<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, 1996
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: 12,845,113 shares as of October 31, 1996.
<PAGE>
Form 10-Q 2.
For the quarter ended September 30, 1996 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 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, 1996, registrant and its
subsidiaries had outstanding long-term debt (excluding current
portion) totaling approximately $24,681,000 principally in connection
with mortgages relating to real property for two subsidiaries' office
buildings, 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.
(27) Financial Data Schedule.
(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.
<PAGE>
Form 10-Q 3.
For the quarter ended September 30, 1996 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
Dated: November 14, 1996 Jeremiah P. Cronin
Executive Vice President
(Duly authorized officer and
Chief Financial Officer)
DANIEL P. LEVY
Daniel P. Levy
Corporate Controller
(Principal Accounting Officer)
<PAGE>
Form 10-Q 4.
For the quarter ended September 30, 1996 Stone & Webster, Incorporated
ATTACHMENT A
Stone & Webster, Incorporated
and Subsidiaries
Index
Page No.
Condensed Financial Statements: (Unaudited)
Consolidated Statements of Operations -
Three Months Ended September 30, 1996 and 1995
Nine Months Ended September 30, 1996 and 1995 5
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 6-7
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 8-9
Notes to Consolidated Financial Statements 10-13
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-18
<PAGE>
Form 10-Q 5.
For the quarter ended September 30, 1996 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ----------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
-------- -------- -------- --------
Revenue (Note A) $282,210 $219,160 $856,752 $672,376
Cost of revenue (Note F) 276,499 199,800 810,650 612,065
-------- -------- -------- --------
Gross profit 5,711 19,360 46,102 60,311
Selling, general and administrative
expenses (Notes E,F and G) 54,979 12,248 77,687 33,728
-------- -------- -------- --------
Operating income (loss)(Notes A,E,F and G)(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)
-------- -------- -------- --------
(1,196) 716 (3,616) 2,021
Income before provision (benefit)
for income taxes (50,464) 7,828 (35,201) 28,604
Income tax provision (benefit)
(Notes B,E,F and G) (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 (Note E) 6,787 - 6,787 -
-------- -------- -------- --------
Net income (loss) (Notes E,F and G) $(24,893) $ 4,984 $(15,621) $ 17,634
======== ======== ======== ========
Earnings (loss) per share before
extraordinary item $(2.37) $.35 $(1.68) $1.22
==== ==== ==== ====
Earnings (loss) per share
(Notes D,E,F,G and L) $(1.86) $.35 $(1.17) $1.22
==== ==== ==== ====
Dividends declared per share $.15 $.15 $.45 $.45
==== ==== ==== ====
Average number of shares outstanding 13,137,000 14,326,000 13,364,000 14,439,000
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
Form 10-Q 6.
For the quarter ended September 30, 1996 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
September 30, December 31,
1996 1995
Assets -------- --------
Current Assets:
Cash and cash equivalents $ 33,784 $ 68,417
U.S. Government securities, at amortized
cost, which approximates market (Note C) 3,983 54,899
Accounts receivable, principally trade 163,625 165,836
Costs and revenues recognized in
excess of billings 115,839 64,494
Deferred income taxes (Note B) 7,163 7,202
Other 1,739 3,153
-------- --------
Total Current Assets 326,133 364,001
Fixed assets 144,232 212,596
At cost, less accumulated depreciation
and amortization of $174,567
(1995-$165,120) (Note G)
Prepaid pension cost (Note D) 125,182 114,194
Other assets 24,232 25,981
-------- --------
$619,779 $716,772
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
Form 10-Q 7.
