FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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)
Registrant's Telephone Number (including area code) (617)589-5111
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: 12,795,290 shares as of April 30, 1997.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The consolidated financial statements required by this Item
for Stone & Webster, Incorporated and Subsidiaries are
contained in Attachment A which is filed herewith and made a
part hereof.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The Management's Discussion and Analysis of Financial
Condition and Results of Operations required by this Item
for Stone & Webster, Incorporated and Subsidiaries is
contained in Attachment A which is filed herewith and made a
part hereof.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index
(4) Instruments defining the rights of security holders,
including indentures - As of March 31, 1997, registrant
and its subsidiaries had outstanding long-term debt
(excluding current portion) totaling approximately
$23,866,000 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 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
STONE & WEBSTER, INCORPORATED
By: JEREMIAH P. CRONIN
Dated: May 15, 1997 Jeremiah P. Cronin
Executive Vice President
(Duly authorized officer and
Chief Financial Officer)
DANIEL P. LEVY
Daniel P. Levy
Corporate Controller
(Principal Accounting Officer)
<PAGE>
ATTACHMENT A
Stone & Webster, Incorporated
and Subsidiaries
Index
Page No.
Condensed Financial Statements: (Unaudited)
Consolidated Statements of Operations -
Three Months Ended March 31, 1997 and 1996 5
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 6-7
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 8
Notes to Consolidated Financial Statements 9-11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-14
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
PART 1. Item 1
Three Months Ended
March 31,
1997 1996
Revenue (Note A) $349,525 $305,834
Cost of revenue (Note D) 332,400 284,089
Gross profit 17,125 21,745
Selling, general and administrative 8,323 11,530
expenses (Note D)
Operating income (Notes A and D) 8,802 10,215
Other income (deductions)
Interest income 830 1,383
Interest expense (427) (2,222)
403 (839)
Income before provision for income 9,205 9,376
taxes
Income tax provision (Note B) 3,637 3,844
Net income (Notes A, B and D) $ 5,568 $ 5,532
Earnings per share
(Notes D and H) $ 0.43 $ 0.41
Dividends declared per share $ 0.15 $ 0.15
Average number of shares outstanding 12,854,000 13,655,000
See accompanying notes to consolidated financial statements.
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
March 31, December 31,
1997 1996
Assets
Current Assets:
Cash and cash equivalents $ 82,125 $ 57,887
U.S. Government securities, at
amortized cost, which
approximates market (Note C) 2,003 4,006
Accounts receivable, principally
trade 238,671 181,900
Costs and revenues recognized in
excess of billings 139,756 110,023
Deferred income taxes (Note B) 18,229 10,275
Other (Note G) 978 30,333
Total Current Assets 481,762 394,424
Assets held for sale 20,885 20,885
Fixed assets
At cost, less accumulated
depreciation and amortization
of $156,147 (1996-$154,111) 128,585 127,949
Prepaid pension cost (Note D) 134,549 129,818
Other assets 21,627 18,989
$787,408 $692,065
See accompanying notes to consolidated financial statements.
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
(CONTINUED)
March 31, December 31,
1997 1996
Liabilities and Shareholders' Equity
Current Liabilities:
Bank loans $ --- $ 5,000
Current portion of long-term debt 1,670 1,657
Accounts payable, principally
trade 88,166 76,551
Billings in excess of costs and
revenues recognized 206,653 103,742
Accrued liabilities (Note G) 62,756 91,407
Accrued taxes 16,075 7,164
Total Current Liabilities 375,320 285,521
Long-term debt 23,866 24,260
Deferred income taxes (Note B) 46,870 43,142
Other liabilities 22,175 22,009
Shareholders' Equity (Notes E and F):
Preferred stock
Authorized, 2,000,000 shares of
no par value; none issued --- ---
Common stock 17,731 17,731
Authorized, 40,000,000 shares of
$1 par value; issued, 17,731,488
shares, including shares held in
treasury
Capital in excess of par value of 50,498 50,480
common stock
Retained earnings 402,020 398,342
Cumulative translation adjustment (2,793) (2,280)
Less: Common stock in treasury, at 126,870 125,724
cost 4,931,678 shares
(1996-4,896,870)
Employee stock ownership and
restricted stock plans 21,409 21,416
Total Shareholders' Equity 319,177 317,133
$787,408 $692,065
See accompanying notes to consolidated financial statements.
