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FORM 10 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from..........to..........
Commission file number 1-1228
STONE & WEBSTER, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 13-5416910
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
245 Summer Street, Boston, MA 02210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (617) 589-5111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Stock - $1 par New York Stock Exchange
Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X . No_____.
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Form 10-K 1996 Stone & Webster, Incorporated
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
$390,000,000 approximately, based on the closing price on the New York
Stock Exchange Composite Transactions as of January 31, 1997.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock: 12,806,666 shares as of January 31, 1997.
The following documents, or portions thereof as indicated in the following
report, are incorporated by reference in the Parts of Form 10-K indicated:
Part Document
III Proxy Statement in connection with the registrant's 1997
Annual Meeting of Shareholders
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Form 10-K 1996 Stone & Webster, Incorporated
PART I
Item 1. Business.
Registrant was incorporated as a Delaware corporation in 1929. Registrant,
through its subsidiaries, is principally engaged in providing professional
engineering, construction and consulting services. The Stone & Webster
organization also owns cold storage warehousing facilities in Atlanta and
Rockmart, Georgia; owns and operates the Stone & Webster office buildings in
Boston, Massachusetts, Cherry Hill, New Jersey, and Houston, Texas; and
develops, takes ownership interests in and operates projects for which it may
provide engineering, construction and other services. Services of the nature
inherent in these businesses are provided to clients and customers.
The information relating to the business segments of the registrant
required by this Item is filed herewith under "Business Segment Information" of
the Financial Information section included in Appendix A to this report. This
information indicates the amounts of revenues from sales to unaffiliated
customers (from which percentage of revenues information is available),
operating income and identifiable assets attributable to the registrant's
industry segments for the three years ended December 31, 1996. Also see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" filed herein in Appendix A.
Engineering, Construction and Consulting Services
Registrant, through its subsidiaries, provides complete engineering,
design, construction and full environmental services for power, process,
governmental, industrial, transportation and civil works projects. It also
constructs from plans developed by others, makes engineering reports and
business examinations, undertakes consulting engineering work, and offers
information management and computer systems expertise to clients. It also offers
a full range of services in environmental engineering and sciences, including
complete execution of environmental projects. It remains active in the nuclear
power business, for utility and governmental clients, and continues to undertake
a significant amount of modification and maintenance work on existing nuclear
power plants. In addition, it offers advanced computer systems development
services and products in the areas of information systems, systems integration,
computer-aided design, expert systems, and database management. It also develops
projects in which registrant or its subsidiaries may take an ownership position
and for which other subsidiaries may provide engineering, construction,
management and operation and maintenance services. Comprehensive management
consulting and financial services are also furnished for business and industry,
including public utility, transportation, pipeline, land development, petroleum
and manufacturing companies, banking and financial institutions and government
agencies, and appraisals are performed for industrial companies and utilities.
During 1994, the registrant's engineering, construction and consulting
services segment modified its approach to its market and strengthened its
strategic plan by implementing a new organizational structure. This
organizational structure established four "Global Business Units" (GBU)
responsible for marketing and executing projects within a sector on a worldwide
basis. Each GBU also is accountable for achieving goals established for that
market sector. These four GBUs are in the power, process,
environmental/infrastructure and industrial sectors. The new structure enables
the registrant to capitalize on its international relationships, experience and
abilities. Where appropriate, lump sum, turnkey contracts are employed as a
means of providing comprehensive services. Registrant's engineering,
construction and consulting business segment continues to focus on its strengths
involving technology, for example, in advanced applications in both refinery and
ethylene process work and in development of expert systems.
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Form 10-K 1996 Stone & Webster, Incorporated
Cold Storage Services
Modern public cold storage warehousing, blast-freeze and other
refrigeration and consolidation services are offered in the Atlanta, Georgia,
metropolitan area to food processors and others at three facilities with
approximately 24.8 million cubic feet of freezer and controlled temperature
storage space, including a facility in Rockmart, Georgia which has approximately
7.2 million cubic feet of such space. In view of increased demand for services
relating to food exports, this subsidiary's strategic plans resulted in the
construction of additional blast-freezing cells in 1995. During 1996, the
Rockmart facility was expanded by the addition of 3.7 million cubic feet of
fully racked freezer space. Offices and processing areas are leased to
customers. Comprehensive freezer services are offered to customers. The Rockmart
site has sufficient land to allow for future expansion and to make additional
space available to food processors. In addition, the facility features direct
loading of product onto distribution trucks from railroad cars delivered on two
railroad lines which serve the Rockmart plant.
Other
During 1995, registrant sold all of its natural gas and oil properties and
interests, as well as its interests in a large corporate office and business
center in Tampa, Florida.
Competition
The principal business activities of registrant in the engineering,
construction and consulting services segment are highly competitive, with
competition from a large number of well-established concerns, some privately
held and others publicly held. Inasmuch as registrant is primarily a service
organization, it competes in its areas of interest by providing services of the
highest quality. Registrant believes it occupies a strong competitive position
but is unable to estimate with reasonable accuracy the number of its competitors
and its competitive position in the engineering, construction and consulting
services industry.
The business activities of registrant in the cold storage services segment
are performed in the Atlanta and northwestern areas of Georgia. Competition in
this market area comes from a relatively small number of companies offering
similar types of services. Registrant's subsidiary competes in this field by
providing services of the highest quality, emphasizing responsiveness to the
needs of its customers and to the end receiver of the customers' product. As
part of that commitment, it provides modern data processing and communication
equipment for its customers. Registrant believes it occupies a strong
competitive position in this area.
Backlog
Backlog figures for the registrant's engineering, construction and
consulting services segment historically have not been considered by the
registrant to be indicative of any trend in these activities nor material for an
understanding of its business. At any given date, the portion of engineering and
construction work to be completed within one year can only be estimated subject
to adjustments, which can in some instances be substantial, based on a number of
factors. Clients frequently revise the scope of the services for which they have
contracted with subsidiaries of registrant, especially on projects subject to
regulatory approval or which require environmental permitting/licensing. Scope
increases and decreases of substantial magnitude are commonplace on such
projects and directly affect backlog. Additionally, delays are common and affect
the timing of when backlog would be translated into revenues. As a result, the
aggregate of such figures in relation to registrant's consolidated revenues
could be misleading unless understood in light of the foregoing contingencies.
The registrant's backlog information is calculated on the basis of the total
value to the registrant's subsidiaries of all services to be rendered under the
available contracts plus the value of equipment, material, services and
subcontracts for which the contracting subsidiary has overall technical and
commercial responsibility. The following backlog information is provided as of
December 31, 1996 and December 31, 1995.
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Form 10-K 1996 Stone & Webster, Incorporated
The registrant's engineering subsidiaries' backlog as of December 31, 1996
amounted to $2,487.6 million in comparison to $1,917.0 million as of December
31, 1995. New work awards in 1996 were $1,687.6 million. Also see "Revenue,
Orders and Backlog" in the "Management's Discussion and Analysis" in the 1996
comparison with 1995 filed herein in Appendix A. Although the majority of the
subsidiaries' contracts may be reduced or cancelled by the client at any time,
significant reductions in scope are unusual.
The backlog at December 31, 1996 includes $566.0 million for contracts won,
but still under final negotiation.
Approximately 34% of the total backlog as of December 31, 1996 is expected
to be realized within the next year.
In addition, approximately 40% of the December 31, 1996 backlog amount is
from contracts with international clients.
BACKLOG
Engineering, Construction and Consulting Services
(in Millions of Dollars)
As of New Changes Revenue As of
12/31/95 Work In Scope Recognized* 12/31/96
$1,917.0 $1,687.6 $ 26.6 ($1,143.6) $2,487.6
*Revenue Recognized reflects revenues of the engineering,
construction and consulting segment.
Backlog figures in the cold storage industry are not provided since, in the
registrant's opinion, such information is not necessarily meaningful because of
the nature of the food processing, storage and distribution business where
repetitive services of short duration are the norm.
Clients
Although registrant's subsidiaries in the engineering, construction and
consulting services segment have numerous clients and registrant historically
has not had a continuing dependence on any single client, one or a few clients
has in the past and may in the future contribute a substantial portion of the
registrant's consolidated revenues in any one year or over a period of several
consecutive years due to the size of major engineering and construction
projects. The registrant's business is not necessarily dependent upon
sustaining, and the registrant does not necessarily expect to sustain in future
years, the level of revenues contributed by particular clients in any given year
or period of consecutive years. Once the subsidiary commences work on a
particular project, it is unlikely that the client would terminate the
involvement of the subsidiary prior to completion of the project, unless the
project itself is cancelled or postponed. Historically the registrant's
subsidiaries have provided ongoing services to clients following completion of
major projects for them. Nonetheless, the registrant must obtain new engineering
and construction projects, whether from existing clients or new clients, in
order to generate revenues in future years as existing projects are completed.
Consequently, the registrant has not considered the names of clients to be
material to investors' understanding of the registrant's business taken as a
whole. Prior to 1994, the registrant reported this information on the basis of
gross earnings (revenues less direct costs). Stated in terms of total revenues
(as described under Backlog, above), which is consistent with registrant's
financial reporting in this report, Tennessee Valley Authority, which has been
and continues to be a significant client, accounted for approximately 18% and
13% of consolidated revenues for 1994 and 1995, respectively. In addition, in
1994 Indianapolis Power and Light Company contributed 11% of consolidated
revenues. In 1996, the engineering, construction and consulting segment had no
client who accounted for more than 10% of consolidated revenues.
The cold storage and related activities segment had no client who accounted
for 10% or more of consolidated revenues in 1994, 1995, or 1996.
5
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Form 10-K 1996 Stone & Webster, Incorporated
Environmental Compliance
Compliance by registrant and its subsidiaries with Federal, State and local
provisions regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, has had, and is
expected to have, no material adverse effect upon the capital expenditures,
earnings and competitive position of registrant and its subsidiaries. Also see
Note (M) to the consolidated financial statements as set forth under "Notes to
Consolidated Financial Statements" of the Financial Information section filed
herewith in Appendix A to this report.
The engineering, construction and consulting services segment has
benefitted from the extensive amount of environmental legislation and regulatory
activity now in place because the effect of such regulations on the businesses
of the segment's clients has increased the demand for environmental services
provided by registrant's subsidiaries. This demand for such services to help
clients in their own environmental compliance efforts is expected to continue.
Employees
The registrant and its subsidiaries had approximately 5,400 regular
employees as of December 31, 1996. In addition, there are at times several
thousand craft employees employed on projects by subsidiaries of registrant. The
number of such employees varies in relation to the number and size of the
projects actually undertaken at any particular time.
Executive Officers of the Registrant.
Name Age Position Held Held Since
H. Kerner Smith 52 President and 2/12/96
Chief Executive Officer
Director
Edward J. Walsh 45 Executive Vice President 8/15/95
Director 8/31/95
Robert C. Wiesel 46 Executive Vice President 12/17/96
Jeremiah P. Cronin 53 Executive Vice President 3/1/95
Gerard A. Halpin, III 39 Treasurer 12/2/96
Daniel P. Levy 48 Corporate Controller 7/19/95
Peter F. Durning 58 Secretary 7/20/94
General Counsel 1/9/95
Each of the executive officers listed above has held executive or
administrative positions with the registrant or one or more of its subsidiaries
for at least the last five years, except that Mr. Smith, who joined the
registrant in February 1996, had been President and Chief Executive Officer of
Deutsche Babcock Technologies, Inc. and a managing director of Deutsche Babcock
A G during the last five years; Mr. Cronin, who joined the registrant in 1995,
had been Vice President-Finance and Chief Financial Officer of Crane Co. since
1989; Mr. Halpin, who joined the registrant in 1996, had been Assistant
Treasurer of General Electric Company since 1991; and Mr. Levy, who joined the
registrant in 1995, had been Vice President, Finance and Administration, of
Huttig Sash & Door Co. since 1991.
Each officer was elected to hold office until the first meeting of the
Board of Directors after the next Annual Meeting of the Shareholders and until
his successor is duly elected and qualified, except that Mr. Levy was appointed
to his office by the Board of Directors. The next Annual Meeting of Shareholders
is scheduled to be held May 8, 1997.
6
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Form 10-K 1996 Stone & Webster, Incorporated
Item 2. Properties.
The important physical properties of registrant and its subsidiaries are as
follows:
A. A 14 story office building with approximately 800,000
square feet of office space at 245 Summer Street, Boston,
Massachusetts, which serves as corporate headquarters
for the organization and is approximately 60% occupied by
registrant's subsidiaries with the balance held for
rental to others.
B. An 8 story office building with approximately 140,000
square feet of office space at 51 Sleeper Street, Boston,
Massachusetts, which is held for rental to others.
C. A 6 story office building with approximately 450,000
square feet of office space at 3 Executive Campus, Cherry
Hill, New Jersey, which is approximately 50% occupied by
registrant's subsidiaries with the balance held for rental
to others.
D. A 6 story office building with approximately 320,000
square feet of office space at 1430 Enclave Parkway,
Houston, Texas which is substantially occupied by
subsidiaries of registrant.
E. Approximately 17.6 million cubic feet of cold storage
plant in two facilities in Atlanta, Georgia, and
approximately 7.2 million cubic feet of cold storage space
in a third facility near Rockmart, Georgia.
In addition, interests in a 50 megawatt electrical co-generation plant in
Binghamton, New York, in which a subsidiary owned a 33% interest, and a 200 ton
per day paper fiber recycling plant in Auburn, Maine, in which a subsidiary
owned a 94.3% interest, were disposed of in 1996 (see Notes (C) and (J) to the
Consolidated Financial Statements filed herein in Appendix A.)
Except as specified above, all of the properties listed above are owned in
fee by subsidiaries of the registrant. In addition to the foregoing, registrant
and its subsidiaries occupy office space in various cities, in premises leased
from others for varying periods - both long and short term - the longest of
which extends to 2008.
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Form 10-K 1996 Stone & Webster, Incorporated
Item 3. Legal Proceedings.
(a) Stone & Webster Engineering Corporation ("SWEC"), a subsidiary
of the registrant, has been named as a defendant, along with numerous other
defendants, in a number of complaints which seek damages arising out of alleged
personal injuries and/or wrongful death due to exposure to asbestos products
negligently utilized by the defendants.
Many of these complaints have been dismissed or withdrawn, and SWEC has
settled many of these cases for amounts which, when taken together, do not have
a material impact on registrant's financial condition or results of operations.
Registrant believes that there has not been, nor is there a probability that
there will be, any accrual of a material liability of the registrant as a result
of the asbestos claims received to the present.
SWEC believes that it has strong factual and legal defenses to the
remaining claims and intends to defend vigorously.
(b) Stone & Webster Engineering Corporation provided engineering
services to Vista Chemical Company ("Vista") at its Westlake, Louisiana chemical
plant. In 1991, Vista filed suit against another company and SWEC, contending
that the engineering work performed by SWEC was performed late and not in
accordance with the standards of professional practice. Vista sought to recover
costs incurred to complete the project in excess of the original estimate,
certain costs that it incurred to operate the plant, and lost profits from its
operations. SWEC denied the material allegations contained in the plaintiff's
petition. In October 1996, this action was settled by agreement among the
parties pursuant to which SWEC contributed approximately $2,500,000.
(c)Registrant and two of its subsidiaries have been named as defendants
in two pending legal actions brought by Blackstone Valley Electric Company in
January 1994 in the United States District Court for the District of
Massachusetts (along with another company named as a defendant) and in March
1996 in the United States District Court for the District of Rhode Island, and
have received other claims from private parties seeking contribution for costs
incurred or to be incurred in remediation of sites under the Federal
Comprehensive Environmental Response, Compensation and Liability Act and similar
state statutes. These matters relate to business activities which took place
generally in the first half of this century. No governmental authority has
sought similar redress from registrant or its subsidiaries (except in the case
of one subsidiary in limited connection with claims made primarily with respect
to clients of that subsidiary) nor has the registrant been determined to be a
Potentially Responsible Party by the Federal or any state or local governmental
authority, although some information has been requested with regard to
environmental matters. Based on presently known facts and existing laws and
regulations, registrant and its subsidiaries believe that they have valid legal
defenses to such actions and that the costs associated with such matters,
including legal costs, should be mitigated by the presence of other entities
which may be Potentially Responsible Parties, by contractual indemnities, and by
insurance coverage.
Registrant and one subsidiary are plaintiffs in a separate action to
recover damages, attorneys' fees and other monetary relief from certain of their
insurance carriers in connection with such matters. In April 1996, plaintiffs'
motion for summary judgment on one carrier's duty to defend plaintiffs in two
matters, including the first Blackstone action, was granted. No recognition has
been made in the financial statements for any potentially recoverable amounts.
(d) Also see Note (M) to the consolidated financial statements as set forth
under "Notes to Consolidated Financial Statements" of the Financial Information
section filed herewith in Appendix A to this report.
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Form 10-K 1996 Stone & Webster, Incorporated
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.
The information required by Item 5 is filed herewith under "Market and
Dividend Information" of the Financial Information section included in Appendix
A to this report.
Item 6. Selected Financial Data.
The information required by Item 6 is filed herewith under "Selected
Financial Data" of the Financial Information section included in Appendix A to
this report.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The information required by Item 7 is filed herewith under "Management's
Discussion and Analysis" of the Financial Information section included in
Appendix A to this report.
Item 8. Financial Statements and Supplementary Data.
The information required by Item 8 is filed herewith under the Consolidated
Financial Statements of Stone & Webster, Incorporated and Subsidiaries together
with the report of Coopers & Lybrand L.L.P. dated February 20, 1996 of the
Financial Information section included in Appendix A to this report.
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
In accordance with General Instruction G(3) to Form 10-K, the
information called for in this Item 10 with respect to Directors is not
presented here since such information is included in the definitive proxy
statement which involves the election of directors which will be filed pursuant
to Regulation 14A not later than 120 days after the close of the fiscal year,
and such information is hereby incorporated by reference from Part I of such
proxy statement.
See also the section captioned "Executive Officers of the Registrant" under
Item 1 of Part I herein.
Item 11. Executive Compensation.
In accordance with General Instruction G(3) to Form 10-K, the
information called for in this Item 11 is not presented here since such
information is included in the definitive proxy statement which involves the
election of directors which will be filed pursuant to Regulation 14A not later
than 120 days after the close of the fiscal year, and such information is hereby
incorporated by reference from Part I of such proxy statement, except that the
information included therein which is not required to be "filed" in accordance
with Regulation S-K, Item 402(a)(8), including the Report of the Compensation
Committee and the Performance Graph, is not incorporated by reference as part of
this report on Form 10-K.
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Form 10-K 1996 Stone & Webster, Incorporated
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
In accordance with General Instruction G(3) to Form 10-K, the
information called for in this Item 12 is not presented here since such
information is included in the definitive proxy statement which involves the
election of directors which will be filed pursuant to Regulation 14A not later
than 120 days after the close of the fiscal year, and such information is hereby
incorporated by reference from Part I of such proxy statement.
Item 13. Certain Relationships and Related Transactions.