For the quarter ended September 30, 1966 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
September 30, December 31,
1996 1995
-------- --------
Liabilities and Shareholders' Equity
Current Liabilities:
Bank loans $ 10,000 $ 8,200
Current portion of long-term debt (Note E) 2,437 20,944
Accounts payable, principally trade 73,706 56,901
Dividend payable 1,929 2,078
Billings in excess of costs and
revenues recognized 65,140 66,976
Accrued liabilities (Note G) 61,629 43,308
Accrued taxes 6,182 7,955
-------- --------
Total Current Liabilities 221,023 206,362
Long-term debt (Note E) 24,681 74,677
Deferred income taxes (Note B) 40,226 51,262
Other liabilities 22,585 22,800
Shareholders' Equity (Notes I and J)
Preferred stock - -
Authorized, 2,000,000 shares of no par value;
none issued
Common stock 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 50,465 50,360
Retained earnings 393,322 414,724
Cumulative translation adjustment (2,940) (3,039)
-------- --------
458,578 479,776
-------- --------
Less: Common stock in treasury, at cost 124,948 92,292
4,872,820 shares (1995-3,875,572)
Employee stock ownership and restricted
stock plans 22,366 25,813
-------- --------
147,314 118,105
-------- --------
Total Shareholders' Equity 311,264 361,671
-------- --------
$619,779 $716,772
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
Form 10-Q 8.
For the quarter ended September 30, 1996 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
Nine Months
Ended September 30,
1996 1995
-------- --------
Cash Flows from Operating Activities:
Net income (loss) $(15,621) $ 17,634
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Loss on disposition of Auburn VPS LP 1,254 -
Restructuring and other charges - Contract related
and operational items 12,377 -
Restructuring and other charges - Real Estate
write-downs 30,509 -
Depreciation, depletion and amortization 13,319 14,216
Deferred income taxes (10,997) 5,227
Prepaid pension cost (10,988) (11,344)
Write down of capitalized costs - 6,500
Amortization of market value of shares issued
under Restricted Stock Plan (122) 88
Amortization of net cost of
Employee Stock Ownership Plan 1,158 1,167
Changes in operating assets and liabilities:
Accounts receivable (3,003) (40,460)
Costs and revenues recognized
in excess of billings (61,358) (35,696)
Accounts payable 18,395 11,809
Billings in excess of costs
and revenues recognized (1,836) 11,885
Accrued liabilities 13,774 2,858
Other 2,723 8,798
-------- --------
Net cash used by operating activities (10,416) (7,318)
-------- --------
Cash Flows from Investing Activities:
Maturities of U.S. Government securities 54,899 95,340
Purchases of U.S. Government securities (3,968) (83,198)
Purchase of joint venture, net of cash acquired - (2,458)
Purchases of fixed assets (18,369) (23,522)
-------- --------
Net cash provided (used) by investing activities 32,562 (13,838)
-------- --------
Cash Flows from Financing Activities:
Proceeds from long-term debt - 19,302
Repayments of long-term debt (19,753) (3,618)
Increase in bank loans 1,800 -
Payment to Employee Stock Ownership Trust (4,236) (6,598)
Payment received from Employee Stock Ownership Trust 4,464 7,217
Purchases of common stock for treasury (32,995) (12,435)
Dividends paid (6,059) (6,537)
-------- --------
Net cash used by financing activities (56,779) (2,669)
-------- --------
Net Decrease in Cash and Cash Equivalents (34,633) (23,825)
Cash and Cash Equivalents at Beginning of Period 68,417 55,650
-------- --------
Cash and Cash Equivalents at End of Period $ 33,784 $ 31,825
======== ========
<PAGE>
Form 10-Q 9.
For the quarter ended September 30, 1996 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
Supplemental Disclosures of Investing and Financing Activities:
Nine Months
Ended September 30,
---------------------
1996 1995
--------- --------
Transfer of Auburn VPS LP property, plant and equipment
to construction lenders $ 53,276 $ -
Extinguishment of Auburn VPS LP debt (48,750) -
Other net (3,272) -
Fair value of assets acquired - 10,206
Liabilities assumed - 7,748
--------- --------
$ 1,254 $ 2,458
========= ========
See accompanying notes to consolidated financial statements.
<PAGE>
Form 10-Q 10.
