UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K 405
For Annual and Transition Reports Pursuant to Sections 13 or
15(d) of the
Securities Exchange Act of 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock - $1 par New York Stock Exchange
Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ _ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting common equity held by
nonaffiliates of the registrant. The aggregate market value shall be computed by
reference to the price at which the common equity was sold, or the average bid
and asked prices of such common equity, as of a specified date within 60 days
prior to the date of filing. (See Definition of Affiliate in Rule 405.)
$330,000,000 approximately, based on the closing price on the New York Stock
Exchange Composite Transactions as of February 26, 1999.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common Stock: 13,061,047 shares as of February 26, 1999.
The following documents, or portions thereof as indicated in the following
report, are incorporated by reference in the Parts of Form 10-K indicated:
Part Document
I, II Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1998 (the "1998 Annual Report to Shareholders")
III Proxy Statement in connection with the registrant's 1999 Annual
Meeting of Shareholders
<PAGE>
PART I
Item 1. Business.
Registrant was incorporated as a Delaware corporation in 1929. Stone & Webster,
Incorporated and its subsidiaries (hereinafter referred to as the "Company" or
"Stone & Webster") are principally engaged in providing professional
engineering, construction and consulting services. Subsidiaries also own
fourteen cold storage warehousing facilities primarily in the Southeastern
United States and own and operate the Stone & Webster office buildings in
Boston, Massachusetts, and Houston, Texas. Stone & Webster develops, takes
ownership interests in, and operates projects for which they may provide
engineering, construction and other services.
The information relating to the business segments of the Company required by
this Item is hereby incorporated by reference from Note (S) to the consolidated
financial statements and from "Management's Discussion and Analysis" in the
Financial Information section of the registrant's 1998 Annual Report to
Shareholders which are filed herewith in Exhibit (13). This information includes
the revenues from sales to unaffiliated customers (from which percentage of
revenue information is available), operating income, and identifiable assets
attributable to the Company's industry segments for the three years ended
December 31, 1998.
Engineering, Construction and Consulting
Stone & Webster, through its subsidiaries, provides complete engineering,
design, construction, and full environmental services for power, process,
governmental, industrial, transportation and civil works projects. It also
constructs from plans developed by others, makes engineering reports and
business examinations, performs consulting engineering work, and offers
information management and computer systems expertise to clients. A full range
of services in environmental engineering and sciences, including complete
execution of environmental projects, is also provided. The Company remains
active in the nuclear power business, for utility and governmental clients, and
continues to undertake a significant amount of modification and maintenance work
on existing nuclear power plants as well as decommissioning and decontamination
projects. Advanced computer systems development services and products are
offered in the areas of systems integration, computer-aided design, expert
systems and database management. Registrant or its subsidiaries may take an
ownership position in development projects for which other subsidiaries may
provide engineering, construction, procurement, management, and operation and
maintenance services. Comprehensive management consulting and financial services
are furnished for business and industry, including public utility,
transportation, pipeline, land development, petroleum, and manufacturing
companies, banking and financial institutions and government agencies. It also
performs appraisals for industrial companies and utilities.
Stone & Webster's Engineering, Construction and Consulting segment includes four
Divisions which are responsible for marketing and executing projects within a
sector on a worldwide basis. The four Divisions are held accountable for
achieving goals established for their market sector in the Power, Process,
Environmental/Infrastructure and Industrial sectors. This structure enables the
Company to capitalize on its international relationships, experience and
abilities. Where appropriate, lump sum turnkey contracts are employed as a means
of providing comprehensive services. The Company's Engineering, Construction and
Consulting business segment continues to focus on its strengths involving
technology, for example, in advanced applications for both refinery and ethylene
process work, and in development of software applications and knowledge-based
engineering toolkits.
Cold Storage
Modern public cold storage warehousing, blast-freezing and other refrigeration
and consolidation services are offered in Georgia, North Carolina, South
Carolina, Alabama, Mississippi and Ohio to food processors and others at
fourteen facilities with approximately 47.8 million cubic feet of freezer and
controlled temperature storage space. In view of increased demand for services
relating to food exports, the Company acquired the Nordic Group in the fourth
quarter of 1998. The acquisition resulted in increased freezer and cooler space
of almost 23 million cubic feet. Offices and processing areas are leased to
customers. Comprehensive freezer services and refrigerated transportation
services are offered to customers.
Competition
The principal business activities of Stone & Webster in the Engineering,
Construction and Consulting segment are highly competitive, with competition
from a large number of well-established concerns, some privately held and others
publicly held. Inasmuch as the Company is primarily a service organization, it
competes by providing services of the highest quality. Stone & Webster believes
it occupies a strong competitive position but is unable to estimate with
reasonable accuracy the number of its competitors and its competitive position
in the engineering, construction and consulting services industry.
The business activities in the cold storage segment are primarily performed in
the Southeastern United States. Competition in this market area comes from a
relatively small number of companies offering similar types of services. The
Company's subsidiaries compete in this field by providing services of the
highest quality, emphasizing responsiveness to the needs of customers and to the
end receiver of the customers' product. As part of that commitment, the Company
provides modern data processing and communication equipment for customers. Stone
& Webster believes it occupies a strong competitive position in this area.
Backlog
Backlog figures for Stone & Webster's Engineering, Construction and Consulting
segment have not historically been considered by the Company to be indicative of
any trend in these activities nor material for an understanding of its business.
At any given date, the portion of engineering and construction work to be
completed within one year can only be estimated subject to adjustments, which
can in some instances be substantial, based on a number of factors. Clients
frequently revise the scope of the services for which they have contracted with
subsidiaries of the Company, especially on projects subject to regulatory
approval or which require environmental permitting/licensing. Scope increases
and decreases of substantial magnitude may occur on such projects and directly
affect backlog. Additionally, delays are common and affect the timing of when
backlog would be translated into revenues. As a result, the aggregate of such
figures in relation to consolidated revenues could be misleading unless
understood in light of the foregoing contingencies. Backlog information is
calculated on the basis of the total value to the Company's subsidiaries of all
services to be rendered under the available contracts plus the value of
equipment, material, services and subcontracts for which the contracting
subsidiary has overall technical and commercial responsibility. The following
backlog information is provided as of December 31, 1998 and December 31, 1997.
Stone & Webster's engineering subsidiaries' backlog as of December 31, 1998
amounted to $2,636 million compared with $2,519 million as of December 31, 1997.
New work awards, including changes in scope, in both 1998 and 1997 were
approximately $1,331 million. Also see "Revenue, New Orders and Backlog" in the
"Management's Discussion and Analysis" in the 1998 comparison with 1997 as
incorporated by reference above in this Item 1 from registrant's 1998 Annual
Report to Shareholders filed herewith in Exhibit (13). Although the majority of
the subsidiaries' contracts may be reduced or cancelled by the client at any
time, significant reductions in scope are unusual. Although the new orders for
1998 were approximately equal to those of 1997, the mix of orders reflects
current trends in the markets served by the Company. Power Division orders of
$1,070 million increased by 67 percent from the 1997 orders of $641 million.
Increases in Power Division orders, which have been primarily from domestic
clients, reflect the effects of deregulation on the power industry. These
developments include smaller plants using more efficient combined cycle
technology, and decommissioning of older, primarily nuclear, generating
capacity. The 38 percent decline in Process Division orders reflects the current
weakness in the petrochemical industry, which is the customer base for the
Company's process technology, and the economic slowdown in Asia, which had been
a major market for new process plant construction. Environmental/Infrastructure
Division orders include an adjustment of $533 million resulting primarily from
backlog reduction on task order contracts booked in 1996 and earlier. For
indefinite delivery and indefinite quantity contracts, the Company has adopted
the policy of recording only funded and released tasks in backlog, and the
backlog reduction reflects the application of this change to previously booked
contracts. The 56 percent decrease in Industrial Division orders is a result of
concentration on selected market opportunities in cement, forest products and
chemical sectors.
Approximately 37 percent of the total backlog as of December 31, 1998 is
expected to be realized within the next year.
In addition, approximately 42 percent of the December 31, 1998 backlog amount is
from contracts with international clients.
BACKLOG
Engineering, Construction and Consulting Services
(in Millions of Dollars)
As of Changes Revenue As of
12/31/97 New Work In Scope Recognized* 12/31/98
$2,519 $1,139 $192 ($1,214) $2,636
*Revenue Recognized reflects revenues of the Engineering, Construction and
Consulting segment.
Backlog figures in the cold storage industry are not provided since, in the
Company's opinion, such information is not necessarily meaningful because of the
nature of the food processing, storage and distribution business where
repetitive services of short duration are the norm.
Clients
Although Stone & Webster's subsidiaries in the Engineering, Construction and
Consulting segment have numerous clients, the Company historically has not had a
continuing dependence on any single client. One or a few clients have in the
past and may in the future contribute a substantial portion of consolidated
revenues in any one year or over a period of several consecutive years due to
the size of major engineering and construction projects. Stone & Webster's
business is not necessarily dependent upon sustaining, and the Company does not
necessarily expect to sustain in future years, the level of revenues contributed
by particular clients in any given year or period of consecutive years. Once the
subsidiary commences work on a particular project, it is unlikely that the
client would terminate the involvement of the subsidiary prior to completion of
the project, unless the project itself is canceled or postponed. Historically
the Company's subsidiaries have provided ongoing services to clients following
completion of major projects for them. Nonetheless, the Company must obtain new
engineering and construction projects, whether from existing clients or new
clients, in order to generate revenues in future years as existing projects are
completed.
Consequently, Stone & Webster has not considered the names of clients to be
material to investors' understanding of the Company's business taken as a whole.
Stated in terms of total revenues (as described under Backlog, above), which is
consistent with the Company's financial reporting in this report, the
Engineering, Construction and Consulting segment had no client who accounted for
more than 10 percent of consolidated revenues in 1996 or 1998. In 1997, one
client, PT Trans-Pacific Petrochemical Indotama, accounted for 12 percent of
consolidated revenues.
The cold storage segment had no client who accounted for 10 percent or more of
consolidated revenues in 1996, 1997 or 1998.