In accordance with General Instruction G(3) to Form 10-K, the
information called for in this Item 13 is not presented here since such
information is included in the definitive proxy statement which involves the
election of directors which will be filed pursuant to Regulation 14A not later
than 120 days after the close of the fiscal year, and such information is hereby
incorporated by reference from Part I of such proxy statement.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K.
(a) Documents filed as part of the report:
1. Financial Statements and Financial
Statement Schedule
The following items appear in the Financial Information section
included as Appendix A to this report:
Management's Discussion and Analysis
Financial Statements:
Consolidated Statements of Operations for the Three
Years Ended December 31, 1996
Consolidated Balance Sheets as at December 31,
1996 and 1995
Consolidated Statements of Shareholders' Equity
for the Three Years Ended December 31, 1996
Consolidated Statements of Cash Flows for the
Three Years Ended December 31, 1996
Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
Selected Financial Data
Market and Dividend Information
Report of Management
Business Segment Information
Financial Statement Schedule:
Financial Statement Schedule for the Three
Years Ended December 31, 1996:
II. Valuation and Qualifying Accounts
Report of Independent Accountants
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Form 10-K 1996 Stone & Webster, Incorporated
2. Exhibits:
(3) Articles of Incorporation and By-laws -
(i) The Restated Certificate of Incorporation of registrant which
appears in Exhibit 3 (a) to registrant's Form 10-K for the fiscal
year ended December 31, 1990 is hereby incorporated by reference.
(ii) The By-laws of registrant, as amended, which appear in Exhibit 3
(ii) to registrant's Form 10-K for the fiscal year ended December
31, 1995 are hereby incorporated by reference.
(4) Instruments defining the rights of security holders,
including indentures -
(i) As of December 31, 1996, registrant and its subsidiaries had
outstanding long-term debt (excluding current portion) totaling
approximately $24,260,000 principally in connection with
mortgages relating to real property for a subsidiary's office
building, 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.
(ii) Rights Agreement, dated as of August 15, 1996, between Stone &
Webster, Incorporated and ChaseMellon Shareholder Services,
L.L.C., which includes the form of Right Certificate as Exhibit A
and the Summary of Rights to Purchase Common Shares as Exhibit B
(incorporated by reference to Exhibit 1.1 to registrant's
Registration Statement on Form 8-A filed on August 16, 1996.)
(10) Material contracts -
(a) The Restricted Stock Plan of Stone & Webster, Incorporated,
approved by the Stockholders of registrant in 1976, as amended
and approved by the Stockholders of registrant in 1988, and the
form of grant under the Restricted Stock Plan (incorporated by
reference to Exhibit 10 (a) to registrant's Form 10-K for the
fiscal year ended December 31, 1988).
(b) 1995 Stock Option Plan of Stone & Webster, Incorporated
(incorporated by reference to Exhibit 4-b to the registrant's
Registration Statement on Form S-8 filed on June 22, 1995 (File
No. 33-60489)).*
(c) 1997 Stock Plan for Non-Employee Directors of Stone & Webster,
Incorporated (filed herewith as Exhibit 10 (c)).*
(d) Forms of agreements between registrant and eleven (11) officers
of registrant and its subsidiaries, entered into as of September
1, 1995, relating to certain employment arrangements that would
become operable only in the event of a "change of control" (as
defined in the agreements) and that would have a potential
aggregate cost to registrant (assuming compensation levels of
September 1, 1995) if triggered as provided in the agreements of
less than $5 million (incorporated by reference to Exhibit 10 to
the registrant's Form 10-Q for the quarter ended September 30,
1995).*
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Form 10-K 1996 Stone & Webster, Incorporated
(e) The following forms of agreements with H. Kerner Smith relating
to employment with registrant as President and Chief Executive
Officer are incorporated by reference to Exhibit 10 (e) to the
registrant's Form 10-K for the fiscal year ended December 31,
1995: a form of Employment Agreement filed therewith as Exhibit
10 (e)(i); a form of Change of Control Employment Agreement filed
therewith as Exhibit 10 (e)(ii); and a form of Stock Option Grant
filed therewith as Exhibit 10 (e)(iii). An Amendment dated
January 15, 1997 to the Employment Agreement (10) (e)(i) is filed
herewith as Exhibit 10 (e)(iv). *
(21) Subsidiaries of the registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule.
______________
* Exhibits 10 (b) through (e) are compensatory plans, contracts and
arrangements in which directors and certain executive officers
participate.
(b) Reports on Form 8-K
Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this report.
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Form 10-K 1996 Stone & Webster, Incorporated
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
STONE & WEBSTER, INCORPORATED
By
JEREMIAH P. CRONIN
Jeremiah P. Cronin
Executive Vice President
(Duly Authorized Officer and
Chief Financial Officer)
DANIEL P. LEVY
Daniel P. Levy
Corporate Controller
(Principal Accounting Officer)
Date: February 25, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
February 25, 1997 H. KERNER SMITH
H. Kerner Smith
President and Chief Executive Officer
Director
" EDWARD J. WALSH
Edward J. Walsh
Executive Vice President
Director
" KENT F. HANSEN
Kent F. Hansen
Chairman of the Board
Director
" DONNA FITZPATRICK BETHELL
Donna Fitzpatrick Bethell
Director
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Form 10-K 1996 Stone & Webster, Incorporated
Date: February 25, 1997 FRANK J. A. CILLUFFO
Frank J. A. Cilluffo
Director
" ELVIN R. HEIBERG III
Elvin R. Heiberg III
Director
" DAVID N. MCCAMMON
David N. McCammon
Director
" J. ANGUS MCKEE
J. Angus McKee
Director
" JOHN P. MERRILL, JR.
John P. Merrill, Jr.
Director
" BERNARD W. REZNICEK
Bernard W. Reznicek
Director
" PETER M. WOOD
Peter M. Wood
Director
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<PAGE>
Form 10-K 1996 Stone & Webster, Incorporated
APPENDIX A
STONE & WEBSTER, INCORPORATED AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION APPENDIX
<TABLE>
<CAPTION>
Page
<S> <C>
Management's Discussion and Analysis of Financial
Condition and Results of Operations A-2
Financial Statements:
Consolidated Statements of Operations for the Three Years Ended
December 31, 1996 A-10
Consolidated Balance Sheets as at December 31, 1996 and 1995 A-11
Consolidated Statements of Shareholders' Equity for the Three Years
Ended December 31, 1996 A-12
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1996 A-13
Summary of Significant Accounting Policies A-14
Notes to Consolidated Financial Statements A-15
Selected Financial Data and Market and Dividend Information A-27
Report of Management A-28
Business Segment Information A-29
Financial Statement Schedule:
Financial Statement Schedule for the Three Years
Ended December 31, 1996:
II - Valuation and Qualifying Accounts A-30
Report of Independent Accountants A-31
</TABLE>
A-1
<PAGE>
Form 10-K 1996 Stone & Webster, Incorporated
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
As discussed in the 1994 Annual Report to Shareholders, the Company changed its
reporting format and now reports revenue instead of gross earnings to be more
consistent with industry practice. Engineering, Construction and Consulting
revenue represents billings for the total value of all services including plant,
equipment, materials and subcontractors for which the engineering companies are
contractually responsible. In 1995, the Company further changed its reporting to
present Operating Income (Loss) and has reclassified profits on investment
securities and dividend and interest income to Other Income (Deductions) from
Revenue. (See Note A to the Consolidated Financial Statements.)
1996 COMPARED WITH 1995
Revenue for 1996 was $1,164,837, an increase of 16 percent from the $1,002,819
reported in 1995. The increased revenue reflected continued improvement in the
Company's Engineering, Construction and Consulting segment. New orders for 1996
of $1,714,139 increased by 27 percent from the $1,344,587 in new orders reported
in 1995. Backlog increased by 30 percent to $2,487,552 from $1,917,000.
Operating income for 1996, from ongoing operations (before restructuring, other
charges and asset divestitures) was $39,822 compared with operating income from
ongoing operations in 1995 of $37,498. Earnings per share from ongoing
operations improved to $2.04 per share in 1996 from $1.78 per share in 1995.
Including all restructuring, other charges and asset divestitures, the 1996
operating loss was $25,920 compared with operating income of $35,041 in 1995.
The net loss in 1996 was $10,644 compared with net income of $14,880 for the
prior year. Components of earnings per share in 1996 and 1995 were:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Operations $ 1.35 $ 1.26
Pension related items 0.69 0.52
- -------------------------------------------------------------------------------
Earnings per share from
ongoing operations 2.04 1.78
Divested operations (0.50) (0.22)
Restructuring, other charges
and asset divestitures (2.34) (0.52)
- -------------------------------------------------------------------------------
Earnings per share $ (0.80) $ 1.04
- -------------------------------------------------------------------------------
</TABLE>
RESTRUCTURING ACTIONS - 1996 AND 1995
Both 1996 and 1995 results included significant charges attributable to
restructuring, other charges and asset divestitures, and also included the
operating results of divested operations.
In the third quarter of 1996, the Company recorded restructuring and other
charges of $54,424 in connection with a major operational and financial
restructuring. This included a charge of $30,509 ($19,974 after tax, or $1.49
per share) to write down certain Boston and New Jersey properties to fair value
and to provide for anticipated losses in subleasing its New York office. This
charge resulted from conclusions reached in a review of the Company's
organizational structure and asset base and development of an updated strategic
plan. The Company concluded, in the third quarter of 1996, that its investments
in real estate could be better deployed in its core business and that office
consolidation was necessary to more efficiently use existing facilities. The
Company decided that its corporate headquarters in New York would be
consolidated with the Boston headquarters of the Company's principal operating
subsidiary, Stone & Webster Engineering Corporation, and its New York office
space would be offered for sublease. In addition, the Company intends to sell
its 800,000 square foot building in Boston (the estimated fair value of this
building exceeds its carrying amount) and to 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. The total carrying amount of the properties written down, prior to the
write-down, was $41,022 as of September 30, 1996. The real estate related 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 fair value and $10,372 ($6,223
after tax, or $.46 per share) for estimated sublease losses on New York office
space that will no longer be utilized. In addition to this charge, in the first
quarter of 1996, the Company recorded a charge of $1,832 for the expected
sublease loss for a vacant floor in the New York office.
Also in the third quarter of 1996, the Company recorded a charge of $12,377
($7,553 after tax, or $.57 per share) to recognize several contract-related and
operational items. Among these were provisions for resolution, reached in 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-related matters.
The third quarter restructuring also included divestiture of the Auburn VPS
Partnership. The partnership, which was 94.3% owned by the Company, had been
unable to meet its debt service requirements since the end of the first quarter
of 1996, resulting in discussions with its lenders regarding restructuring its
debt. In an agreement reached with the partnership's lenders in the third
quarter of 1996, 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 was a loss of $989 or $.08 per share recorded in
the third quarter of 1996, which includes a loss on forfeiture 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. Losses on
the operation of the Auburn VPS Partnership for 1996 and 1995, after interest
expense of $4,125 and $1,329, respectively, were $11,640 ($6,984 after tax, or
$.52 per share) and $5,410 ($3,285 after tax, or $.23 per share), respectively.
A-2
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
In the fourth quarter of 1996, a charge of $4,172 ($2,712 after tax, or $.20 per
share) was recorded to write down the Company's one-third interest in the
Binghamton Cogeneration Partnership to its estimated fair value. During this
quarter, an agreement was reached with buyers to sell the partnership's power
purchase agreement. In addition, an agreement was reached with the other
partners to terminate the various partnership supply and purchase contracts and
to cease partnership operations. The fair value was determined based on the
expected cash distribution resulting from these transactions. The partnership's
sale of the power purchase agreement was completed in January 1997. Income from
the Binghamton Cogeneration Partnership was $481 ($289 after tax, or $.02 per
share) in 1996 and $380 ($228 after tax, or $.02 per share) in 1995.
The financial statement impact of restructuring, other charges, and asset
divestitures in 1996, which were recorded in the Engineering, Construction and
Consulting segment, is summarized in the following table:
1996 - RESTRUCTURING, OTHER CHARGES AND ASSET DIVESTITURES (3)
<TABLE>
<CAPTION>
Binghamton Divested Contract 1996
1996 and Auburn Partnership Real Estate Adjustments Ongoing
As Reported Divestitures(1) Operations(2) Adjustments and Other Operations
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 1,164,837 $ -- $ 2,345 $ -- $ -- $1,162,492
Cost of Revenue 1,099,064 4,172 6,721 -- 9,919 1,078,252
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Profit (Loss) 65,773 (4,172) (4,376) -- (9,919) 84,240
Selling, General and
Administrative Expenses 91,693 11,538 2,770 30,509 2,458 44,418
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) (25,920) (15,710) (7,146) (30,509) (12,377) 39,822
Income (Loss) Before Extraordinary Item (17,431) (10,488) (6,695) (19,974) (7,553) 27,279
Extraordinary Item-
Gain on Extinguishment of Debt 6,787 6,787 -- -- -- --
Net Income (Loss) $ (10,644) $ (3,701) $(6,695) $(19,974) $ (7,553) $ 27,279
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) per share $ (0.80) $ (0.28) $ (0.50) $ (1.49) $ (0.57) $ 2.04
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes loss on Binghamton Cogeneration Partnership write-down and a loss
on the divestiture of the Auburn VPS Partnership.
(2) Includes operations of the Auburn VPS Partnership and the Binghamton
Cogeneration Partnership.
(3) Does not include the effect of the following items: a charge of $1,832 for
the expected sublease loss for a vacant floor in the New York office;
insurance reimbursements of legal fees totaling $1,890; and a charge of
$2,500 for the settlement of a lawsuit relating to services performed in
the 1980's.
In 1995, the Company divested its Real Estate Development business and its Oil
and Gas Production business. The loss on these divestitures was $12,443 ($7,511
after tax, or $.52 per share) consisting of the loss on the sale of the Real
Estate Development business of $18,570 and a gain on the sale of the Oil and Gas
Production business of $6,127. The Real Estate Development business was sold for
$42,500 in cash. Proceeds were, in part, used to retire $26,360 of related
mortgage debt. The assets sold consisted primarily of land held for resale and
buildings in a 1,000 acre office park development near Tampa, Florida. In
preparation for this transaction, the Company purchased a 50% ownership interest
and related mortgage debt in one building from a joint venture partner for a net
cash investment of $2,458 and assumption of mortgage debt of $7,360. This
interest was subsequently resold to the purchaser of the property. The Company
sold its Oil and Gas Production business for $16,500 in cash. Operating income
from these divested operations in 1995 was $1,244. Primarily due to interest on
mortgage debt of the Real Estate Development business, the divested operations
resulted in a loss of $256 ($153 after tax, or $.01 per share).
The financial statement impact of asset divestitures and divested operations in
1995 is summarized in the following table:
1995 - ASSET DIVESTITURES AND DIVESTED OPERATIONS (4)
<TABLE>
<CAPTION>
Non-Core Divested Divested 1995
1995 Business Business Partnership Ongoing
As Reported Divestiture(1) Operations(2) Operations(3) Operations
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $1,002,819 $ -- $12,347 $ 770 $989,702
Cost of Revenue 918,169 -- 7,948 3,562 906,659
- ----------------------------------------------------------------------------------------------------------------
Gross Profit (Loss) 84,650 -- 4,399 (2,792) 83,043
Selling, General and
Administrative Expenses 49,609 -- 3,155 909 45,545
- ----------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 35,041 -- 1,244 (3,701) 37,498
Income (Loss) Before Tax 23,471 (12,443) (256) (5,030) 41,200
Net Income (Loss) $ 14,880 $ (7,511) $ (153) $(3,057) $ 25,601
- ----------------------------------------------------------------------------------------------------------------
Income (Loss) per share $ 1.04 $ (0.52) $ (0.01) $ (0.21) $ 1.78
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes loss on divestiture of the Company's Real Estate Development
business and gain on the sale of its Oil and Gas Production business.
(2) Includes operations of the Company's Real Estate Development business and
Oil and Gas Production business.
(3) Includes operations of the Auburn VPS Partnership and the Binghamton
Cogeneration Partnership subsequently divested in 1996.
(4) Does not include the effect of the following items: a net insurance
recovery of $7,220; a net charge of $2,500 related to environmental
matters; a write-down of $6,500 related to capitalized costs associated
with purchased technology in a standardized, precertified design for
nuclear power plants; and a charge of $2,315 for an early retirement
program related to a reduction of corporate staff.
A-3
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
The following segment discussion summarizes business operations excluding
restructuring, other charges, and asset divestitures. In 1996, all
restructuring, other charges, and asset divestitures were reported in the
Engineering, Construction and Consulting segment. In 1995, the Divested
Partnership Operations were reported in the Engineering, Construction and
Consulting segment and the Non-core Business Divestiture and Divested Business
Operations were reported in the Other segment.
ENGINEERING, CONSTRUCTION AND CONSULTING SEGMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Percent
1996 1995 Incr/(Decr) Increase
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $1,143,587 $969,284 $174,303 18%
Revenue (excluding
Divested Partnerships) 1,141,242 968,514 172,728 18%
Operating Income (Loss) (20,249) 38,941 (59,190) --
Operating Income,
excluding restructuring,
other charges, and
asset divestitures 45,493 42,642 2,851 7%
Identifiable Assets 625,466 595,699 29,767 5%
- -------------------------------------------------------------------------------
</TABLE>
Late in 1994, the Company's principal segment was reorganized to establish four
Global Business Units serving different sectors of the market for Engineering,
Construction and Consulting services. The four Global Business Units are
responsible for marketing and executing projects within the Power, Process,
Environmental/Infrastructure and Industrial business sectors on a worldwide
basis. Each Global Business Unit has been held accountable for achieving
marketing and profitability objectives in its sector. The continuing improvement
over the last two years in revenue and operating profit from ongoing operations
is a direct result of the improved marketing focus and accountability provided
by the new organization structure.
New orders (net of cancellations) for 1996 improved over 1995 by 27%. All
business units, except the Power Business Unit, recorded substantial increases
in orders versus 1995. The new order rate was sufficiently strong to allow both
an 18% increase in revenue and a 30% increase in backlog. Revenue, new orders
and backlog for 1996 and 1995 were:
REVENUE, NEW ORDERS AND BACKLOG
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Percent
1996 1995 Increase
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning backlog $ 1,917,000 $ 1,541,697 24%
New orders 1,714,139 1,344,587 27%
Revenue (1,143,587) (969,284) 18%
- --------------------------------------------------------------------------------
Ending backlog $ 2,487,552 $ 1,917,000 30%
- --------------------------------------------------------------------------------
</TABLE>
New orders by business unit for 1996 and 1995 were:
NEW ORDERS BY BUSINESS UNIT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Percent
1996 1995 Incr/(Decr) Incr/(Decr)
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Power $ 262,137 $ 629,851 $(367,714) (58)%
Process 701,354 393,849 307,505 78%
Environmental/
Infrastructure 532,163 195,840 336,323 172%
Industrial 188,871 99,965 88,906 89%
Other 29,614 25,082 4,532 18%
- ----------------------------------------------------------------------
New orders (net) $1,714,139 $1,344,587 $ 369,552 27%
- ----------------------------------------------------------------------
</TABLE>
The decrease in the Power Business Unit was due to the particularly strong order
rate in 1995, cancellation of a significant project due to financing
difficulties on the part of the owner, and to the deferral of several
significant awards into 1997. The increase in orders in the Process Business
Unit reflects increased demand for ethylene and olefin technology, especially in
the Asian developing countries, and the strength of the Company's proprietary
technologies in this market segment. The increase in the Environmental/
Infrastructure Business Unit is, in large part, due to several major awards for
environmental remediation projects. The Industrial Business Unit also had
several major awards in 1996 for communications, materials handling, and general
industrial facilities.
