of
two of its subsidiaries, Stone & Webster Engineering Corporation and
Stone & Webster Management Consultants, Inc. In excess of two hundred
employees elected to retire under this Program. Total costs of $9,081
($5,460, or $.36 per share, after tax) associated with the Program,
representing the actuarially determined present value of Program
benefits, were charged to operating and general expenses in the second
quarter of 1993 with a corresponding offset to prepaid pension cost.
(I) Profits on investment securities represents the sale of investment
securities, which after income taxes resulted in net income of $6,449,
or $.43 per share, for the three and nine months ended September 30,
1994. The cost of securities sold is determined by average cost.
(J) Land held for resale is stated at the lower of cost or estimated net
realizable value and in determining net realizable value, the Corporation
uses independent appraisals and/or internal estimates which, among other
things, include historical sales data, estimates of future sales prices
and related transactional costs.
(K) Earnings per share are based on the average number of shares outstanding
during the periods.
(L) These statements are unaudited, and in the opinion of management, include
all adjustments, consisting of normal recurring adjustments necessary for
a fair statement of the results for the interim periods. The year-end
balance sheet data was derived from audited financial statements, but
does not include all disclosures required by generally accepted
accounting principles. Reference is made to the explanatory notes in the
Corporation's annual report to stockholders.
Interim results of operations are not necessarily indicative of the
results for a full year.
<PAGE>
Form 10-Q 15.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts are in thousands.)
Gross Earnings and Expenses
Consolidated gross earnings, after excluding profits on investment
securities of $9,762, decreased by $54,856 for the nine months ended September
30, 1994 and by $13,638 in the third quarter of 1994 compared with the same
prior year periods. Consolidated operating and general expenses, after
excluding the cost of the Incentive Retirement Program in 1993, severance
costs in 1993 and 1994 and pension plan curtailment gains in 1993 and 1994,
decreased by $15,733 and $7,948 for the nine months ended September 30, 1994
and third quarter of 1994, respectively. The cost of the Incentive Retirement
Program was $9,081 for the nine months ended September 30, 1993, severance
costs were $9,954 and $6,411 for the nine months ended September 30, 1994 and
1993, respectively, and $775 and $1,578 for the third quarters of 1994 and
1993, respectively, domestic pension plan curtailment gain was $504 for the
three and nine months ended September 30, 1994, and a foreign pension plan
curtailment gain was $1,072 for the three and nine months ended September 30,
1993.
Gross earnings from domestic engineering, construction and consulting
services decreased by $49,288 for the nine months ended September 30, 1994 and
by $12,868 for the third quarter of 1994 compared with the same periods in
1993. These decreases are primarily due to the effect of lower profit
margins, delays in the start-up of new work, lack of new awards to offset the
completion of a number of assignments in prior periods and a reduction in the
scope of the Tennessee Valley Authority's (TVA) nuclear program, including a
significant reduction of work at a TVA plant. In addition, gross earnings for
the third quarter and nine months ended September 30, 1994 were unfavorably
affected by an adjustment of earnings previously recorded of $3,539 resulting
from significant changes in certain contract job estimates. The reduced level
of activity will continue to affect the results of operations over the
remainder of the year. Operating and general expenses of our domestic
engineering, construction, and consulting services, after excluding the cost
of the Incentive Retirement Program in 1993, severance costs in 1993 and 1994
and a pension plan curtailment gain in 1994, decreased by $11,452 for the
first nine months of 1994 and by $6,554 for the third quarter of 1994. These
decreases are primarily due to a reduction in salary and employee benefits
costs resulting from the reduction in staff, offset in part by higher bid and
proposal costs. The cost of the Incentive Retirement Program was $9,081 for
the nine months ended September 30, 1993 and severance costs were $9,506 and
$4,774 for the nine months ended September 30, 1994 and 1993, respectively,
and $698 and $970 for the third quarters of 1994 and 1993, respectively.
It was expected that the savings in payroll and related expenses for
those employees who elected to retire in 1993 under the Incentive Retirement
Program would have further lowered operating and general expenses. These
savings were not realized because of the drop in workload in the second half
of 1993, which continued into the first nine months of 1994. Therefore, staff
could not be placed on billable projects as expected, resulting in additional
severance costs in 1994. Pension plan credits reduced operating and general
expenses and contributed to operating income by $9,358 and $10,435 for the
nine months ended September 30, 1994 and 1993, respectively, and $3,688 and
$3,535 for the third quarters of 1994 and 1993, respectively. Favorable asset
performance in the past ten years is the primary reason that the pension plan
is overfunded.
<PAGE>
Form 10-Q 16.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts are in thousands.)
