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 March 31, 1999
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 other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
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: 13,062,244 shares as of April 30, 1999.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Form 10-Q
Index
-----
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited):
Three Months Ended March 31, 1999 and 1998 3
Consolidated Balance Sheets (Unaudited):
March 31, 1999 and December 31, 1998 4
Condensed Consolidated Statements of Cash Flows
(Unaudited):
Three Months Ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6-9
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<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
March 31,
1999 1998
---- ----
Revenue $266,098 $293,957
Cost of revenue 316,769 266,051
-------- --------
Gross profit (loss) (50,671) 27,906
General and administrative expenses 16,726 16,272
-------- --------
Operating income (loss) (67,397) 11,634
Other income (expense)
Interest income 661 1,203
Interest expense (1,958) (417)
-------- --------
Total other income (expense), net (1,297) 786
-------- --------
Income before provision for income taxes (68,694) 12,420
Income tax (benefit) provision (10,000) 4,807
-------- --------
Net income (loss) $(58,694) $ 7,613
======== ========
Per share amounts:
Basic and diluted earnings per share $(4.50) $0.59
====== =====
Dividends declared per share $ 0.15 $0.15
====== =====
Weighted average number of shares outstanding:
Basic 13,053 12,803
====== ======
Diluted 13,053 12,919
====== ======
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(In thousands, except per share amounts)
March 31, December 31,
1999 1998
--------- ------------
Assets
Current assets:
Cash and cash equivalents $ 45,017 $ 45,492
Accounts receivable, principally trade, net 267,836 276,235
Costs and revenues recognized in excess of
billings 58,226 49,302
Deferred income taxes 31,766 20,338
Other 1,081 638
-------- --------
Total current assets 403,926 392,005
Assets held for sale 6,744 6,744
Fixed assets, net 219,730 219,157
Domestic prepaid pension cost 159,325 155,703
Note receivable - 15,150
Other assets 49,599 45,923
-------- --------
Total assets $839,324 $834,682
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Bank loans $105,975 $106,350
Current portion of long-term debt 2,135 2,175
Accounts payable, principally trade 100,493 96,134
Billings in excess of costs and revenues
recognized 243,891 176,692
Accrued liabilities 80,063 80,036
Accrued taxes 6,954 12,034
-------- --------
Total current liabilities 539,511 473,421
Long-term debt 21,736 22,228
Deferred income taxes 33,253 33,030
Other liabilities 13,325 14,427
Shareholders' equity:
Preferred stock, no par value; authorized
2,000,000 shares; none issued - -
Common stock, $1 par value; authorized
40,000,000 shares; 17,731,488 shares issued
including shares held in treasury 17,731 17,731
Capital in excess of par value of common stock 54,676 54,625
Retained earnings 306,726 367,358
Accumulated other comprehensive income (9,445) (9,707)
Less: Common stock held in treasury, at cost
(4,669,944 and 4,692,933 shares) 121,432 122,030
Employee stock ownership and restricted
stock plans 16,757 16,401
-------- --------
Total shareholders' equity 231,499 291,576
-------- --------
Total liabilities and shareholders' equity $839,324 $834,682
======== ========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months
Ended March 31,
---------------
1999 1998
---- ----
Cash Flows from Operating Activities:
Net income (loss) $(58,694) $ 7,613
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 6,066 3,732
Amortization of net cost of stock plans 562 318
Gain from asset divestiture - (3,066)
Deferred income taxes (11,205) 994
Domestic prepaid pension cost (3,622) (5,169)
Changes in operating assets and liabilities 60,773 (72,021)
-------- --------
Net cash provided by (used for) operating activities (6,120) (67,599)
Cash Flows from Investing Activities:
Purchases of fixed assets (6,639) (8,169)
Proceeds on note receivable 15,150 -
Proceeds from maturities of U.S. Government
securities - 31,909
Proceeds from asset divestiture - 13,546
-------- --------
Net cash provided by investing activities 8,511 37,286
Cash Flows from Financing Activities:
Repayments of long-term debt (532) (340)
Repayment of bank loans (375) -
Purchases of common stock for treasury - (1,510)
Dividends paid (1,959) (1,923)
-------- --------
Net cash used for financing activities (2,866) (3,773)
-------- --------
Net decrease in cash and cash equivalents (475) (34,086)
Cash and cash equivalents at beginning of period 45,492 75,030
-------- --------
Cash and cash equivalents at end of period $ 45,017 $ 40,944
======== ========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Stone & Webster, Incorporated And Subsidiaries
Notes To Condensed Consolidated Financial Statements (Unaudited)
(A) The accompanying unaudited condensed 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, 1998 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 ended March 31, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1999 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, 1998.