The revenue increase reflects an increase of $53,203 for domestic and $121,100
for export and international projects. The domestic and international mix of
work in 1996 and 1995 was:
DOMESTIC/INTERNATIONAL MIX OF REVENUE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Percent
1996 1995 Increase
- -------------------------------------------------------------------------
<S> <C> <C> <C>
United States - domestic $ 682,582 $629,379 8%
United States - export 187,324 111,486 68%
International 273,681 228,419 20%
- ----------------------------------------------------------------------
Total export and international 461,005 339,905 36%
- ----------------------------------------------------------------------
Total engineering, construction
and consulting revenue $1,143,587 $969,284 18%
- ----------------------------------------------------------------------
Percent export and international 40% 35%
- ----------------------------------------------------------------------
</TABLE>
All Global Business Units, except the Power Business Unit, achieved increases in
revenue in 1996. Revenue in the Power Business Unit decreased in the nuclear and
fossil plant services market segment in 1996 compared with 1995. This was
attributable to large construction contracts essentially being completed early
in 1996. This was partially offset by an increase in fossil-new facilities work.
Process Business Unit revenue increased by 61% in 1996 compared with 1995 as a
result of continued success in winning and executing more engineering and
procurement contracts and more lump sum engineering, procurement, and
construction (EPC) contracts. The following table shows segment revenue,
excluding divested operations, by business unit for 1996 and 1995:
A-4
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
REVENUE BY BUSINESS UNIT (1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Percent
1996 1995 Incr/(Decr) Incr/(Decr)
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Power $ 412,375 $455,800 $(43,425) (10)%
Process 409,322 254,900 154,422 61%
Environmental/
Infrastructure 107,422 103,800 3,622 3%
Industrial 182,370 118,300 64,070 54%
Other 29,753 35,714 (5,961) (17)%
- ------------------------------------------------------------------
Total revenue $1,141,242 $968,514 $172,728 18%
- ------------------------------------------------------------------
</TABLE>
(1) Excludes divested partnerships.
Engineering, Construction and Consulting operating income for the year was
$45,493 from ongoing operations compared with $42,642 on the same basis for
1995. The improvement in operating income from ongoing operations is due to
improved income in the Process and Industrial Business Units due to increased
success with fixed price EPC work executed in 1996. This improvement was
partially offset by a decline in the Power Business Unit resulting from the
successful completion of work with large incentive fees in 1995.
Several significant items affected Engineering, Construction and Consulting
operating income in 1996. In the first quarter, a reserve of $1,832 was recorded
for the expected sublease loss for a vacant floor in the New York office. In the
third and fourth quarters, restructuring actions and asset divestitures
discussed previously resulted in charges of $54,424 and $4,172, respectively.
In the third quarter of 1995, $16,000 were received in settlement of an action
taken to recover damages, attorney's fees and other monetary relief from
insurance carriers. This settlement, after deduction for current and deferred
legal expenses, was recognized as a gain of $7,220 in the third quarter of 1995.
Also in the third quarter of 1995, a settlement was reached relating to
environmental matters for which a charge of $2,500 was incurred, representing
the amount of the settlement net of cash received from insurance recoveries of
$1,500. Also, in the third quarter of 1995, 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.
COLD STORAGE SEGMENT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Percent
1996 1995 Incr/(Decr) Incr/(Decr)
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $21,250 $21,188 $ 62 --
Operating Income 5,954 7,783 (1,829) (23)%
Identifiable Assets 42,634 35,143 7,491 21%
- ----------------------------------------------------------------
</TABLE>
Revenue from Cold Storage and related activities held constant at $21 million.
The 1996 revenue mix included higher levels of storage, handling and freezing
revenue and lower levels of rental revenue compared to 1995. Operating income
for the year of $5,954 was down 23% from 1995 primarily due to the change in
revenue mix to lower margin service revenue from the prior year.
The Rockmart, Georgia warehouse was expanded by adding 3.7 million cubic feet of
space, which became operational at midyear. The addition provides for increased
service to existing customers at the facility and increased blast freezing
capacity.
OTHER SEGMENT AND GENERAL CORPORATE EXPENSES
The Other segment consisted of the Oil and Gas Production and the Real Estate
Development businesses, both of which were divested in the fourth quarter of
1995. The results of the Oil and Gas Production and Real Estate Development
businesses are included in Divested Operations in the analysis above. General
Corporate expenses were $11,462 for 1996 compared with $12,927 in 1995. The 1996
expenses include costs of developing the strategic and capitalization plans and
certain costs associated with the closure of the Company's New York
headquarters. Also, included in General Corporate expenses is a credit of $1,890
representing insurance reimbursement of legal fees in connection with certain
litigation; these legal fees had been expensed in prior years. General Corporate
expenses also include a charge of $2,500 for the settlement of a lawsuit
relating to services performed in the 1980's. The 1995 General Corporate
expenses include the $2,315 cost of an early retirement program; retirements
under this program, which achieved its objective of a 30% reduction in parent
company corporate staff, were generally effective in the first quarter of 1996.
Interest income for 1996 of $3,268 was lower than the $6,422 in 1995 due to
lower cash balances available for investment because of the Company's share
repurchase program. Interest expense of $6,737 was higher than the $5,549
experienced in 1995 due to the interest incurred by the Auburn VPS Partnership
prior to its divestiture.
PENSION RELATED ITEMS
In 1995, the Company changed the presentation of pension related items to
include the foreign plans. The following table presents total pension related
items and shows, separately, the effect of net pension credit, early retirement
incentives, curtailment gains, and foreign pension expense:
A-5
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
PENSION RELATED ITEMS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Income)/Expense 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net pension credit
on qualified U.S. plan $(15,624) $(15,175) $(13,234)
Foreign pension expense (1) 626 752 454
Incentive Retirement Program -- 2,112 --
Curtailment gain -- -- (357)
- ------------------------------------------------------------------------------
Total pension related items (2) $(14,998) $(12,311) $(13,137)
- ------------------------------------------------------------------------------
After-tax total pension related items $ (9,173) $ (7,529) $ (8,035)
- ------------------------------------------------------------------------------
Total pension related items per share$ (0.69)$ (0.52)$ (0.54)
- ------------------------------------------------------------------------------
</TABLE>
(1) SFAS 87 expense on qualified foreign plans.
(2) See Note R to the Consolidated Financial Statements.
The pension credit principally results from a plan that is funded in excess of
the projected benefit obligation. The plan is overfunded primarily due to
favorable investment performance.
INCOME TAX PROVISION
The income tax provision resulted in effective tax (benefit) rates of (40.7)% in
1996 and 36.6% in 1995. The 1996 benefit was higher than the statutory rate due
primarily to a net tax benefit relating to the utilization of foreign net
operating loss carryforwards and the reversal of $500 of the tax valuation
allowance of (3.8)% and a tax benefit of (3.7)% relating to the use of a
Canadian investment tax credit. In 1996, due to expected future taxable earnings
of the Company's U.K. subsidiary, the tax benefit of $500 was recognized in
connection with the reduction of the valuation allowance against the Company's
net operating loss carryforward associated with this subsidiary. In 1995, the
effective tax rate was higher than the U.S. statutory tax rate primarily due to
the 5% impact of state and local income taxes, net of U.S. tax effect, partially
offset by a (2)% net tax benefit from international operations, and a (2)% tax
benefit resulting from a capital loss carryforward on the sale of subsidiaries.
1995 COMPARED WITH 1994
The Company had consolidated net income of $14,880 (or $1.04 per share) in 1995
compared with a net loss of $7,807 (or $.52 per share) in 1994. Revenue
increased to $1,002,819 from $779,255 due to significantly improved performance
in the Company's core Engineering, Construction and Consulting segment.
Operating income, excluding subsequently divested operations and severance, was
$37,498 in 1995 compared with an operating loss of $22,290 in 1994. Components
of earnings per share in 1995 and 1994 were:
<TABLE>
<CAPTION>
- ----------------------------------------------------
1995 1994
- ----------------------------------------------------
<S> <C> <C>
Operations $ 1.26 $(1.62)
Pension related items 0.52 0.54
- ----------------------------------------------------
Earnings per share
from ongoing operations 1.78 (1.08)
Divested operations (0.22) (0.02)
Severance -- (0.84)
Asset divestitures (0.52) 1.42
- ----------------------------------------------------
Earnings per share $ 1.04 $(0.52)
- ----------------------------------------------------
</TABLE>
RESTRUCTURING ACTIONS - 1994
Throughout 1994, the Company took actions to reduce staff levels and operating
expenses and to achieve a better balance of workload and staffing. In addition,
the Company established a new organizational structure in which Global Business
Units are responsible for achieving goals in a market sector on a worldwide
basis. In connection with the organizational structure adopted in 1994, the
Company incurred $20,341 ($12,596 after tax, or $.84 per share) of severance
expenses for the elimination of approximately 1,000 positions. These expenses
were recorded in the Engineering, Construction and Consulting segment. The
payroll-related cost savings realized in 1995 from these reductions were
approximately $35,000. No significant staff adjustments were taken in the
Engineering, Construction and Consulting segment in 1995 other than those
associated with the normal start up and completion of projects or with normal
staff reassignments. Also in 1994, the Company reported a gain on the sale of
investment securities of $32,102 ($21,208 after tax, or $1.42 per share).
The financial statement impact of the asset divestiture, divested operations and
severance in 1994 is summarized in the following table:
A-6
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
1994 - ASSET DIVESTITURE, DIVESTED OPERATIONS, AND SEVERANCE (3)
<TABLE>
<CAPTION>
Divested 1994
1994 Asset Business Ongoing
As Reported Divestiture (1) Operations (2) Severance Operations
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $779,255 $ -- $13,361 $ -- $765,894
Cost of Revenue 773,479 -- 9,503 -- 763,976
- ------------------------------------------------------------------------------------------------------
Gross Profit 5,776 -- 3,858 -- 1,918
Selling, General and
Administrative Expenses 47,873 -- 3,324 20,341 24,208
- ------------------------------------------------------------------------------------------------------
Operating Income (Loss) (42,097) -- 534 (20,341) (22,290)
Income (Loss) Before Tax (8,772) 32,102 (428) (20,341) (20,105)
Net Income (Loss) $ (7,807) $21,208 $ (257) $(12,596) $(16,162)
- ------------------------------------------------------------------------------------------------------
Income (Loss) per share $ (0.52)$ 1.42 $ (0.02) $ (0.84) $ (1.08)
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Sale of investment securities.
(2) Includes Oil and Gas Production, Real Estate Development and Binghamton
Cogeneration Partnership subsequently divested in 1995 and 1996.
(3) Does not include the effect of the following items: a settlement of
contract-related lawsuits of $900; and a charge of $3,800 for an
anticipated loss on another contract-related suit.
ENGINEERING, CONSTRUCTION AND CONSULTING SEGMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Percent
1995 1994 Increase Increase
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $969,284 $748,614 $220,670 29%
Revenue (excluding
Divested Partnerships) 968,514 748,614 219,900 29%
Operating Income (Loss) 38,941 (37,709) 76,650 --
Operating Income (Loss),
excluding severance,
asset divestitures and
divested operations (1) 42,642 (17,507) 60,149 --
Identifiable Assets 595,699 492,650 103,049 21%
- -----------------------------------------------------------------------
</TABLE>
(1) Excludes Auburn VPS Partnership Operations in 1995 and income of the
Binghamton Cogeneration Partnership in both years. Excludes $20,341 of
severance in 1994.
New orders (net of cancellations) for 1995 improved over 1994 by 72%. The new
order rate was sufficiently strong to allow both a 29% increase in revenue and a
24% increase in backlog. Revenue, new orders and backlog in 1995 and 1994 were:
REVENUE, NEW ORDERS AND BACKLOG
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Percent
1995 1994 Increase
- ----------------------------------------------------------
<S> <C> <C> <C>
Beginning backlog $1,541,697 $1,509,611 2%
New orders 1,344,587 780,700 72%
Revenue (969,284) (748,614) 29%
- ----------------------------------------------------------
Ending backlog $1,917,000 $1,541,697 24%
- ----------------------------------------------------------
</TABLE>
The revenue increase occurred largely in international work, with the most
significant increases in power and process assignments in the Far East. The
domestic and international mix of work in 1995 and 1994 was:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Percent
1995 1994 Increase
- ----------------------------------------------------------------------
<S> <C> <C> <C>
United States - domestic $ 629,379 $614,493 2%
United States - export 111,486 50,893 119%
International 228,419 83,228 174%
- ----------------------------------------------------------------------
Total export and international 339,905 134,121 153%
- ----------------------------------------------------------------------
Total engineering, construction
and consulting revenue $969,284 $748,614 29%
- ----------------------------------------------------------------------
Percent export and international 35% 18%
- ----------------------------------------------------------------------
</TABLE>
All of the Global Business Units achieved increases in revenue in 1995. The
effectiveness at both generating revenue and building backlog reflects the
improved market focus of the Global Business Units and their ability to
concentrate the necessary technical and management resources on both proposal
opportunities and contract execution.
Engineering, Construction and Consulting operating income improved to $38,941
from the 1994 operating loss of $37,709. The improved operating performance was
due to:
Reduced indirect and overhead cost structures.
Improved revenue performance, enabling fuller utilization of engineering
staff and a better balance of staffing with workload. Increased management
focus on profitability - particularly at the contract execution and business
unit levels.
Several non-recurring items affected Engineering, Construction and Consulting
operating income in both 1995 and 1994. In the third quarter of 1995, a
settlement of $16,000 was obtained in an action to recover damages, attorneys'
fees and other monetary relief from insurance carriers. This settlement, after
deduction for current and deferred legal expenses, was recognized as a gain of
$7,220 in the third quarter of 1995. Also in the third quarter of 1995, the
Company recorded a write-down of $6,500 in capitalized costs associated with
purchased technology in a standardized, pre-certified design for nuclear power
plants. The Company had originally estimated that this investment, which began
in 1993, would be recoverable from revenue in future years. Based on a number of
external events occurring in the third quarter that reduced the potential market
for this technology, management determined that it would be unlikely that any
revenue would be generated from this investment in the near term, necessitating
a revaluation and a write-down of the asset.
In 1994, the Company incurred $20,341 of severance to reduce staffing levels and
achieve a better balance of staffing and workload. The Company also settled two
contract-related lawsuits in 1994 for $900 and expensed $3,800 in anticipation
of a loss on another contract-related suit.
A-7
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
COLD STORAGE SEGMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Percent
1995 1994 Incr/(Decr) Incr/(Decr)
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $21,188 $17,280 $3,908 23%
Operating Income 7,783 5,927 1,856 31%
Identifiable Assets 35,143 35,798 (655) (2)%
- -----------------------------------------------------------------
</TABLE>
Revenue from Cold Storage and related activities increased by 23% in 1995 to
$21,188 from $17,280 in 1994. Revenue increased due to higher demand for
services relating to food exports, direct rental of cold storage space, and to
increased reliance by food processors on cold storage logistics services.
Additional blast freezing capacity was added in 1995, and operating margins
improved due to higher overall volume. Since much of the cost of the Cold
Storage operations is related to capacity, as additional volume is generated,
margin rate improves. Full utilization of capacity was reached at several points
during 1995, resulting in a decision to add 3.7 million cubic feet of capacity
at the Rockmart, Georgia facility.
OTHER SEGMENT AND GENERAL CORPORATE EXPENSES
The Other segment consists of the Oil and Gas Production and Real Estate
Development businesses, both of which were divested in the fourth quarter of
1995. Revenue from this segment declined to $12,347 in 1995 from 1994 revenue of
$13,361. Operating income improved from $395 in 1994 to $1,244 in 1995. The 1994
operating income included a write-off of goodwill of $862 in an Oil and Gas
Production subsidiary. The Oil and Gas Production and Real Estate Development
businesses are included in Divested Operations in the tables above that adjust
reported financial results to exclude the asset divestiture, divested operations
and severance.
General Corporate expenses increased by $2,217 from 1994. This increase was due
primarily to the one-time cost associated with implementing an Incentive
Retirement Program aimed at reducing headcount and operating expenses of the
Corporate Staff (See Note R to the Consolidated Financial Statements).
ASSET DIVESTITURES
In 1994, the Company reported a gain on the sale of investment securities of
$32,102. A summary of the effect of asset divestitures in 1995 and 1994 follows:
EFFECT OF ASSET DIVESTITURES -- 1995 AND 1994
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Pre-tax gain (loss) on sale
Investment securities $ -- $32,102
Oil and Gas Production business 6,127 --
Real Estate Development business (18,570) --
- --------------------------------------------------------------------
Gain (loss) before provision for income tax $(12,443) $32,102
- --------------------------------------------------------------------
Net gain (loss) on asset sales $ (7,511) $21,208
Net income (loss) per share $ (0.52) $ 1.42
- --------------------------------------------------------------------
</TABLE>
PENSION RELATED ITEMS
Pension related items, which reduced operating expenses, were $12,311 in 1995
compared with $13,137 in 1994. These amounts increased net income by $7,529 (or
$0.52 per share) in 1995 compared with $8,035 (or $0.54 per share) in 1994.
INCOME TAX PROVISION
In 1995, the effective tax rate of 36.6% was higher than the U.S. statutory rate
primarily due to the 5% impact of state and local income taxes, net of U.S. tax
effect, partially offset by a (2)% tax benefit resulting from a capital loss
carryforward on the sale of subsidiaries. In 1994, the (11)% benefit was lower
than the U.S. statutory rate primarily due to foreign taxes on certain foreign
projects which are calculated based on gross receipts and which accounted for
12% of the decrease in benefit. In addition, the decrease in benefit in 1994 was
due to state income taxes, which accounted for 8% of the decrease.
