UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-1228
Stone & Webster, Incorporated
(Exact name of registrant as specified in its charter)
Delaware 13-5416910
(State of Incorporation) (IRS Employer Identification No.)
245 Summer Street, Boston, MA 02210
(Address of Principal Executive Offices) (Zip Code)
(617) 589-5111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock: 12,828,017 shares as of September 30, 1997.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Form 10-Q
Index
Pages
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited):
Three Months Ended September 30, 1997 and 1996
Nine Months Ended September 30, 1997 and 1996 3
Consolidated Balance Sheets:
September 30, 1997 (Unaudited) and December 31, 1996 4-5
Consolidated Condensed Statements of Cash Flows
(Unaudited):
Nine Months Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements (Unaudited) 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenue $368,216 $282,210 $1,003,999 $856,752
Cost of revenue 347,908 276,499 945,507 810,650
-------- -------- ---------- --------
Gross profit 20,308 5,711 58,492 46,102
Selling, general and administrative
expenses 6,468 54,979 22,802 77,687
-------- -------- ---------- --------
Operating income (loss) 13,840 (49,268) 35,690 (31,585)
Other income (expense)
Interest income 1,059 549 2,893 2,544
Interest expense (430) (1,745) (1,302) (6,160)
Other - - 43 -
-------- -------- ---------- --------
Other income (expense) 629 (1,196) 1,634 (3,616)
Income (loss) before provision
(benefit) for income taxes 14,469 (50,464) 37,324 (35,201)
Income tax provision (benefit) 5,084 (18,784) 12,889 (12,793)
-------- -------- ---------- --------
Income (loss) before extraordinary
item 9,385 (31,680) 24,435 (22,408)
Extraordinary item, net of taxes - 6,787 - 6,787
-------- -------- ---------- --------
Net income (loss) $ 9,385 $(24,893) $ 24,435 $(15,621)
======== ======== ========== ========
Per share amounts:
Earnings (loss) per share before
extraordinary item $0.71 $(2.37) $1.88 $(1.68)
======== ======== ========== ========
Earnings (loss) per share $0.71 $(1.86) $1.88 $(1.17)
======== ======== ========== ========
Dividends declared per share $0.15 $ 0.15 $0.45 $ 0.45
======== ======== ========== ========
Average number of common and common
equivalent shares outstanding 13,025 13,137 13,030 13,364
See accompanying notes to consolidated financial statements.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
September 30, December 31,
1997 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 58,459 $ 57,887
U.S. Government securities, at amortized
cost, which approximates fair market value 34,644 4,006
Accounts receivable, principally trade 139,245 181,900
Costs and revenue recognized in excess of
billings 156,373 110,023
Deferred income taxes 7,946 10,275
Other 1,440 30,333
--------- --------
Total current assets 398,107 394,424
Assets held for sale 20,885 20,885
Fixed assets, at cost, less accumulated
depreciation and amortization of $161,691
and $154,111, respectively 130,419 127,949
Prepaid pension cost 143,735 129,818
Other assets 23,061 18,989
--------- --------
Total assets $716,207 $692,065
========= ========
See accompanying notes to consolidated financial statements.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets (Continued)
(Dollars in thousands, except per share amounts)
September 30, December 31,
1997 1996
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loans $ - $ 5,000
Current portion of long-term debt 1,723 1,657
Accounts payable, principally trade 65,126 76,551
Billings in excess of costs and revenue
recognized 144,764 103,742
Accrued liabilities 67,257 91,407
Accrued taxes 8,457 7,164
-------- --------
Total current liabilities 287,327 285,521
Long-term debt 23,042 24,260
Deferred income taxes 50,058 43,142
Other liabilities 19,476 22,009
-------- --------
Total liabilities 379,903 374,932
-------- --------
Shareholders' equity:
Preferred stock, no par value
Authorized: 2,000,000 shares
Issued: none - -
Common stock, $1 par value
Authorized: 40,000,000 shares
Issued: 17,731,488 shares, including
shares held in treasury 17,731 17,731
Capital in excess of par value of common stock 51,287 50,480
Retained earnings 417,105 398,342
Cumulative translation adjustment (3,098) (2,280)
-------- --------
483,025 464,273
-------- --------
Less: Common stock held in treasury, at cost
(4,903,471 and 4,896,870 shares,
respectively) 126,685 125,724
Employee stock ownership and restricted
stock plans 20,036 21,416
-------- --------
146,721 147,140
-------- --------
Total shareholders' equity 336,304 317,133
-------- --------
Total liabilities and shareholders'
equity $716,207 $692,065
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Consolidated Condensed Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months