Environmental Compliance
Compliance by Stone & Webster and its subsidiaries with Federal, State and local
provisions regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not had, and is not
expected to have, a material adverse effect upon the capital expenditures,
earnings and competitive position of registrant and its subsidiaries. Also see
Note (I) to the consolidated financial statements which is incorporated by
reference from the "Notes to Consolidated Financial Statements" of the Financial
Information section of the registrant's 1998 Annual Report to Shareholders,
which is filed herewith in Exhibit (13).
The Engineering, Construction and Consulting segment has benefited from the
extensive amount of environmental legislation and regulatory activity now in
place because the effect of such regulations on the businesses of the segment's
clients has increased the demand for environmental services provided by
registrant's subsidiaries. The demand for such services to help clients in their
own environmental compliance efforts is expected to continue.
Year 2000 Compliance
See "Year 2000 Compliance" in the "Management's Discussion and Analysis" as
incorporated by reference above in this Item 1 from registrant's 1998 Annual
Report to Shareholders, which is filed herewith in Exhibit (13).
Employees
Stone & Webster and its subsidiaries had approximately 5,500 regular employees
as of December 31, 1998. In addition, there are at times several thousand craft
employees employed on projects by subsidiaries of the Company. The number of
such employees varies in relation to the number and size of the projects
actually undertaken at any particular time.
Executive Officers of the Registrant
Name Age Position Held Held Since
H. Kerner Smith 54 Chairman of the Board 5/8/97
President and Chief Executive
Officer and Director 2/12/96
Peter M. Evans 53 Senior Executive Vice President 1/26/99
Thomas L. Langford 57 Executive Vice President
and Chief Financial Officer 6/2/97
Edward J. Walsh 47 Executive Vice President 8/15/95
Robert C. Wiesel 48 Executive Vice President 12/17/96
James P. Jones 55 Vice President, Secretary
and General Counsel 1/27/98
Gerard A. Halpin, III 41 Vice President 5/14/98
Treasurer 12/2/96
Each of the executive officers listed above has held executive or administrative
positions with Stone & Webster for at least the last five years, except that Mr.
Smith, who joined the Company in February 1996, had been President and Chief
Executive Officer of Deutsche Babcock Technologies, Inc. and a Managing Director
of Deutsche Babcock A G during the last five years; Mr. Evans, who joined the
Company in January 1999, had been President and Chief Operating Officer of M.W.
Kellogg Company from 1997 to January 1999, and had been Executive Vice President
and Senior Vice President, Operations since 1994; Mr. Langford, who joined the
Company in 1997, had been President of The Parsons Corporation from 1991 to
1996; Mr. Jones, who joined the Company in 1998, had been Special Counsel with
Jones Walker Waechter Poitevent Carrere & Denegre L.L.P. in New Orleans from
1995 to 1997 and Associate General Counsel for Freeport-McMoRan Inc. from 1989
to 1995; and Mr. Halpin, who joined the Company in 1996, had been Assistant
Treasurer of General Electric Company since 1991.
Each officer has been elected to hold office until the first meeting of the
Board of Directors after the next Annual Meeting of the Shareholders and until
his successor is duly elected and qualified. The next Annual Meeting of
Shareholders is scheduled to be held May 13, 1999.
Item 2. Properties.
The important physical properties of Stone & Webster are as follows:
A. A 14 story office building with approximately 800,000 square feet of
office space at 245 Summer Street, Boston, Massachusetts, which serves
as corporate headquarters for the organization and is approximately 56
percent occupied by the Company and its subsidiaries with the balance
currently being leased or held for rental to others.
B. A 6 story office building with approximately 320,000 square feet of
office space at 1430 Enclave Parkway, Houston, Texas, which is
approximately 65 percent occupied by subsidiaries of the Company with
the balance currently being leased or held for rental to others.
C. A 21.5 acre site in Laporte, Texas, with 7 permanent buildings
comprising approximately 44,000 square feet which was acquired by a
subsidiary in January 1998 and which is used in connection with a
subsidiary's construction business.
D. An office building with approximately 65,000 square feet of space
consisting of two floors of office and support function space at 1482
Erie Boulevard, Schenectady, New York, and an office building with
approximately 21,000 square feet at 1473 Erie Boulevard, Schenectady,
New York, which were acquired by a subsidiary in 1998 and which are
substantially occupied by a subsidiary.
E. Approximately 17.6 million cubic feet of cold storage space in two
facilities in Atlanta, Georgia and approximately 7.2 million cubic
feet of cold storage space in a third facility near Rockmart, Georgia.
These facilities are used in connection with the Company's cold
storage business.
F. Eleven cold storage warehouse properties in North Carolina, South
Carolina, Alabama, Mississippi and Ohio, which comprise almost 23
million cubic feet. These properties were acquired by a subsidiary in
1998 and are used in connection with the Company's cold storage
business.
All of the properties listed above are owned in fee by the Company. In addition
to the foregoing, Stone & Webster occupies office space in various cities, in
premises leased from others for varying periods - both long and short term - the
longest of which extends to 2008.
An 8 story office building with approximately 140,000 square feet of office
space at 51 Sleeper Street, Boston, Massachusetts was sold in December 1997, and
a 6 story office building with approximately 450,000 square feet of office space
at 3 Executive Campus, Cherry Hill, New Jersey, which is currently approximately
25 percent occupied by registrant's subsidiaries under a lease, was sold in
February 1998.
Item 3. Legal Proceedings.
(a) Stone & Webster Engineering Corporation ("SWEC"), a subsidiary of the
registrant, has been named as a defendant, along with numerous other defendants,
in a number of complaints which seek damages arising out of alleged personal
injuries and/or wrongful death due to exposure to asbestos products allegedly
utilized by the defendants.
Many of these complaints have been dismissed or withdrawn, and SWEC has
settled many of these cases for amounts which, when taken together, do not have
a material impact on registrant's financial condition or results of operations.
The Company believes that there has not been, nor is there a probability that
there will be, any accrual of a material liability of the registrant as a result
of the asbestos claims received to the present.
SWEC believes that it has strong factual and legal defenses to the
remaining claims and intends to defend vigorously.
(b) Registrant and two of its subsidiaries have been named as defendants in
two pending legal actions brought by Blackstone Valley Electric Company in
January 1994 in the United States District Court for the District of
Massachusetts (along with another company named as a defendant) and in March
1996 in the United States District Court for the District of Rhode Island, and
have received other claims from private parties seeking contribution for costs
incurred or to be incurred in remediation of sites under the Federal
Comprehensive Environmental Response, Compensation and Liability Act and similar
state statutes. These matters relate to business activities which took place
generally in the first half of this century. No governmental authority has
sought similar redress from the registrant or its subsidiaries (except in the
case of one subsidiary in limited connection with claims made primarily with
respect to clients of that subsidiary) nor has the registrant been determined to
be a Potentially Responsible Party by the Federal or any state or local
governmental authority, although some information has been requested with regard
to environmental matters. Based on presently known facts and existing laws and
regulations, registrant and its subsidiaries believe that they have valid legal
defenses to such actions and that the costs associated with such matters,
including legal costs, should be mitigated by the presence of other entities
which may be Potentially Responsible Parties, by contractual indemnities, and by
insurance coverage.
Registrant and one subsidiary are plaintiffs in a separate action to
recover damages, attorneys' fees and other monetary relief from certain of their
insurance carriers in connection with such matters. In April 1996, plaintiffs'
motion for summary judgment on one carrier's duty to defend plaintiffs in two
matters, including the first Blackstone action, was granted. No recognition has
been made in the financial statements for any potentially recoverable amounts.
(c) Also see Note (I) to the consolidated financial statements as set forth
under "Notes to Consolidated Financial Statements" which was incorporated by
reference above in Item 1 from registrant's 1998 Annual Report to Shareholders,
which is filed herewith in Exhibit (13).
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information required by Item 5 is hereby incorporated by reference from
"Market and Dividend Information" of the Financial Information section included
in registrant's 1998 Annual Report to Shareholders, which is filed herewith in
Exhibit (13).
Item 6. Selected Financial Data.
The information required by Item 6 is hereby incorporated by reference from
"Selected Financial Data" of the Financial Information section included in
registrant's 1998 Annual Report to Shareholders, which is filed herewith in
Exhibit (13).
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information required by Item 7 is hereby incorporated by reference from
"Management's Discussion and Analysis" of the Financial Information section
included in registrant's 1998 Annual Report to Shareholders, which is filed
herewith in Exhibit (13).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by Item 7A is hereby incorporated by reference from the
Financial Condition and Liquidity section of "Management's Discussion and
Analysis" and from Note (A) and Note (R) to the consolidated financial
statements of the Financial Information section included in registrant's 1998
Annual Report to Shareholders, which is filed herewith in Exhibit (13).
Item 8. Financial Statements and Supplementary Data.
The information required by Item 8 is hereby incorporated by reference from the
Consolidated Financial Statements of Stone & Webster, Incorporated and
Subsidiaries of the Financial Information section included in registrant's 1998
Annual Report to Shareholders, which is filed herewith in Exhibit (13).
The schedule required by Regulation S-X is filed herewith in Exhibit (13)(ii).
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
In accordance with General Instruction G(3) to Form 10-K, the information called
for in this Item 10 with respect to Directors is not presented here since such
information is included in the definitive proxy statement which involves the
election of Directors which will be filed pursuant to Regulation 14A not later
than 120 days after the close of the fiscal year, and such information is hereby
incorporated by reference from Item I of such proxy statement.
See also the section captioned "Executive Officers of the Registrant" under Item
1 of Part I herein.
Item 11. Executive Compensation.
In accordance with General Instruction G(3) to Form 10-K, the information called
for in this Item 11 is not presented here since such information is included in
the definitive proxy statement which involves the election of Directors which
will be filed pursuant to Regulation 14A not later than 120 days after the close
of the fiscal year, and such information is hereby incorporated by reference
from Item I of such proxy statement, except that the information included
therein which is not required to be "filed" in accordance with Regulation S-K,
Item 402(a)(8) (including the Report of the Compensation Committee and the
Performance Graph) is not incorporated by reference as part of this report on
Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
In accordance with General Instruction G(3) to Form 10-K, the information called
for in this Item 12 is not presented here since such information is included in
the definitive proxy statement which involves the election of Directors which
will be filed pursuant to Regulation 14A not later than 120 days after the close
of the fiscal year, and such information is hereby incorporated by reference
from Item I of such proxy statement.
Item 13. Certain Relationships and Related Transactions.