FINANCIAL CONDITION AND LIQUIDITY
Cash and cash equivalents, as shown in the Consolidated Statements of Cash
Flows, decreased by $10,530 during 1996. Net cash provided by operating
activities reflects an increase in accrued expenses, non-cash items including
the effect of the Auburn VPS Partnership divestiture, and the restructuring,
other charges and asset divestitures partially offset by an increase in
operating working capital of $5,177. While total operating working capital
remained relatively consistent with 1995, the operating working capital days
outstanding increased due primarily to a $45,529 increase in costs and revenue
recognized in excess of billings. Operating working capital and operating
working capital days outstanding follow:
OPERATING WORKING CAPITAL DAYS OUTSTANDING
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
Accounts receivable $ 181,900 $165,836
Costs and revenue recognized
in excess of billings 110,023 64,494
Accounts payable (76,551) (56,901)
Billings in excess of costs and
revenue recognized (103,742) (66,976)
- -------------------------------------------------------------------
Operating working capital $ 111,630 $106,453
- -------------------------------------------------------------------
Fourth quarter revenue $ 308,085 $330,443
Operating working capital days outstanding 33 29
- -------------------------------------------------------------------
</TABLE>
In the third quarter of 1996, the Company identified certain real estate
properties as being held for sale. Accordingly, the net carrying value of these
properties has been reflected as Assets held for sale in the Consolidated
Balance Sheet.
A-8
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
Net cash provided by investing activities of $26,509 reflects maturities of U.S.
Government securities of $56,873 offset by purchases of $5,981. In addition, the
Company purchased $24,383 of fixed assets during 1996. Net cash used in
financing activities of $65,494 resulted primarily from the purchase of Common
Stock of $33,828 under the Company's share repurchase program, net repayments of
debt of $24,154 and the payment of dividends of $7,989. As described in Note C
to the Consolidated Financial Statements, the Company divested the Auburn VPS
Partnership during 1996. This divestiture resulted in the extinguishment of
$48,750 of construction debt in connection with the transfer of the
partnership's plant to the construction lenders. Prior to the transfer of the
partnership's assets, $16,250 of the construction debt was repaid to the
lenders.
In July 1994, the Company's Board of Directors authorized the repurchase of
1,000,000 shares of the Company's common stock. In July 1995, the Company's
Board of Directors authorized the repurchase of an additional 1,500,000 shares.
The Company reserves the right to discontinue the repurchase program at any
time. (See Note N to the Consolidated Financial Statements.). Share repurchase
transactions and total shares outstanding for 1996 and 1995 were:
SHARE REPURCHASE TRANSACTIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Total
1996 1995 Program
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Shares outstanding
beginning of year 13,855,916 14,609,307 14,977,850
Shares repurchased
under program (1,037,037) (754,443) (2,154,804)
Other share transactions 15,739 1,052 11,572
- ------------------------------------------------------------------------
Shares outstanding end of year 12,834,618 13,855,916 12,834,618
- ------------------------------------------------------------------------
Percentage of outstanding
shares purchased 7.5% 5.2% 14.4%
Repurchase cost $ 33,828 $ 25,370 $ 71,037
Average repurchase
cost per share $ 32.62 $ 33.63 $ 32.97
- ------------------------------------------------------------------------
</TABLE>
Beginning in the fourth quarter of 1996, the Company changed the quarterly
dividend declaration date to the first month of the quarter from the month
preceeding the quarter. Accordingly, the first quarter 1997 dividend was
declared in January 1997 instead of in December 1996. This change had no effect
on the annual dividend payment rate of $.60 per share, although only $.45 was
declared in 1996.
Management believes that the types of businesses in which the Company is engaged
require that it maintain a strong financial condition. Management also believes
it has on hand and access to sufficient sources of funds to meet its anticipated
operating, dividend, share repurchase and capital expenditure needs through
1997. Cash on hand and temporary investments provide adequate operating
liquidity. Additional liquidity is provided through lines of credit and
revolving credit facilities which totaled $33,872, of which $28,872 was
available at December 31, 1996.
Net cash balances (defined as Cash and Government securities minus Total debt)
relative to business activity for the years ended December 31, 1996 and 1995
are:
NET CASH POSITION
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1996 1995
- ----------------------------------------------------------
<S> <C> <C>
Cash, cash equivalents and
U.S. Government Securities $ 61,893 $ 123,316
Total debt (30,917) (103,821)
- ----------------------------------------------------------
Net cash $ 30,976 $ 19,495
- ----------------------------------------------------------
Revenue $1,164,837 $1,002,819
Net cash to revenue 2.7% 1.9%
- ----------------------------------------------------------
</TABLE>
The level of net cash has increased during 1996 due primarily to the
extinguishment of the Auburn VPS Partnership construction loans partially offset
by the purchase of common stock for treasury. Outstanding debt consisted of the
following as of December 31, 1996 and 1995:
DEBT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Mortgage debt-company occupied buildings $25,313 $ 28,844
Construction loans -- 65,000
Lease debt (primarily for office equipment) 604 1,777
Subsidiary working capital bank loans 5,000 8,200
- --------------------------------------------------------------------
Total debt $30,917 $103,821
- --------------------------------------------------------------------
</TABLE>
During 1996, the Company continued to implement the Financial Strategic Plan
which was established in 1995 to increase value for the Company's Shareholders.
Certain non-core and underperforming assets were divested and additional
treasury stock was purchased. Also in 1996, the Company completed a review of
its strategic and capitalization plans. As a result, the Company announced the
consolidation of its New York corporate headquarters with the Boston
headquarters of the Company's principal operating subsidiary, Stone & Webster
Engineering Corporation, and the decision to sell or restructure other real
estate assets. In addition, the Company began to implement a strategy to
reinvest in its core business and further develop its construction capabilities.
A-9
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statements of Operations
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue (Note A) $1,164,837 $1,002,819 $779,255
Cost of Revenue 1,099,064 918,169 773,479
- -------------------------------------------------------------------------------------------------------------------
Gross Profit 65,773 84,650 5,776
Selling, General and Administrative Expenses (Note G) 91,693 49,609 47,873
- -------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) (Note C) (25,920) 35,041 (42,097)
Other Income (Deductions) (Note A)
Gain (Loss) on sale of assets (Note C) C) -- (12,443) 32,102
Interest income 3,268 6,422 4,078
Interest expense (Note D) (6,737) (5,549) (3,900)
Miscellaneous - net -- -- 1,045
- -------------------------------------------------------------------------------------------------------------------
Income (Loss) before Provision (Benefit) for Income Taxes (29,389) 23,471 (8,772)
Income Tax Provision (Benefit) (Note E) (11,958) 8,591 (965)
- -------------------------------------------------------------------------------------------------------------------
Income (Loss) before Extraordinary Item (17,431) 14,880 (7,807)
Extraordinary Item, net of taxes (Note C) 6,787 -- --
- -------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (10,644) $ 14,880 $ (7,807)
- -------------------------------------------------------------------------------------------------------------------
Income (Loss) before Extraordinary Item Per Share $ (1.31) $ 1.04 $ (.52)
Extraordinary Item Per Share (Note C) $ .51 $ -- $ --
Net Income (Loss) Per Share $ (.80) $ 1.04 $ (.52)
Dividends Declared Per Share (Note O) (1) $ 1.45 $ .60 $ .60
Average Number of Shares Outstanding (in thousands) 13,237 14,376 14,907
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In 1996, dividends were paid at the annual rate of $.60 per share, but
because of a change in the dividend declaration date, from December 1996 to
January 1997 for the first quarter 1997 dividend, only three dividends were
declared in 1996.
See Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements.
A-10
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
December 31,
ASSETS 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 57,887 $ 68,417
U. S. Government securities, at amortized cost, which approximates fair value (Note F) 4,006 54,899
Accounts receivable, principally trade 181,900 165,836
Costs and revenue recognized in excess of billings 110,023 64,494
Deferred income taxes (Note E) 10,275 7,202
Other (Note K) 30,333 3,153
- -----------------------------------------------------------------------------------------------------------------------
Total Current Assets 394,424 364,001
Assets Held for Sale (Note G) 20,885 --
Fixed Assets, at cost, less accumulated depreciation, depletion and amortization (Note H) 127,949 212,596
Prepaid Pension Cost (Note R) 129,818 114,194
Other Assets 18,989 25,981
- -----------------------------------------------------------------------------------------------------------------------
$692,065 $716,772
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Bank loans (Note I) $ 5,000 $ 8,200
Current portion of long-term debt (Note J) 1,657 20,944
Accounts payable, principally trade 76,551 56,901
Dividend payable (Note O) -- 2,078
Billings in excess of costs and revenue recognized 103,742 66,976
Accrued liabilities (Note K) 91,407 43,308
Accrued taxes 7,164 7,955
- -----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 285,521 206,362
Long-Term Debt (Note J) 24,260 74,677
Deferred Income Taxes (Note E) 43,142 51,262
Other Liabilities (Note L) 22,009 22,800
Commitments and Contingencies (Note M) -- --
Shareholders' Equity:
Preferred stock -- --
Authorized, 2,000,000 shares of no par value; none issued
Common stock (Notes O, P and Q) 17,731 17,731
Authorized, 40,000,000 shares of $1 par value; issued,
17,731,488 shares, including shares held in treasury
Capital in excess of par value of common stock (Note O) 50,480 50,360
Retained earnings 398,342 414,724
Cumulative translation adjustment (2,280) (3,039)
- -----------------------------------------------------------------------------------------------------------------------
464,273 479,776
- -----------------------------------------------------------------------------------------------------------------------
Less: Common stock in treasury, at cost (Notes N, P and Q) 125,724 92,292
4,896,870 shares (1995 - 3,875,572)
Employee stock ownership and restricted stock plans (Note P) 21,416 25,813
- -----------------------------------------------------------------------------------------------------------------------
147,140 118,105
- -----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 317,133 361,671
- -----------------------------------------------------------------------------------------------------------------------
$692,065 $716,772
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements.
A-11
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(All dollar amounts, except per share amounts, are in thousands.)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock (Note O):
Balance at beginning and end of year $ 17,731 $17,731 $ 17,731
- ------------------------------------------------------------------------------------------------------------------------------
Capital in Excess of Par Value of Common Stock (Note O):
Balance at beginning of year 50,360 50,300 50,342
Excess of market value over cost of treasury shares
issued (forfeited) under Restricted Stock Plan, net 54 28 (17)
Excess of market value over cost of treasury shares
issued under the Stock Option Plan 21 -- --
Tax benefit (charge) for shares issued under Restricted Stock Plan, net 11 11 (25)
Excess of market value over cost of treasury shares issued under the Stock Plan 34 21 --
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 50,480 50,360 50,300
- ------------------------------------------------------------------------------------------------------------------------------
Retained Earnings:
Balance at beginning of year 414,724 408,211 424,723
Income tax benefit of Employee Stock Ownership Plan dividends 173 188 227
Net income (loss) (10,644) 14,880 (7,807)
Dividends declared (per share: 1996 - $.45, 1995 and 1994 - $.60) (Note O) (5,911) (8,555) (8,932)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 398,342 414,724 408,211
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized Gain on Investment Securities, net:
Balance at beginning of year -- -- 24,975
Adjustment for the year -- -- (24,975)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of year -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Cumulative Translation Adjustment:
Balance at beginning of year (3,039) (3,072) (2,854)
Adjustments for the year 759 33 (218)
Balance at end of year (2,280) (3,039) (3,072)
Common Stock in Treasury (Notes N, P and Q):
Balance at beginning of year (92,292) (66,961) (54,979)
Cost of treasury shares:
Issued under Stock Plan (shares: 1996 - 4,206, 1995 - 2,252) 106 52 --
Issued under Stock Option Plan (shares: 1996 - 4,000) 100 -- --
Issued under Restricted Stock Plan (shares: 1996 - 7,533, and 1995 - 6,000) 190 131 --
Forfeited under Restricted Stock Plan
(shares: 1995 - 7,200 and 1994 - 2,000) -- (144) (40)
Purchased (shares: 1996 - 1,037,037, 1995 - 754,443 and 1994 - 366,543) (33,828) (25,370) (11,942)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (125,724) (92,292) (66,961)
- ------------------------------------------------------------------------------------------------------------------------------
Employee Stock Ownership and Restricted Stock Plans (Note P):
Balance at beginning of year (25,813) (30,891) (34,560)
Payments received from Employee Stock Ownership Trust (principal only) 4,538 4,981 3,091
Market value of shares forfeited (issued) under Restricted Stock Plan, net (244) (15) 57
Amortization of market value of shares issued under Restricted Stock Plan 103 112 521
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (21,416) (25,813) (30,891)
- ------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 317,133 $361,671 $375,318
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements.
A-12
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All dollar amounts are in thousands.)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (10,644) $ 14,880 $ (7,807)
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Loss on divestiture of Auburn VPS Partnership 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 16,893 19,239 19,717
Deferred income taxes (11,193) 3,305 (4,343)
Write-down of investments 4,172 6,500 --
Pension plan curtailment gain -- -- (357)
Pension credit (15,624) (15,175) (13,234)
Incentive Retirement Program -- 2,315 --
Loss (gain) on sale of assets -- 12,443 (32,102)
Amortization of market value of shares issued under Restricted Stock Plan 103 112 521
Amortization of net cost of Employee Stock Ownership Plan 1,819 1,555 1,560
Changes in operating assets and liabilities:
Accounts receivable (21,278) (71,464) 12,267
Costs and revenue recognized in excess of billings (55,542) (21,952) 20,071
Accounts payable 21,240 32,905 (5,143)
Billings in excess of costs and revenue recognized 36,766 18,491 20,190
Accrued liabilities 44,792 (8,029) 8,075
Other current assets (27,180) (244) (1,962)
Other (9) 479 121
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 28,455 (4,640) 17,574
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Maturities of U.S. Government securities 56,873 147,050 103,032
Purchases of U.S. Government securities (5,981) (126,861) (122,404)
Proceeds from asset divestitures -- 59,000 35,040
Purchase of joint venture, net of cash acquired -- (2,458) --
Purchase of fixed assets (24,383) (27,962) (52,344)
Purchase of land held for resale -- -- (2,038)
Equity investment in joint venture -- -- (3,565)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 26,509 48,769 (42,279)
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from long-term debt -- 25,013 68,988
Repayments of long-term debt (20,954) (31,419) (3,922)
Increase in bank loans 10,000 8,200 1,093
Decrease in bank loans (13,200) -- (29,437)
Payments to Employee Stock Ownership Trust (6,739) (9,084) (4,046)
Payments received from Employee Stock Ownership Trust 7,216 9,970 4,464
Purchase of common stock for treasury (33,828) (25,370) (11,942)
Dividends paid (7,989) (8,672) (8,984)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (65,494) (31,362) 16,214
- -----------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (10,530) 12,767 (8,491)
- -----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Year 68,417 55,650 64,141
- -----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 57,887 $ 68,417 $ 55,650
=============================================================================================================================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 3,658 $ 5,629 $ 3,910
Income taxes $ 3,920 $ 4,740 $ 5,368
- -----------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Transfer of Auburn VPS Partnership property, plant
and equipment to construction lenders $ 53,276 $ -- $ --
Extinguishment of Auburn VPS Partnership debt (48,750) -- --
Other, net (3,272) -- --
Fair value of assets acquired -- (10,206) --
Liabilities assumed -- 7,748 --
- -----------------------------------------------------------------------------------------------------------------------------
$ 1,254 $ (2,458) $ --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Summary of Significant Accounting Policies and Notes to Consolidated
Financial Statements.
A-13
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
BASIS OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company and
all subsidiaries. During the second quarter of 1996, substantially all of the
Company's subsidiaries outside the United States and Canada changed their fiscal
year from November 30 to December 31; therefore, the Consolidated Financial
Statements include the operations of these subsidiaries for thirteen months.
This change did not have a material impact on the Consolidated Financial
Statements. Investments in 20 to 50 percent owned companies and investments in
limited partnerships owned more than 5 percent by the Company are accounted for
by the equity method.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company considers U.S. Government securities purchased with a maturity of
three months or less to be cash equivalents.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of operations outside the United States are translated
into U.S. dollars at current exchange rates, while income statement items are
translated at average monthly exchange rates. Gains or losses on such
translations are accumulated in a separate component of Shareholders' Equity and
are excluded from net income. Transaction gains and losses, which were not
material, resulting from the settlement of receivables or payables, or the
conversion of currency, are included in the determination of net income.
DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation generally is provided on a straight-line basis (accelerated methods
for income taxes) over the estimated useful lives of the assets. Depreciation
and depletion of oil and gas producing properties and natural gas pipeline
systems generally were provided on the unit of production method. Amortization
is provided for leased property and equipment on a straight-line basis over the
life of the lease.
LONG-TERM CONTRACTS
The Company recognizes engineering and construction revenue on a
percentage-of-completion method, primarily based on contract costs incurred
compared with total estimated costs. (Contract costs include both direct and
indirect costs.) When the Company is contractually responsible for materials,
craft labor, equipment and subcontractor costs, these items are included in
revenue and cost of revenue. Revisions to total estimated contract cost or
losses, if any, are recognized in the period in which they are determined.
Certain contracts contain provisions for performance incentives. Such incentives
are included in revenue when realization is assured. Contract change orders in
excess of agreed contract prices are included in revenue when approved by the
client.
Revenue recognized in excess of amounts billed is classified in current assets.
Accounts receivable include amounts representing retainages under long-term
contracts which are due within one year. These retainage amounts are not
material. The Company anticipates that substantially all of its costs and
revenue recognized in excess of billings will be billed and collected over the
next twelve months and there were no significant amounts included in accounts
receivable or costs and revenue recognized in excess of billings under contracts
for claims subject to uncertainty as to their ultimate realization. Billings in
excess of revenue recognized are classified in current liabilities.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. The
most significant estimates are related to long-term contracts, pension plans,
income taxes and contingencies. Actual results could differ from these
estimates.
FOREIGN EXCHANGE CONTRACTS
The Company enters into foreign exchange forward contracts to hedge transactions
related to firm commitments to purchase equipment in connection with engineering
and procurement service contracts. These contracts reduce currency risk from
exchange movements. Gains and losses are deferred and accounted for as part of
the underlying transactions. In entering into these contracts, the Company has
assumed the risk which might arise from the possible inability of counterparties
to meet the terms of their contracts. The Company does not expect any losses as
a result of counterparty defaults.
INCOME TAXES
Undistributed earnings of foreign subsidiaries for which the Company has not
provided deferred U.S. income taxes, because a taxable distribution of these
earnings is not anticipated, aggregated approximately $7,155 at December 31,
1996. This amount represents the accumulated earnings of consolidated foreign
subsidiaries which are being permanently reinvested in their operations.
INCOME PER SHARE
Per share amounts are based on the weighted average number of common and common
equivalent shares (stock options) outstanding during the year.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1994 Consolidated Financial
Statements to conform with the 1996 and 1995 presentation.
A-14
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
(A) REVENUE
In 1995, the Company changed its presentation of financial results to show
operating income or loss and has reclassified certain items, previously
classified as Revenue, to other captions. These changes in presentation have had
no effect on net income. A reconciliation of previously and currently reported
revenue follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue - as reported in 1994 $818,221
Less:
Gain on sale of assets 32,102
Dividend income 1,045
Interest income 4,078
Other 1,741
- -------------------------------------------------------------------------
Revenue - as currently reported $1,164,837 $1,002,819 $779,255
- -------------------------------------------------------------------------
</TABLE>
In 1994, revenue from the gain on sale of assets and dividend and interest
income has been reclassified to Other Income (Deductions) in the Consolidated
Statements of Operations.
