SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)..........October 27, 1999
STONE & WEBSTER, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 1-1228 13-5416910
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Number)
245 Summer Street, Boston, MA 02210
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 589-5111
<PAGE>
Form 8-K 2 Stone & Webster, Incorporated
Item 5. Other Events.
The text of registrant's press release dated October 27, 1999 relating to
the report of third quarter results, a plan to sell non-core assets and the
omission of a dividend, is included in Exhibit 99 to this Form 8-K and is
incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits
(99) Text of registrant's press release dated October 27, 1999
<PAGE>
Form 8-K 3 Stone & Webster, Incorporated
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STONE & WEBSTER, INCORPORATED
By: /S/ THOMAS L. LANGFORD
Thomas L. Langford
Executive Vice President
and Chief Financial Officer
Date: October 27, 1999
<PAGE>
Form 8-K 4 Stone & Webster, Incorporated
EXHIBIT
Exhibit (99) Text of registrant's press release dated October 27, 1999 -
For Immediate Release For Information
Contact
Thomas L. Langford
(617) 589-7424
STONE & WEBSTER REPORTS THIRD QUARTER RESULTS
AND OTHER CORPORATE DEVELOPMENTS
BOSTON, MASS., October 27, 1999 - Stone & Webster, Incorporated (NYSE:SW) today
reported its financial results for the third quarter of 1999 and announced
several other corporate developments.
For the quarter ended September 30, 1999, Stone & Webster reported a net loss of
$6.9 million or $0.52 per share, compared with net income of $2.2 million or
$0.17 per share for the same period in 1998. Operating loss for the quarter was
$4.6 million compared with operating income of $3.9 million for the same period
in 1998.
Several events contributed to the shortfall in earnings for the quarter. These
included a provision of $10.4 million to cover anticipated costs to complete
three major projects, a delay in the release to start work on certain new
projects which the Company has been advised it has won, and the impact of
hurricanes and floods in the Southeast that adversely affected Stone & Webster's
cold storage business. The Company also anticipated some reversal of past losses
through settlement of claims on certain projects performed in prior years, and
although progress is being made in negotiations, no settlements were reached
this quarter.
"We are extremely disappointed in our third quarter operating results and the
fact that these problems occurred after we posted an improved second quarter,"
said H. Kerner Smith, Stone & Webster's Chairman and Chief Executive Officer.
"Our Company has undergone over three years of restructuring and housecleaning.
However, a critical review of our backlog of fixed-price projects by our new
operating management team revealed a few projects that are forecast to exceed
their cost estimates upon completion. With these provisions now made, we look
forward to benefiting from the continued strength in the electric power market
as well as strong current performance in our consulting business. The improving
process and industrial markets, which are emerging from a 20-year low, should
contribute to increased business in this segment as well."
Mr. Smith pointed to electric deregulation as driving the current robust market
outlook for power plants nationwide. Stone & Webster has been advised that it
will be awarded over $300 million of new power plant projects to be initiated in
the fourth quarter. In addition, the Company has been advised that it will be
awarded incentive fee, cost reimbursable contracts for two large projects to
provide maintenance support of nuclear power plants having a value exceeding
$250 million. Further, a joint venture in which the Company is a participant
will be awarded a contract to manage the refurbishment and restart of four
nuclear power plants for an international customer.
For the nine months ended September 30, 1999, Stone & Webster reported a net
loss of $59.3 million or $4.54 per share, compared with net income of $10.4
million or $0.81 per share for the same period in 1998. The current nine months
results were significantly impacted by provisions of approximately $74.0 million
to cover anticipated costs of completing two international projects, as reported
for the first quarter of 1999, and $10.4 million to cover anticipated costs of
completing three domestic projects in the current quarter. Operating loss for
the nine months ended September 30, 1999 was $64.3 million compared with
operating income of $16.7 million for the same period last year. Revenue for the
current quarter was $297.8 million, a decrease of 15.0 percent from the $350.4
million reported in the same period in 1998. Revenue for the first nine months
of 1999 was $874.2 million compared with $961.4 million reported in the same
period in 1998. New orders were $719.4 million compared with $725.1 million for
the first nine months of 1998. Backlog at September 30, 1999 was $2.5 billion,
down from $2.6 billion at December 31, 1998.
The Company's Nordic Refrigerated Services business unit reported revenue of
$11.7 million and $35.1 million for the quarter and nine months ended September
30, 1999, compared to $7.4 million and $21.9 million for the same periods in
1998. The increase in revenue was a result of an acquisition completed in the
fourth quarter of 1998. Operating income was $2.0 million and $6.4 million for
the quarter and nine months ended September 30, 1999 compared to $1.6 million
and $6.2 million for the same periods in 1998. Nordic's operating income for the
nine months ended September 30, 1999 was lower than expected due to higher
nonrecurring costs associated with restructuring the Company's pre-acquisition
facilities and the effects of hurricanes and resulting flooding on Nordic's
operations. No significant direct damage was experienced in Nordic's facilities.
To enhance liquidity and focus on its core competencies, the Company intends to
sell its corporate headquarters building in Boston, Massachusetts, and its cold
storage business. Sale of these assets, which are currently carried on the
Company's books for approximately $125 million, is expected to yield in excess
of $300 million in gross proceeds.
Because of the losses in the third quarter, the Company requested waivers from
its bank group regarding certain covenants in its principal credit agreement for
which it is not in compliance, and the banks have waived those covenants until
November 29, 1999. The credit agreement matures at the end of January 2000. The
Company will require additional short-term funding to continue normal
operations, and it is in active discussions with its principal lenders to obtain
such funding.