Ended September 30,
1997 1996
Cash flows from operating activities:
Net income (loss) $ 24,435 $(15,621)
Adjustments to reconcile net income to net
cash provided by operating activities:
Restructuring and other charges - contract
related and operational items - 12,377
Restructuring and other charges - real
estate writedowns - 30,509
Depreciation and amortization 9,776 13,319
Amortization of net cost of stock plans 1,040 1,036
Loss on disposition of Auburn VPS Partnership - 1,254
Deferred income taxes 9,245 (10,997)
Prepaid pension cost (13,917) (10,988)
Changes in operating assets and liabilities 27,306 (31,305)
------- --------
Net cash provided (used) by operating activities 57,885 (10,416)
------- --------
Cash flows from investing activities:
Purchases of U.S. Government securities (88,363) (3,968)
Proceeds from maturities of U.S. Government
securities 58,178 54,899
Purchases of fixed assets, net (12,698) (18,369)
------- --------
Net cash (used) provided by investing activities (42,883) 32,562
------- --------
Cash flows from financing activities:
Repayments of long-term debt (1,152) (19,753)
(Decrease) increase in bank loans (5,000) 1,800
Purchases of common stock for treasury (2,618) (32,995)
Dividends paid (5,766) (6,059)
Payments to Employee Stock Ownership Trust (1,729) (4,236)
Payments received from Employee Stock Ownership
Trust 1,835 4,464
------- --------
Net cash used by financing activities (14,430) (56,779)
------- --------
Net increase (decrease) in cash and cash
equivalents 572 (34,633)
Cash and cash equivalents at beginning of period 57,887 68,417
------- --------
Cash and cash equivalents at end of period $58,459 $ 33,784
======= ========
See accompanying notes to consolidated financial statements.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts)
(A) The accompanying unaudited consolidated financial statements of Stone &
Webster, Incorporated and Subsidiaries ("the Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. The December 31, 1996 consolidated balance sheet data
was derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the quarter and nine months ended
September 30, 1997 are not necessarily indicative of the results that may
be expected for the fiscal year ending December 31, 1997 or for any other
future period. For further information, refer to the consolidated financial
statements and notes included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
(B) Earnings per share ("EPS") calculations are based on the weighted average
number of common and, when appropriate, common equivalent shares
outstanding during the period. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." This Statement specifies the computation,
presentation and disclosure requirements for EPS. The Company will adopt
the disclosure requirements of this new accounting standard for this fiscal
year. The Company believes adoption of the new standard will not have a
material impact on the Company's earnings per share calculations.
(C) Revenue and operating income by business segment for the quarters and nine
months ended September 30, 1997 and 1996 were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenue:
Engineering, construction and
consulting services $361,863 $275,999 $ 986,923 $840,748
Cold storage and related
activities 6,353 6,211 17,076 16,004
-------- -------- ---------- --------
Total revenue $368,216 $282,210 $1,003,999 $856,752
======== ======== ========== ========
Operating income (loss):
Engineering, construction and
consulting services $ 15,075 $(48,386) $ 38,762 $(28,432)
Cold storage and related
activities 2,186 2,092 5,367 4,544
Other - (35) - (163)
-------- -------- ---------- --------
17,261 (46,329) 44,129 (24,051)
General corporate expenses (3,421) (2,939) (8,439) (7,534)
-------- -------- ---------- --------
Total operating income
(loss) $ 13,840 $(49,268) $ 35,690 $(31,585)
======== ======== ========== ========
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts)
(D) The Company had a valuation allowance of $11,605 at December 31, 1996 for
the deferred tax assets related to net operating loss carryforwards. The
valuation allowance at the end of the third quarter of 1997 was $8,133. The
net decrease in the valuation allowance of $763 for the quarter and $3,472
for the nine months ended September 30, 1997 was principally due to an
increase in the expected realization of certain deferred tax assets and
utilization of the foreign net operating loss carryforwards. The valuation
allowance at September 30, 1997 is comprised of $3,578 relating to net
operating loss carryforwards for certain of the Company's foreign
subsidiaries and $4,555 relating to state net operating loss carryforwards.