The preparation of condensed 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) Fixed assets, net is stated at cost less accumulated depreciation of $148.2
million at March 31, 1999 and $190.9 million at December 31, 1998.
(C) Revenue and operating income by business segment were the following for the
three-month periods ended March 31, 1999 and 1998 (in thousands):
Three Months
Ended March 31,
1999 1998
Revenue: ---- ----
Engineering, Construction and Consulting $254,656 $287,097
services
Cold Storage 11,442 6,860
-------- --------
Total revenue $266,098 $293,957
======== ========
Operating income:
Engineering, Construction and Consulting
services ` $(69,353) $ 9,349
Cold Storage 1,956 2,285
-------- --------
Total operating income (loss) $(67,397) $ 11,634
======== ========
(D) Basic earnings per share for the three-month periods ended March 31, 1999
and 1998 were computed based on the weighted average number of common
shares outstanding during the period of 13,052,578 and 12,803,035,
respectively. Diluted earnings per share for the three-month periods ended
March 31, 1999 and 1998 were computed based on the weighted average common
and dilutive potential shares outstanding during the period of 13,052,578
and 12,919,235, respectively. The difference between the basic and the
dilutive shares outstanding represents the potential dilution from the
exercise of stock options during the period assuming the application of the
treasury stock method. Since the Company incurred a loss for the three
months ended March 31, 1999 and the common share equivalents would be
antidilutive they are not included in the calculation of earnings per share
as prescribed by FAS 128.
(E) The Company had a valuation allowance of $27.0 million at March 31, 1999
and $9.1 million at December 31, 1998 for the deferred tax assets related
to net operating loss carryforwards. The valuation allowance at March 31,
1999 comprises $15.0 million relating to federal net operating loss
carryforwards, $8.9 million relating to state net operating loss
carryforwards and $3.1 million relating to the loss carryforwards of
international subsidiaries.
(F) Pension related items, which reduced operating costs, were $3.3 million for
the quarter ended March 31, 1999 compared to $5.1 million for the prior
year. These items increased net income by $2.0 million, or $0.15 per share
for the first quarter of 1999, compared with $3.1 million, or $0.24 per
share for the same period 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. The pension credit is the result of a
plan that is funded in excess of the projected benefit obligation, which is
primarily due to favorable asset performance.
(G) Under the 1995 Stock Option Plan, as of March 31, 1999, options for 581,375
shares were outstanding, no options were exercised, 19,375 options were
canceled, and nonqualified options for 342,875 shares were exercisable.
Under the Stone & Webster, Incorporated Long-Term Incentive Compensation
Plan (the "1998 Plan") for the three-month period ended March 31, 1999,
nonqualified and incentive stock options for 234,000 shares of common stock
were granted to employees at a weighted average per share option price of
$31.81. The options granted will become exercisable at various times
ranging from February 1999 to January 2003. As of March 31, 1999, options
for 456,500 shares were outstanding, no options were exercised, 17,500
options were canceled and 133,334 options were exercisable. For the
three-month period ended March 31, 1999, 21,792 shares of restricted stock
were awarded under the 1998 Plan at a per share price of $28.88, with
vesting of one-third of the shares occurring on the effective date and
one-third of the shares vesting on each of the first and second
anniversaries of the effective date of the grant. No shares have been
forfeited for the quarter ended March 31, 1999.