For the quarter ended September 30, 1996 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) Revenue and operating income (loss) by business segment were the following
for the three and nine months ended September 30, 1996 and 1995:
Three Months Nine Months
Ended September 30, Ended 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 $(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)
-------- -------- -------- --------
Total operating income (loss) $(49,268) $ 7,112 $(31,585) $ 26,583
======== ======== ======== ========
(B) The Company had a valuation allowance of $11,604 at December 31, 1995 for
the deferred tax assets related to net operating loss carryforwards. The
valuation allowance at the end of the second quarter of 1996 was $11,130.
The net change in the valuation allowance for the third quarter of 1996 was
a decrease of $26, primarily due to fluctuations in exchange rates on the
foreign net operating loss carryforwards. The total valuation allowance at
September 30, 1996 is $11,104. The valuation allowance at September 30,
1996 comprises $6,558 relating to the net operating loss carryforwards of
several of the Company's foreign subsidiaries and $4,546 relating to state
net operating loss carryforwards.
(C) U.S. Government securities are debt securities issued by the U.S. Treasury
comprised entirely of U.S. Treasury bills and notes, which the Company
intends to hold to maturity. These securities have maturity dates of one
year or less. The aggregate fair market value of U.S. Government securities
at September 30, 1996 and December 31, 1995 was $3,983 and $54,722,
respectively, the amortized cost basis at September 30, 1996 and December
31, 1995 was $3,983 and $54,899, respectively, and the net unrealized
holding loss at December 31, 1995 was $177. There was no net unrealized
holding gain or loss at September 30, 1996.
<PAGE>
Form 10-Q 11.
For the quarter ended September 30, 1996 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
(D) Pension related items, which reduced operating costs, were $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 of 1996 and by $2,311, or $.17 per share, and $6,658, or $.46 per
share for the prior year.
(E) As previously reported, the Auburn VPS Partnership, which was 94.3% owned
by Stone & Webster, had 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 this agreement with its
lenders is a loss of $989 net of tax or $.08 per share, which includes an
operating loss of $11,538 ($7,776 net of tax, or $.59 per share) to write-
down the Auburn VPS plant to fair market value and an extraordinary gain of
$10,283 ($6,787 net of taxes of $3,496, or $.51 per share) for the
extinguishment of the construction debt.
(F) In the third quarter of 1996, the Company recorded a charge to recognize
several contract related and operational items. Among these were provisions
for resolution, reached during the quarter, of a contract scope dispute,
damages resulting from contract performance delays, and recognition of a
judgment awarded and anticipated settlement costs of several employment
disputes. The total amount of this charge is $12,377 ($7,553 after tax or
$.57 per share.)
(G) In the second quarter of 1996, the Company began a review of its
organizational structure, strategic plan and asset base. During the third
quarter of 1996, the Company concluded that its corporate headquarters in
New York will be consolidated with the Boston headquarters of the Company's
principal operating subsidiary, Stone & Webster Engineering Corporation,
and certain of its New York office space will be offered for sublease. In
addition, the Company intends to sell its 800,000 square foot building in
Boston and more aggressively market its 460,000 square foot building in
Cherry Hill, New Jersey. The Company also plans to restructure its
ownership position in its other real estate holdings in Boston. While it is
difficult to anticipate the date that real estate will be sold, the Company
hopes to sell the Cherry Hill property within eighteen months. Timing of
the sale of the 800,000 square foot Boston building is dependent upon the
Company's final determination of space and location requirements. The total
carrying amount of the properties written-down was $20,939 as of September
30, 1996. The total charge for these items of $30,509 ($19,974 after tax,
or $1.49 per share) consists of $20,137 ($13,751 after tax, or $1.03 per
share) for the write-down of certain Boston and New Jersey properties to be
sold to fair market value and $10,372 ($6,223 after tax, or $.46 per share)
for estimated sublease losses on underutilized New York office space.
(H) In the third quarter of 1995, a subsidiary of the Company recorded a write-
down of $6,500 in capitalized costs associated with purchased technology in
a standardized, pre-certified design for nuclear power plants. The Company
had originally estimated that this investment which commenced in 1993,
would be recoverable from revenues generated over a three to five-year
<PAGE>
Form 10-Q 12.