(E) Pension related items, which reduced operating costs, were $4,334 and
$13,372 for the quarter and nine months ended September 30, 1997,
respectively, compared with $4,462 and $10,406 for the same periods in the
prior year, respectively. These items increased net income by $2,622, or
$0.20 per share, and $8,090, or $0.62 per share, for the quarter and nine
months ended September 30, 1997, respectively, compared with $2,729, or
$0.21 per share and $6,364, or $0.48 per share, respectively, for the same
periods in 1996. Pension related items include a net pension credit for the
Company's domestic subsidiaries and a net pension cost for its foreign
subsidiaries.
(F) As of September 30, 1997, options for 175,125 shares were exercisable and
97,750 shares were available for grant under the 1995 Stock Option Plan.
The total number of shares in the Stock Option Plan was increased by 75,000
shares by the Board of Directors on April 21, 1997. Per share option prices
range from $30.25 to $46.00.
During the nine month period ended September 30, 1997, non-qualified
options for 254,000 shares of common stock were issued to employees at per
share option prices which ranged from $32.125 to $46.00, of which
25 percent become exercisable on each of the first four anniversary dates
of the grant. Options with respect to 59,500 shares were exercised,
including options with respect to 28,500 shares for which the exercise
dates were accelerated, and options for 1,750 shares were canceled during
the nine month period.
(G) In July 1995, the Board of Directors of the Company authorized an increase
in the share repurchase program from 1,000,000 to 2,500,000 shares of
common stock in open market transactions at prevailing prices. During the
quarter and nine months ended September 30, 1997, the Company purchased
7,013 shares (at a cost of $309) and 70,846 shares (at a cost of $2,618),
respectively. As of September 30, 1997, the Company had purchased a total
of 2,225,650 shares (at a cost of $73,667) of the 2,500,000 shares
authorized to be purchased. The amount and timing of stock repurchases will
depend upon market conditions and share price, as well as other factors.
The Company reserves the right to discontinue the repurchase program at any
time.
(H) The Company has a noncontrolling interest in an international joint venture
formed to execute construction projects, which is accounted for using the
equity method. During the second quarter of 1997, the Company wrote down
its investment in the joint venture to fair value, recognized an
anticipated loss of $6,584 ($4,280 after tax, or $0.33 per share) and
accrued for certain other liabilities for its share of a project that had
been awarded to the joint venture in 1994.
(I) Although the Company continues to have possible liabilities related to
environmental pollution and other legal actions, management believes, on
the basis of its assessment of these matters, including consultation with
counsel, that none of these pending legal actions nor such possible
liabilities will result in payment of amounts, if any, that would have a
material adverse effect on the Company's financial position, results of
operations or earnings per share calculations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
The following is management's discussion and analysis of certain significant
factors that have affected the financial condition and results of operations of
Stone & Webster, Incorporated and Subsidiaries ("the Company") for the periods
noted. This discussion and analysis should be read in conjunction with the
Company's 1996 Annual Report on Form 10-K.
Results of Operations
For the quarter ended September 30, 1997, the Company reported revenue of
$368,216, an increase of 30.5 percent over the $282,210 reported in the same
period in 1996. Net income for the quarter ended September 30, 1997 was $9,385,
or $0.71 per share, compared with net income of $5,354 from ongoing operations
(before restructuring, other charges, asset divestitures and divested
operations), or $0.40 per share, for the same period in 1996. Operating income
for the quarter ended September 30, 1997 was $13,840 compared with operating
income from ongoing operations of $7,121 for the same period in 1996. Including
all restructuring, other charges, asset divestitures and divested operations,
the net loss for the quarter ended September 30, 1996 was $24,893, or $1.86 per
share, and the operating loss was $49,268. Backlog decreased $151,054, or 5.5
percent, during the quarter ended September 30, 1997. New orders of $210,809 for
the quarter ended September 30, 1997 compared with $132,919 for the same quarter
in 1996.
Revenue for the nine months ended September 30, 1997 was $1,003,999 compared
with $856,752 reported for the same period in 1996, an increase of 17.2 percent.