(H) The Company has three separate domestic line of credit agreements totaling
$105.0 million. As of March 31, 1999, these facilities were fully utilized.
In addition, the Company has a line of credit in the amount of $30.0
million, against which no amount has been borrowed, and as to which the
Company must satisfy certain conditions, which it is presently unable to
meet, before it can borrow. The Company also has a domestic line of credit
through a subsidiary in the amount of $2.0 million. Borrowings under this
line of credit amounted to $1.0 million as of March 31, 1999. As a result
of losses experienced in the fourth quarter of 1998 and the first quarter
of 1999, the Company currently is not in compliance with certain of its
credit facility covenants, and is in negotiations to restructure its credit
facilities.
(I) Comprehensive (loss) income was $(58.4) million and $9.5 million for the
quarters ended March 31, 1999 and 1998, respectively. Other comprehensive
income comprises translation adjustments of $0.3 million and $1.9 million
for the quarters ended March 31, 1999 and 1998, respectively.
(J) During the first quarter of 1998, the Company completed its divestiture of
underutilized office space with the sale of its Cherry Hill, New Jersey,
office building for $13.5 million in cash. The Company recognized a gain on
the sale of this property of $3.1 million ($2.0 million after tax or $0.15
per share). The Company also completed the disposal of its remaining unused
office space in its former New York corporate offices. The provisions made
in 1996 for losses on sublease or lease cancellation of this space have, in
aggregate, not been materially different from the actual costs incurred in
disposal of the excess space.
(K) During the first quarter of 1998, the Company purchased the assets of
Belmont Constructors Company, Inc. ("BCI"). BCI is principally engaged in
providing construction and construction management services to a diverse
group of clients in the hydrocarbons, water, industrial and power markets.
The Company recorded this transaction using the purchase method of
accounting for business combinations. The results of BCI are included in
the Company's condensed consolidated financial statements for the three
months ended March 31, 1999 and 1998.
(L) During the second quarter of 1998, the Company acquired ownership of S.C.
Wood, LLC (SC Wood) in settlement of claims against a client who failed to
fulfill certain contractual obligations. The assets of SC Wood consist
primarily of a petroleum products pumping station. The Company paid a
nominal amount as the purchase price. The assets of SC Wood are carried at
$6.7 million representing the net book value of services and other advances
in connection with the project. The Company plans to sell the operations of
SC Wood and therefore the net assets of SC Wood are classified as an asset
held for sale in the Company's Consolidated Balance Sheet at March 31,
1999.
(M) During 1998, Nordic Holdings, Inc. merged with Commercial Cold Storage,
Inc. (each a subsidiary of Stone & Webster, Incorporated), which acquired
the shares of seven companies which comprise The Nordic Group, a
multi-location, privately-owned cold storage company. The purchase price of
approximately $75.0 million in cash plus $3.5 million in working capital
and approximately $1.5 million in other adjustments, subject to certain
post-closing adjustments, was financed through lines of credit. The Nordic
Group is operated as part of the Company's Cold Storage segment.
(N) During 1998, the Company completed the acquisition of Power Technologies,
Inc. ("PTI"). PTI provides engineering consulting services, develops
computer software for use by utility companies, develops and conducts
educational courses and develops customized computer hardware. At the
closing, the purchase price was paid in common stock of the Company having
a value of $9.0 million. Along with certain other contingent cash
considerations related to a specific project, the PTI shareholders may
receive additional shares of the Company's stock having a value of up to
$8.0 million based on meeting certain performance requirements over the
next five years. In the event of a contingent payout, the number of shares
of common stock issued will be based on the stock price used in connection
with the initial closing and will be recorded as an adjustment to goodwill.