(B) SEVERANCE COSTS
In 1995, a voluntary Incentive Retirement Program was offered to and accepted by
employees of the parent company, Stone & Webster, Incorporated. Total Program
costs of $2,315 were incurred. (See Note R to the Consolidated Financial
Statements.)
In 1994, the Company took a number of actions to lower operating costs,
including the elimination of approximately 1,000 positions. Severance costs
decreased operating income by $20,341 in 1994. All positions were eliminated by
December 31, 1994. Severance payments of $19,226, of the $20,341 accrued in
1994, were made in 1994 and 1995. The remaining amounts were paid in 1996.
(C) DIVESTITURE OF NON-CORE ASSETS
During 1996, 1995 and 1994, the Company completed several transactions involving
the disposal of non-core and underperforming assets. In the third quarter of
1996, the Company transferred the assets of the Auburn VPS Partnership to the
partnership's lender in return for cancellation of the related construction
debt. As a result, the Company recorded a charge of $989, or $.08 per share,
which included a loss on forfeiture of $11,538 ($7,776 net of tax, or $.59 per
share) to write down the partnership's plant to fair 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.
In the fourth quarter of 1996, the Company recorded a charge of $4,172 ($2,712
net of tax, or $.20 per share) to write down the Company's one-third interest in
the Binghamton Cogeneration Partnership to fair market value in connection with
the partnership's agreement to sell its power purchase agreement, terminate
various supply and purchase contracts, and to cease partnership operations. The
sale was completed in January 1997.
In the fourth quarter of 1995, the Company completed the divestiture of the Oil
& Gas Production business and the Real Estate Development business. Both
businesses were sold for cash. In 1994, in the third and fourth quarters, the
Company sold securities held for investment. The effect of these transactions
was:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1995 1994
----------------------------------------- -----------
Oil & Gas Real Estate Investment
Production Development Total Securities
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sale proceeds $16,500 $ 42,500 $ 59,000 $34,515
Pre-tax gain (loss)
on sale 6,127 (18,570) (12,443) 32,102
After-tax gain (loss)
on sale 4,434 (11,945) (7,511) 21,208
Gain (loss) per share $ .31 $ (.83) $ (.52) $ 1.42
- -----------------------------------------------------------------------------------
</TABLE>
In 1996, the Company adopted SFAS 121 - Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Accordingly, the
losses on the asset divestitures recorded in 1996 are included on Operating
Income (Loss) in the Consolidated Statements of Operations.
(D) INTEREST EXPENSE
Interest expense for 1995 and 1994 excludes $3,471 and $1,392, respectively,
which was capitalized as part of the construction cost for a wastepaper
recycling plant and a new office facility. No interest was capitalized in 1996.
(E) INCOME TAXES
The Company reported taxable income of approximately $4,500 in 1996. The Company
used a federal alternative minimum tax credit (AMT) in 1996. The AMT credit
carryforward was $4,841 at December 31, 1996. This AMT credit can be carried
forward indefinitely to reduce future federal income taxes payable.
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense (benefit)
United States $ (2,396) $1,201 $ 469
State and local 704 1,407 1,458
Foreign (1) 1,627 2,678 1,451
- --------------------------------------------------------------
Total current (65) 5,286 3,378
- --------------------------------------------------------------
Deferred tax expense (benefit)
United States (10,280) 2,804 (706)
State and local (353) 963 (3,631)
Foreign (1,260) (462) (6)
- --------------------------------------------------------------
Total deferred (11,893) 3,305 (4,343)
- --------------------------------------------------------------
Income tax provision (benefit) $(11,958) $8,591 $ (965)
- --------------------------------------------------------------
</TABLE>
(1) Includes taxes, in lieu of income taxes, of $360 in 1996, $798 in 1995 and
$870 in 1994 on foreign projects which are calculated based on gross
receipts.
A-15
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
Deferred tax liabilities (assets) are composed of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Long-term liabilities:
Depreciation $ 9,772 $ 20,201
Retirement 52,739 47,372
Other 1,280 1,116
- --------------------------------------------------------------------------------
Total long-term liabilities 63,791 68,689
- --------------------------------------------------------------------------------
Long-term assets:
Deferred rent (3,302) (2,605)
Employee Stock Ownership Plan interest
payments and contributions (4,091) (4,901)
Incentive Retirement Program (3,458) (3,458)
AMT credit carryforward (4,841) (5,069)
Foreign net operating loss carryforward (7,468) (7,058)
State net operating loss carryforwards (4,637) (4,546)
Capital loss carryforward (561) (561)
Other (3,896) (833)
- --------------------------------------------------------------------------------
Total long-term assets (32,254) (29,031)
- --------------------------------------------------------------------------------
Net operating loss valuation allowance 11,605 11,604
- --------------------------------------------------------------------------------
Net long-term deferred tax liabilities $ 43,142 $ 51,262
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Current assets:
Vacation pay $ (4,346) $ (3,800)
Severance pay (465) (760)
State net operating loss carryforwards (763) (402)
Capital loss carryforward (1,460) --
Other (3,241) (2,240)
- --------------------------------------------------------------------------------
Total current deferred tax assets $(10,275) $ (7,202)
- --------------------------------------------------------------------------------
</TABLE>
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 net change
in the valuation allowance for 1996 was an increase of $1 for a total valuation
allowance of $11,605 at December 31, 1996. This change resulted from additional
state tax losses in 1996 which increased the related carryforwards on a net
basis and the effect of the change in the U.K. exchange rate offset by the
utilization of the net operating loss carryforward relating to one of the
Company's U.K. subsidiaries and the reversal of $500 of the valuation allowance
for this subsidiary. The $500 reversal of the valuation allowance was based on
forecasted future earnings. The valuation allowance at December 31, 1996
comprises $6,968 relating to the carryforwards of the U.K. subsidiary and $4,637
relating to state net operating loss carryforwards.
For tax purposes, approximately $93,618 (with a tax benefit of $12,868) of the
net operating loss carryforwards remains at December 31, 1996, of which $20,817
(with a tax benefit of $7,468) is applicable to foreign subsidiaries and the
remaining $72,801 (with a tax benefit of $5,400) relates to state net operating
loss carryforwards. Use of the foreign net operating loss carryforward is
limited to future taxable earnings of the U.K. subsidiary and never expires.
The state net operating loss carryforwards of $72,801 are applicable to many
states and will expire as follows:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
1997 $ 2,172
1998 2,839
1999 8,514
2000 1,158
2001 6,185
2002 1,443
2003 4,076
Thereafter 46,414
- --------------------------------------------------------------------------------
$ 72,801
- --------------------------------------------------------------------------------
</TABLE>
The Company has determined that it will be able to realize a tax benefit of $763
relating to these state net operating loss carryforwards and the remaining net
operating loss carryforwards (with a tax benefit of $4,637, which is fully
reserved for) are expected to expire unused.
The following is an analysis of the difference between the United States
statutory income tax rate and the Company's effective income tax rate:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States statutory income
tax rate (35.0)% 35.0% (35.0)%
Increase (decrease) resulting from:
State and local income taxes,
net of United States tax effect 1.2 4.9 7.7
Dividend received deduction -- -- (2.9)
Write-off/amortization of goodwill -- -- 4.9
Meals and entertainment 1.7 2.0 5.5
Difference in effective tax rate
of foreign operations and
projects, net of United States
tax effect -- 4.3 12.1
Investment tax credit - Canada (3.7) -- --
Adjustment of prior years'
federal income tax accruals,
net of interest effect (.3) .9 .7
Adjustment of prior years' state
income tax accruals, net of
United States tax effect -- -- 2.0
Utilization of net operating loss
carryforwards of
foreign operations (3.8) (6.1) --
Sale of subsidiaries -- capital
loss carryforward -- (2.4) --
Other (.8) (2.0) (6.0)
- --------------------------------------------------------------------------------
Effective income tax rate (40.7)% 36.6% (11.0)%
- --------------------------------------------------------------------------------
</TABLE>
A-17
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary item were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $(34,815) $15,861 $(9,548)
Foreign 5,426 7,610 776
- --------------------------------------------------------------------------------
$(29,389) $23,471 $(8,772)
- --------------------------------------------------------------------------------
</TABLE>
(F) U.S. GOVERNMENT SECURITIES
U.S. Government securities are debt securities comprised of U.S. Treasury bills
and notes, which the Company intends to hold to maturity. These U.S. Treasury
bills and notes have maturity dates of one year or less. The aggregate fair
value of U.S. Government securities at December 31, 1996 and 1995 was $4,003 and
$54,722, respectively, the amortized cost basis at December 31, 1996 and 1995
was $4,006 and $54,899, respectively, and the net unrealized holding loss at
December 31, 1996 and 1995 was $3 and $177, respectively.
(G) ASSETS HELD FOR SALE AND REAL ESTATE RELATED
CHARGES
In the second quarter of 1996, the Company began a review of its organizational
structure, strategic plan and asset base. During the third quarter, the Company
decided that it intends to sell its 800,000 square foot building in Boston and
to 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 expects to sell the Cherry Hill
property in fifteen 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 estimated fair value of this building exceeds its
carrying amount. The total carrying amount of the properties written down was
$20,885 at December 31, 1996. The Company recorded a charge of $20,137 ($13,751
after tax, or $1.03 per share) in the third quarter of 1996 in connection with
the write-down of these properties.
Also 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. The total charge recorded in the third quarter of 1996 for the
write-down of the leases was $10,372 ($6,223 after tax, or $.46 per share), net
of anticipated sublease income. In the first quarter of 1996, a reserve of
$1,832 was recorded for the expected sublease loss for a vacant floor in the New
York office. These amounts are recorded as accrued liabilities.
(H) FIXED ASSETS
Following is a summary of fixed assets at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Office buildings and other real estate $ 74,390 $132,413
Furniture and equipment 145,876 137,666
Cold storage property, plant and equipment 61,794 52,219
Wastepaper recycling property,
plant and equipment -- 55,418
- --------------------------------------------------------------------------------
282,060 377,716
Less accumulated depreciation,
depletion and amortization 154,111 165,120
- --------------------------------------------------------------------------------
Fixed assets, net $127,949 $212,596
- --------------------------------------------------------------------------------
</TABLE>
Fixed assets includes computer equipment under capital leases of $2,832 at
December 31, 1996 and $6,934 at December 31, 1995; related amounts included in
accumulated depreciation, depletion and amortization were $1,528 at December 31,
1996 and $4,525 at December 31, 1995. Depreciation expense was $15,429 for 1996,
$16,785 for 1995, and $18,133 for 1994.
As discussed in Note C to the Consolidated Financial Statements, the Company
transferred the assets of the Auburn VPS Partnership, which includes the
wastepaper recycling property, plant and equipment, to the partnership's lenders
in return for cancellation of the related construction debt.
As discussed in Note G to the Consolidated Financial Statements, certain assets
previously included in office buildings and other real estate were reclassified
to Assets held for sale on the Consolidated Balance Sheets.
(I) BANK LOANS
In 1995, a subsidiary of the Company entered into a $14,750 credit agreement
with a bank for financing of the subsidiary's activities performed under a
client's contract for engineering services. The agreement was collateralized by
an assignment of the contract to the bank and payments received from the client
are applied to outstanding borrowings which incur interest based on one quarter
of one percent above the London Interbank Offered Rate (LIBOR). At December 31,
1995, there was $8,200 outstanding under the credit agreement. No amounts were
outstanding under this credit agreement in 1996. The weighted average interest
rate was 6.25%.
In 1996, a subsidiary of the Company entered into agreements with two banks for
lines of credit totaling $25,000. Borrowings under the agreements are to be used
for general corporate purposes and incur interest based on 1/4% above LIBOR. At
December 31, 1996, $5,000 was outstanding under these agreements. The weighted
average interest rate was 5.74%.
A-18
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
(J) LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loans:
Due in 1996, interest at 9.13% $ -- $ 2,188
Due in 2009, interest at 6.44% 25,313 26,656
Construction loans -- 65,000
Capitalized lease obligations 604 1,777
- --------------------------------------------------------------------------------
25,917 95,621
Less current portion 1,657 20,944
- --------------------------------------------------------------------------------
Total long-term debt $24,260 $ 74,677
- --------------------------------------------------------------------------------
</TABLE>
In March 1994, the Auburn VPS Partnership, in which the Company owned a 94.3%
interest, entered into an agreement with various lending institutions for
nonrecourse construction loans totaling $65,000 for the construction of a
wastepaper recycling plant with interest payable monthly on the average
outstanding balance based on LIBOR and commercial paper rates. As of December
31, 1995, interest rates on outstanding borrowings ranged from 7.10% to 9.29%.
As discussed in Note C to the Consolidated Financial Statements, the partnership
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 the second quarter of 1996, $16,250 of the debt was
repaid. In an agreement reached in the third quarter of 1996 with the
partnership's lenders, the assets of the partnership were transferred to the
lenders in return for cancellation of the related construction debt.
A subsidiary of the Company has a mortgage loan collateralized by an office
building and other real estate with a net book value of $27,184 at December 31,
1996. This 6.44% mortgage loan was obtained to finance the acquisition of land
and the construction of an office building occupied by an engineering subsidiary
of the Company. Principal payments required on long-term debt in the years 1997
through 2001 are $1,657, $1,851, $1,891, $1,851 and $1,974, respectively.
(K) ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Salaries and benefits $17,223 $15,995
Insurance reserves and premiums 46,354 13,820
Reserve for loss on sublease 12,204 --
Other 15,626 13,493
- --------------------------------------------------------------------------------
Total accrued liabilities $91,407 $43,308
- --------------------------------------------------------------------------------
</TABLE>
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 third 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-related
matters. The total amount of the charges, recorded to accounts receivable, costs
and revenue recognized in excess of billings and accrued liabilities, was
$12,377 ($7,553 after tax, or $.57 per share).
(L) OTHER LIABILITIES
Other liabilities include the accrued cost of the Employee Stock Ownership Plan
of $10,247 at December 31, 1996 and $11,815 at December 31, 1995.
(M) COMMITMENTS AND CONTINGENCIES
Rental expense was $5,800 in 1996, $5,900 in 1995 and $7,200 in 1994. The
Company and subsidiaries have leases for office space, computer equipment and
other office equipment with varying lease terms. All noncancelable leases have
been categorized as either capital or operating and, under most leasing
arrangements, the Company and subsidiaries pay property taxes, insurance and
maintenance, and expenses related to the leased properties. Future minimum lease
payments, net of sublease income, under long-term leases as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Capital Operating
Leases Leases
- -----------------------------------------------------------------
<S> <C> <C>
1997 $249 $ 6,500
1998 237 6,100
1999 158 5,200
2000 -- 3,900
2001 -- 4,100
2002 and thereafter -- 23,300
- -----------------------------------------------------------------
Total minimum lease payments 644 $49,100
-----------
Amount representing interest 40
- ------------------------------------------------
Present value of minimum lease payments $604
- -----------------------------------------------------------------
</TABLE>
The current portion of the present value of the minimum lease obligations under
capital leases as of December 31, 1996 amounted to $225.
The Company and certain subsidiaries have been named as defendants, along with
others, in legal actions claiming damages in connection with engineering and
construction projects and other matters. Most such actions involve claims for
personal injury or property damage which occur from time to time in connection
with services performed relating to project or construction sites, and for which
coverage under appropriate insurance policies usually applies; other actions
arise in the normal course of business including employment-related claims and
contractual disputes for which insurance coverage or other contractual
provisions may or may not apply. Such contractual disputes normally involve
claims relating to the performance of equipment design or other engineering
services or project construction services provided by
A-19
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
subsidiaries of the Company, and often such matters may be resolved without
going through a complete and lengthy litigation process. In 1994, a subsidiary
of the Company settled two contract-related lawsuits for $900, which were
expensed in 1994. In addition, another case involving performance on a client
contract was settled in 1996 for a net cost of $2,500. No amounts have been paid
in 1996. In 1994 and 1993, respectively, $3,800 and $1,200 had been expensed for
this case.
Several of the legal matters referred to in Note L in the Annual Report to
Shareholders for the year 1995 have been resolved. In 1993, in a contract
related lawsuit, a jury returned a verdict against a subsidiary of the Company
for which a provision had been made. As a result, in May of 1995, payment was
made of $4,936 representing satisfaction of a judgment against a subsidiary of
the Company. In another legal action to recover damages, attorneys' fees and
other monetary relief from insurance carriers, a settlement in which a
subsidiary of the Company received $16,000 was reached in the third quarter of
1995. This settlement, after reduction for current and deferred legal expenses
of $8,780, was recognized as a gain of $7,220 in the third quarter of 1995.
The Company continues to have possible liabilities relating to environmental
pollution. In the third quarter of 1995, a settlement was recorded relating to
environmental matters for which a charge of $2,500 was incurred, representing
the amount of the settlement net of cash received from insurance carriers of
$1,500. The Company and two of its subsidiaries are named as defendants in two
legal actions brought by, and have received other claims from, private parties
seeking contribution for costs incurred or to be incurred in remediation of
sites under the Federal Comprehensive Environmental Response, Compensation and
Liability Act and similar state statutes. No governmental authority has sought
similar redress from the Company or its subsidiaries (except in the case of one
subsidiary in limited connection with claims made with respect to clients of
that subsidiary) nor has the Company been determined to be a Potentially
Responsible Party by the Federal or any state or local governmental authority,
although some information has been requested with regard to environmental
matters. Based on presently known facts and existing laws and regulations,
management believes that it has valid legal defenses to such actions and that
the costs associated with such matters, including legal costs, should be
mitigated by the presence of other entities which may be Potentially Responsible
Parties, by contractual indemnities, and by insurance coverage.
Management believes, on the basis of its examination and consideration of these
matters and such possible liabilities, including consultation with counsel, that
none of these legal actions, nor such possible liabilities, will result in
payment of amounts, if any, which would have a material adverse effect on the
consolidated financial statements.
The Company has obtained bank letters of credit amounting to $1,500 at December
31, 1995 and 1994, in favor of the bank financing the project to assure that
certain financial obligations with respect to the Binghamton Cogeneration
Project will be met. During 1996, these letters of credit were increased by $330
to $1,830 at December 31, 1996. On January 16, 1997, these letters of credit
were cancelled. As discussed in Note C to the Consolidated Financial Statements,
the Company wrote down its investment in this project to fair value and was
required to obtain a standby letter of credit in January 1997 in the amount of
$6,000 to collateralize its obligation under an indemnity agreement among the
Company, the other partners in the Binghamton Cogeneration Partnership and
certain other parties.
Another subsidiary of the Company is a partner in a joint venture to construct
an oriented-strand board mill in New Brunswick, Canada. An equity investment of
$3,565 was made in 1994, which approximates the carrying value at December 31,
1996 and 1995. No additional investments were made in 1996 or 1995.
In addition to the domestic subsidiary's lines of credit discussed in Note I to
the Consolidated Financial Statements, certain foreign subsidiaries of the
Company have an overdraft banking facility of $3,400 and lines of credit
totaling $5,500, which are used for general corporate purposes. The overdraft
banking facility incurs interest based on 1% over the bank's published rate. A
commitment fee of 1/8% per annum is paid to the banks on the unused portion of
the lines of credit. At December 31, 1996 and 1995, no amounts were outstanding
under the lines of credit or the overdraft banking facility.