In accordance with General Instruction G(3) to Form 10-K, the information called
for in this Item 13 is not presented here since such information is included in
the definitive proxy statement which involves the election of Directors which
will be filed pursuant to Regulation 14A not later than 120 days after the close
of the fiscal year, and such information is hereby incorporated by reference
from Item I of such proxy statement.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) Documents filed as part of the report:
1. Financial Statements and Financial Statement Schedule
(i) The following items are incorporated by reference from the
Financial Information section included in registrant's 1998 Annual Report
to Shareholders, filed herewith in Exhibit (13):
Management's Discussion and Analysis
Financial Statements:
Consolidated Statements of Operations and Comprehensive Income for
the Three Years Ended December 31, 1998
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Shareholders' Equity for the Three Years
Ended December 31, 1998
Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 1998
Notes to Consolidated Financial Statements
Selected Financial Data
Market and Dividend Information
Report of Management
Report of Independent Accountants
Business Segment Information
(ii) Financial Statement Schedule for the Three Years Ended December
31, 1998:
II. Valuation and Qualifying Accounts
(iii) Report of Independent Accountants on Financial Statement
Schedule
2. Exhibits:
(3) Articles of Incorporation and By-laws -
(i) The Restated Certificate of Incorporation of registrant, as
amended, (incorporated by reference to Exhibit 3 (i) to registrant's
Registration Statement on Form S-4 (File No. 333-57961) filed with the
Commission on June 29, 1998).
(ii) The By-laws of registrant, as amended (filed herewith).
(4) Instruments defining the rights of security holders, including
indentures -
(i) As of December 31, 1998, registrant and its subsidiaries had
outstanding long-term debt (excluding current portion) totaling
approximately $22,228,000, 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.
(ii) Rights Agreement, dated as of August 15, 1996, between Stone
& Webster, Incorporated and ChaseMellon Shareholder Services, L.L.C.,
(incorporated by reference to Exhibit 1.1 to registrant's Registration
Statement on Form 8-A filed on August 16, 1996).
(10) Material contracts -
(a) The Restricted Stock Plan of Stone & Webster, Incorporated,
approved by the Stockholders of registrant in 1976, as amended and
approved by the Stockholders of registrant in 1988, and the form of
grant under the Restricted Stock Plan (incorporated by reference to
Exhibit 10 (a) to registrant's Form 10-K for the fiscal year ended
December 31, 1988).
(b) 1995 Stock Option Plan of Stone & Webster, Incorporated
(incorporated by reference to Exhibit 4-b to the registrant's
Registration Statement on Form S-8 filed on June 22, 1995 (File No.
33-60489)).
(c) 1997 Stock Plan for Non-employee Directors of Stone &
Webster, Incorporated (incorporated by reference to Exhibit 10 (c) to
registrant's Form 10-K for the fiscal year ended December 31, 1996).
(d) Form of agreement between registrant and Named Executive
Officers of registrant dated as of August 31, 1995, and subsequent
dates, relating to certain employment arrangements that would become
operable only in the event of a "change of control" (as defined in the
form of agreement) (incorporated by reference to Exhibit 10 (b) to the
registrant's Registration Statement on Form S-4 (File No. 333-57961)
filed with the Commission on June 29, 1998.
(e) The following forms of agreements with H. Kerner Smith
relating to employment with registrant as Chairman, President and
Chief Executive Officer are incorporated by reference to Exhibit 10
(e) to the registrant's Form 10-K for the fiscal year ended December
31, 1995: a form of Employment Agreement filed therewith as Exhibit 10
(e)(i); a form of Change of Control Employment Agreement filed
therewith as Exhibit 10 (e)(ii); and a form of Stock Option Grant
filed therewith as Exhibit 10 (e)(iii). An Amendment dated January 15,
1997 to the Employment Agreement (10) (e)(i) is incorporated by
reference to Exhibit 10 (e)(iv) of registrant's Form 10-K for the
fiscal year ended December 31, 1996.
(f) Non-employee Director Deferral Plan (incorporated by
reference to Exhibit 10(f) to the registrant's Form 10-K for the
fiscal year ended December 31, 1997).
(g) Annual Incentive Compensation Plan (incorporated by reference
to Exhibit 10 (g) to the registrant's Form 10-K for the fiscal year
ended December 31, 1997).
(h) Long-Term Incentive Compensation Plan, as amended,
(incorporated by reference to Exhibit 4.4 to registrant's Registration
Statement on Form S-8 (File No. 333-71857) filed with the Commission
on February 5, 1999).
(i) Form of employment agreement with James P. Jones (filed
herewith).
______________
*Exhibits 10 (a) through (i) are compensatory plans, contracts and
arrangements in which Directors and certain executive officers
participate.
(13) (i) 1998 Annual Report to Shareholders for the fiscal year ended
December 31, 1998 (Financial Section) (filed herewith).
(ii) Financial Statement Schedule (filed herewith).
(iii) Report of Independent Accountants on Financial Statement
Schedule (filed herewith).
(21) Subsidiaries of the registrant (filed herewith).
(23) Consent of Independent Accountants (filed herewith).
(24) (i) Secretary's Certificate (filed herewith).
(ii) Powers of Attorney (filed herewith).
(27) Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
Registrant filed the following report on Form 8-K during the last quarter
of the period covered by this report.
Date of Form 8-K Description
October 15, 1998 Submitted under Item 2, Acquisition or Disposition of
Assets, relating to the acquisition by a subsidiary of seven
companies that comprise The Nordic Group which owned eleven
public refrigerated warehouses in North Carolina, South
Carolina, Alabama, Mississippi and Ohio. No financial
statements relating to the acquisition were filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
STONE & WEBSTER, INCORPORATED
By
/S/ THOMAS L. LANGFORD
________________________________________________
Thomas L. Langford
Executive Vice President
(Duly Authorized Officer and Chief
Financial and Accounting Officer)
Date: March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/S/ H. KERNER SMITH
________________________________________________
H. Kerner Smith
Chairman, President and Chief Executive Officer
Director
*
________________________________________________
Donna F. Bethell
Director
*
________________________________________________
Frank J. A. Cilluffo
Director
*
________________________________________________
Kent F. Hansen
Director
*
________________________________________________
Elvin R. Heiberg III
Director
*
________________________________________________
David N. McCammon
Director
*
________________________________________________
J. Angus McKee
Director
*
________________________________________________
John P. Merrill, Jr.
Director
*
________________________________________________
Bernard W. Reznicek
Director
*
________________________________________________
Peter M. Wood
Director
/S/ JAMES P. JONES
*By: _________________________________________
James P. Jones
Attorney-In-Fact
Manually signed Powers of Attorney authorizing H. Kerner Smith and James P.
Jones and each of them to sign the Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 and any amendments thereto as Attorney-in-Fact for
certain Directors of the registrant are included herein as Exhibits 24(ii).
<PAGE>
EXHIBIT INDEX
No. Exhibit
3 (i) Restated Certificate of Incorporation (incorporated by reference)
(ii) By-Laws (filed herewith)
4 (ii) Rights Agreement, dated as of August 15, 1996, between Stone &
Webster, Incorporated and ChaseMellon Shareholder Services, L.L.C.
(incorporated by reference)
10 (a) Material contracts - Restricted Stock Plan and form of grant
(incorporated by reference)
(b) Material contracts - 1995 Stock Option Plan (incorporated by
reference)
(c) Material contracts - 1997 Stock Plan for Non-employee Directors
(incorporated by reference)
(d) Material contracts - Form of change of control agreement (incorporated
by reference)
(e) Material contracts - Forms of agreement with H. Kerner Smith relating
to (i) Employment Agreement; (ii) Change of Control Employment
Agreement; (iii) Stock Option Grant; and (iv) Amendment to Employment
Agreement (each incorporated by reference)
(f) Material contracts - Non-employee Director Deferral Plan (incorporated
by reference)
(g) Material contracts - Annual Incentive Compensation Plan (incorporated
by reference)
(h) Material contracts - Long-Term Incentive Compensation Plan
(incorporated by reference)
(i) Material contracts - Employment agreement with James P. Jones (filed
herewith)
13 (i) 1998 Annual Report to Shareholders for the fiscal year ended December
31, 1998 (Financial Section) (filed herewith)
(ii) Financial Statement Schedule (filed herewith)
(iii) Report of Independent Accountants on Financial Statement Schedule
(filed herewith)
21 Subsidiaries of the Registrant (filed herewith)
23 Consent of Independent Accountants (filed herewith)
24 (i) Secretary's Certificate (filed herewith)
(ii) Powers of Attorney (filed herewith)
27 Financial Data Schedule (filed herewith)
<PAGE>
EXHIBIT 3(ii)
By-Laws
Of
Stone & Webster, Incorporated
(As amended effective February 23, 1999)
ARTICLE I
Name
The name of the corporation (hereinafter referred to as this Corporation) is
Stone & Webster, Incorporated.
ARTICLE II
Stockholders' Meetings
Meetings of the stockholders may be held in such locations within or without the
State of Delaware as shall be designated by the Board of Directors or set forth
in the notice of such meeting.
ARTICLE III
Annual Stockholders' Meeting
The Annual Meeting of the stockholders of this Corporation shall be held at the
time set forth in the notice of such meeting on the Tuesday preceding the last
Monday in May in each year or on such other day in May as shall be determined by
resolution of the Board of Directors. In the event that such Annual Meeting is
omitted by oversight or otherwise on the date herein provided for, the Directors
shall cause a meeting in lieu thereof to be held as soon thereafter as
conveniently may be, and any business transacted or elections held at such
meeting shall be as valid as if transacted or held at the Annual Meeting. Such
subsequent meeting shall be called in the same manner as provided for Special
Stockholders' Meetings.
ARTICLE IV
Special Stockholders' Meetings
Special Meetings of the stockholders of this Corporation shall be held whenever
called in the manner required by law for purposes as to which there are special
statutory provisions and for other purposes whenever called by the Chairman of
the Board of Directors or by the President or by the Chairman of the Executive
Committee or by vote of the Board of Directors.
ARTICLE V
Notice of Stockholders' Meetings
Notice of all stockholders' meetings stating the time and place, and, in the
case of Special Meetings, the objects for which such meetings are called, shall
be given by the Chairman of the Board of Directors or the President or the
Chairman of the Executive Committee or a Vice-President or the Secretary or an
Assistant Secretary, by mail, to each stockholder of record having voting power
in respect of the business to be transacted thereat, at his or her registered
address at least ten (10) days prior to the date of the meeting, and the person
giving such notice shall make affidavit in relation thereto.