For the quarter ended September 30, 1996 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
period beginning at the end of 1995. Based on a number of external events
that occurred in the third quarter, management has determined that it was
unlikely that any revenues would be generated from the investment in the
near term, necessitating a revaluation of the net realizable value of the
investment.
(I) During the nine months ended September 30, 1996, nonqualified options for
15,000 shares of Common Stock were awarded to non-employee directors under
the 1995 Stock Option Plan at exercise prices ranging from $32.75 to
$34.25, nonexercisable for six months. Nonqualified options for 100,000
shares of Common Stock were awarded under the plan to a newly hired
President and Chief Executive Officer at an exercise price of $34.875, and
are exercisable immediately. Nonqualified options for 236,500 shares were
issued to employees at prices ranging from $32.875 to $34.25, of which 25%
becomes exercisable on the first anniversary of the date of grant and an
additional 25% becomes exercisable on the second, third and fourth
anniversaries of the date of grant. During the nine months ended September
30, 1996, options were exercised by non-employee Directors for an aggregate
of 4,000 shares. Additionally, options with respect to 17,000 shares
terminated unexercised.
A summary of stock option transactions follows:
=====================================================
1996
-----------------------------------------------------
Outstanding January 1 135,500
Options granted 351,500
Options canceled (17,000)
Options exercised (4,000)
-----------------------------------------------------
Outstanding at September 30 466,000
=====================================================
At September 30, 1996, options for 116,000 shares were exercisable and
280,000 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 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 the nine months ended September 30, 1996, 3,534 shares were issued
to non-employee directors. At September 30, 1996, 94,214 shares were
available for grant.
(J) In July 1995, the Board of Directors of the Company authorized an increase
in the share repurchase program from 1 million to 2.5 million shares of
Common Stock in open market transactions at prevailing prices. The Company
acquired 1,010,782 shares in the nine months ended September 30, 1996,
bringing total purchases to 2,128,549 shares under this program. As of
September 30, 1996, the Company had 12,858,668 shares outstanding. The
amount and timing of stock repurchases will depend upon market conditions,
share price, as well as other factors. The Company reserves the right to
discontinue the repurchase program at any time.
<PAGE>
Form 10-Q 13.
For the quarter ended September 30, 1996 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
(K) In the third quarter of 1995, a settlement was reached relating to
environmental matters in which a charge of $2,500 was incurred,
representing the amount of the settlement, net of insurance recoveries of
$1,500. In another legal action taken to recover damages, attorney's fees
and other monetary relief from insurance carriers, a settlement was reached
in which $16,000 was received shortly after the end of the third quarter 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. Although the Company continues to have possible liabilities
related to environmental pollution and other legal actions, management
believes, on the basis of its assessment of these matters, including
consultation with counsel, that none of these pending legal actions nor
such possible liabilities will result in payment of amounts, if any, that
would have a material adverse effect on the consolidated financial
statements.
(L) Earnings per share are based on the weighted average number of common and
common equivalent shares (stock options) outstanding during the period.
(M) During the second quarter of 1996, substantially all of the Company's
subsidiaries outside the United States and Canada changed their fiscal
year-end from November 30 to December 31. The consolidated financial
statements for the three and nine-month periods ended September 30, 1996
include the operations of these subsidiaries for three and ten months,
respectively. This change did not have a material effect on the
consolidated financial statements.
(N) 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 Consolidated Financial Statements
included in the Company's Annual Report to Shareholders.
Interim results of operations are not necessarily indicative of the results
for a full year.
<PAGE>
Form 10-Q 14.
For the quarter ended September 30, 1996 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts, except per share amounts, are in thousands)
Results of Operations
In the third quarter of 1996, the Company recorded restructuring and other
charges of $28,516, after tax and an extraordinary item, or $2.14 per share, in
connection with a major operational and financial restructuring. This charge
consists of the following:
Write-down of real estate assets to be sold and recognition of anticipated
---------------------------------------------------------------------------
sublease losses on underutilized leased facilities.