In light of the Company's current liquidity needs the board of directors has
decided to omit the Company's normal quarterly dividend of 15 cents per share
for the third quarter. The board will re-evaluate the dividend at its next
quarterly meeting based on the Company's circumstances at that time.
Stone & Webster has retained Lazard Freres & Co., LLC and Goldman, Sachs & Co.
as financial advisors to assist the Company in arranging and restructuring
interim and long-term financing and with asset sales authorized by the board of
directors.
"The unacceptable financial results of our engineering and construction business
in the past 24 months were primarily caused by scope changes and cost increases
on major international projects," said Mr. Smith. "The Company has taken strong
measures to prevent these types of losses from recurring, including recruiting a
new senior management team, revising bidding and contract execution procedures,
implementing a more selective process to determine which prospects will be bid,
and establishing higher as-sold margins. The international projects that have
severely impacted results are now complete with one exception, which should be
completed this quarter, and should have no further negative impact on earnings."
"We expect to recover substantial sums through contract changes and equitable
adjustments on certain of the loss contracts," Mr. Smith said. "We continue to
expect that the improved margins included in our substantial backlog of work
will be realized, and our continuing drive to reduce operating expenses will
improve financial results. We are continuing to work towards the strategic goal
of building our Company to a strong position in the engineering and construction
markets, and creating acceptable returns to our shareholders."
Stone & Webster is a global leader in engineering, construction and consulting
services for power, process, industrial, environmental/infrastructure markets.
Safe Harbor statement under the Private Securities Litigation Reform Act of
1995: Any forward-looking statements made in this release represent management's
best judgment as to what may occur in the future. 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 world- wide, currency
fluctuations, outcomes of pending and future litigation, protection and validity
of patents and other intellectual property rights, increasing competition by
foreign and domestic companies and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission.
- TABLES FOLLOW -
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STONE & WEBSTER, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Revenue
Engineering, Construction
and Consulting $286,071 $343,040 $839,122 $939,524
Cold Storage 11,734 7,403 35,091 21,880
-------- -------- -------- --------
Total revenues $297,805 $350,443 $874,213 $961,404
======== ======== ======== ========
Operating income (loss)
Engineering, Construction
and Consulting (b) (6,647) 2,301 (70,691) 10,560
Cold Storage 2,004 1,580 6,401 6,160
-------- -------- -------- --------
Operating income (loss) (4,643) 3,881 (64,290) 16,720
-------- -------- -------- --------
Other income (expense)
Interest income 503 708 1,586 2,208
Interest expense (2,714) (1,078) (6,629) (2,086)
-------- -------- -------- --------
Other income (expense),
net (2,211) (370) (5,043) 122
-------- -------- -------- --------
Income (loss) before
provision (benefit) for
income taxes (a) (6,854) 3,511 (69,333) 16,842
Income tax provision
(benefit) - 1,343 (10,000) 6,410
-------- -------- -------- --------
Net income (loss) (a) $ (6,854) $ 2,168 $(59,333) $ 10,432
======== ======== ======== ========
Basic and Diluted earnings
per share (a) $(0.52) $0.17 $(4.54) $0.81
====== ===== ====== =====
Weighted average number of
shares outstanding:
Basic 13,064 12,912 13,060 12,835
======== ======== ======== ========
Diluted 13,064 12,957 13,060 12,932
======== ======== ======== ========
(a) Includes pension related items, which reduced operating costs by $3,280 and
$10,116 for the three and nine month periods ended September 30, 1999
compared with $5,120 and $15,369 for the same periods in 1998. These items
increased net income by $3,280, or $0.25 per share and $6,069, or $0.46 per
share for the three and nine month periods ended September 30, 1999
compared to $3,078, or $0.23 per share and $9,237, or $0.71 per share for
the same periods in 1998. Pension related items include a net pension
credit for the Company's domestic subsidiaries and a net pension cost for
its foreign subsidiaries.
(b) The nine months ended September 30, 1998 figure includes a gain on the sale
of an office building of $3,066 ($1,993 after tax or $0.15 per share).
<PAGE>
STONE & WEBSTER, INCORPORATED
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
September 30, December 31,
------------- ------------
1999 1998 1998
---- ---- ----
Assets
Current assets:
Cash and cash equivalents $ 35,114 $ 33,783 $ 45,492
Accounts receivable 264,310 237,395 276,235
Costs and revenue recognized in 100,033 133,587 49,302
excess of billings
Deferred income taxes 21,560 19,065 20,338
Other 1,673 1,628 638
-------- -------- --------
Total current assets 422,690 425,458 392,005
Assets held for resale 6,744 6,744 6,744
Fixed assets, net 217,344 153,238 219,157
Domestic prepaid pension cost 166,847 163,663 155,703
Note receivable - 15,400 15,150
Other assets 59,040 31,279 45,923
-------- -------- --------
Total assets $872,665 $795,782 $834,682
======== ======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Bank loans $129,671 $ 25,850 $106,350
Current portion of long-term debt 2,261 2,109 2,175
Accounts payable 138,921 84,106 96,134
Billings in excess of costs and 233,013 153,975 176,692
revenue recognized
Accrued liabilities 79,214 68,238 80,036
Accrued taxes 7,009 15,402 12,034
-------- -------- --------
Current liabilities 590,089 349,680 473,421
Long-term debt 19,922 22,542 22,228
Deferred income taxes 21,560 56,865 33,030
Other liabilities 14,722 11,331 14,427
Shareholders' equity 226,372 355,364 291,576
-------- -------- --------
Total liabilities and shareholders'
equity $872,665 $795,782 $834,682
======== ======== ========
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