Any meeting at which all stockholders having voting power in respect of the
business to be transacted thereat are present, either in person, or by proxy, or
of which those not present shall at any time waive or have waived notice in
writing, shall be a legal meeting for the transaction of business,
notwithstanding that notice has not been given as hereinbefore provided.
ARTICLE VI
Waiver of Notices
Whenever any notice whatever is required to be given by these By-laws, or the
Restated Certificate of Incorporation of this Corporation, or any of the laws of
the State of Delaware, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE VII
Quorum at Stockholders' Meetings
At any meeting of the stockholders, a majority in interest of all the capital
stock issued and outstanding and entitled to vote, represented by such
stockholders of record in person or by proxy, shall constitute a quorum, but a
less interest may adjourn any meeting from time to time and the meeting may be
held as adjourned without further notice. When a quorum is present at any
meeting, a majority in interest of the stock entitled to vote represented
thereat shall decide any question brought before such meeting, unless the
question is one upon which by express provision of law or of the Restated
Certificate of Incorporation or of these By-laws a larger or different vote is
required, in which case such express provision shall govern and control the
decision of such question.
ARTICLE VIII
Proxy and Voting
Stockholders of record entitled to vote may vote at any meeting either in person
or by proxy in writing, which shall be filed with the Secretary of the meeting
before being voted. Such proxies shall entitle the holders thereof to vote at
any adjournment of such meeting, but shall not be valid after the final
adjournment thereof. Stockholders entitled to vote may also be represented by a
general power of attorney produced at any meeting until it is revoked. No proxy
or power of attorney shall be voted on after three years from its date, unless
said proxy or power of attorney provides for a longer period.
ARTICLE IX
Board of Directors
A Board of Directors shall be elected by ballot at the Annual Meeting of the
stockholders or at any meeting held in place thereof as hereinbefore provided.
No Director shall be elected by stockholders except by the vote of a majority of
all votes entitled to be cast in such election by all of the outstanding shares
of all classes of capital stock of the Corporation. The number of Directors of
this Corporation shall be ten (10), but the number may be increased or decreased
at any time by amendment of these By-laws adopted by vote of two-thirds of all
of the Directors of this Corporation at the time in office or by vote of at
least two-thirds of the votes at the time entitled to be cast generally in the
election of Directors by all of the outstanding shares of all classes of capital
stock of the Corporation, provided that the number of Directors shall always be
not less than three. Directors need not be stockholders of this Corporation.
The Directors of the Corporation shall be divided into three classes with the
number of Directors fixed by or in accordance with the By-laws divided equally
so far as possible among the three classes. Except as otherwise provided in
Article XXIII, following adoption of this By-law provision,
(a) one-third of the number of Directors shall be elected to serve until
the 1973 Annual Meeting of the stockholders,
(b) one-third of the number of Directors shall be elected to serve until
the 1974 Annual Meeting of the stockholders,
(c) one-third of the number of Directors shall be elected to serve until
the 1975 Annual Meeting of the stockholders,
and until their successors are duly elected and qualified. At each annual
election after the 1972 election, the successors to the Directors of each class
whose term shall expire in that year shall be elected to hold office for a term
of three years from the date of their election and until their successors are
duly elected and qualified. In case of any increase in the number of Directors,
the additional Directors shall be distributed among the several classes as
nearly equally as possible.
ARTICLE X
Power of Directors
The Board of Directors shall have the entire management of the business of this
Corporation. In the management and control of the property, business and affairs
of this Corporation, the Board of Directors is hereby vested with all the powers
possessed by this Corporation itself, so far as this delegation of authority is
not inconsistent with the laws of the State of Delaware, with the Restated
Certificate of Incorporation of this Corporation, or with these By-laws. The
Board of Directors shall have authority from time to time to set apart out of
any assets of this Corporation otherwise available for dividends a reserve or
reserves as working capital or for any other proper purpose or purposes, and to
abolish or add to any such reserve or reserves from time to time as the Board
may deem to be in the interests of this Corporation and the Board shall likewise
have power to determine in its discretion what part of the assets of this
Corporation available for dividends in excess of such reserve or reserves shall
be declared in dividends and paid to the stockholders of this Corporation.
ARTICLE XI
Executive and Other Committees
The Board of Directors may designate by resolution passed by a majority of the
whole Board two or more of its number who shall constitute an Executive
Committee, which Committee shall, when the Board of Directors is not in session,
have and may, subject to any limitation imposed by the laws of the State of
Delaware, exercise any or all of the powers of the Board of Directors in the
management of the business and affairs of this Corporation, and have power to
authorize the seal of this Corporation to be affixed to all papers which may
require it. A Chairman of the Executive Committee (who shall preside at the
meetings of the Executive Committee, may call meetings thereof whenever he deems
it necessary and shall have such other powers and duties as the Board of
Directors shall designate from time to time) shall be appointed by the Board of
Directors at the time it designates members of the Executive Committee. The
Secretary of this Corporation, or, in his absence, an Assistant Secretary or any
other person designated by the Committee, shall act as Secretary of the
Committee. The Executive Committee, except as otherwise herein provided, shall
fix its own rules of procedure and shall keep a record of its acts and
proceedings and report the same from time to time to the Board of Directors. Any
vacancy in the Executive Committee shall be filled by the vote of the majority
of the whole Board of Directors. The Board of Directors may appoint one or more
of its members as ex-officio members of the Executive Committee, who shall have
the privilege of attending meetings of the Executive Committee, but who shall
not be entitled to vote upon any matters brought before the Executive Committee
and shall not be counted as a member of the Executive Committee for the purpose
of determining the number necessary to constitute a quorum, or for the purpose
of determining whether a quorum is present. Notice of meetings to ex-officio
members shall not be deemed to be required under law, the Restated Certificate
of Incorporation or these By-laws.
The Board of Directors likewise may appoint from their number or from the
stockholders other committees from time to time, the number (not less than two)
composing such committees and the powers conferred upon the same to be
determined by a vote of the Board of Directors.
ARTICLE XII
Directors' Meetings
Regular Meetings of the Board of Directors shall be held at such places within
or without the State of Delaware and at such times as the Board by vote may
determine from time to time, and if so determined no notice thereof need be
given. Special Meetings of the Board of Directors may be held at any time or
place either within or without the State of Delaware, whenever called by the
Chairman of the Board of Directors, the President, the Chairman of the Executive
Committee, a Vice-President, the Secretary, an Assistant Secretary or three or
more Directors, notice thereof being given to each Director by the Secretary or
an Assistant Secretary or officer calling the meeting, or at any time or place
without formal notice, provided all the Directors are present or waive notice
thereof as provided in Article VI hereof. Notice of Special Meetings, stating
the time and place thereof, shall be given by mailing the same to each Director
at his residence or business address at least two days before the meeting, or by
delivering the same to him personally or telephoning or telegraphing the same to
him at his residence or business address at least one day before the meeting,
unless, in case of exigency, the Chairman of the Board of Directors or the
President or the Chairman of the Executive Committee or in their absence the
Secretary shall prescribe a shorter notice to be given personally or by
telephoning or telegraphing each Director at his residence or business address.
Such Special Meetings shall be held at such times and places as the notice
thereof or waiver shall specify.
ARTICLE XIII
Quorum at Directors' Meetings
One-third of the number of Directors, but not less than four members of the
Board of Directors, shall constitute a quorum for the transaction of business,
but a less number may adjourn any meeting from time to time and the meeting may
be held as adjourned without further notice. When a quorum is present at any
meeting a majority of the members present thereat shall decide any question
brought before such meeting, except as otherwise provided by law, by the
Restated Certificate of Incorporation or by these By-laws.
ARTICLE XIV
Officers
The officers of this Corporation shall be a Chairman of the Board of Directors,
a President, one or more Vice-Presidents, a Secretary and a Treasurer. The
officers shall be elected by the Board of Directors at the first meeting after
the Annual Meeting of the stockholders, and a meeting may be held without notice
for this purpose immediately after the Annual Meeting of the stockholders and at
the same place.
ARTICLE XV
Eligibility of Officers
The Chairman of the Board of Directors and the President may, but need not, be a
stockholder but shall be a Director of this Corporation. The Vice-Presidents,
Secretary, Treasurer and such other officers as may be elected or appointed may,
but need not, be stockholders or Directors of this Corporation. Any person may
hold more than one office provided the duties thereof can be consistently
performed by the same person, provided, however, that no one person shall, at
the same time, hold the three offices of President or Vice-President and
Secretary and Treasurer.
ARTICLE XVI
Additional Officers and Agents
The Board of Directors, at its discretion, may appoint a Corporate Controller,
one or more Assistant Corporate Controllers, one or more Assistant Treasurers,
and one or more Assistant Secretaries, and such other officers or agents as it
may deem advisable, and prescribe the duties thereof.
ARTICLE XVII
Chairman of the Board of Directors
The Chairman of the Board of Directors shall be the chief executive officer of
this Corporation, and, as such, shall have supervision of its policies,
business, and affairs, and such other powers and duties as are commonly incident
to the office of the chief executive officer. He shall preside at the meetings
of the Board of Directors and may call meetings of the Board of Directors and of
any committee thereof whenever he deems it necessary, and he shall call to order
and act as chairman of all meetings of the stockholders of this Corporation. In
addition, he shall have such other powers and duties as the Board of Directors
shall designate from time to time. The Chairman of the Board of Directors,
unless some other person is thereunto specifically authorized by vote of the
Board of Directors, shall have power to sign all certificates of stock, bonds,
deeds and contracts of this Corporation.
ARTICLE XVIII
President
The President shall have such powers and duties as are commonly incident to his
office. He shall also have such other powers and duties as the Board of
Directors or the Chairman of the Board of Directors shall designate from time to
time. He may call meetings of the Board of Directors and of any committee
thereof whenever he deems it necessary. The President, unless some other person
is thereunto specifically authorized by vote of the Board of Directors, shall
have power to sign all certificates of stock, bonds, deeds and contracts of this
Corporation.
ARTICLE XIX
Vice-Presidents
The Vice-Presidents shall each possess such powers and perform such duties, in
addition to those expressly provided herein, as the Board of Directors may from
time to time determine.