--------------------------------------------------
The Company recorded a charge of $30,509 before tax ($19,974 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 sublease losses in its New
York office. During 1996, the Company began a review of its organizational
structure, strategic plan and asset base. The Company concluded, in the
third quarter of 1996, that its corporate headquarters in New York will be
consolidated with the Boston headquarters of the Company's principal
operating subsidiary, Stone & Webster Engineering Corporation, and certain
of its New York office space will be offered for sublease. In addition, the
Company intends to sell its 800,000 square foot building in Boston and more
aggressively market its 460,000 square foot building in Cherry Hill, New
Jersey. The Company also plans to restructure its ownership position in its
other real estate holdings in Boston. While it is difficult to anticipate
the date that real estate will be sold, the Company hopes to sell the
Cherry Hill property within eighteen months. Timing of the sale of the
800,000 square foot Boston building is dependent upon the Company's final
determination of space and location requirements. The total carrying amount
of these properties was $47,944 as of September 30, 1996. The charge
consists of $20,137 ($13,751 after tax, or $1.03 per share) for the
write-down of certain Boston and New Jersey properties to be sold to fair
market value and $10,372 ($6,223 after tax, or $.46 per share) for
estimated sublease losses on underutilized New York office space.
Recognizing write-downs on several contracts and other operational issues.
---------------------------------------------------------------------------
In the third quarter of 1996, the Company recorded a charge to recognize
several contract related and operational items. Among these were provisions
for resolution, reached during the quarter, of a contract scope dispute,
damages resulting from contract performance delays, and recognition of a
judgment awarded and anticipated settlement costs of several employment
disputes. The total amount of this charge is $12,377 ($7,553 after tax or
$.57 per share.)
Liquidation of Auburn VPS Partnership assets and cancellation of related
---------------------------------------------------------------------------
debt.
-----
As previously reported, the Auburn VPS Partnership, which was 94.3% owned
by Stone & Webster, had 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 $989 or $.08 per share, which includes an operating
loss of $11,538 ($7,776 after tax or $.59 per share) to write-down the
Auburn VPS plant to fair market value and an extraordinary gain of $10,283
($6,787 after taxes of $3,496, or $.51 per share) for the extinguishment of
the construction debt.
<PAGE>
Form 10-Q 15.
For the quarter ended September 30, 1996 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts, except per share amounts, are in thousands)
Results of Operations (continued)
All restructuring and other charges were incurred in the Engineering,
Construction and Consulting segment. The effects of these charges are
summarized below:
<TABLE>
<CAPTION>
Contract
Auburn VPS Real Estate Adjustments
Partnership Adjustments and Other Total
<S> <C> <C> <C> <C>
Cost of Revenue $ - $ - $ (9,919) $ (9,919)
Gross Profit (Loss) - - (9,919) (9,919)
Selling, general and administrative
expenses (11,538) (30,509) (2,458) (44,505)
Operating (Loss) (11,538) (30,509) (12,377) (54,424)
(Loss) before Extraordinary Item (7,776) (19,974) (7,553) (35,303)
Extraordinary Item -
gain on extinguishment of debt 6,787 - - 6,787
Net (Loss) (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)
</TABLE>
For the third quarter ended September 30, 1996, Stone & Webster, Incorporated
reported a net loss of $24,893 including the extraordinary item, or $1.86 per
share compared to net income of $4,984, or $.35 per share, for the same period
in 1995. Excluding the restructuring and other charges, net income was $3,623,
or $.28 per share, and operating income for the quarter was $5,156 compared to
operating income of $7,112 for the same period last year. Revenue increased by
$63,050 or 29 percent.
Stone & Webster reported a net loss for the first nine months of 1996 of $15,621
including the extraordinary item, or $1.17 per share compared to net income of
$17,634, or $1.22 per share, for the same period in 1995. Excluding the
restructuring and other charges, net income was $12,895, or $.97 per share for
the first nine months, and operating income was $22,839, compared to operating
income of $26,583 for the same period last year.