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
Three Months
Ended March 31,
1997 1996
Cash Flows from Operating Activities:
Net income $5,568 $5,532
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 3,344 4,384
Deferred income taxes (4,226) 1,050
Prepaid pension cost (4,731) (3,180)
Amortization of net cost of
Employee Stock Ownership Plan 290 386
Changes in operating assets and
liabilities:
Accounts receivable (56,771) 24,741
Costs and revenue recognized in
excess of billings (29,733) (36,031)
Accounts payable 11,615 (10,893)
Billings in excess of costs and
revenue recognized 102,911 (2,261)
Accrued liabilities 327 2,362
Other 6,123 4,228
Net cash provided (used) by operating
activities 34,717 (9,682)
Cash Flows from Investing Activities:
Maturities of U.S. government
securities 2,003 11,040
Purchases of fixed assets (3,980) (4,052)
Net cash (used) provided by investing
activities (1,977) 6,988
Cash Flows from Financing Activities:
Repayments of long-term debt (381) (1,146)
(Decrease) increase in bank loans (5,000) 336
Purchases of common stock for treasury (1,200) (18,371)
Dividends paid (1,921) (2,078)
Net cash (used) by financing activities (8,502) (21,259)
Net increase (decrease) in Cash and Cash
Equivalents 24,238 (23,953)
Cash and Cash Equivalents at Beginning
of Period 57,887 68,417
Cash and Cash Equivalents at End of
Period $82,125 $44,464
See accompanying notes to consolidated financial statements.
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
(A) Revenue and operating income by business segment were the
following for the three months ended March 31, 1997 and
1996:
Three Months
Ended March 31,
1997 1996
Revenue:
Engineering, construction and $344,686 $301,037
consulting services
Cold storage and related activities 4,839 4,797
Total revenue $349,525 $305,834
Operating income:
Engineering, construction and
consulting services $9,990 $11,285
Cold storage and related activities 1,160 1,202
Other --- (50)
$11,150 $12,437
General corporate expenses (2,348) (2,222)
Total operating income $8,802 $10,215
(B) 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 first quarter of 1997 was $11,134. The net
change in the valuation allowance for the first quarter of
1997 was a decrease of $471, primarily due to utilization of
the foreign net operating loss carryforwards. The valuation
allowance at March 31, 1997 is comprised of $6,676 relating
to the net operating loss carryforwards of several of the
Company's foreign subsidiaries and $4,458 relating to state
net operating loss carryforwards.
(C) U.S. Government securities are debt securities issued by the
U.S. Treasury comprised entirely of U.S. Treasury bills and
notes, which the Company intends to hold to maturity. These
securities have maturity dates of one year or less. The
aggregate fair market value of U.S. Government securities at
March 31, 1997 and December 31, 1996 was $2,001 and $4,003,
respectively, the amortized cost basis at March 31, 1997 and
December 31, 1996, was $2,003 and $4,006, respectively.
(D) Pension related items, which reduced operating costs, were
$4,533 and $2,995 for the three months ended March 31, 1997
and 1996, respectively. These items increased net income by
$2,742, or $.21 per share, and $1,832 or $.13 per share, for
the three months ended March 31, 1997 and 1996,
respectively.
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
(CONTINUED)
(E) At March 31, 1997, options for 153,000 shares were
exercisable and 271,000 shares were available for grant.
Per share option prices ranged from $30.25 to $36.50.
During the three months ended March 31, 1997, non-qualified
options for 5,000 shares of Common Stock were issued to
employees at a price of $32.125, of which 25 percent becomes
exercisable on the first anniversary of the date of grant
and an additional 25 percent becomes exercisable on the
second, third and fourth anniversaries of the date of grant.
No options were exercised. Additionally, stock options with
respect to 1,000 shares terminated unexercised.
A summary of stock option transactions follows:
1997
Outstanding January 1, 471,000
Options granted 5,000
Options canceled (1,000)
Options exercised ---
Outstanding at March 31, 475,000
The 1995 Stock Plan for non-employee directors of the
Company was terminated effective as of December 31, 1996, by
action of the Board of Directors, and a new 1997 Stock Plan
for non-employee directors of the Company was adopted
effective January 1, 1997. Under the 1997 Stock Plan, non-
employee directors of the Company will receive grants of
Common Stock in payment of part of their annual retainer and
may elect to receive director meeting fees in Common Stock.