Net income from ongoing operations for the nine months ended September 30, 1997
was $23,712, or $1.82 per share, compared with net income of $19,805 from
ongoing operations, or $1.48 per share, for the same period in 1996. Including
all restructuring, other charges, asset divestitures and divested operations,
net income for the nine months ended September 30, 1997 was $24,435, or $1.88
per share, compared with a net loss of $15,621, or $1.17 per share, for the same
period in 1996. Operating income from ongoing operations for the first nine
months of 1997 was $34,578 compared with operating income from ongoing
operations of $30,343 in the comparable period in 1996. Including all
restructuring, other charges, asset divestitures and divested operations,
operating income for the nine months ended September 30, 1997 was $35,690
compared to an operating loss of $31,585 for the same period in 1996. Backlog
increased in the first nine months of 1997 by $117,728 to $2,605,280 but had
decreased by $50,851 when compared with the first nine months of 1996. New
orders for the first nine months of 1997 were $1,104,651. New orders for the
first nine months of 1996 were $1,579,879 which included an order of $475,000
awarded in the second quarter.
Components of earnings per share for the quarters and nine months ended
September 30, 1997 and 1996 were:
Three Months Ended Nine Months Ended
September 30, September 30,
Earnings per share from: 1997 1996 1997 1996
Operations $0.51 $ 0.19 $1.20 $ 1.00
Pension related items 0.20 0.21 0.62 0.48
----- ------ ----- ------
Earnings per share from ongoing
operations 0.71 0.40 1.82 1.48
Divested operations - (0.12) 0.06 (0.51)
Restructuring, other charges and
asset divestitures - (2.14) - (2.14)
----- ------ ----- ------
Earnings (loss) per share $0.71 $(1.86) $1.88 $(1.17)
===== ====== ===== ======
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
(Dollars in thousands, except per share amounts)
Earnings per share from operations for the nine months ended September 30, 1997
included a second quarter recognition of an anticipated loss of $6,584 ($4,280
after tax, or $0.33 per share) on an international joint venture contract for a
project that had been awarded in 1994 and a second quarter net operating tax
loss carryforward benefit in an international subsidiary of $1,509 (or $0.12 per
share) as the result of a reduction in the valuation allowance of certain
deferred tax assets.
In the third quarter of 1996, the Company announced a restructuring which
included a write-down of real estate assets to be sold, provisions for sublease
losses, liquidation of the Auburn VPS Partnership assets and other charges. This
restructuring resulted in an after tax charge of $28,516, or $2.14 per share.
Divested operations in 1996 included operations of the Auburn VPS Partnership
and the Binghamton Cogeneration Partnership. Earnings from divested operations
in 1997 represent cash distributions of $1,112 ($723 after tax, or $0.06 per
share) from the Binghamton Cogeneration Partnership. In addition, during the
quarter ended September 30, 1997, the Company entered into agreements to
sublease New York office space vacated in prior office consolidations as a
result of the restructuring. The expense savings realized in these agreements is
expected to exceed $2,300 annually. The loss recognized on executing the
sublease agreements was consistent with the provision recorded in the 1996
restructuring.
The following table reconciles operating income and net income, as reported,
with both operating income and net income from ongoing operations for the
quarters and nine months ended September 30, 1997 and 1996:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Operating income (loss) as reported $13,840 $(49,268) $35,690 $(31,585)
Divested operations (a) - 1,965 (1,112) 7,504
Restructuring, other charges and
asset divestitures (a) - 54,424 - 54,424
------- -------- ------- --------
Operating income from ongoing
operations $13,840 $ 7,121 $34,578 $ 30,343
======= ======== ======= ========
Net income (loss) as reported $ 9,385 $(24,893) $24,435 $(15,621)
Divested operations (a) - 1,731 (723) 6,910
Restructuring, other charges and
asset divestitures (a) - 28,516 - 28,516
------- -------- ------- --------
Net income from ongoing
operations $ 9,385 $ 5,354 $23,712 $ 19,805
======= ======== ======= ========
(a) All reconciling items related to divested operations and restructuring,
other charges and asset divestitures pertain to the Company's Engineering,
Construction and Consulting segment.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
(Dollars in thousands, except per share amounts)
Engineering, Construction and Consulting
The Company's Engineering, Construction and Consulting segment reported revenue
of $361,863 in the third quarter of 1997, an increase of 31.1 percent from the
$275,999 reported for the same period last year. The revenue increase in the
third quarter of 1997 compared to 1996 has been achieved in the Power and
Process Business Units. In the Power Business Unit, an increase in billable
service hours and procurement activities on lump-sum, turnkey projects were
significant contributors to the revenue increase for the quarter. The Process
Business Unit achieved revenue increases due to ongoing performance on several
lump-sum, turnkey contracts. Operating income for the third quarter of 1997 was
$15,075 compared with operating income from ongoing operations of $8,003
reported for the same period in 1996. Including all restructuring, other
charges, asset divestitures and divested operations, the operating loss for the
quarter ended September 30, 1996 was $48,386.