Components of earnings per share for the three and nine months ended September
30, 1996 and 1995 were:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- -----------------
1996 1995 1996 1995
------ ----- ----- -----
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 other charges 0.28 0.35 0.97 1.22
Restructuring and other charges (1) (2.14) -- (2.14) --
----- ----- ------ -----
Earnings per share ($1.86) $0.35 ($1.17) $1.22
====== ===== ====== =====
(1) Includes extraordinary gain of $.51 due to the extinguishment of debt in
connection with the transfer of the Auburn VPS assets to the construction
lenders.
<PAGE>
Form 10-Q 16.
For the quarter ended September 30, 1996 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts, except per share amounts, are in thousands)
Results of Operations (continued)
ENGINEERING, CONSTRUCTION AND CONSULTING
Stone & Webster's Engineering, Construction and Consulting segment reported
revenue of $275,999 in the third quarter of 1996, up 31 percent from the
$210,736 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 $8,065, before Auburn VPS operating losses of $2,027 and
restructuring and other charges of $54,424, compared to $6,886 in the third
quarter of 1995.
For the nine month period, the Engineering, Construction and Consulting segment
had revenue of $840,748, an increase of 30 percent from $647,387 for the same
period last year. Operating income for the first nine months was $33,619, before
Auburn VPS Partnership operating losses of $7,627 and restructuring and other
charges of $54,424, compared to $27,928 for the first nine months of 1995.
Orders and backlog for the three and nine month periods ended September 30, 1996
and 1995 were:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
%(Dec.)
1996 1995 %Incr. 1996 1995 %Incr.
---------- ---------- ------- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Beginning backlog $2,799,200 $1,664,800 - $1,917,000 $1,541,800 -
Orders 132,900 234,200 (43)% 1,579,800 793,900 99%
Revenue (276,000) (210,700) 31% (840,700) (647,400) 30%
---------- ---------- ---------- ----------
Ending backlog $2,656,100 $1,688,300 57% $2,656,100 $1,688,300 57%
========== ========== ========== ==========
</TABLE>
Orders are the total of new orders, scope changes and cancellations.
Through the first nine months of 1996, the 99% increase in orders has reflected
continuing strength in the Company's key markets. This increase includes several
major contract awards, including a contract for the engineering, procurement and
construction of an olefins complex in Indonesia valued at approximately
$475,000. In addition, Stone and Webster has been named the general contractor
for the Malden Mills textile plant, and was awarded a $300,000 contract for
military site environmental restoration for the U.S. Army Corps of Engineers.
The Process, Government and Industrial business units showed increases in orders
of 238%, 200% and 195%, respectively, for the nine month period ended September
30, 1996, as compared to the same period in 1995. Orders during the third
quarter of 1996 were impacted by the cancellation of an $80 million power
contract originally recorded in 1995.
COLD STORAGE AND RELATED ACTIVITIES
The Cold Storage segment reported operating income of $2,092 and $4,544 for the
third quarter and nine months of 1996 compared to $1,825 and $6,002 for the same
period in 1995. Revenue increased by 17 percent in the third quarter due to the
opening of the 3.7 million cubic foot cold storage facility expansion at
Rockmart, Georgia.
<PAGE>
Form 10-Q 17.
For the quarter ended September 30, 1996 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts, except per share amounts, are in thousands)
Results of Operations (continued)
OTHER
The Other segment consisted of the Oil and Gas Production Operations and the
Real Estate Development business, both of which were divested in the fourth
quarter of 1995. General corporate expenses increased by $820 for the third
quarter of 1996 compared to the same period in 1995 due primarily to consulting
expenses incurred in 1996. General corporate expenses have been reduced by $557
in the first nine months of 1996 compared to the same period in 1995 due to
staff reductions resulting from an incentive retirement plan which took effect
in the first quarter of 1996.
Other expenses increased in 1996 due primarily to construction loan interest
expense of $999 and $4,047 for the Auburn wastepaper recycling project for the
three and nine months ended September 30, 1996, respectively. Construction loan
interest costs were capitalized in 1995 since the facility was still under
construction.