Gross Earnings and Expenses (Continued)
As previously reported in the 1993 Annual Report to Stockholders, the
Corporation said that the effect of lower profit margins, delays in the start-
up of new work and other factors would negatively impact financial results for
the first half of 1994. In March 1994, the Corporation announced that its
subsidiary, Stone & Webster Engineering Corporation, was taking a number of
actions to further lower operating costs. These included the elimination of
approximately 350 positions resulting in a first quarter pre-tax charge of
$5,500 for severance costs. Due to the significant decrease in gross earnings
as previously described, in April 1994 the subsidiary reported that it would
be required to make a further reduction of management and other staff
positions which could amount to additional severance costs of approximately
$10,000 on a pre-tax basis. In accordance with Emerging Issues Task Force
Issue 94-3, severance costs cannot be recorded until the subsidiary of the
Corporation adopts a formal severance plan which includes identifying and
communicating the terms of termination to the affected employees. In the
second and third quarters, the subsidiary had reductions of approximately 320
positions resulting in a pre-tax charge of $3,800 for severance costs. For
the nine months ended September 30, 1994, the subsidiary reported reductions
of approximately 670 positions resulting in a pre-tax charge of $9,300 for
severance costs. All 670 positions have been terminated as of September 30,
1994. Subsequent to September 30, 1994, the subsidiary has been in the
process of making further reductions of approximately 300 positions which will
result in an additional pre-tax charge of approximately $8,000 for severance
costs in the fourth quarter of 1994. This will result in a total cost for the
second, third and fourth quarters of $11,800 or about $2,000 more than the
estimate made by the subsidiary in April 1994. The subsidiary currently
expects that the savings to be realized from staff reductions which occurred
in 1994 will be approximately $35,000 in 1995. These actions are being taken
to improve the subsidiary's competitive position and to more closely align its
personnel with present market conditions while still maintaining the full
engineering and construction resources necessary to serve clients. The
Corporation continues to expect a loss for the year, excluding profits from
the sale of investment securities.
Gross earnings from our foreign subsidiaries' engineering, construction
and consulting services, decreased by $3,916 for the nine months ended
September 30, 1994 and by $549 for the third quarter of 1994 compared with the
same periods of 1993. These decreases were mainly due to the favorable
settlements of outstanding claims on two completed foreign projects included
in the prior year periods. Operating and general expenses from our foreign
subsidiaries' engineering, construction and consulting services, after
excluding severance costs in 1993 and 1994 and a pension plan curtailment gain
in 1993, decreased by $2,898 for the nine months ended September 30, 1994 and
by $280 in the third quarter of 1994 compared with prior year periods
primarily due to the downsizing of our United Kingdom operations in the second
quarter of 1993, which resulted in lower salary, rent and contract staff
costs. Severance costs were $448 and $1,637 for the nine months ended
<PAGE>
Form 10-Q 17.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts are in thousands.)
Gross Earnings and Expenses (Continued)
September 30, 1994 and 1993, respectively, and $77 and $608 for the third
quarter of 1994 and 1993, respectively. The pension plan curtailment gain was
$1,072 for the three and nine months ended September 30, 1993.
Gross earnings from cold storage and related activities decreased by $290
for the nine months ended September 30, 1994 and increased by $127 for the
third quarter of 1994 compared with the same periods in 1993. The decrease
for the nine months of 1994 is primarily due to reduced business volume
experienced in the first quarter of 1994 while business volume improved in the
second and third quarters of 1994. Operating and general expenses decreased
by $347 for the nine months ended September 30, 1994 and by $32 for the third
quarter of 1994 compared with prior year periods, primarily due to decreases
in operating and maintenance costs.
Gross earnings from oil and gas interests decreased by $1,743 for the
nine months ended September 30, 1994 and by $1,038 for the third quarter of
1994 compared with prior year periods, primarily due to competitive factors
which caused a decline in the number of gas marketing sales by our natural gas
gathering and transporting company. Operating and general expenses decreased
by $1,132 for the nine months ended September 30, 1994 and by $768 for the
third quarter of 1994 compared with prior year periods. The decrease in both
periods is primarily due to a decrease in gas purchases by our natural gas
gathering and transporting company offset in part by higher exploration costs
of our other oil and gas operations.
Gross earnings from dividends and interest increased for the nine months
ended September 30, 1994 and for the third quarter of 1994 compared with prior
year periods primarily due to increased interest income on temporary
investments, reflecting higher interest rates. Dividend income will decrease
in the future as a result of sales of investment securities during the
quarter.
Profits on investment securities were $9,762 for the three and nine
months ended September 30, 1994. There were no sales of investment securities
in the prior year.