At December 31, 1996, subsidiaries of the Company have contingent liabilities of
approximately $29,167 arising from guarantees to banks for credit facilities
extended to affiliates for general operating purposes.
The Company and its subsidiaries place their cash and cash equivalents and U.S.
Government securities with high credit quality financial institutions and, by
policy, limit the amount of credit exposure to any one financial institution.
(N) TREASURY STOCK
In July 1994, the Board of Directors authorized a program to repurchase
1,000,000 shares of Company Common Stock. In July 1995, the Board of Directors
authorized an increase in the share repurchase program to 2,500,000 shares. The
amount and timing of share purchases will depend on market conditions, share
price, as well as other factors. The Company reserves the right to discontinue
the repurchase program at any time. The Company acquired 1,037,037 shares in
1996 and 754,443 shares in 1995 under the program. To date, the Company has
repurchased 2,154,804 shares under this program.
A-20
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
(O) COMMON STOCK
The Company had previously credited Common Stock with the excess of market value
over the cost of treasury stock issued under the Company's various stock plans
and with certain other amounts in excess of par value received as consideration
for issued shares of Common Stock. In 1995, the Company reduced Common Stock and
increased Capital in Excess of Par Value of Common Stock with the total of the
amount in excess of the par value of all issued shares. This reclassification
resulted in a decrease in Common Stock and a corresponding increase in Capital
in Excess of Par Value of Common Stock of $47,440 at December 31, 1994. There is
no change in total Shareholders' Equity resulting from this reclassification.
Beginning in the fourth quarter of 1996, the Company changed the quarterly
dividend declaration date to the first month of the quarter from the month
preceding the quarter. Accordingly, the first quarter 1997 dividend was declared
in January 1997 instead of in December 1996. This change had no effect on the
annual dividend payment rate of $.60 per share, although only $.45 was declared
in 1996.
On August 15, 1996, the Board of Directors of the Company approved a Shareholder
Rights Plan and declared a dividend of one preferred share purchase right
(Right) for each outstanding share of Common Stock. Each Right entitles the
holder to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock of the Company at a price of $125 per one
one-hundredth of a Preferred Share, subject to adjustment (Purchase Price). The
description and terms of the Rights are set forth in a Rights Agreement dated as
of August 15, 1996. The Rights will expire on August 15, 2006 unless extended or
unless the Rights are earlier redeemed or exchanged by the Company.
The Rights are not exercisable until the earlier to occur of (i)
10 days following a public announcement that a person or group of affiliated or
associated persons (Acquiring Person) have acquired beneficial ownership of 15%
or more of the outstanding shares of Common Stock or (ii) 10 business days (or
such later date decided by the Board of Directors) following the commencement
of, or announcement of an intention to make, a tender offer or exchange offer
for 15% or more of the outstanding shares of Common Stock. In such event, each
holder (other than such Acquiring Person) of a Right will have the right to
receive upon exercise of the Right that number of shares of Common Stock having
a market value of two times the Purchase Price. In the event that the Company is
acquired or 50% or more of its assets are sold after a person or group has
become an Acquiring Person, each holder of a Right, upon exercise thereof, will
have the right to receive that number of shares of common stock of the acquiring
company which will have a market value of two times the then Purchase Price.
(P) EMPLOYEE STOCK OWNERSHIP AND
RESTRICTED STOCK PLANS
Under the terms of the Employee Stock Ownership Plan, the Company and
participating subsidiaries make contributions to a trust which can acquire from
the Company up to 5,000,000 shares of Common Stock of the Company, for the
exclusive benefit of participating employees.
The notes receivable from the Employee Stock Ownership Trust (ESOT), received as
consideration by the Company for the 4,000,000 shares of Common Stock sold to
the Trust in prior years, are payable in level payments of principal and
interest over 20 years. The last sale of shares to the ESOT by the Company
occurred in 1985. At December 31, 1996, the balance of the notes receivable from
the Trust was $20,939. The unamortized cost of the shares is being funded by
annual contributions necessary to enable the Trust to meet its current
obligations, after taking into account dividends received on the Common Stock
held by the Trust. The net cost of the Plan is being amortized over 20-year
periods from the dates of acquisition of shares. The charge to income was $1,819
in 1996, $1,555 in 1995 and $1,560 in 1994.
In May 1995, the number of shares of Common Stock remaining available for future
awards under the Restricted Stock Plan was reduced. Under the terms of the Plan,
which will terminate June 1, 1998 unless extended, the Company may award up to a
total of 250,000 shares, after giving effect to the reduction mentioned above,
of the Common Stock of the Company to key employees. Restricted Stock Plan
awards of 7,533 shares in 1996, and 6,000 shares in 1995, previously held in the
Treasury, were granted subject to the restrictions described in the Plan. There
were no such awards granted in 1994. The market value of the shares awarded is
being charged to income over the vesting period of five years. At December 31,
1996, 1,730,533 shares have been awarded, net of shares forfeited and the
unamortized portion of the market value was $477.
(Q) STOCK OPTION PLAN AND STOCK PLAN
On May 11, 1995, the Shareholders approved the 1995 Stock Option Plan and the
1995 Stock Plan for Non-Employee Directors. On January 14, 1997, the Board of
Directors terminated the 1995 Stock Plan for Non-Employee Directors and adopted
the 1997 Stock Plan for Non-Employee Directors. Under the 1995 Stock Option
Plan, key employees are eligible to receive options either as incentive stock
options as defined under the Internal Revenue Code, or as nonqualified options
to purchase shares of the Company's Common Stock. Non-employee directors may be
granted only nonqualified options. The exercise price of any option granted
under the stock option plan may not be less than the fair market value of the
Company's Common Stock as of the date of grant and such options may not be
exercisable later than ten years from the date of grant.
A-21
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
Nonqualified options to purchase 2,000 shares were granted to each non-employee
director as of the effective date of the Stock Option Plan and have been or will
be granted to each new non-employee director upon initial election or
appointment to the Board of Directors. Thereafter on a yearly basis,
nonqualified options to purchase 1,000 shares will be granted to each
non-employee director. The total number of shares to be issuable under the Stock
Option Plan may not exceed 750,000 shares.
During 1996 and 1995, nonqualified options for 15,000 and 20,000 shares,
respectively, were awarded to non-employee directors at exercise prices ranging
from $32.75 to $34.25 in 1996 and $30.25 to $36.00 in 1995, nonexercisable for
the first six months. During 1996, 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. During 1996, nonqualified options for 241,500 shares were awarded
to other designated key employees, at exercise prices ranging from $32.625 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 1995, nonqualified options for
142,500 shares were awarded to employees, at exercise prices ranging from $31.00
to $36.50, and are nonexercisable for the first three years.
As permitted under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (Statement 123), the Company has
elected to continue to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options. Using the intrinsic value-based
method of accounting prescribed by APB 25, no compensation expense is recognized
upon the issuance of employee stock options if the exercise price of the options
equals the quoted market price of the underlying stock on the date of grant.
However, as required by Statement 123, for companies electing to remain with APB
25, pro forma information regarding net income and earnings per share is
presented below and has been determined as if the Company had accounted for its
non-employee director and employee stock options under the fair value method of
Statement 123. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1995 and 1996, respectively: Risk-free interest
rates of 5.92% and 6.02%; dividend yields of 2.0% and 1.9%; volatility factors
of the expected market price of the Company's common stock of .230 and .193; and
a weighted-average expected life of the option of 5 years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Had compensation costs
for the Company's stock option plan awards been determined based on the fair
value at the date of grant, consistent with the provisions of Statement 123, the
Company's net income and earnings per share would have been as shown in the
following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
As reported net income (loss) $(10,644) $14,880
As reported net income (loss) per share $ (0.80) $ 1.04
Pro forma net income (loss) $(11,536) $14,701
Pro forma net income (loss) per share $ (0.83) $ 1.03
- --------------------------------------------------------------------------------
</TABLE>
A summary of the Company's stock option activity, and related information for
the years ended December 31 follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
Weighted- Weighted-
Average Average
Options Exercise Price Options Exercise Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding
-beginning of year 135,500 $31.19 -- --
Granted 356,500 33.56 162,500 $31.15
Exercised 4,000 30.25 -- --
Cancelled 17,000 31.46 27,000 30.94
- --------------------------------------------------------------------------------
Outstanding
- end of year 471,000 $32.98 135,500 $31.19
Exercisable at
end of year 153,000 $33.96 16,000 $30.25
Weighted-average
fair value of
options granted
during the year $ 7.90 $ 7.96
- --------------------------------------------------------------------------------
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged from
$30.25 to $36.50. The weighted-average remaining contractual life of those
options is 9.1 years.
Under the 1995 Stock Plan, non-employee directors of the Company received grants
of shares in payment of their annual retainer and were able to elect to receive
all or a portion of director meeting fees in Common Stock. During 1996 and 1995,
4,206 and 2,252 shares, respectively, were issued to non-employee directors
under the 1995 Stock Plan.
Under the 1997 Stock Plan, non-employee directors will receive an annual stock
grant of 400 shares, payable on a quarterly basis, as part of their annual
retainer. Non-employee directors may also elect to receive all or a portion of
director meeting fees in shares of Common Stock.
A-22
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
(R) RETIREMENT PLANS
The Company and its domestic subsidiaries have a noncontributory defined benefit
plan covering executive, administrative, technical and other employees. The
benefits of this plan are based primarily on years of service and employees'
career average pay. The Company's policy is to make contributions which are
equal to current year cost plus amortization of prior service cost, except as
limited by full funding restrictions. Plan assets consist principally of common
stocks, bonds and U.S. Government obligations.
The Company's foreign subsidiaries in the United Kingdom and Canada have defined
benefit plans covering executive, administrative, technical and other employees.
The U.K. plan is contributory and the benefits are based primarily on years of
service and employees' average pay during their last ten years of service. The
Canada plan is noncontributory and the benefits are based primarily on years of
service and employees' career average pay. The Company's policy is to make
contributions which are equal to the current year cost plus amortization of
prior service cost. Plan assets consist principally of common stocks and bonds.
Pension related items for the plans include the following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 Domestic Foreign Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost- benefits earned
during the year $ 7,309 $ 1,565 $ 8,874
Interest cost on projected
benefit obligation 30,496 3,558 34,054
Actual return on assets (96,448) (3,975) (100,423)
Net amortization and deferral 43,019 (522) 42,497
- --------------------------------------------------------------------------------
Total pension related items $ (15,624) $ 626 $ (14,998)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1995 Domestic Foreign Total
- --------------------------------------------------------------------------------
Service cost-benefits earned
during the year $ 6,557 $ 1,346 $ 7,903
Interest cost on projected
benefit obligation 29,757 3,078 32,835
Actual return on assets (112,938) (3,376) (116,314)
Net amortization and deferral 61,449 (296) 61,153
- --------------------------------------------------------------------------------
Net pension cost (credit) (15,175) 752 (14,423)
Incentive Retirement
Program charges 2,112 -- 2,112
- --------------------------------------------------------------------------------
Total pension related items $ (13,063) $ 752 $ (12,311)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1994 Domestic Foreign Total
- --------------------------------------------------------------------------------
Service cost-benefits earned
during the year $ 7,630 $ 1,395 $ 9,025
Interest cost on projected
benefit obligation 28,593 2,930 31,523
Actual return on assets 1,518 329 1,847
Net amortization and deferral (50,975) (4,200) (55,175)
- --------------------------------------------------------------------------------
Net pension cost (credit) (13,234) 454 (12,780)
Curtailment gain (357) -- (357)
- --------------------------------------------------------------------------------
Total pension related items $ (13,591) $ 454 $ (13,137)
- --------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1995, a voluntary Incentive Retirement Program was
offered to and accepted by employees of the parent company, Stone & Webster,
Incorporated. Total Program costs of $2,315 ($1,416 after tax, or $.10 per
share), including $203 for incentive benefits from a nonqualified Supplemental
Retirement Plan, representing the actuarially determined present value of
Program benefits, were charged to costs and expenses with corresponding offsets
to prepaid pension cost of $2,112 and $203 to accrued liabilities.
In 1994, the Company recorded a curtailment gain of $357 resulting from employee
terminations. The curtailment was determined as of July 1, 1994. The employee
terminations caused a significant reduction in defined benefit accruals for
present employees' future services. The net credit of $357 attributable to the
curtailment comprises two components: a curtailment gain of $4,206 resulting
from a reduction in the projected benefit obligation of the curtailed group and
a loss of $3,849 due to accelerated recognition of prior service costs for the
terminated employees.
Fluctuations in the actual return on plan assets reflect fluctuations in the
market prices of equity securities as well as debt securities owned by the
pension plan. These fluctuations account for most of the variation in the net
amortization and deferral component of pension cost. This component also
includes amortization of the transition asset amounting to $10,383.
A reconciliation of the domestic plan's funded status to the balance sheet
prepaid pension cost is as follows at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefits:
Vested benefit obligation $(405,090) $(413,459)
- --------------------------------------------------------------------------------
Accumulated benefit obligation $(406,969) $(417,779)
- --------------------------------------------------------------------------------
Projected benefit obligation $(423,876) $(437,128)
Plan assets at fair value 618,772 545,734
- --------------------------------------------------------------------------------
Excess of assets over projected
benefit obligation 194,896 108,606
Unrecognized prior service cost 12,475 14,268
Unrecognized net loss or (gain) (57,521) 21,735
Unrecognized net transition (asset) (20,032) (30,415)
- --------------------------------------------------------------------------------
Prepaid pension cost $ 129,818 $ 114,194
- --------------------------------------------------------------------------------
</TABLE>
The plan's funded status as of any measurement date is based on prevailing
market conditions as to discount rate and plan assets, and is accordingly
subject to volatility. The projected benefit obligation was determined using
assumed discount rates of 7.75% at December 31, 1996, and 7.25% at December 31,
1995 and assumed long-term rate of compensation increase 4.5% at December 31,
1996 and 1995. Pension cost was determined using an assumed long-term rate of
return on plan assets of 9.25% at January 1, 1996, 9.75% at January 1, 1995 and
July 1, 1994, and 9.5% at January 1, 1994.
A-23
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
A reconciliation of the foreign plans' funded status to the balance sheet
accrued pension cost is as follows at December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefits:
Vested benefit obligation $(38,286) $(34,898)
- --------------------------------------------------------------------------------
Accumulated benefit obligation $(38,286) $(34,898)
- --------------------------------------------------------------------------------
Projected benefit obligation $(46,685) $(42,265)
Plan assets at fair value 50,030 42,625
- --------------------------------------------------------------------------------
Excess of assets over projected
benefit obligation 3,345 360
Unrecognized prior service cost 178 193
Unrecognized net loss (938) 1,530
Unrecognized net transition (asset) (2,222) (2,371)
- --------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 363 $ (288)
- --------------------------------------------------------------------------------
</TABLE>
Prepaid pension cost is included in the Consolidated Balance Sheets in Other
assets. Accrued pension cost is included in the Consolidated Balance Sheets in
accrued liabilities. The plans' funded status as of any measurement date is
based on prevailing market conditions as to discount rate and plan assets, and
is accordingly subject to volatility. The projected benefit obligation was
determined using an assumed weighted discount rate of 8% at December 31, 1996
and 1995, and assumed long-term rates of compensation increases ranging from 5%
to 6 1/2%. Pension cost was determined using assumed long-term rates of return
on plan assets ranging from 8% to 9% for 1996 and 8.7% for 1995 and 1994.
(S) INTERNATIONAL SUBSIDIARIES
The net income (loss) and net assets of international subsidiaries amounted to
$5,602 and $20,018 in 1996, $5,173 and $14,153 in 1995 and $(844) and $8,959 in
1994, respectively.
(T) BUSINESS SEGMENTS
The Company, through its subsidiaries, is principally engaged in providing
professional engineering, design, construction, consulting and full
environmental services for power, process, environmental/infrastructure and
industrial projects worldwide. The Company's cold storage business offers
consolidated distribution of frozen products for food processors and others
throughout the southeastern United States. Although the Company has numerous
clients and is not dependent on any single client, one or a few clients may
contribute a substantial portion of the Company's consolidated revenue in any
one year or over a period of several consecutive years due to the size of major
engineering and construction projects and the progress accomplished on those
projects in that year or period of years. The Engineering, Construction and
Consulting services segment had clients who accounted for 10% or more of
consolidated revenue as follows: no client in 1996; one client in 1995 - 13% and
two clients in 1994 - 11% and 18%. The Cold Storage and related activities
business segment had no single client providing 10% or more of consolidated
revenue.
Information regarding business segments is shown on page A-29 and is
incorporated herein.
A-24
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
(U) QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1996 First Second Third Fourth
Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $305,834 $268,708 $282,210 $308,085 $1,164,837
Operating Income (Loss) 10,215 7,468 (49,268) 5,665 (25,920)
Income (Loss) before Income Taxes and Extraordinary Item 9,376 5,887 (50,464) 5,812 (29,389)
Income (Loss) before Extraordinary Item 5,532 3,740 (31,680) 4,977 (17,431)
Net Income (Loss) 5,532 3,740 (24,893)(2) 4,977 (10,644)
Net Income (Loss) before Extraordinary Item per Share 0.41 0.28 (2.37) 0.37 (1.31)
Net Income (Loss) per Share (1) 0.41 0.28 (1.86) 0.37 (0.80)
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Net income (loss) per share includes earnings per share from the following:
Operations 0.46 0.35 0.19 0.35 1.35
Pension related items 0.13 0.14 0.21 0.21 0.69
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share from ongoing operations 0.59 0.49 0.40 0.56 2.04
Divested operations (0.18) (0.21) (0.12) 0.01 (0.50)
Restructuring, other charges and asset divestitures -- -- (2.14) (0.20) (2.34)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share 0.41 0.28 (1.86) 0.37 (0.80)
</TABLE>
(2) Includes extraordinary gain of $6,787 net of taxes, for extinguishment of
debt related to the transfer of the Auburn VPS Partnership assets to the
construction lenders.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1995 First Second Third Fourth
Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $222,529 $230,687 $219,160 $330,443 $1,002,819
Operating Income 7,534 11,937 7,112 8,458 35,041
Income (Loss) before Income Taxes 8,376 12,400 7,828 (5,133) 23,471
Net Income (Loss) 4,704 7,946 4,984 (2,754)(4) 14,880
Net Income (Loss) per Share (3) 0.32 0.55 0.35 (0.18) 1.04
- ------------------------------------------------------------------------------------------------------------------------------------
(3) Net income (loss) per share includes earnings per share from the following:
Operations 0.19 0.41 0.17 0.49 1.26
Pension related items 0.15 0.14 0.16 0.07 0.52
-------------------------------------------------------------------------------------------------------------------------------
Earnings per share from ongoing operations 0.34 0.55 0.33 0.56 1.78
Divested operations (0.02) -- 0.02 (0.22) (0.22)
Asset divestitures -- -- -- (0.52) (0.52)
-------------------------------------------------------------------------------------------------------------------------------
Earnings per share 0.32 0.55 0.35 (0.18) 1.04
</TABLE>
- ----------
(4) Includes after-tax loss on sale of Oil and Gas Production and Real Estate
Development businesses of $7,511.