(O) Certain financial statement items have been reclassified to conform to the
current year's presentation.
(P) 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 payments 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.
The Trans-Pacific Petrochemical Indotama ("TPPI") project remains suspended
pending resolution of financing issues by the client. The TPPI project is
included in the Company's backlog in the amount of $426.0 million. The
Company has obtained approval to resell or use committed materials and
procured equipment to reduce costs of project suspension. The Company has
also had substantive discussions with potential purchasers of the olefins
plant which constitutes the majority of the Company's scope for the
project, and during the first quarter of 1999, has signed a conditional
memorandum of understanding to sell the plant. Had the project been
cancelled as of March 31, 1999, and if resale of the olefins plant were
unlikely to be completed, the Company would have recorded a pre-tax charge
of approximately $72.3 million representing project working capital plus
current procurement commitments net of the estimated salvage value of
procured equipment and materials.
The Company is currently engaged in two international projects that have
incurred losses in the current quarter. Due to various factors, including
owner directed technical and schedule changes, increases in scope of the
currently authorized contracts and other factors, the cost to complete
these contracts will significantly exceed each contract's value. Management
believes that it has valid contractual and equitable grounds for change
orders providing additional compensation under these contracts. The Company
has or expects to submit claims greater than losses incurred to date.
Negotiations with the owners are continuing and the Company expects to
reach agreement on the change orders in 1999. In the quarter ended March
31, 1999, the Company recognized operating losses of $74.2 million on these
projects.
(Q) In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This Statement provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Statement is effective for fiscal years
beginning after June 15, 1999. The Company will adopt the new standard by
January 1, 2000. Management is evaluating the impact this Statement may
have on the Company's financial statements.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
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 1998 Annual Report on Form 10-K. Unless noted otherwise, earnings per
share calculations disclosed are basic and diluted.
Results of Operations
- ---------------------
For the quarter ended March 31, 1999, the Company reported revenue of $266.1
million, a decrease of 9.5 percent from the $294.0 million reported in the first
quarter of 1998. Operating loss for the quarter was $67.4 million compared with
operating income of $11.6 million for the first quarter of 1998. Net loss for
the quarter ended March 31, 1999 was $58.7 million or $4.50 per share, compared
with net income of $7.6 million or $0.59 per share for the same period in 1998.
New orders were $148.8 million for the quarter ended March 31, 1999 compared
with $226.5 million for the first quarter of 1998 and backlog remained constant
at $2.5 billion compared to March 31, 1998 and was down from $2.6 billion at
December 31, 1998.
Components of earnings per share for the three months ended March 31 were:
Three Months
Ended March 31,
1999 1998
---- ----
Basic and diluted earnings per share from:
Operations $(4.65) $0.20
Pension related items 0.15 0.24
------ -----
Ongoing operations (4.50) 0.44
Asset divestiture - 0.15
------ -----
Basic and diluted earnings per share $(4.50) $0.59
====== =====
Pension related items reduced operating costs by $3.3 million and $5.1 million
for the three months ended March 31, 1999 and 1998, respectively. Pension
related items include a net pension credit for the Company's domestic
subsidiaries and a net pension cost for its foreign subsidiaries. The pension
credit is the result of a plan that is funded in excess of the projected benefit
obligation, which is primarily due to favorable asset performance.
During 1998, the Company completed the divestiture of underutilized office space
with the sale of its Cherry Hill, New Jersey, office building for $13.5 million
in cash. The Company recognized a gain on the sale of this property of $3.1
million ($2.0 million after tax or $0.15 per share). The Company also completed
the disposal of its remaining unused office space in its former New York
corporate offices. The provisions made in 1996 for losses on sublease or lease
cancellation of this space have, in aggregate, not been materially different
from the actual costs incurred in disposal of the excess space.