For the first nine months of 1997, the Engineering, Construction and Consulting
segment had revenue of $986,923, an increase of 17.4 percent over the $840,748
reported in the same period last year. Operating income from ongoing operations
for the first nine months of 1997 was $37,650 compared with operating income
from ongoing operations of $33,496 for the first nine months of 1996. Including
all restructuring, other charges, asset divestitures and divested operations,
operating income for the nine months ended September 30, 1997 was $38,762
compared with an operating loss of $28,432 for the same period in 1996.
New orders for the Engineering, Construction and Consulting segment for the
quarter and nine months ended September 30, 1997 were $210,809 and $1,104,651
compared with $132,919 and $1,579,879, respectively, for the same periods in
1996. Orders are the net total of new orders, scope changes and cancellations.
Consistent with the nature of the Company's businesses, significant new awards
can create variability in the Company's awards pattern making future award
trends difficult to predict. Backlog increased from $2,487,552 at December 31,
1996 to $2,605,280 at September 30, 1997.
Orders and backlog for the quarters and nine months ended September 30, 1997 and
1996 were:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Beginning backlog $2,756,334 $2,799,211 $2,487,552 $1,917,000
Orders 210,809 132,919 1,104,651 1,579,879
Revenue (361,863) (275,999) (986,923) (840,748)
---------- ---------- ---------- ----------
Ending backlog $2,605,280 $2,656,131 $2,605,280 $2,656,131
========== ========== ========== ==========
Major new awards for the quarter ended September 30, 1997 included a $70,000
contract for engineering, procurement and construction of a medium density
fiberboard facility and a $34,000 contract for a natural gas fired combined heat
and power plant in the Middle East.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
(Dollars in thousands, except per share amounts)
Cold Storage and Related Activities
The Company's Cold Storage segment reported operating income of $2,186 and
$5,367 for the quarter and nine months ended September 30, 1997, compared with
$2,092 and $4,544 for the same periods in 1996. Revenue was $6,353 and $17,076
for the quarter and nine months ended September 30, 1997, respectively, compared
with $6,211 and $16,004 for the same periods a year ago, respectively. Cold
Storage operating results for 1997 have improved due to use of the increased
capacity built in the 1996 expansion of the Rockmart, Georgia facility as well
as efficiencies realized from the implementation in 1996 of a new information
system.
General Corporate Expenses, Other Income (Expenses) and Income Taxes
General corporate expenses for the quarter and nine months ended September 30,
1997 were $3,421 and $8,439, respectively, compared with $2,939 and $7,534,
respectively, for the same periods in 1996. Interest income net of interest
expense for the third quarter and first nine months of 1997 was $629 and $1,634,
respectively, compared with net interest expense of $1,196 and $3,616,
respectively, for the same periods in 1996. This improvement in interest expense
is primarily due to the divestiture of the Auburn VPS Partnership which incurred
$919 and $4,013 of net interest expense for the quarter and nine months ended
September 30, 1996, respectively. During the nine months ended September 30,
1997, the tax rate has decreased in accordance with the expected annual earnings
mix among domestic and international subsidiaries and due to an increase in the
expected realization of certain deferred tax assets and utilization of the
foreign net operating loss carryforwards.
Financial Condition
The Company's cash and cash equivalents increased by $572 during the first nine
months of 1997. Net cash provided by operating activities of $57,885 resulted
from an improvement in operating working capital (which consists of accounts
receivable and costs and revenues recognized in excess of billings less accounts
payable and billings in excess of costs and revenues recognized), resulting
primarily from an increased focus on working capital management. Operating
working capital days outstanding was 21 days on September 30, 1997, which
compared favorably to 45 days one year ago and 33 days on December 31, 1996. Net
cash used by investing activities of $42,883 reflects net purchases of U.S.