A substantial portion of the Company's business is derived from long-term
engineering and construction contracts. Revenue is determined on the
percentage-of-completion method. Under this method, revisions to earnings
estimates recorded in any quarterly period may be adjustments to revenue
and cost of revenue recognized in prior periods and may in turn be further
adjusted during subsequent quarters. Accordingly, historical results may
vary from quarter to quarter.
A-25
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
(V) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at December 31,
1996 follow:
The carrying amounts for cash and cash equivalents, U.S. Government securities
and bank loans approximate their fair values because of the short maturity of
the instruments.
At December 31, 1996, long-term debt, excluding capital lease obligations,
consists of a mortgage loan relating to an office building. The carrying value
of the mortgage loan for a subsidiary's office building was $25,313 compared
with a fair value of $24,033 based on current rates available to the Company for
debt with similar terms and maturities.
At December 31, 1995, long-term debt, excluding capital lease obligations,
consists of construction loans relating to a wastepaper recycling plant in
Auburn, Maine and mortgage loans relating to office buildings. The fair value of
the construction loans approximates the carrying value at December 31, 1995. The
carrying value of the mortgage loans for a subsidiary's office buildings was
$28,844 compared with a fair value of $28,564 based on quoted market prices for
similar issues or on current rates available to the Company for debt with
similar terms and maturities.
To manage its exposure to fluctuations in foreign currency exchange rates in
1995, a subsidiary of the Company entered into several foreign exchange forward
contracts in connection with the purchase of equipment under engineering and
procurement service contracts. The foreign exchange forward contracts had
varying maturities with none exceeding one year. As of December 31, 1995 the
notional amount of foreign exchange forward contracts outstanding was $3,397.
The fair value and unrealized loss on these contracts was $142 and $220,
respectively, at December 31, 1995. No such contracts were outstanding at
December 31, 1996.
The Company and its subsidiaries have entered into other financial agreements in
the normal course of business. These agreements, which by their nature contain
potential risk of loss, include lines of credit, letters of credit, performance
bonds and performance guarantees. The fair values of the lines of credit,
letters of credit, performance bonds and performance guarantees are estimated at
$784 and $265 at December 31, 1996 and 1995, respectively, based on the fees
paid to obtain the obligations.
(W) RECLASSIFICATIONS
In 1995, the Company changed its reporting to present Operating Income (Loss)
and has reclassified profits on investment securities and dividend and interest
income from revenue to a new caption - Other Income (Deductions). Certain other
miscellaneous revenue was reclassified to operating costs. As a result of these
reclassifications, total revenue decreased by $38,966, operating expenses
decreased by $1,741, and other income (deductions) increased by $37,225, for
1994, with no effect on net income.
In 1995, the Company restated its Common Stock account to reflect the amount
equal to the par value of the shares issued. The account Capital in Excess of
Par Value of Common Stock reflects the excess over par value of the amount of
consideration received for issued shares and the excess of the market value over
the cost of shares issued from treasury stock under Company plans. There is no
change in total Shareholders' Equity.
In 1994, the Company changed its presentation of reporting gross earnings to a
format reflecting total revenue, costs of revenue and selling, general and
administrative expenses to be more consistent with industry practice, in its
Engineering, Construction and Consulting business.
A-26
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
SELECTED FINANCIAL DATA
(All dollar amounts, except per share amounts, are in thousands.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue: (6)
Engineering, Construction and Consulting services $ 1,143,587 $ 969,284 $ 748,614 $ 1,013,265 $ 944,787
Cold Storage and related activities 21,250 21,188 17,280 16,914 15,698
Other -- 12,347 13,361 16,130 15,689
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenue $ 1,164,837 $ 1,002,819 $ 779,255 $ 1,046,309 $ 976,174
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) (4 and 6) $ (25,920) $ 35,041 $ (42,097) $ 6,813 $ 17,335
Income (Loss) from Continuing Operations $ (17,431) $ 14,880 $ (7,807) $ (370) $ 9,340
Net Income (Loss) (1, 2, 3 and 4) $ (10,644) $ 14,880 $ (7,807) $ 1,952 $ 12,815
- ------------------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding 13,237,000 14,376,000 14,907,000 14,978,000 14,999,000
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations Per Share $ (1.31) $ 1.04 $ (.52) $ (.03) $ .62
Net Income (Loss) Per Share (1, 2, 3 and 4) $ (.80) $ 1.04 $ (.52) $ .13 $ .85
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends Declared Per Share (7) $ .45 $ .60 $ .60 $ .60 $ .60
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets (5) $ 692,065 $ 716,772 $ 678,384 $ 683,579 $ 623,493
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt $ 24,260 $ 74,677 $ 89,642 $ 47,739 $ 24,768
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
Notes: (1) Reflects gain or loss on sale of assets, which decreased net
income by $7,511, or $.52 per share in 1995, increased net income by
$21,208, or $1.42 per share in 1994 as explained in Note C to the
Consolidated Financial Statements and $2,802, or $.19 per share in
1992.
(2) Includes an extraordinary gain of $6,787, or $.51 per share in 1996
on debt extinguishment from transfer of Auburn VPS Partnership assets
to the construction lenders and an extraordinary item from
utilization of foreign subsidiaries' net operating loss
carryforwards, which increased net income by $246, or $.02 per share
in 1992.
(3) Includes cumulative effect of a change in accounting principle, which
increased net income by $2,322, or $.16 per share in 1993 and $3,229,
or $.21 per share in 1992.
(4) Net Income includes restructuring and other charges of $28,516, or
$2.14 per share (operating income includes $54,424 for these items)
in 1996 (See Notes C , G and K to the Consolidated Financial
Statements), a write-down of the Company's equity interest in
Binghamton Cogeneration Partnership to fair value in 1996 which
reduced net income by $2,712, or $.20 per share, costs associated
with the Incentive Retirement Program of $1,416, or $.10 per share in
1995, pension curtailment gains which increased net income by $218,
or $.02 per share in 1994 and by $1,072, or $.07 per share in 1993,
severance costs which decreased net income by $12,596, or $.84 per
share in 1994, $4,967, or $.33 per share in 1993 and by $1,881, or
$.13 per share in 1992, and costs which decreased net income in 1993
as follows: $5,460, or $.36 per share, associated with the Incentive
Retirement Program; $1,131, or $.08 per share, relating to an
increase in the statutory federal income tax rate on corporations
from 34% to 35%; $2,340, or $.16 per share, relating to a judgment
against a subsidiary of the Company and $2,015, or $.13 per
share,relating to an IRS settlement in connection with prior years'
income tax returns.
(5) Total assets at December 31, 1993 includes an increase of $38,423, as
a result of carrying investment securities at a fair market value of
$40,836, due to the adoption of SFAS No. 115 - Accounting for Certain
Investments in Debt and Equity Securities.
(6) Certain reclassifications have been made in 1994 and prior years'
data to conform with the 1996 and 1995 presentation. See Notes A and
W to the Consolidated Financial Statements.
(7) In the fourth quarter of 1996, the Company changed the quarterly
dividend declaration date to the first month of the quarter from the
month preceding the quarter. This change had no effect on the annual
dividend payment rate of $.60 per share, although dividends declared
in 1996 totaled $.45 per share.
MARKET AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------
Principal Market - New York Stock Exchange
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Sales Price of Dividends Paid
Common Shares Per Share (1)
- --------------------------------------------------------------------------------
1996 1995 1996 1995
- --------------------------------------------------------------------------------
Quarter High Low High Low
- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First 36 325/8 341/8 311/4 $.15 $.15
Second 373/8 32 32 271/4 .15 .15
Third 353/8 285/8 40 291/2 .15 .15
Fourth 341/8 30 381/8 325/8 .15 .15
- --------------------------------------------------------------------------------
</TABLE>
- ----------
(1) See Note O to the Consolidated Financial Statements.
The Company has purchased and may continue to purchase from time to time
additional shares of its Common Stock for general corporate purposes on the New
York Stock Exchange, or otherwise. However, there is no assurance that the
Company will continue to purchase shares of its Common Stock. Also see Note N to
the Consolidated Financial Statements. The approximate number of record holders
of Common Stock as of December 31, 1996 was 5,800. The Common Stock is also
listed for trading on the Boston Stock Exchange.
A-27
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
REPORT OF MANAGEMENT
- --------------------------------------------------------------------------------
The management of Stone & Webster, Incorporated is responsible for the
preparation of the financial statements and related notes included in this
annual report to shareholders. The financial statements have been prepared in
conformity with generally accepted accounting principles and accordingly include
certain amounts which represent management's best estimates and judgments.
Management maintains internal systems to assist it in fulfilling its
responsibility for financial reporting, including careful selection of
personnel, segregation of duties and the maintenance of formal accounting and
reporting policies and procedures. While no system can ensure elimination of all
errors and irregularities, the systems have been designed to provide reasonable
assurance that assets are safeguarded, policies and procedures are followed and
transactions are properly executed and reported. These systems are reviewed and
modified in response to changing conditions. Management believes that the
Company's system of internal controls is adequate to accomplish the objectives
discussed herein.
The system is supported by an internal auditing function that
operates worldwide and reports its findings to management throughout the year.
The Company's independent accountants are engaged to express an opinion on the
year-end financial statements. The independent accountants review and test the
system of internal accounting controls and the data contained in the financial
statements to the extent required by generally accepted auditing standards as
they deem necessary to arrive at an opinion on the fairness of the financial
statements presented herein.
The Audit Committee of the Board of Directors, which is comprised of outside
directors, meets regularly with management, the internal auditors and the
independent accountants to discuss the adequacy of internal controls, the
reported financial results and the results of the auditors' examinations. The
internal auditors and the independent accountants have direct access to the
Audit Committee and meet privately with the Committee.
H. Kerner Smith Jeremiah P. Cronin
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
A-28
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
BUSINESS SEGMENT INFORMATION
(See Note T to the Consolidated Financial Statements. All dollar amounts are in
thousands.)
- --------------------------------------------------------------------------------
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE (1)
Engineering, Construction
and Consulting services $ 1,143,587 $ 969,284 $ 748,614
Cold Storage and related
activities 21,250 21,188 17,280
Other (2) -- 12,347 13,361
- --------------------------------------------------------------------------------
Total Revenue $ 1,164,837 $ 1,002,819 $ 779,255
- --------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (3)
Engineering, Construction
and Consulting services $ (20,249) $ 38,941 $ (37,709)
Cold Storage and related
activities 5,954 7,783 5,927
Other (2) (163) 1,244 395
General Corporate (11,462) (12,927) (10,710)
- --------------------------------------------------------------------------------
Operating Income (Loss) $ (25,920) $ 35,041 $ (42,097)
- --------------------------------------------------------------------------------
Interest and Dividend Income 3,268 6,422 5,123
Interest Expense (6,737) (5,549) (3,900)
Gain (Loss) on sale of assets -- (12,443) 32,102
- --------------------------------------------------------------------------------
Income (Loss) before Taxes $ (29,389) $ 23,471 $ (8,772)
- --------------------------------------------------------------------------------
IDENTIFIABLE ASSETS (4)
Engineering, Construction
and Consulting services $ 625,466 $ 595,699 $ 492,650
Cold Storage and related
activities 42,634 35,143 35,798
Other (2) -- 1,273 68,679
General Corporate 23,965 84,657 81,257
- --------------------------------------------------------------------------------
Total Identifiable Assets $ 692,065 $ 716,772 $ 678,384
- --------------------------------------------------------------------------------
DEPRECIATION, DEPLETION
AND AMORTIZATION
Engineering, Construction
and Consulting services $ 14,431 $ 14,219 $ 14,904
Cold Storage and related
activities 2,264 1,972 1,951
Other (2) 198 3,048 2,862
- --------------------------------------------------------------------------------
Total Depreciation, Depletion
and Amortization $ 16,893 $ 19,239 $ 19,717
- --------------------------------------------------------------------------------
CAPITAL EXPENDITURES
Engineering, Construction
and Consulting services $ 14,212 $ 24,127 $ 47,637
Cold Storage and related
activities 9,995 1,715 2,439
Other (2) 176 2,120 2,268
- --------------------------------------------------------------------------------
Total Capital Expenditures $ 24,383 $ 27,962 $ 52,344
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
United States - Domestic $ 703,832 $ 659,926 $ 642,321
United States - Export (5) 187,324 111,486 50,893
- --------------------------------------------------------------------------------
United States - Total 891,156 771,412 693,214
- --------------------------------------------------------------------------------
International (5) 273,681 231,407 86,041
- --------------------------------------------------------------------------------
Total Revenue $ 1,164,837 $ 1,002,819 $ 779,255
- --------------------------------------------------------------------------------
OPERATING INCOME (LOSS)
United States $ (19,609) $ 40,660 $ (32,386)
International 5,151 7,308 999
General Corporate (11,462) (12,927) (10,710)
- --------------------------------------------------------------------------------
Operating Income (Loss) $ (25,920) $ 35,041 $ (42,097)
- --------------------------------------------------------------------------------
IDENTIFIABLE ASSETS (4)
United States $ 620,208 $ 567,843 $ 553,096
International 47,892 64,272 44,031
General Corporate 23,965 84,657 81,257
- --------------------------------------------------------------------------------
Total Identifiable Assets $ 692,065 $ 716,772 $ 678,384
- --------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Total segment revenue includes revenue from unaffiliated customers as
reported in the Consolidated Statements of Operations.
(2) The Other segment includes the Oil and Gas Production and Real Estate
Development businesses.
(3) The pension related items included in Operating Income (Loss) are:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
(Income) Expense 1996 1995 1994
---------------------------------------------------------------------------
<S> <C> <C> <C>
Engineering, Construction and
Consulting services $(14,812) $(14,206) $(12,946)
Cold Storage and related activities 100 91 81
Other -- (65) (68)
General Corporate (286) 1,869 (204)
---------------------------------------------------------------------------
Total pension related items $(14,998) $(12,311) $(13,137)
---------------------------------------------------------------------------
</TABLE>
Pension related items include the effect of curtailment gains and incentive
retirement programs. Domestic and foreign pension related items are
presented in Note R to the Consolidated Financial Statements.
(4) Identifiable assets are those assets used in the operation of each segment.
General corporate assets are composed primarily of cash and U.S. Government
securities.
(5) Revenue principally to Asia/Pacific Rim, Canada, Europe and Middle East.
Revenue did not exceed 10% of total revenue for any one geographic area.
(6) Certain reclassifications have been made in 1994 data to conform with the
1996 and 1995 presentation. See Notes A and W to the Consolidated Financial
Statements.
A-29
<PAGE>
<TABLE>
Stone & Webster, Incorporated and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(All dollar amounts are in thousands.)
------------------------
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Additions
------------------------------
Balance at Charged Charged Balance at
Beginning of to Costs to Other End of
Description Period and Expenses Accounts Deductions Period
- ------------------------------------------- ---------------- --------------- ------------- ------------ -------------
<S><C> <C> <C> <C> <C> <C>
Allowance deducted from
asset to which it applies:
Allowance for doubtful
accounts:
Year ended December 31, 1996 $3,767 $1,280 $0 $1,421 (A) $3,626
Year ended December 31, 1995 3,723 712 0 668 (A) 3,767
Year ended December 31, 1994 2,957 647 289 170 (A) 3,723
<FN>
Note A - Uncollected receivables written off, net of recoveries
</FN>
</TABLE>
A-30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Stone & Webster, Incorporated:
We have audited the consolidated financial statements and the financial
statement schedule of Stone & Webster, Incorporated and Subsidiaries listed in
the index on page A-1 of the Form 10-K. These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Stone & Webster,
Incorporated and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
New York, New York
February 18, 1997
A-31
<PAGE>
Form 10-K 1996 Stone & Webster, Incorporated
EXHIBIT INDEX
No. Exhibit
3 (i) Restated Certificate of Incorporation
(incorporated by reference)
(ii) By-Laws (incorporated by reference)
4 (ii) Rights Agreement, dated as of August 15, 1996, between Stone & Webster,
Incorporated and ChaseMellon Shareholder Services, L.L.C., which
includes the form of Right Certificate as Exhibit A and the Summary of
Rights to Purchase Common Shares as Exhibit B (incorporated by
reference)
10 (a) Material contracts - Restricted Stock Plan and form of grant
(incorporated by reference)
(b) Material contracts - 1995 Stock Option Plan (incorporated by reference)
(c) Material contracts - 1997 Stock Plan for Non-Employee Directors (filed
herewith)
(d) Material contracts - Form of change of control agreement
(incorporated by reference)
(e) Material contracts - Forms of agreement with H. Kerner Smith relating
to (i) Employment Agreement; (ii) Change of Control Employment
Agreement; and (iii) Stock Option Grant (each incorporated by
reference); and (iv) Amendment to Employment Agreement (filed
herewith)
21 Subsidiaries of the Registrant (filed herewith)
23 Consent of Independent Accountants (filed herewith)
27 Financial Data Schedule (filed herewith)
A-32
Form 10-K 1996 Stone & Webster, Incorporated
Exhibit 10 (c)
1997 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
OF
STONE & WEBSTER, INCORPORATED
1. Purpose
The purpose of the 1997 Stock Plan for Non-Employee Directors
of Stone & Webster, Incorporated (the "Plan") is to promote the long-term growth
and financial success of Stone & Webster, Incorporated (the "Company") by
attracting and retaining non-employee directors of outstanding ability and by
promoting a greater identity of interest between its non-employee directors and
its stockholders.
2. Definitions
The following capitalized terms used herein have the following
meanings:
"Annual Retainer" means the annual compensation to be paid to
each Non-Employee Director in the amount of $8,000.
"Annual Stock Grant" means the annual stock grant to be
awarded to each non-Employee Director in the amount of 400 shares of Common
Stock.
"Board of Directors" means the Board of Directors of the
Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board of
Directors or such other committee of the Board of Directors which shall succeed
to the functions and responsibilities of the Compensation Committee.
"Common Stock" means the Company's Common Stock, $1.00 par
value per share.
"Director Meeting Fees" means fees earned by Non-Employee
Directors by attendance at meetings of the Board of Directors and at meetings of
any committee of the Board of Directors of which such Non-Employee Director is a
member.
"Fair Market Value" means, as of any date of the determination
thereof, the per share price of the last sale of Common Stock on such date of
determination or, if such date is not a trading date, on the trading date
immediately preceding such date of determination, based on the composite
transactions in the Common Stock as reported by The Wall Street Journal (or any
successor publication thereto).
"1934 Act" means the Securities Exchange Act of 1934, as
amended.
"Non-Employee Director" shall have the meaning set forth in
Rule 16b- 3(b)(3) of the 1934 Act.
3. Term
The Plan shall become effective as of the date the Plan is
approved by the Board of Directors. Once effective, the Plan shall operate and
shall remain in effect until terminated by action of the Board of Directors as
provided in Section 10 hereof.