ARTICLE XX
Secretary
The Secretary shall keep accurate minutes of all meetings of the stockholders,
the Board of Directors and the Executive Committee, respectively, shall perform
all the duties commonly incident to his office, and shall perform such other
duties and have such other powers as the Board of Directors shall designate from
time to time. The Secretary shall have power, together with the Chairman of the
Board of Directors, the President or a Vice-President, to sign certificates of
stock of this Corporation. In his absence at any meeting an Assistant Secretary
or a Secretary Pro Tempore shall perform his duties thereat. The Secretary, any
Assistant Secretary and any Secretary Pro Tempore shall be sworn to the faithful
discharge of their duties.
ARTICLE XXI
Treasurer
The Treasurer, subject to the order of the Board of Directors, shall have the
care and custody of the moneys, funds, valuable papers and documents of this
Corporation (other than his own bond which shall be in the custody of the
President) and shall have and exercise, under the supervision of the Board of
Directors, all the powers and duties commonly incident to his office, and shall,
if required by the Board of Directors, give bond in such form and with such
sureties as it may require. He shall deposit all funds of this Corporation in
such bank or banks, trust company or trust companies or with such firm or firms
doing a banking business, as the Directors shall designate and shall have power
to borrow from time to time at his discretion moneys for the corporate needs of
this Corporation and cause to be issued as evidence thereof notes of this
Corporation. He may endorse for deposit or collection all checks, notes, et
cetera, payable to this Corporation or to its order, may accept drafts on behalf
of this Corporation, and, together with the President or a Vice-President, may
sign certificates of stock. All the property in his possession, shall be subject
at all times to the inspection and control of the Board of Directors. The
Treasurer shall be subject in every way to the order of the Board of Directors.
All checks, drafts, notes, bonds, or other obligations for the payment of money
shall be signed by the Treasurer and/or such other officer or officers, agent or
agents, as the Board of Directors shall by resolution direct. The Board of
Directors may, in its discretion, also provide by resolution for
countersignature or registration of checks, drafts, notes and/or bonds of this
Corporation. Checks for the total amount of any pay roll may be drawn in
accordance with the foregoing provisions and deposited in a special fund. Checks
upon this fund may be drawn by such person as the Treasurer shall designate and
need not be countersigned.
ARTICLE XXII
Corporate Controller
The Corporate Controller shall keep accurate books of account of this
Corporation's transactions which shall be the property of this Corporation,
subject at all times to the inspection and control of the Board of Directors,
shall perform all the duties commonly incident to the office, and shall perform
such other duties and have such other powers as the Board of Directors shall
designate from time to time.
ARTICLE XXIII
Resignations and Removals
Any Director, officer or agent of this Corporation may resign at any time by
giving written notice to the Board of Directors or to any elected officer of
this Corporation and any member of any committee may resign by giving written
notice either as aforesaid or to the committee of which he is a member or the
chairman thereof. Any such resignation shall take effect at the time specified
therein or, if the time be not specified, upon receipt thereof; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Any Director may be removed from office, but only for cause, at a meeting called
for the purpose and by the affirmative approval of holders of shares of capital
stock of the Corporation entitled to cast at least a majority of the votes at
the time entitled to be cast generally in the election of Directors by all of
the outstanding shares of all classes of capital stock of the Corporation,
considered for the purposes of this paragraph of this Article as one class;
provided, however, that if the Board of Directors, by vote of two-thirds of all
the Directors then in office, shall have recommended removal of a Director, then
stockholders may remove such Director from office by the foregoing procedure
without cause. If any Director shall be removed pursuant to this paragraph of
this Article, then the stockholders of the Corporation may, at the meeting at
which such removal is effected, elect his successor.
The Board of Directors, by vote of not less than a majority of all the Directors
of the Corporation at the time in office, may remove from office any officer,
agent or member of any committee, elected or appointed by it.
ARTICLE XXIV
Vacancies
If the office of any Director, one or more, becomes vacant by reason of death,
resignation, removal, disqualification or otherwise, then (except where such
vacancy results from removal and is filled by the stockholders as provided in
the Restated Certificate of Incorporation) the Directors at the time in office
may, by vote of a majority of the Directors then in office, elect a successor or
successors who shall hold office for the unexpired term, and even if there be
less than a quorum of the Directors at the time in office, said Directors may by
a majority vote elect a successor or successors who shall hold office for the
unexpired term. Vacancies in the Board of Directors may be filled for an
unexpired term by the stockholders having voting power at a meeting of the
stockholders called for that purpose, by the vote required in Article IX hereof,
unless such vacancy shall have been filled by the Directors in the manner
provided in this Article. Vacancies resulting from an increase in the number of
Directors shall be deemed to be vacancies to be filled in the manner provided in
this Article.
If the office of any officer or agent, one or more, becomes vacant for any of
the aforesaid reasons, the successor or successors shall be elected or appointed
by the Board of Directors.
This Article may not be amended or repealed except by the affirmative approval
of holders of shares of capital stock of the Corporation entitled to cast at
least two-thirds of the votes at the time entitled to be cast generally in the
election of Directors by all of the outstanding shares of all classes of capital
stock of the Corporation, considered for the purposes of this Article as one
class, or by resolution adopted by a vote of two-thirds of all the Directors of
the Corporation at the time in office.
ARTICLE XXV
Capital Stock
The maximum amount of capital stock shall be as fixed in the Restated
Certificate of Incorporation or in any lawful amendments thereto from time to
time.
ARTICLE XXVI
Certificates of Stock
Every stockholder shall be entitled to a certificate or certificates of the
capital stock of this Corporation in such form as may be prescribed by the Board
of Directors, duly numbered and setting forth the number and kind of shares.
Such certificates shall be signed by the Chairman of the Board of Directors, the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary. The Board of Directors may also appoint
one or more Transfer Agents and/or Registrars for its stock of any class or
classes and may require stock certificates to be countersigned by one or more of
them. If certificates of capital stock of this Corporation are manually signed
by the Registrar, the signatures thereon of the Transfer Agent and of the
Chairman of the Board of Directors, or the President or a Vice-President and the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
of this Corporation, may be facsimiles, engraved or printed. Any provisions of
these By-laws with reference to the signing of stock certificates shall include
in cases above permitted, such facsimile signatures. In case any officer or
officers who shall have signed, or whose facsimile signature or signatures shall
have been used on, any such certificate or certificates, shall cease to be such
officer or officers of this Corporation, whether because of death, resignation
or otherwise, before such certificate or certificates shall have been delivered
by this Corporation, such certificate or certificates may nevertheless be
adopted by the Board of Directors of this Corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures shall have been used
thereon had not ceased to be such officer or officers of this Corporation.
ARTICLE XXVII
Transfer of Stock
Shares of stock may be transferred by delivery of the certificate accompanied
either by an assignment in writing on the back of the certificate or by a
written power of attorney to sell, assign and transfer the same on the books of
this Corporation, signed by the person appearing by the certificate to be the
owner of the shares represented thereby, and shall be transferable on the books
of this Corporation upon surrender thereof so assigned or endorsed. The person
registered on the books of this Corporation as the owner of any shares of stock
shall exclusively be entitled as the owner of such shares to receive dividends
and to vote as such owner, in respect thereof. It shall be the duty of every
stockholder to notify this Corporation of his post office address.
ARTICLE XXVIII
Transfer Books
The Board of Directors shall have power to close the stock transfer books of
this Corporation for a period not exceeding sixty (60) days preceding the date
of any meeting of stockholders or the date for payment of any dividend or the
date for the allotment of rights or the date when any change or conversion or
exchange of capital stock shall go into effect; provided, however, that in lieu
of closing the stock transfer books as aforesaid, the Board of Directors may fix
in advance a date, not exceeding sixty (60) days preceding the date of any
meeting of stockholders or the date for the payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, as a record date for the
determination of the stockholders entitled to notice of, and to vote at, any
such meeting and any adjournment thereof, or entitled to receive payment of any
such dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital stock, and in such
case only such stockholders as shall be stockholders of record on the date so
fixed shall be entitled to such notice of, and to vote at, such meeting and any
adjournment thereof, or to receive payment of such dividend, or to receive such
allotment of rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any stock on the books of this Corporation after
any such record date fixed as aforesaid. Except where the transfer books of the
Corporation shall have been closed or a date shall have been fixed as a record
date for the determination of the stockholders entitled to vote, as hereinbefore
provided, no share of stock shall be voted on at any election for Directors
which shall have been transferred on the books of the Corporation within twenty
(20) days next preceding such election of Directors.
ARTICLE XXIX
Loss of Certificates
In case of the loss, mutilation or destruction of a certificate of stock, a
duplicate certificate may be issued upon such terms as the Board of Directors
shall prescribe.
ARTICLE XXX
Seal
The seal of this Corporation shall consist of a flat-faced circular die with the
words and figures "Stone & Webster, Incorporated Corporate Seal 1929 Delaware"
cut or engraved thereon.
ARTICLE XXXI
Books and Records
Unless otherwise expressly required by the laws of Delaware, the books and
records of this Corporation may be kept outside of the State of Delaware at such
places as may be designated from time to time by the Board of Directors.
ARTICLE XXXII
Voting of Stock Held
Unless otherwise provided in the Restated Certificate of Incorporation of this
Corporation or by resolution of the Board of Directors, the Chairman of the
Board of Directors or the President may from time to time appoint an attorney or
attorneys or agent or agents of this Corporation, in the name and on behalf of
this Corporation to cast the votes which this Corporation may be entitled to
cast as a stockholder or otherwise in any other corporation or association, any
of whose stock or securities may be held by this Corporation, at meetings of the
holders of the stock or other securities of such other corporations or
associations, or to consent in writing to any action by any such other
corporation or association, and may instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent, and may execute
or cause to be executed on behalf of this Corporation and under its corporate
seal, or otherwise, such written proxies, consents, waivers or other instruments
as he may deem necessary or proper in the premises; or the President, or his
attorney or agent, may attend any meeting of the holders of stock or other
securities of any such other corporation or association and thereat vote or
exercise any or all other powers of this Corporation as the holder of such stock
or other securities of such other corporation or association.