Engineering, Construction and Consulting
- ----------------------------------------
The Company's Engineering, Construction and Consulting segment reported revenue
of $254.7 million in the first quarter of 1999, a decrease of 11.3 percent from
the $287.1 million reported for the same period last year. The decrease in
revenue is primarily attributable to lower revenues in the Power division. The
Company's Process division continues to feel the negative effects of the
economic slowdown in parts of Asia, which in 1998 and 1999 caused projects to
either be canceled or delayed. In addition low oil prices have adversely
affected the demand in the petrochemical industry. Operating loss was $69.4
million for the first quarter of 1999 compared to operating income of $9.3
million in the first quarter of 1998. The decrease in operating income was due
primarily to provisions in the amount of $74.2 million on two international
projects for unanticipated cost increases. Absent the anticipated resolution of
these contract costs with the clients, no offsetting revenue for these items
could be recorded in the quarter. New orders for the Engineering, Construction
and Consulting segment for the first quarter were $148.8 million compared with
$226.5 million in 1998. Backlog for the quarter remained constant at $2.5
billion compared to one year ago and was down from $2.6 billion at December 31,
1998.
The Trans-Pacific Petrochemical Indotama ("TPPI") project remains suspended
pending resolution of financing issues by the client. The TPPI project is
included in the Company's backlog in the amount of $426.0 million. The Company
has obtained approval to resell or use committed materials and procured
equipment to reduce costs of project suspension. The Company has also had
substantive discussions with potential purchasers of the olefins plant which
constitutes the majority of the Company's scope for the project, and during the
first quarter of 1999, has signed a conditional memorandum of understanding to
sell the plant. Had the project been cancelled as of March 31, 1999, and if
resale of the olefins plant were unlikely to be completed, the Company would
have recorded a pre-tax charge of approximately $72.3 million representing
project working capital plus current procurement commitments net of the
estimated salvage value of procured equipment and materials.
The Company is currently engaged in two international projects that have
incurred losses in the current quarter. Due to various factors, including owner
directed technical and schedule changes, increases in scope of the currently
authorized contracts and other factors, the cost to complete these contracts
will significantly exceed each contract's value. Management believes that it has
valid contractual and equitable grounds for change orders providing additional
compensation under these contracts. The Company has or expects to submit claims
greater than losses incurred to date. Negotiations with the owners are
continuing and the Company expects to reach agreement on the change orders in
1999. In the quarter ended March 31, 1999, the Company recognized operating
losses of $74.2 million on these projects.
Orders and backlog for the three months ended March 31, 1999 and 1998 were (in
thousands):
Three Months
Ended March 31,
1999 1998
---- ----
Beginning backlog $2,636,166 $2,519,302
Orders 148,833 226,479
Backlog acquired (BCI) - 59,944
Revenue (254,656) (287,097)
---------- ----------
Ending backlog $2,530,343 $2,518,628
========== ==========
Orders represent the net amount of new orders, cancellations and scope changes.
Cold Storage
- ------------
The Company's Cold Storage segment reported operating income of $2.0 million and
revenue of $11.4 million for the quarter, compared to $2.3 million and $6.9
million for the quarter ended March 31, 1998. The improvement in the Cold
Storage segment revenue is the result of the acquisition of The Nordic Group in
the fourth quarter of 1998. The decrease in operating income is a result of
lower revenue together with higher related operating costs associated with the
Company's pre-acquisition facilities.
General and Administrative Expenses, Other Income (Expenses) and Income Taxes
- -----------------------------------------------------------------------------
General and administrative expenses for the quarter were $16.7 million compared
to $16.3 million in 1998. Net interest expense for the quarter was $1.3 million
compared to net interest income of $0.8 million in 1998. During the three months
ended March 31, 1999, the maximum annual tax benefit was recognized by reducing
the net deferred tax liability. In 1998, the tax provision was based upon the
expected annual earnings among domestic and international subsidiaries, prior to
loss provisions recorded at year end.