4. Plan Operation
The Plan is intended to comply with all exemptive conditions
under Rule 16b-3 promulgated under the 1934 Act. The Committee shall have the
power and authority to construe and interpret the provisions of the Plan.
Decisions of the Committee shall be final and conclusive.
1
<PAGE>
5. Participation
All Non-Employee Directors shall be eligible to participate in
the Plan.
6. Payment of Annual Retainer; Award of Annual Stock Grant
(a) Payment of Annual Retainer. As soon as practicable,
but no later than 30 days after the first day of each calendar quarter, each
person who is a Non-Employee Director at any such first day of a calendar
quarter shall be paid one-fourth (1/4) of the Annual Retainer. A person who
becomes a Non-Employee Director at any time after the first day of any calendar
quarter shall be paid, as soon as practicable but no later than 30 days after
the end of such calendar quarter, that portion of the Annual Retainer equal to
the amount calculated by multiplying $8,000 by a fraction, the numerator of
which is the number of whole months such person served as a Non-Employee
Director during such calendar quarter (with service by any such Non-Employee
Director for at least 15 days in any month being considered service for a whole
month), and the denominator of which is 12.
(b) Award of Annual Stock Grant. As soon as practicable,
but no later than 30 days after the first day of each calendar quarter, each
person who is a Non-Employee Director at any such first day of a calendar
quarter shall be awarded that number of shares of Common Stock equal to
one-fourth (1/4) of the Annual Stock Grant. A person who becomes a Non-Employee
Director at any time after the first day of any calendar quarter shall be
awarded, as soon as practicable but no later than 30 days after the end of such
calendar quarter, that number of shares of Common Stock (rounded up to the next
whole share in the event of a fractional share) equal to the amount calculated
by multiplying 400 by a fraction, the numerator of which is the number of whole
months such person served as a Non-Employee Director during such calendar
quarter (with service by any such Non-Employee Director for at least 15 days in
any month being considered service for a whole month), and the denominator of
which is 12.
7. Director Meeting Fees
(a) Election to Receive Director Meeting Fees in Stock
in Lieu of Cash. Except as set forth in the Plan, a Non-Employee Director may
elect to receive all or a portion of Director Meeting Fees in the form of shares
of Common Stock, with such shares of Common Stock being paid in arrears on a
calendar quarter basis. The number of shares (rounded up to the next whole share
in the event of a fractional share) for a calendar quarter payable to a
Non-Employee Director (or to any person who was a Non-Employee Director for a
portion of such calendar quarter) who has elected to receive Director Meeting
Fees in the form of shares (i) shall be in an amount having the aggregate Fair
Market Value, as of the first day of any such calendar quarter, equal to the
amount of Director Meeting Fees which have been earned in such quarter and which
were elected to be paid in shares of Common Stock, and (ii) shall be received by
the Non-Employee Director (or any person who was a Non-Employee Director for a
portion of such calendar quarter) as soon as practicable, but no later than 30
days after the end of such calendar quarter.
(b) Elections. All elections under Section 7(a) for
the payment of all or a portion of Director Meeting Fees in the form of Common
Stock (i) shall be made in writing, (ii) shall be delivered to the Secretary of
the Company, (iii) shall be irrevocable for the calendar year next succeeding
such election (or, in the case of any person who becomes a Non-Employee Director
during a calendar year, for the remainder of such calendar year during which
such Director Meeting Fees are to be paid to such Non-Employee Director in
shares of Common Stock), and (iv) shall specify the portion (in 25% increments)
of such Director Meeting Fees to be paid in shares of Common Stock. All such
elections shall be made annually before the first meeting in the following
calendar year at which Director Meeting Fees are to be earned (or, in the case
of any person who becomes a Non-Employee Director during a calendar year, prior
to the date any such Director Meeting Fees are to be paid to such Non-Employee
Director in shares of Common Stock).
8. Limitations and Conditions
(a) Total Number of Shares. The total number of shares
of Common Stock that may be issued to Non-Employee Directors under the Plan is
100,000 shares. The shares of Common Stock deliverable under the Plan may be
authorized and unissued shares or reacquired shares. The foregoing number may be
increased or decreased by the events set forth in Section 9 below. No fractional
shares shall be issued hereunder. In the event a Non-Employee Director is
entitled to a fractional share, such share amount shall be rounded upward to the
next whole share amount.
2
<PAGE>
(b) No Additional Rights. Nothing contained herein
shall be deemed to create a right in any Non-Employee Director to remain a
member of the Board of Directors, to be nominated for reelection or to be
reelected as such or, after ceasing to be such a member, to receive any cash or
shares of Common Stock under the Plan, except as set forth in the Plan.
9. Stock Adjustments
In the event that at any time after the effective date of the
Plan the outstanding shares of Common Stock are changed into or exchanged for a
different number or kind of shares of the Company or other securities of the
Company by reason of merger, consolidation, recapitalization, reclassification,
stock split, stock dividend, combination of shares or any similar corporate
event, the Committee may make such adjustments in (i) the aggregate number of
shares of Common Stock that may be issued under the Plan as set forth in Section
8(a), or (ii) the class of shares that may be issued under the Plan.
10. Amendment and Termination
This Plan may be amended, suspended or terminated by action of
the Board of Directors; provided, however, that the provisions of the Plan may
not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act, or the rules
thereunder.
11. Nonassignability
No right to receive any shares of Common Stock under the Plan
shall be assignable or transferable by such Non-Employee Director other than by
will or the laws of descent and distribution.
Form 10-K 1996 Stone & Webster, Incorporated
Exhibit 10 (e) (iv)
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 to EMPLOYMENT AGREEMENT (this "Amendment") by and
between STONE & WEBSTER, INCORPORATED, a Delaware corporation (the "Company"),
and H. KERNER SMITH (the "Executive"), dated as of January 15, 1997.
WHEREAS, the Company and Executive are parties to an Employment
Agreement, dated as of February 12, 1996 (the "Employment Agreement"); and
WHEREAS, the Company and Executive now desire to amend the Employment
Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, the Company and the Executive agree as
follows:
1. Amendment to Section 1. Section 1. of the Employment Agreement is
hereby amended to read in its entirety as follows:
"The Company hereby employs the Executive, and the Executive hereby
accepts such employment, for the period (the "Term of Employment") commencing
February 12, 1996 (the "Commencement Date") and continuing until the earlier of
(a) February 11, 1999 (the "Conclusion Date") or (b) the termination of the
Executive's employment in accordance with this Agreement; provided, however,
that on the first anniversary of the Commencement Date and on each subsequent
anniversary of the Commencement Date, the Conclusion Date shall be extended one
additional year unless (i) not later than sixty (60) calendar days prior to such
anniversary (or any prior such anniversary) either the Company or the Executive
shall have given notice to the other that it or he does not wish to extend the
Conclusion Date or (ii) prior to such anniversary (or any prior such
anniversary) the Executive's employment was terminated in accordance with this
Agreement; provided further, however, that the Term of Employment shall
terminate, and (except as otherwise specifically provided herein) this Agreement
shall terminate and be of no further force or effect, immediately upon the
occurrence of the Effective Date under the Change of Control Employment
Agreement."
2. Amendment to Section 4(b) Section 4(b)of the Employment Agreement
is hereby amended to read in its entirety as follows:
"(b) Annual Bonuses. In addition to Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Term of Employment, an annual
bonus ("Annual Bonus") in cash. For the fiscal year ending December 31, 1996,
the Annual Bonus shall not be less than Two Hundred and Fifty Thousand Dollars
($250,000), and for the fiscal years ending December 31, 1997 and 1998, the
Annual Bonus shall not be less than 50% of Base Salary, as in effect on the last
day of such fiscal year. The amount of each Annual Bonus for the fiscal years
ending December 31, 1996, 1997 and 1998 may be larger than those specified in
the immediately preceding sentence of this Section 4(b) based upon the
Executive's performance and the discretion of the Board; the amount of each
Annual Bonus for fiscal years ending after December 31,
1
<PAGE>
1998 shall be based on the Executive's performance and the discretion of the
Board. Each such Annual Bonus shall be paid no later than March 31 of the year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus. Since the
Commencement Date, the Company has adopted the Executive Management Incentive
Compensation Plan of Stone & Webster, Incorporated and its Subsidiaries (the
"ICP"); and it is the intent of the parties that a new long-term performance
plan (the "New LTPP") based upon the Company's financial strategic plan and
long-term objectives will be developed for the Company by the management of the
Company (under the direction of the Compensation Committee of the Board and in
consultation with the Company's compensation consultants) and presented to the
Board for approval and that the New LTPP will provide for minimum, target
(equalling a significant portion of the base salary of the participants therein)
and maximum awards based upon the extent to which performance goals determined
by the Compensation Committee of the Board are achieved. If the Executive is
awarded and paid an award under the ICP with respect to any fiscal year ending
during the Term of Employment, where the new LTPP is adopted and the Executive
is awarded and paid an award under the New LTPP with respect to any fiscal year
ending during the Term of employment, then the aggregate amount of such award or
awards under the ICP or the New LTPP (including any portion thereof payable in
the form of awards of restricted stock under the Restricted Stock Plan of Stone
& Webster, Incorporated) shall substitute for the Annual Bonus provided for in
this Section 4 (b) for such fiscal year; provided, however, that if the
Executive is awarded and paid an award or awards under the ICP or the New LTPP
with respect to the fiscal years ending December 31, 1997 or 1998, and the
aggregate amount of such award or awards is less than 50% of Base Salary as in
effect on the last day of such fiscal year (or such larger Annual Bonus then in
effect), then the Company shall pay the Executive, at the time such award or
awards are paid, an amount in cash equal to the amount by which 50% of Base
Salary (or such larger Annual Bonus then in effect) exceeds the aggregate amount
of such award or awards."
3. Amendment to Section 5.(b) Section 5.(b) of the Employment Agreement
is hereby amended to read in its entirety as follows:
(b) During the Term of Employment, the Company shall provide the
Executive with (or reimburse the Executive for the cost of) (i) a supplemental
term life insurance policy covering the Executive's life in the face amount of
$1,000,000, (ii) a supplemental disability insurance policy which, when combined
with the disability coverage provided to the Executive pursuant to Section 5 (a)
of this Agreement, will provide the Executive with annual disability benefits
equal to Base Salary, (iii) an automobile, (iv) membership (including
initiation, annual and other membership expenses) in one city business or
luncheon club and one country club and (v) tax, accounting and financial
advisory services. The Company shall pay (or reimburse the Executive for) all
Federal, state or local taxes attributable to (i) the benefits provided for in
this Section 5(b) or (ii) the payment of (or reimbursement for) such taxes
provided for in this sentence of this Section 5(b).
4. Amendment to Section 9(c) (iii). Section 9(c) (iii) of the
Employment Agreement is hereby amended by (i) inserting the words "the ICP or"
after the word "under" and before the word "the" in the parenthetical in clause
(A) thereof, (ii) deleting the word "or" at the end of clause (B) thereof, (iii)
substituting ";or" for the period at the end of clause (c) thereof and (iv)
adding thereto the following clause (D):
"(D) the giving by the Company of a notice pursuant to clause (i) of
the first proviso to Section 1 of this Agreement that it does not wish to extend
the Conclusion Date."
5. Amendment to section 9(d) (i) (A) and (B). The parenthetical that
begins with an open parenthesis on the sixth line of Section 9(d) (i) (A) of the
Employment Agreement and ends with a closed parenthesis on the tenth line of
such Section and the parenthetical that begins with an open parenthesis on the
eighth line of Section 9(d) (i) (B) of the Employment Agreement and ends
immediately prior to the comma on the twelfth line of such Section (where there
should have been a closed parenthesis) are hereby amended to read in their
entirety as follows:
"(or if the ICP or the New LTPP is in effect and the Executive has been awarded
an award or awards under the ICP or the New LTPP with respect to the fiscal year
in which the Date of Termination occurs, (aa) if the Date of Termination occurs
in the fiscal year ending December 31, 1997 or 1998, the greater of such Annual
Bonus or the aggregate amount of the Executive's maximum award or awards under
the ICP or the New LTPP substituting for such Annual Bonus pursuant to Section
4(b) of this Agreement or (bb) if the Date of Termination occurs in any fiscal
year ending after December 31, 1998, then the aggregate amount of the
Executive's maximum award or awards under the ICP or the New LTPP substituting
for such Annual Bonus pursuant to Section 4(b) of this Agreement, with, for
purposes of this Section, any awards under the ICP or the New LTPP being paid
entirely in cash)"
6. Effective Date. This amendment shall be effective as of January
15, 1997 upon the signature of the Company and the Executive.
7. Miscellaneous.
(a) Any capitalized terms used in this Amendment and not otherwise
defined herein shall have the meaning ascribed to such terms in the Employment
Agreement.
(b) This Amendment may be executed in any number of counterparts,
all of which together constitute one and the same instrument.
(c) This Amendment shall be governed by and construed in accordance
with the law of the State of New York, without reference to principles of
conflict of laws.
(d) The Employment Agreement, as amended hereby shall remain in full
force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to authorization from the Board, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first above written.
STONE & WEBSTER, INCORPORATED H. KERNER SMITH
By:
NAME: Jeremiah P. Cronin
TITLE: Executive Vice President
3
Form 10-K 1996 Stone & Webster, Incorporated
Exhibit 21 Subsidiaries of Registrant
Subsidiaries of Registrant on December 31, 1996 included:
<TABLE>
<CAPTION>
PLACE OF
NAME OF SUBSIDIARY INCORPORATION
<S> <C>
Commercial Cold Storage, Inc. Georgia
Prescient Technologies, Inc. Delaware
Stone & Webster Development Corporation Delaware
Stone & Webster Auburn Corporation Delaware
Auburn VPS General Corporation Delaware
Auburn VPS Limited Corporation Delaware
Stone & Webster Binghamton Corporation Delaware
SWL Corporation Delaware
Stone & Webster Engineering Corporation Massachusetts
DSS Engineers, Inc. Florida
Fast Supply Corporation Delaware
Rockton Associates, Incorporated Delaware
Stone & Webster Civil and Transportation
Services, Inc. Massachusetts
Stone & Webster Construction Company, Inc. Delaware
Stone & Webster Industrial Technology Corporation Delaware
Stone & Webster Management Consultants, Inc. New York
Stone & Webster of Argentina Corporation Delaware
Stone & Webster Overseas Consultants, Inc. Delaware
Stone & Webster Michigan, Inc. Michigan
Stone & Webster Operating Corporation Delaware
Stone & Webster Power Projects Corporation Delaware
Stone & Webster Worldwide Engineering Corporation Delaware
3 Executive Campus Corporation Delaware
245 Summer Street Corporation Massachusetts
1430 Enclave Parkway Corporation Delaware
Stone & Webster Overseas Group, Inc. Delaware
Advanced Technologies (Cayman) Limited Cayman Islands
Selective Technologies Corporation Delaware
AEC International Projects, Inc. Delaware
Associated Engineers & Consultants, Inc. New York
International Associates (Cayman) Limited Cayman Islands
International Engineers & Constructors, Inc. Delaware
Process Engineers (Cayman) Limited Cayman Islands
Process Engineers, Incorporated Delaware
Rockton Technical Services Corporation Delaware
Stone & Webster Abu Dhabi (United Arab Emirates),
Inc. Delaware
Stone & Webster Asia Corporation Delaware
Stone & Webster Bharat, Incorporated Delaware
Stone & Webster Dominican Republic, Incorporated Delaware
Stone & Webster Far East Technical Services Corp. Delaware
Stone & Webster Group Limited England
Stone & Webster Construction Limited England
Stone & Webster Engineering Limited England
Stone & Webster Services Limited England
Stone & Webster Services Sdn. Bhd. Malaysia
Stone & Webster Engineering and Field
Services Limited England
Stone & Webster Engineering (Mauritius)
Limited Mauritius
Stone & Webster Management Consultants England
Limited
Stone & Webster United Arab Emirates Limited England
1
<PAGE>
Form 10-K 1996 Stone & Webster, Incorporated
Stone & Webster Indonesia Corporation Delaware
Stone & Webster Inter-American Corporation Delaware
Stone & Webster International Corporation Delaware
Stone & Webster International Projects Corporation Delaware
Stone & Webster Italia, Incorporated Delaware
Stone & Webster Korea Corporation Delaware
Stone & Webster Kuwait, Incorporated Delaware
Stone & Webster Lithuania Corporation Delaware
Stone & Webster of Mexico Engineering Corporation Delaware
Stone & Webster Middle East Engineering Services
Corporation Delaware
Stone & Webster Pacific Corporation Delaware
Stone & Webster Power Engineering Corporation Delaware
Stone & Webster Puerto Rico, Incorporated Delaware
Stone & Webster Saudi Arabia, Incorporated Delaware
Stone & Webster Taiwan Corporation Delaware
Stone & Webster Technology Corporation Delaware
Stone & Webster Technology B.V. Netherlands
Stone & Webster Thailand Limited Thailand
Stone & Webster Canada Limited Canada
Rockton Field Services of Canada Ltd. Canada
Stone & Webster St. Jerome Limited Canada
Stone & Webster Worldwide, Incorporated Delaware
SAW Construction Corporation Delaware
SAW Consulting Services, Inc. Delaware
Sleeper Street Realty Corporation Delaware
Summer Street Realty Corporation Massachusetts
3 Executive Campus Realty, Inc. Delaware
Enclave Parkway Realty, Inc. Delaware
</TABLE>
2
Form 10-K 1996 Stone & Webster, Incorporated
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
____________
We consent to the incorporation by reference in the registration statements
of Stone & Webster, Incorporated on Form S-8 (File Nos. 333-19829, 333-19849,
33-60489 and 33-60483) of our report dated February 18, 1997, on our audits of
the consolidated financial statements and financial statement schedule of Stone
& Webster, Incorporated and Subsidiaries as of December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996, which report
is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
New York, New York
March 26, 1997
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 57887
<SECURITIES> 4006
<RECEIVABLES> 181900
<ALLOWANCES> 3626
<INVENTORY> 0
<CURRENT-ASSETS> 394424
<PP&E> 282060
<DEPRECIATION> 154111
<TOTAL-ASSETS> 692065
<CURRENT-LIABILITIES> 285521
<BONDS> 24260
0
0
<COMMON> 17731
<OTHER-SE> 299402
<TOTAL-LIABILITY-AND-EQUITY> 692065
<SALES> 0
<TOTAL-REVENUES> 1164837
<CGS> 0
<TOTAL-COSTS> 1099064
<OTHER-EXPENSES> 91693
<LOSS-PROVISION> 1280
<INTEREST-EXPENSE> 6737
<INCOME-PRETAX> (29389)
<INCOME-TAX> (11958)
<INCOME-CONTINUING> (17431)
<DISCONTINUED> 0
<EXTRAORDINARY> 6787
<CHANGES> 0
<NET-INCOME> (10644)
<EPS-PRIMARY> (.80)
<EPS-DILUTED> (.80)
</TABLE>