ARTICLE XXXIII
Amendments
Except as otherwise expressly provided in a By-law adopted by the stockholders
at the time having voting power, all By-laws of this Corporation shall be
subject to amendment or repeal, and new By-laws may be adopted, either by the
affirmative approval of holders of shares of capital stock of the Corporation
entitled to cast at least a majority of the votes at the time entitled to be
cast generally in the election of Directors by all of the outstanding shares of
all classes of capital stock of the Corporation, considered for the purposes of
this Article as one class, given at an Annual Meeting or at any Special Meeting,
provided notice of the proposed amendment or repeal or of the proposed new
By-laws be included in the notice of such meeting, or by the affirmative vote of
a majority of all of the Directors of the Corporation at the time in office
given at a regular or special meeting of the Board of Directors, provided notice
of the proposed amendment or repeal or of the proposed new By-laws be included
in the notice of such meeting or waiver thereof or all of the Directors at the
time in office be present at such meeting. Except as aforesaid, By-laws made or
amended by the stockholders or by the Board of Directors shall be subject to
amendment or repeal by the stockholders entitled to vote or by the Board of
Directors.
<PAGE>
Exhibit 10 (i)
Material Contracts
Employment Agreement With James P. Jones
December 2, 1997
Mr. James P. Jones
929 Morgan Bluff Road
Pearl River, LA 70452
Dear Jim:
I enjoyed very much the opportunity to meet with you and look forward to having
you join our management team. As a result of our discussions, we are pleased to
offer you the position of Vice President, Secretary and General Counsel and
member of the Core Management Team, at a starting salary of $275,000.00 per
year. Other key provisions of our offer include the following:
o You will participate in the Executive Management Incentive Compensation
Plan at a target bonus opportunity of 35% of your base salary with a
range of 15% to 61% based on contribution and performance.
o You will be awarded 12,000 options of Stone & Webster Stock that will
vest at a rate of 25% per year as a sign-on bonus.
o You will receive a minimum 35% of base pay incentive bonus guaranteed in
line with our 1998 Incentive Compensation Plan. This guarantee will be in
place for bonuses payable for services performed during 1998, 1999 and
year 2000.
o You will have 3 weeks vacation per year for the first 5 years of your
employment and 4 weeks per year thereafter.
o If for any reason your employment is terminated other than for cause you
will receive 18 months severance.
o We expect that you will relocate to the Boston headquarters office
location. You will receive our full relocation package at that time.
o You will be eligible for a loan from Stone &Webster or a subsidiary
thereof for up to $400,000.00 for the purchase of a home, such loan to
bear interest at 6% per year, to be secured by a mortgage and to contain
other mutually agreed terms (formal agreement to be worked out).
o You will participate in the Stone & Webster Change in Control Agreement
with a 3-year payout provision.
o You will be eligible to participate in the Employee Investment Plan. You
may elect to contribute up to a maximum of 15% of your compensation (as
defined under the Plan) on a before or after tax basis. The first 5% of
compensation you invest on a before or after tax basis will be matched by
the Company at 25%. All contributions are subject to applicable IRS rules
and regulations.
o Membership in the Employee Retirement Plan (ERP), Supplemental Retirement
Plan (SRP) and Employee Stock Ownership Plan (ESOP) will commence in
accordance with the terms of those plans. Nonetheless, you will receive a
minimum retirement benefit commencing at age 65 from the Corporation and
its pension plans equivalent to $100,000 per year at the end of ten years
of service, such pension to vest at the rate of $10,000 per year of
service, with 50% of that benefit to be payable to your wife for her life
if she survives you.
o We are currently developing a Long Term Incentive Plan, which you will be
eligible to participate in.
Since we are obligated by federal and state laws and our benefits plans to
obtain certain information regarding all new employees, our offer of employment
to you is contingent upon the completion of all the segments of the on-roll
process.
Our Company policy calls for employees engaged at the level contemplated by this
offer to execute a standard form of Agreement. A sample copy of this Agreement
is enclosed for your review and the terms and conditions of the Agreement
necessarily become part of our offer. We call particular attention to paragraph
7 of the Agreement form. This includes a provision for the scheduling of any
inventions, discoveries, or improvements that shall not be subject to the terms
of the Agreement.
If it is necessary for you to schedule any such inventions, discoveries or
improvements as exclusions, the undersigned must be notified in writing by
return mail. A self-addressed envelope is enclosed for your convenience. In the
absence of such written notification, we will assume that no exclusions are
involved and the Agreement will so provide when it is executed on the date your
employment commences.
In accordance with U.S. Immigration Regulations, our offer of employment is
contingent upon your completing and signing an original U.S. Form I-9 on the day
employment commences. Additionally, you will be required to present
documentation verifying your identity and eligibility to work in the United
States. We have enclosed a photocopy of the Form I-9 so that you may familiarize
yourself with the required documentation.
For payroll, tax and benefit purposes, it is extremely important that we review
your original Social Security Card. To comply with certain Federal Regulations,
it is imperative that you also bring the following information with you: current
address(es) of former employer(s) and educational institution(s); date(s) of
employment and degree(s)/graduation; professional license registration number(s)
with date and the address of agency; and Separation Notice from the Military.
If you cannot provide any of the information requested on the date your
employment commences, please contact me at (617) 589-2340 to advise us as to
when it will be available. Your cooperation in this matter will be greatly
appreciated since delays may adversely affect your on-roll.
In conjunction with Stone & Webster's intention to maintain a drug-free
workforce, it may be necessary now or in the future, for you to comply with
screening programs designed to ensure our employees' fitness to perform duties
at, or on behalf of, nuclear or governmental facilities.
I look forward to hearing from you.
Very truly yours,
Robert M. Morrow
Vice President
Enclosures
cc: H. Kerner Smith
Accepted and Agreed:
_______________________________________
James P. Jones
<PAGE>
EXHIBIT 13 (i)
Financial Statements
Management's Discussion and Analysis
(Dollars in millions, except per share amounts or where indicated.)
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 consolidated financial statements and accompanying notes.
Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise. The
Company had previously reported three segments: Engineering, Construction and
Consulting, Cold Storage and Related Activities and General Corporate expense.
Upon adopting SFAS 131, the Company will report only two segments, Engineering,
Construction and Consulting and Cold Storage, with General Corporate expense
included in the Engineering, Construction and Consulting segment.
Unless noted otherwise, earnings per share calculations disclosed are on a
diluted basis.
Results Of Operations - 1998 Compared With 1997
Revenue for 1998 was $1,249, a decrease of 5.6 percent from the $1,323 reported
in 1997. The operating loss for 1998 was $72.5 compared with operating income of
$47.3 in 1997. The net loss for 1998 was $49.3, or $3.83 per share, compared
with net income of $33.5, or $2.59 per share for 1997. New orders for 1998 of
$1,331 were equal to new orders reported for 1997. New orders consist of the net
total of new orders, scope changes and cancellations. Consistent with the nature
of the Company's businesses, significant new contracts can create variability in
the Company's awards pattern. Backlog increased to $2,636 at December 31, 1998
from $2,519 at December 31, 1997.
Components of earnings per share in 1998 and 1997 were:
1998 1997
Operations $(0.14) $2.50
Provisions for significant loss contracts (4.18) (1.20)
Pension related items 0.34 0.80
Earnings (loss) per share from ongoing operations (3.98) 2.10
Divested operations - 0.08
Asset divestitures 0.15 0.41
(Loss) earnings per share $(3.83) $2.59
For the years ended December 31, 1998 and 1997, the Company's results included
significant items which were nonrecurring. Operating income, excluding
nonrecurring items, for 1998 was $31.2 compared with operating income, excluding
nonrecurring items, of $63.5 in 1997. Net income for 1998, also excluding
nonrecurring items, was $14.3, compared with net income, excluding nonrecurring
items of $42.6 in 1997.
Nonrecurring Items - 1998
During 1998, the Company recorded a loss of $87.3 ($53.9 after tax or $4.18 per
share) in contract related provisions, primarily due to increases in estimated
costs to complete several international, lump sum contracts. Based on new
information, these contracts, in Africa, Taiwan and the Middle East, were
reviewed and re-estimated during the fourth quarter of 1998, and recovery of
claims was reevaluated resulting in $68.8 of charges, excluding reversal of
income recognized earlier in the year on certain of those projects. Operating
losses of $18.5 had been recorded in connection with these projects in the first
three quarters of 1998.
In the first quarter of 1998, the Company sold an office building in Cherry
Hill, New Jersey, for $13.5 in cash, resulting in a gain of $3.1 ($2.0 after tax
or $0.15 per share). The gain on sale was reported as operating income.
In the fourth quarter of 1998, the Company announced a voluntary Incentive
Retirement Program. Of approximately 600 employees eligible for increased
benefits under the program, 206 elected to receive the increased benefits. The
cost of providing these benefits, calculated as the present value of the
enhanced pension benefits, was $13.1 ($7.9 after tax or $0.61 per share) and is
reported as an operating expense.
Also in the fourth quarter of 1998, the Company wrote down the value of various
fixed assets, primarily computer equipment, to recognize that little, if any,
future benefit will be obtained from these assets, and also revised the
estimated useful life for computer equipment from six to three years. The
charges incurred for these changes were $3.8 ($2.3 after tax or $0.18 per share)
and $2.6 ($1.6 after tax or $0.12 per share), respectively.
The financial statement impact of 1998 nonrecurring items is summarized in the
table on the following page.
Nonrecurring Items - 1998
<TABLE>
<CAPTION>
Incentive Sale of Fixed Asset Significant 1998 Excluding
1998 As Retirement Office Write Contract Nonrecurring
$000s As Reported(3) Program(1) Building(2) Down(3) Provisions(4) Items
<S> <C> <C> <C> <C> <C> <C>
Revenue $1,248,780 $ - $ - $ - $ 90,986 $1,157,794
Cost of revenue 1,250,598 - - - 178,260 1,072,338
Gross profit (loss) (1,818) - - - (87,274) 85,456
Selling, general and
administrative
expenses 70,716 13,129 (3,066) 6,367 - 54,286
Operating income
(loss) (72,534) (13,129) 3,066 (6,367) (87,274) 31,170
Net income (loss) $ (49,302) $ (7,943) $1,993 $(3,838) $(53,891) $ 14,377
Income (loss) per
share $(3.83) $(0.61) $0.15 $(0.30) $(4.18) $1.11
</TABLE>
(1) Provision for enhanced benefits in the Incentive Retirement Program.