Financial Condition
- -------------------
Cash and cash equivalents decreased by $0.5 million during the first three
months of 1999. Net cash provided by operating activities of $(6.1) million
reflects a decrease in operating working capital (which consists of accounts
receivable and cost and revenues in excess of billings less accounts payable and
billings in excess of costs and revenues recognized). This decrease in operating
working capital was primarily due to the provisions taken on two international
projects and depreciation and amortization expense for the period. The operating
loss offset the decreases in the working capital amounts. Net cash provided by
investing activities of $8.5 million reflects purchases of fixed assets used in
the Company's operations and the proceeds on a note receivable. Net cash used
for financing activities of $2.9 million reflects the payment of dividends and
the repayment of bank loans and long-term debt. Total debt was $129.8 million at
March 31,1999, compared to $130.8 million at December 31, 1998.
Management believes that the types of businesses in which it is engaged require
that it maintain a strong financial condition. Management believes that it has
on hand and has access to sufficient sources of funds to meet its anticipated
operating, dividend and capital expenditure needs. The Company has bank lines of
credit totaling $123.4 million (which represents both domestic and foreign
subsidiary banking facilities). As a result of losses experienced in the fourth
quarter of 1998 and the first quarter of 1999, the Company currently is not in
compliance with certain of its credit facility covenants and is in negotiations
to restructure its credit facilities. In addition, the Company had $106.0
million outstanding under its banking facilities at the end of the quarter.
Year 2000 Compliance
- --------------------
The Company is in the process of upgrading its computer applications in part to
ensure their functionality with respect to the Year 2000.
The Company has substantially completed its evaluation of all software and
information systems which it uses and are to be validated as Year 2000
compliant. The Company expects to implement the systems and programming changes
necessary to address the Year 2000 issue during 1999. Key financial systems will
become compliant through implementation of new enterprise-wide financial
systems. The primary objective of implementing these new systems is to improve
access to financial information of the Company and to implement a
state-of-the-art project accounting system. Therefore, costs related to this
implementation effort are not considered Year 2000 compliance costs.
The Company is giving consideration to compliance by third party suppliers.
Failure by third party suppliers to become Year 2000 compliant could result in
the Company's inability to obtain products as scheduled, which could potentially
lead to delays in meeting client orders. The Company will also review the Year
2000 readiness of clients which are material to the Company's business, if any.
Failure by material customers to become Year 2000 compliant could result in the
Company's inability to obtain or perform work on a timely basis for such
customers, leading to delays in receipt of revenue.
The Company is taking protective measures regarding the purchases from third
party suppliers of software, hardware and computer information systems. The
Company is obtaining assurances that the information systems and related
products supplied will be Year 2000 compliant. As of March 31, 1999, the Company
has identified and contacted a substantial number of its significant suppliers
in regards to Year 2000 compliance. No definitive conclusions can be made
regarding whether the software or systems of third party suppliers will have a
materially adverse effect on the Company's business, results of operations or
financial condition. However, at this time, management does not believe that the
Company will experience significant exposure related to the software or systems
of third party suppliers.
The Company has initiated a process of reviewing existing contractual
obligations with its clients to determine whether any Year 2000 compliance
exposure exists to its clients or third parties. As of March 31, 1999, no such
exposure had been determined. The Company currently believes that systems and
equipment purchased by it for delivery to third parties will be made Year 2000
compliant during 1999.
A formal contingency plan will not be formulated unless the Company identifies
specific areas where there is substantial risk of Year 2000 problems occurring,
and no such areas have been identified as of this date. The Company has not yet
developed an estimate of material lost revenue due to Year 2000 issues in a most
likely worst case Year 2000 scenario because it has not yet completed all of the
necessary reviews. To date, the cost of the reviews and analysis have totaled
less than $0.3 million. The Year 2000 review is intended to correct the
remaining internal systems that are not Year 2000 compliant and to identify any
client or other external situations in which the Company or its vendors have
provided systems that are not Year 2000 compliant. The cost of correcting
external Year 2000 compliance situations, if any, cannot be determined until
such cases, if any exist, are identified and evaluated. The cost to correct
internal systems and review external systems is estimated to be $0.5 million.