The total number of shares to be issued under the 1997 Stock
Plan may not exceed 100,000 shares. Shares issued to non-
employee directors during the three months ended March 31,
1997, totaled 1,425. At March 31, 1997, there were 98,575
shares available for grant.
(F) In July 1995, the Board of Directors of the Company
authorized an increase in the share repurchase program from
1 million to 2.5 million shares of Common Stock in open
market transactions at prevailing prices. The Company
acquired 36,923 shares in the three months ended March 31,
1997, bringing total purchases to 2,191,727 shares under
this program. As of March 31, 1997, the Company had
12,799,810 shares outstanding. The amount and timing of
stock repurchases will depend upon market conditions, share
price, as well as other factors. The Company reserves the
right to discontinue the repurchase program at any time.
Stone & Webster, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
(All dollar amounts, except per share amounts, are in thousands)
(CONTINUED)
(G) Payment was made in settlement of a contract related lawsuit
regarding services performed in the 1980s for which a $2,500
provision was recorded in 1996. Although the Company
continues to have possible liabilities related to
environmental pollution and other legal actions, management
believes, on the basis of its assessment of these matters,
including consultation with counsel, that none of these
pending legal actions nor such possible liabilities will
result in payment of amounts, if any, that would have a
material adverse effect on the consolidated financial
statements.
(H) Earnings per share are based on the weighted average number
of common and common equivalent shares (stock options)
outstanding during the period. In February 1997, the
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 - Earnings Per Share
(SFAS No. 128). SFAS No. 128 specifies the computation,
presentation, and disclosure requirements for EPS and is
substantially similar to the standard recently issued by the
International Accounting Standards Committee entitled
International Accounting Standards, Earning Per Share (IAS
33). The Company will adopt the disclosure requirements of
this new accounting standard for this fiscal year. The
impact of this accounting standard is immaterial for both
the quarter ending March 31, 1997, and the year ending
December 31, 1996.
(I) These statements are unaudited, and in the opinion of
management, include all adjustments, consisting of normal
recurring adjustments necessary for a fair statement of the
results for the interim periods. The year-end balance sheet
data was derived from audited financial statements, but does
not include all disclosures required by generally accepted
accounting principles. Reference is made to the
Consolidated Financial Statements included in the Company's
Annual Report to Shareholders.
Interim results of operations are not necessarily indicative
of the results for a full year.
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts, except per share amounts, are in thousands)
Item 2
Results of Operations
For the quarter ended March 31, 1997, Stone & Webster,
Incorporated reported net income of $5,568 or $.43 per share,
compared with net income of $5,532 or $0.41 per share for the
same period in 1996. Operating income for the quarter was $8,802
compared with operating income of $10,215 for the first quarter
of 1996. Selling, general, and administrative expense for the
segment decreased by $3,207 or 28 percent in the first quarter of
1997 versus the same period in 1996. This decrease is primarily
related to the Company's recognition in the first quarter of 1996
of a $1,832 charge related to the expected sublease loss for a
vacant floor in the New York Office. Revenue for the quarter was
$349,525, an increase of 14 percent over the $305,834 reported in
the first quarter of 1996. New orders were $649,935 compared
with $715,271 for the first quarter of 1996 and backlog increased
to $2,792,801 from $2,487,552 at December 31, 1996.
Components of Earnings per Share for the three months ended March
31 were:
Three Months
Ended March 31,
Earnings per share from: 1997 1996
Operations $0.22 $0.46
Pension related items 0.21 0.13
Earnings per share from ongoing 0.43 0.59
operations
Divested operations --- (0.18)
Earnings per share $0.43 $0.41
Engineering, Construction And Consulting
The Company's Engineering, Construction and Consulting segment
reported revenue of $344,686 in the first quarter of 1997, an
increase of 14.5 percent from the $301,037 reported for the same
period last year. Operating income of $9,990 for the first
quarter of 1997 compared to $11,285 in the first quarter of 1996.
Operating income for the quarter was below 1996 results because
of higher pass-through procurement costs and a larger proportion
of revenue from jobs in their early stages of completion compared
to last year when additional profit was recorded on various job
close-outs and recognition of award fees at contract completion.
New orders for the engineering, construction and consulting
segment for the first quarter were $649,935 compared with
$715,271 in 1996. Backlog for the quarter increased to
$2,792,801 from $2,487,552 at December 31, 1996 and $2,331,234
one year ago.