(2) Gain on the sale of an office building in Cherry Hill, New Jersey.
(3) Write-down and change in estimated useful life of fixed assets, primarily
computer equipment.
(4) Primarily the effect of significant loss contracts in 1998.
Nonrecurring Items - 1997
In 1997, the Company recorded a loss of $25.8 ($15.5 after tax or $1.20 per
share) related to a contract being executed by a joint venture in the Middle
East. The joint venture has filed claims related to this contract but no
estimated recovery for these claims is included in the 1997 or 1998 results. In
the fourth quarter of 1997, the Company completed the sale of an office building
in Boston for $20.0, consisting of cash and a note receivable. The Company
reported a gain of $8.9 ($5.4 after tax or $0.41 per share) on the sale of the
property. The gain was reported in part as operating income of $7.9 with the
remaining $1.0 reported as a gain on sale of assets. Divested operations in 1997
included cash proceeds of $1.6 ($1.0 after tax or $0.08 per share) from the
liquidation of the Binghamton Cogeneration Partnership. A loss on liquidation of
$4.2 ($2.7 after tax or $0.21 per share) was recorded in 1996.
The financial statement impact of 1997 nonrecurring items is summarized in the
table below.
Nonrecurring Items - 1997
<TABLE>
<CAPTION>
Middle Gain from 1997 Excluding
1997 As East Joint Sale of Divested Nonrecurring
$000s Reported(4) Venture(1) Assets(2) Operations(3) Items
<S> <C> <C> <C> <C> <C>
Revenue $1,322,540 $ - $ - $ - $1,322,540
Cost of revenue 1,206,677 25,781 - (1,612) 1,182,508
Gross profit (loss) 115,863 (25,781) - 1,612 140,032
Selling, general and
administrative
expenses 68,571 - (7,954) - 76,525
Operating income
(loss) 47,292 (25,781) 7,954 1,612 63,507
Net income (loss) $ 33,510 $(15,469) $ 5,363 $ 1,048 $ 42,568
Income (loss) per
share $2.59 $(1.20) $0.41 $0.08 $3.30
</TABLE>
(1) Includes provisions for the Company's share of joint venture contract losses
in the Middle East.
(2) Income and gain on the sale of an office building in Boston.
(3) Represents the Company's share of cash distributions from liquidation of the
Binghamton Cogeneration Partnership.
(4) Restated to reflect current definition of selling, general and
administrative expenses.
Engineering, Construction and Consulting Segment
Percent
$000s 1998 1997(1) Incr/(Decr) Incr/(Decr)
Revenue $1,214,468 $1,299,220 $ (84,752) (7)%
Operating income (loss) (81,024) 39,952 (120,976) (303)%
Operating income, excluding
non-recurring items 31,170 56,167 (24,997) (45)%
Identifiable assets 710,381 694,751 15,630 2%
Operating margin, excluding
non-recurring items 3% 4%
(1) Restated to reflect adoption of SFAS 131
The Engineering, Construction and Consulting segment reported revenue of $1,214
in 1998, a decrease of 7% compared with the $1,299 reported for 1997. The
decline in revenue was primarily the result of reduced construction activity in
Asia and weakness in the petrochemical industry, offset in part by stronger
market conditions in the domestic power sector. The operating loss for the year
was $81.0 compared with operating income of $40.0 in 1997. Operating income
excluding nonrecurring items was $31.2 compared with operating income excluding
nonrecurring items of $56.2 in the prior year. In 1998 and 1997, all
nonrecurring items and divested operations were reported in the Engineering,
Construction and Consulting segment.
During 1998, the Company completed two acquisitions that are reported in the
Engineering, Construction and Consulting segment. During the first quarter of
1998, the Company acquired the assets of Belmont Constructors ("Belmont").
Belmont is a full service construction firm that serves clients in the
petrochemical, chemical, and power markets. In the third quarter of 1998, the
Company acquired Power Technologies, Inc. ("PTI") in exchange for 232,273 shares
of Company stock and a potential further distribution of shares contingent on
future PTI income. PTI provides software, educational programs and consulting
services to the electric power industry. These acquisitions attributed
approximately $72.2 to revenue and $(3.4) to the Company's net loss.
New Orders and Backlog
New orders, net of scope changes and cancellations, were $1,331 in both 1998 and
in 1997. New orders and backlog for 1998 and 1997 were:
Percent
$000s 1998 1997 Incr/(Decr)
Beginning backlog $2,519,302 $2,487,552 1%
New orders 1,331,332 1,330,970 -
Revenue (1,214,468) (1,299,220) (7)%
Ending Backlog $2,636,166 $2,519,302 5%
New Orders by Division
Percent
$000s 1998 1997 Incr/(Decr) Incr/(Decr)
Power $1,070,117 $ 640,843 $ 429,274 67%
Process 210,932 340,880 (129,948) (38)%
Environmental/Infrastructure (168,861) 55,542 (224,403) (404)%
Industrial 112,333 256,916 (144,583) (56)%
Other 106,811 36,789 70,022 190%
New orders (net) $1,331,332 $1,330,970 $ 362 -
Although the new orders for 1998 were approximately equal to those of 1997, the
mix of orders reflects current trends in the markets served by the Company.
Power Division orders of $1,070 increased by 67 percent from the $641 in orders
for 1997. Increases in Power Division orders, which have been primarily from
domestic clients, reflect the effects of deregulation on the power industry.
These developments include smaller plants using more efficient combined cycle
technology and decommissioning of older, primarily nuclear, generating capacity.
The 38 percent decline in Process Division orders reflects the current weakness
in the Petrochemical Industry, which is the customer base for the Company's
process technology, and the economic slowdown in Asia which had been a major
market for new process plant construction. Environmental/Infrastructure Division
orders include an adjustment of $533 resulting primarily from backlog reduction
on task order contracts booked in 1996 and earlier. For indefinite delivery and
indefinite quantity contracts, the Company has adopted the policy of recording
only funded and released tasks in backlog, and the backlog reduction reflects
the application of this change to previously booked contracts. The 56 percent
decrease in Industrial Division orders is a result of concentration on selected
market opportunities in cement, forest products and chemical sectors. The
increase in orders reported as Other in the table includes the backlog acquired
through the acquisitions of Belmont and PTI.
In 1996, the Company entered into a contract with Trans-Pacific Petrochemical
Indotama ("TPPI") of Indonesia for construction of an integrated ethylene and
olefins complex for $2.3 billion, to be executed by a consortium of contractors.
The Company's portion of the total contract value was $710. In the fourth
quarter of 1997, work on the project was suspended pending resolution of
financing issues by the client. The TPPI project is included in the Company's
backlog in the amount of $451.
Revenue
Engineering, Construction and Consulting revenue decreased from $1,299 in 1997
to $1,214 in 1998. Process Division revenue declined by 37 percent. This
decrease was largely related to the economic slowdown in Asia, where much of the
Company's process work had been conducted and to the suspension of the TPPI
project. In addition, the global weakness in the petrochemical markets has
curtailed new order activity both domestically and in the Middle East. The 13
percent increase in Power Division revenue was a result of increased order
bookings in 1997 and 1998, primarily for lump sum international projects. The
increase in Other revenue below primarily reflects the acquisitions of Belmont
and PTI during 1998.
Revenue by Division
Percent
$000s 1998 1997 Incr/(Decr) Incr/(Decr)
Power $ 610,013 $ 537,809 $ 72,204 13%
Process 284,582 452,122 (167,540) (37)%
Environmental/Infrastructure 109,989 108,165 1,824 2%
Industrial 140,116 169,417 (29,301) (17)%
Other 69,768 31,707 38,061 120%
Total revenue $1,214,468 $1,299,220 $(84,752) (7)%
Revenue by Contract Type
Percent
$000s 1998 1997 Incr/(Decr) Incr/(Decr)
Lump Sum $ 618,780 $ 638,294 $(19,514) (3)%
Reimbursable 595,688 660,926 (65,238) (10)%
Total revenue $1,214,468 $1,299,220 $(84,752) (7)%
Percent Lump Sum 51% 49%
The Engineering, Construction and Consulting operating loss was $81.0 in 1998
compared with operating income of $40.0 in 1997. Nonrecurring charges of $103.7
incurred in 1998, consisted of costs of $13.1 for the Incentive Retirement
Program, charges of $6.4, primarily to write down computer equipment, and $87.3
to provide for estimated losses on several lump sum contracts, primarily in the
international Power market partially offset by a gain of $3.1 associated with
the sale of the Cherry Hill property.
The Company is currently performing two contracts in Africa for the engineering,
procurement and construction of power generation facilities. 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 the original contract value.
Management believes that it has valid contractual and equitable grounds for
change orders providing additional compensation under these contracts.
The Company has submitted requests for equitable adjustment and change orders in
excess of $40 on one contract and $30 on the second contract. Negotiations with
the owner are continuing and the Company expects to reach agreement on the
change orders in 1999. The operating loss on the two contracts in Africa
recognized by the Company in 1998 was $42.9.
The Company is also executing a fixed price contract in the Middle East for the
engineering, procurement and construction of a power plant. Due to several
factors, including subcontractor performance and schedule delays, the estimated
cost to complete this contract has increased during 1998. The Company is
providing engineering services, also under a fixed price contract, for nuclear
power services in Taiwan; due to increases in scope and changes in availability
of qualified local engineering support, the estimated cost to complete this
contract will also exceed the contract value. The Company recognized losses of
$33.8 in 1998 on these two contracts.
In the contract provisions recognized in the fourth quarter of 1998, the Company
reduced its estimate of recoverability of claims and change orders that have not
yet received client approval. The Company has recognized in 1998 approximately
$35 in revenue for unapproved change orders, representing, in management's
judgment, a conservative estimate of the probable amount to be realized.
The TPPI project continues to be suspended pending resolution of financing
issues by the client. If refinancing efforts are successful, it is possible that
the project will restart on a phased basis in 1999 with execution of the
Company's scope of work commencing in 2000. The Company has obtained approval
from the owner 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, subsequent to the end of
1998, has signed a conditional memorandum of understanding to sell the plant.
Had the TPPI project been cancelled as of December 31, 1998, and if resale of
the olefins plant were unlikely to be completed, the Company would have recorded
a pre-tax charge of $72.4 representing project working capital plus current
procurement commitments, net of the estimated salvage value of procured
equipment and materials.