Readers are cautioned that forward-looking statements contained in the Year 2000
Issue disclosure should be read in conjunction with the Company's disclosures
under the heading: "Forward-Looking Information."
Other Accounting Matters
- ------------------------
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Statement is effective for fiscal years beginning after June 15, 1999. The
Company will adopt the new standard by January 1, 2000. Management is evaluating
the impact this Statement may have on the Company's financial statements.
Forward-Looking Information
- ---------------------------
Any of the statements or 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 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 and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission.
The statements under the caption "Year 2000 Compliance" describing the Company's
plans and objectives for handling the Year 2000 issue and the expected impact of
the Year 2000 issue on the Company are forward-looking statements. Those
statements involve risks and uncertainties that could cause actual results to
differ materially from the results discussed above. Factors that might cause
such a difference include, but are not limited to, delays in executing the plan
outlined above and unforeseen or increased costs associated with the
implementation of the plan and any necessary changes to the Company's systems.
Any inability experienced by the Company during implementation resulting from
necessary changes not completed in a timely manner could have an adverse effect
on the results of operations. Moreover, even if the Company successfully
implements the changes necessary to address the Year 2000 issue, there can be no
assurances that the Company will not be adversely affected by the failure of
others, including vendors and clients, to become Year 2000 compliant.
<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 March 31, 1999, registrant and its subsidiaries had outstanding
long-term debt (excluding current portion) totaling approximately
$21.7 million, 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: /S/ THOMAS L. LANGFORD
----------------------------------------------
Dated: May 13, 1999 Thomas L. Langford
Executive Vice President and Chief Financial
Officer
(Duly authorized officer and Principal
Financial Officer)
<PAGE>
<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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 45017
<SECURITIES> 0
<RECEIVABLES> 273083
<ALLOWANCES> 5247
<INVENTORY> 0
<CURRENT-ASSETS> 403926
<PP&E> 367974
<DEPRECIATION> 148244
<TOTAL-ASSETS> 839324
<CURRENT-LIABILITIES> 539511
<BONDS> 21736
0
0
<COMMON> 17731
<OTHER-SE> 213768
<TOTAL-LIABILITY-AND-EQUITY> 839324
<SALES> 0
<TOTAL-REVENUES> 266098
<CGS> 0
<TOTAL-COSTS> 316769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1958
<INCOME-PRETAX> (68694)<F1>
<INCOME-TAX> (10000)
<INCOME-CONTINUING> (58694)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (58694)
<EPS-PRIMARY> (4.50)
<EPS-DILUTED> (4.50)
<FN>
<F1>Includes General and Administrative Expenses of (16726) and interest income
of 661 not reflected on this tag list.
</FN>
</TABLE>
<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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 40944
<SECURITIES> 0
<RECEIVABLES> 197390
<ALLOWANCES> 7406
<INVENTORY> 0
<CURRENT-ASSETS> 378571
<PP&E> 315083
<DEPRECIATION> 170469
<TOTAL-ASSETS> 722309
<CURRENT-LIABILITIES> 274199
<BONDS> 22091
0
0
<COMMON> 17731
<OTHER-SE> 333721
<TOTAL-LIABILITY-AND-EQUITY> 722309
<SALES> 0
<TOTAL-REVENUES> 293957
<CGS> 0
<TOTAL-COSTS> 266051
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 417
<INCOME-PRETAX> 12420<F1>
<INCOME-TAX> 4807
<INCOME-CONTINUING> 7613
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7613
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
<FN>
<F1>Includes General and Administrative Expenses of (16272) and interest income
of 1203 not reflected on this tag list.
</FN>
</TABLE>