Government securities and fixed assets used in the Company's operations. Net
cash used by financing activities of $14,430 primarily reflects the payment of
dividends, repayment of long-term debt and bank loans and purchases of common
stock under the Company's ongoing share repurchase program as explained in
Note G to the consolidated financial statements.
As of September 30, 1997, the cash and government securities balance was $93,103
compared with $61,893 at December 31, 1996. Total debt was $24,765 compared with
$30,917 at the end of 1996. The improvement of $37,362 in net cash/(debt)
position over December 31, 1996 is a result of the improved working capital
position.
The net cash/(debt) position as of September 30, 1997 and December 31, 1996 was
as follows:
September 30, December 31,
1997 1996
Cash, cash equivalents and U.S. Government
securities $93,103 $61,893
Long-term debt, including current portion (24,765) (25,917)
Bank loans - (5,000)
------- -------
Net cash/(debt) position $68,338 $30,976
======= =======
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
(Dollars in thousands, except per share amounts)
The Company believes that the types of businesses in which it is engaged require
that it maintain a strong financial condition. The Company has on hand and has
access to sufficient sources of funds to meet its anticipated operating,
dividend and capital expenditure needs for the foreseeable future. Cash on hand
and temporary investments provide adequate operating liquidity. Additional
liquidity is provided through working capital lines of credit and revolving
credit facilities which total $8,632, all of which was available at
September 30, 1997. The Company is also in the process of renegotiating its line
of credit with a domestic financial institution for $15,000. The line of credit
agreement expired on September 30, 1997.
Other Accounting Matters
The Company is in the process of evaluating and upgrading its computer
applications to ensure their functionality with respect to the "year 2000"
millennium change. At present, the Company does not anticipate that material
incremental costs will be incurred in any single future year.
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires that changes in comprehensive income be shown in a financial statement
that is displayed with the same prominence as other financial statements. The
Statement will become effective for fiscal years beginning after December 15,
1997. The Company will adopt the new standard beginning in the first quarter of
the fiscal year ending December 31, 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement specifies new guidelines for
determining a company's operating segments and related requirements for
disclosure. The Company is in the process of evaluating the impact of the new
standard on the presentation of the financial statements and the disclosures
therein. The Statement will become effective for fiscal years beginning after
December 15, 1997. The Company will adopt the new standard for the fiscal year
ending December 31, 1998.
Forward-Looking Information
Any of the comments in this Form 10-Q that refer to the Company's estimated or
future results are forward-looking and reflect the Company's current analysis of
existing trends and information. The Company cautions that a variety of factors,
including but not limited to the following, could cause business conditions and
results to differ materially from what is contained in forward-looking
statements: changes in the rate of economic growth in the United States and
other major international economies, changes in investment by the energy, power
and environmental industries, the uncertain timing of awards and contracts,
changes in regulatory environment, changes in project schedules, changes in
trade, monetary and fiscal policies worldwide, currency fluctuations, outcomes
of pending and future litigation, protection and validity of patents and other
intellectual property rights, and increasing competition by foreign and domestic
companies.
<PAGE>
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Stone & Webster, Incorporated and Subsidiaries
Exhibits and Reports on Form 8-K.
(a) Exhibit Index
(4) Instruments defining the rights of security holders,
including indentures.
As of September 30, 1997, registrant and its subsidiaries had
outstanding long-term debt (excluding current portion) totaling
approximately $23,042,000, principally in connection with a mortgage
relating to real property for a subsidiary's office building and in
connection with capitalized lease commitments for the acquisition of
certain office equipment. None of these agreements are filed herewith
because the amount of indebtedness authorized under each such agreement
does not exceed 10 percent of the total assets of the registrant and
its subsidiaries on a consolidated basis; the registrant hereby
undertakes to furnish copies of such agreements to the Commission upon
request.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
Registrant did not file any reports on Form 8-K during the quarter for which
this report is filed.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STONE & WEBSTER, INCORPORATED
By: THOMAS L. LANGFORD
Dated: November 6, 1997 Thomas L. Langford
Executive Vice President
(Duly authorized officer and
Chief Financial Officer)
By: DANIEL P. LEVY
Daniel P. Levy
Corporate Controller
(Principal Accounting Officer)
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