Gross earnings from all other activities decreased by $140 for the nine
months ended September 30, 1994 and increased by $278 for the third quarter
of 1994 compared with prior year periods. The decrease for the nine months
ended September 30, 1994 is primarily due to a reduction in income from equity
investments and miscellaneous other income in 1994. Rental income on
available space in company-owned office buildings in the Northeast, previously
used for engineering operations, increased in both periods of 1994 and
accounted for the increase in the third quarter of 1994 compared with 1993.
Operations of our Tampa, Florida real estate holdings improved for the nine
months of 1994 compared to 1993. The improvement is attributable to higher
gross earnings from rents and lower interest expense on mortgages. Occupancy
in company owned and operated properties in Sabal Park continues to be high
with a vacancy rate of less than 3%.
<PAGE>
Form 10-Q 18.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts are in thousands.)
Gross Earnings and Expenses (Continued)
The income tax (benefit) provision resulted in effective rates of (26)%
and 38% for the nine months ended September 30, 1994 and the third quarter of
1994, respectively, and 82% and 73% for the nine months ended September 30,
1993 and the third quarter of 1993, respectively. The effective rate for the
nine months ended September 30, 1994 was lower than the U.S. statutory rate
primarily due to foreign taxes applicable to certain foreign projects which
are calculated based on gross receipts which accounted for a 3% reduction in
the effective tax benefit rate recorded. State income taxes, net of federal
benefit, also impacted the effective rate by 2% for the nine months ended
September 30, 1994. The 1993 effective rates for the nine and three months
ended September 30, 1993 were higher than the U.S. statutory rate primarily
due to higher levels of foreign taxes applicable to certain foreign projects
which are calculated based on gross receipts and impacted the effective rate
by 16% and 5%, respectively, (there was a sharp decrease in these taxes in the
first nine months of 1994) and higher state and local income taxes, net of
federal benefit, which impacted the effective rate by 14% and 16%,
respectively.
In the first quarter of 1993, the Corporation adopted FASB Statement No.
109, Accounting for Income Taxes. As a result of this accounting change, the
cumulative effect from prior periods increased net income for the first nine
months ended September 30, 1993 by $2,322, or $.16 per share.
Financial Condition
Cash and cash equivalents decreased by $2,778 during the first nine
months of 1994. Net cash provided by operating activities of $10,052 reflects
an increase in advance payments by clients of $15,926, attributable to
payments on new contracts in excess of costs and revenues recognized, a
decrease in accounts receivable and unbilled charges under contracts of
$16,227, attributable to the lower level of activity in our engineering,
construction and consulting operations, partially offset by losses from
operations, severance payments of $6,848 (on a consolidated basis), a
reduction in accounts payable of $6,756 resulting from the paydown of job
liabilities. Severance payments of $6,475 of the $9,300 accrued by Stone &
Webster Engineering Corporation in 1994 were made during the first nine months
of 1994. The balance of severance costs not yet paid will be funded from cash
on hand and temporary investments. Net cash used by investing activities
primarily reflects purchases of property, plant and equipment primarily
related to expenditures for the construction of a paper fiber recycling plant
and the construction of a new office facility which was completed and opened
in early 1994. A subsidiary of the Corporation has a material commitment for
capital expenditures relating to the paper fiber recycling plant. The
financing for the paper fiber recycling plant as well as the source of funding
for the subsidiary's share of the equity investment is described below. Net
cash provided by financing activities primarily represents borrowings to
finance capital expenditures previously discussed. Dividends paid amounted
to $6,740. The Corporation believes that the types of businesses in which it
is engaged require that it maintain a strong financial condition. The
<PAGE>
Form 10-Q 19.
For the quarter ended September 30, 1994 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts are in thousands.)
Financial Condition (Continued)
Corporation has on hand and access to sufficient sources of funds to meet its
anticipated operating, dividend and capital expenditure needs. Cash on hand
and temporary investments provide adequate operating liquidity. Additional
liquidity is provided through lines of credit and revolving credit facilities
which totaled $45,417, all of which were available at September 30, 1994.
The Corporation and its subsidiaries have obtained financing for their
real estate operations, the construction of a paper fiber recycling plant and
a new office facility which was completed and opened in early 1994. In the
first quarter of 1994, a limited partnership in which a subsidiary of the
Corporation owns a 94.3% interest obtained a non-recourse construction loan
of $62,500 for the partnership's planned paper fiber recycling plant. The
cost of the plant is expected to be $65,000. Upon completion of construction,
long-term financing of $48,750 will be obtained and the partners will make an
equity investment of $16,250, of which the subsidiary of the Corporation's
share is $15,300. The Corporation intends to invest in additional equity
participation investments.
As stated in Note L to the consolidated financial statements, interim
results of operations are not necessarily indicative of the results for a full
year.
<TABLE> <S> <C>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
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EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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