As discussed in the 1995 Annual Report to Shareholders, the Company has changed
the reporting of pension related items. In prior years, foreign pension plans
were not separately disclosed due to materiality considerations. 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 on U.S. pension plans and foreign pension
expense:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
Pension Related Items 1996 1995 1996 1995
(Income)/Expense ---- ---- ---- ----
<S> <C> <C> <C> <C>
Net pension credit on qualified U.S.
plans (1) $(4,628) $(3,955) $(10,988) $(11,344)
Foreign pension expense (2) 166 177 582 458
---------------------------------------------
Total pension related items $(4,462) $(3,778) $(10,406) $(10,886)
---------------------------------------------
After-tax total pension related items $(2,729) $(2,311) $ (6,364) $ (6,658)
---------------------------------------------
Total pension related items per share $ (0.21) $ (0.17) $ (0.48) $ (0.46)
=============================================
<FN>
(1) SFAS No. 87 income on qualified U.S. plans
(2) SFAS No. 87 expense on qualified foreign plans
</FN>
</TABLE>
<PAGE>
Form 10-Q 18.
For the quarter ended September 30, 1996 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts, except per share amounts, are in thousands)
Results of Operations (continued)
The pension credit results from a plan that is funded in excess of the projected
benefit obligation. The plan is overfunded primarily due to favorable investment
performance.
The income tax provision resulted in effective tax rates of 37 percent and 36
percent for the third quarter and nine months of 1996 and 38 percent and 36
percent for the same periods in 1995. The effective rates for the three months
ended September 30, 1996 and 1995 were higher than the U.S. statutory tax rate
primarily due to state income taxes as well as foreign taxes, based on gross
receipts, which are applicable to certain international projects.
Financial Condition
Cash and cash equivalents, as shown in the Consolidated Statements of Cash
Flows, decreased by $34,633 during the first nine months of 1996. Net cash used
by operating activities of $10,416 reflected an increase in operating working
capital (which consists of accounts receivable and costs and revenues recognized
in excess of billings less accounts payable and billings in excess of costs and
revenues recognized) of $34,165 (which includes the effect of the restructuring
and other charges and the transfer of the Auburn VPS Partnership assets to the
construction lenders) resulting primarily from increased business activity. Net
cash provided by investing activities of $32,562 reflects maturities of U.S.
Government securities offset by purchases of equipment used in the Company's
operations. Net cash used by financing activities of $56,779 reflects the
payment of dividends, repayment of long-term debt and purchases of common stock
under the Company's ongoing share repurchase program as explained in Note J to
the consolidated financial statements. Total debt of $37,118 at September 30,
1996 compares to $103,821 at year-end 1995. The significant decrease in total
debt is due to the extinguishment of the $48,750 of Auburn VPS Partnership debt.
The Company believes that the types of businesses in which it is engaged require
that it maintain a strong financial condition. The Company has on hand and has
access to sufficient sources of funds to meet its anticipated operating,
dividend and capital expenditure needs. Cash on hand and temporary investments
provide adequate operating liquidity. Additional liquidity is provided through
lines of credit and revolving credit facilities which total $33,608, of which
$23,608 was available at September 30, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 33784
<SECURITIES> 3983
<RECEIVABLES> 163625
<ALLOWANCES> 3544
<INVENTORY> 0
<CURRENT-ASSETS> 326133
<PP&E> 318799
<DEPRECIATION> 174567
<TOTAL-ASSETS> 619779
<CURRENT-LIABILITIES> 221023
<BONDS> 24681
0
0
<COMMON> 17731
<OTHER-SE> 293533
<TOTAL-LIABILITY-AND-EQUITY> 619779
<SALES> 0
<TOTAL-REVENUES> 856752
<CGS> 0
<TOTAL-COSTS> 810650
<OTHER-EXPENSES> 77687
<LOSS-PROVISION> 990
<INTEREST-EXPENSE> 6160
<INCOME-PRETAX> (35201)
<INCOME-TAX> (12793)
<INCOME-CONTINUING> (22408)
<DISCONTINUED> 0
<EXTRAORDINARY> 6787
<CHANGES> 0
<NET-INCOME> (15621)
<EPS-PRIMARY> (1.17)
<EPS-DILUTED> (1.17)
</TABLE>