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts, except per share amounts, are in thousands)
Results of Operations (CONTINUED)
Orders and backlog for the three months ended March 31, 1997 and
1996 were:
Three Months
Ended March 31,
%Increase
1997 1996 (Decrease)
Beginning backlog $2,487,552 $1,917,000 30 %
Orders 649,935 715,271 (9)%
Revenue (344,686) (301,037) 15 %
Ending backlog $2,792,801 $2,331,234 20 %
Major new awards for the quarter include $233,000 for additional
work as managing contractor of a grassroots petrochemical complex
in Indonesia, $81,000 for engineering, procurement and
construction of a fiberboard plant, and $150,000 for engineering
and procurement of an international gas fired power facility.
Orders are the total of new orders, scope changes and
cancellations.
Cold Storage And Related Activities
The Company's Cold Storage segment reported operating income of
$1,160 and revenue of $4,839 for the first three months, compared
to $1,202 and $4,797 for the same period in 1996.
General Corporate
General Corporate expenses were $2,348 compared to $2,222 in
1996. Interest income, net of interest expense, for the quarter
was $403 compared with a net interest expense of $839 in 1996.
The improvement is due to the divestiture of the Auburn VPS
Partnership which incurred $1,500 of interest expense in the
first quarter of 1996.
As of March 31, 1997, the cash and government securities balance
was $84,128 compared with $61,893 at December 31, 1996. Total
debt was $25,536 compared with $30,917 at the end of 1996. The
improvement of $27,616 in net cash/(debt) position is due to an
increased focus on working capital management. Operating working
capital days outstanding was 21 days on March 31, 1997 compared
to 39 days one year ago.
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(All dollar amounts, except per share amounts, are in thousands)
Results of Operations (CONTINUED)
Financial Condition
Cash and cash equivalents, as shown in the Consolidated
Statements of Cash Flows, increased by $24,238 during the first
three months of 1997. Net cash provided by operating activities
of $34,717 reflected a decrease 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
March 31, 1997, compared to 39 days one year ago. Net cash used
by investing activities of $1,977 reflects purchases of fixed
assets used in the Company's operations offset by maturities of
U.S. Government securities. Net cash used by financing
activities of $8,502 reflects the payment of dividends, repayment
of long-term debt and purchases of common stock under the
Company's ongoing share repurchase program as explained in
Note F to the consolidated financial statements. Total debt was
$25,536 at March 31,1997, compared to $30,917 at year-end 1996.
The Company believes that the types of businesses in which it is
engaged require that it maintain a strong financial condition.
The Company has on hand and has access to sufficient sources of
funds to meet its anticipated operating, dividend and capital
expenditure needs. Cash on hand and temporary investments provide
adequate operating liquidity. Additional liquidity is provided
through lines of credit and revolving credit facilities which
total $431,521, of which $165,954 was available at March 31,
1997.
In the third quarter of 1996, the Company recorded a charge of
$20,137 to revalue real estate holdings in Boston and New Jersey
at fair market value. A letter of intent to purchase the New
Jersey property, subject to customary due diligence, was accepted
by the Company in April of 1997. The Company does not anticipate
any further writedown in connection with the New Jersey property
as a result of the transaction terms agreed in this letter of
intent.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 - Earnings
Per Share (SFAS No. 128). SFAS No. 128 specifies the
computation, presentation, and disclosure requirements for EPS
and is substantially similar to the standard recently issued by
the International Accounting Standards Committee entitled
International Accounting Standards, Earning Per Share (IAS 33).
The Company will adopt the disclosure requirements of this new
accounting standard for this fiscal year. The impact of this
accounting standard is immaterial for both the quarter ending
March 31, 1997, and the year ending December 31, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
OPERATIONS AND RETAINED EARNINGS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 82125
<SECURITIES> 2003
<RECEIVABLES> 238671
<ALLOWANCES> 2798
<INVENTORY> 0
<CURRENT-ASSETS> 481762
<PP&E> 284732
<DEPRECIATION> 156147
<TOTAL-ASSETS> 787408
<CURRENT-LIABILITIES> 375320
<BONDS> 23866
0
0
<COMMON> 17731
<OTHER-SE> 301446
<TOTAL-LIABILITY-AND-EQUITY> 787408
<SALES> 0
<TOTAL-REVENUES> 349525
<CGS> 0
<TOTAL-COSTS> 332400
<OTHER-EXPENSES> 8323
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 427
<INCOME-PRETAX> 9205
<INCOME-TAX> 3637
<INCOME-CONTINUING> 5568
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5568
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