In 1997, the Company relocated its corporate offices from New York to Boston and
consolidated several corporate functions with those of its principal engineering
subsidiary. Office space in the former corporate offices was sublet or disposed
of in 1997 and 1998 under terms consistent with the provisions recorded in 1996.
Corporate office costs were reduced by $3.3 between 1998 and 1997. As discussed
above, with the adoption of SFAS 131, the Company has chosen to include
Corporate costs in its principal segment, Engineering, Construction and
Consulting.
COLD STORAGE SEGMENT
Percent
$000s 1998 1997 Incr/(Decr) Incr/(Decr)
Revenue $34,312 $23,320 $10,992 47%
Operating income 8,490 7,340 1,150 16%
Identifiable assets 124,301 44,026 80,275 182%
OPERATING MARGIN 24.7% 31.5%
The Company's Cold Storage segment provides public refrigerated logistics from
cold storage warehouses. In the fourth quarter of 1998, the Company acquired The
Nordic Group, which provides refrigerated warehouse services from eleven
locations, primarily in the southeastern United States. The Cold Storage segment
combines low cost, energy efficient refrigerator and freezer storage facilities,
customized material handling services, and blast freezing capacity. The Cold
Storage segment serves primarily two groups of customers; prepared food
manufacturers, who require cold storage and logistics services in their
distribution channels; and poultry producers, who require blast freezing and
storage capacity.
Cold Storage revenue increased by 47 percent in 1998, due to the acquisition of
The Nordic Group and to increased volume and space utilization at the Company's
existing facilities. The increase in operating income was due to the inclusion
of The Nordic Group, in part offset by increased claims and direct labor costs
resulting from the higher volume. The increase in the Cold Storage segment's
identifiable assets is due to the acquisition of the Nordic Group.
Pension Related Items
Pension related items, which reduced operating expenses, were $7.3 in 1998
compared with $17.1 in 1997. These items increased net income by $ 4.4 (or $0.34
per share) in 1998 compared with $10.3 (or $0.80 per share) in 1997. In 1998,
the Company offered an Incentive Retirement Program to approximately 600
employees eligible based on age and years of service. The cost of the Program,
which was accepted by 206 employees, was $13.1 which is the present value of the
enhanced retirement benefits. This cost is reported as a reduction of income
from pension related items in 1998.
Pension (Income) Expense
$000s 1998 1997
Net pension credit on qualified U.S. plan $(20,677) $(18,337)
Foreign pension expense 203 1,238
Incentive Retirement Program 13,129 -
Total pension related items $ (7,345) $(17,099)
After-tax total pension related items $ (4,444) $(10,345)
Total pension related items per share $(0.34) $(0.80)
The pension credit is the result of a plan that is funded in excess of the
projected benefit obligation and income from the amortization of a SFAS 87 net
transition asset of $9.8 in 1998 and $10.2 in 1997. The transition asset was
fully amortized in 1998. The plan is overfunded primarily due to favorable asset
performance.
Other Income and Expense
Net interest expense was $0.4 in 1998 compared with net interest income of $2.5
in 1997. Interest expense increased due to higher levels of working capital
needed to fund lump sum contracts and due to the increase in bank debt used to
fund the acquisition of The Nordic Group. The 1997 results include $1.0 of the
gain on the sale of an office building in Boston, Massachusetts.
Income Tax Provision
The income tax (benefit) provision resulted in effective tax rates of (32.4)
percent in 1998 and 34.0 percent in 1997. The 1998 benefit was lower than the
United States statutory rate primarily because of nonutilization of foreign
losses. The Company had a valuation allowance of $3.6 at December 31, 1997 for
the deferred tax assets related to net operating loss carryforwards. The
valuation allowance increased by $5.5 to a balance of $9.1 at December 31, 1998.
The increase was due to domestic and international net operating losses. The
valuation allowance at December 31, 1998 was comprised of $2.0 relating to the
carryforwards of international subsidiaries and $7.1 relating to state net
operating loss carryforwards.
1997 Compared with 1996
Results Of Operations - 1997 Compared With 1996
Revenue for 1997 was $1,323, an increase of 14 percent from the $1,165 reported
in 1996. The increased revenue reflected improvement in the Company's
Engineering, Construction and Consulting segment. Operating income for 1997
increased to $47.3 from an operating loss of $25.9 in 1996. Net income was
$33.5, or $2.59 per share, in 1997, in comparison with a net loss of $10.6, or
$0.80 per share, in 1996. New orders for 1997 of $1,331 decreased by 22 percent
from the $1,714 in new orders reported in 1996. Backlog increased to $2,519 at
December 31, 1997 from $2,488 at December 31, 1996.
Components of earnings per share in 1997 and 1996 were:
1997 1996
Operations $2.50 $ 1.35
Loss on Middle East joint venture contract (1.20) -
Pension related items 0.80 0.69
Earnings per share from ongoing operations 2.10 2.04
Divested operations 0.08 (0.50)
Restructuring, other charges and asset
divestitures 0.41 (2.34)
Earnings (loss) per share $2.59 $(0.80)
For the years ended December 31, 1997 and 1996, the Company's results included
significant items which were nonrecurring. Operating income, excluding
nonrecurring items, for 1997 was $63.5 compared with operating income, excluding
nonrecurring items, of $39.8 in 1996. Net income for 1997, also excluding
nonrecurring items, was $42.6, compared with net income excluding nonrecurring
items, of $27.3 for 1996.
Nonrecurring Items - 1997 and 1996
In 1997, the Company recorded a loss of $25.8 ($15.5 after tax or $1.20 per
share) related to a contract being executed by a joint venture in the Middle
East. The joint venture has filed claims related to this contract but no
estimated recovery for these claims was included in the 1997 results. In the
fourth quarter of 1997, the Company completed the sale of an office building in
Boston for $20.0, consisting of cash and a note receivable. The Company reported
a gain of $8.9 ($5.4 after tax or $0.41 per share) on the sale of the property.
The gain was reported partially as operating income of $7.9 with the remaining
$1.0 reported as a gain on sale of assets. Divested operations in 1997 included
cash proceeds of $1.6 ($1.0 after tax or $0.08 per share) from the liquidation
of the Binghamton Cogeneration Partnership. In 1997, the Company moved its
corporate offices from New York to Boston. The space made available from this
consolidation was sublet or deleted from the lease at costs consistent with
amounts provided for in 1996.
In 1996, the Company recorded restructuring and other charges of $54.4 in
connection with a major operational and financial restructuring. This included a
charge of $30.5 ($20.0 after tax, or $1.49 per share) to write down certain
Boston and New Jersey properties to fair value and to provide for anticipated
losses in subleasing the New York office. A charge of $1.8 was also recorded in
1996 for the expected sublease loss for a vacant floor in the New York office.
The 1996 restructuring included the divestiture of the Auburn VPS Partnership.
The partnership, which was 94.3 percent owned by the Company, had been unable to
meet its debt service requirements. In the third quarter of 1996, the assets of
the partnership were transferred to the lenders in return for cancellation of
the related construction debt, resulting in a loss of $1.0 or $0.07 per share.
This amount included a loss of $11.5 ($7.8 after tax, or $0.59 per share) and an
extraordinary gain of $10.3 ($6.8 after taxes, or $0.52 per share) for the
extinguishment of the construction debt. Losses on the operation of the Auburn
VPS Partnership for 1996, after interest expense of $4.1, were $11.6 ($7.0 after
tax, or $0.52 per share). Also in 1996, the Company recorded a charge of $12.4
($7.6 after tax, or $0.57 per share) to recognize several contract related and
operational items.
In 1996, a charge of $4.2 ($2.7 after tax, or $0.21 per share) was recorded to
write down the Company's one-third interest in the Binghamton Cogeneration
Partnership to its estimated fair value. The fair value was determined based on
the expected cash distribution resulting from partnership liquidation.
Liquidation and a cash distribution occurred in January 1997.
The financial statement impact of 1996 nonrecurring items is summarized in the
following table:
1996 - Nonrecurring Items
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Binghampton Divested Contract 1996 Excluding
1996 and Auburn Partnership Real Estate Adjustments Nonrecurring
$000s As Reported(3) Divestitures(1) Operations(2) Adjustments and Other Items
Revenue $1,164,837 $ - $ 2,345 $ - $ - $1,162,492
Cost of revenue 1,109,828 4,172 6,721 - 9,919 1,089,016
Gross profit (loss) 55,009 (4,172) (4,376) - (9,919) 73,476
Selling, general
and administrative
expenses 80,929 11,538 2,770 30,509 2,458 33,654
Operating income
(loss) (25,920) (15,710) (7,146) (30,509) (12,377) 39,822
Income (loss) before
extraordinary item (17,431) (10,488) (6,695) (19,974) (7,553) 27,279
Extraordinary item -
gain on
extinguishment of
debt 6,787 6,787 - - - -
Net income (loss) $ (10,644) $ (3,701) $(6,695) $(19,974) $(7,553) $ 27,279
Income (loss) per
share $(0.80) $(0.28) $(0.50) $(1.49) $(0.57) $2.04
</TABLE>
(1) Includes loss on Binghamton Cogeneration Partnership write-down and a loss
on the divestiture of the Auburn VPS Partnership.
(2) Includes operations of the Binghamton Cogeneration Partnership and the
Auburn VPS Partnership.
(3) Restated to reflect current definition of selling, general and
administrative expenses.
Engineering, Construction and Consulting Segment
Percent
$000s 1997(1) 1996(1) Incr/(Decr) Increase
Revenue $1,299,220 $1,143,587 $155,633 14%
Operating income (loss) 39,952 (31,874) 71,826 225%
Operating income, excluding
non-recurring items 56,167 33,868 22,299 66%
Identifiable assets $ 694,751 $ 649,431 $ 45,320 7%
Operating margin, excluding
non-recurring items 4.3% 3.0%
(1) Restated to reflect adoption of SFAS 131
The Engineering, Construction and Consulting segment reported revenue of $1,299
in 1997, an increase of 14 percent over the $1,144 reported for the same period
in 1996. Operating income for the year was $40.0 in comparison to an operating
loss of $31.9 in 1996. Operating income excluding nonrecurring items was $56.2
compared with operating income excluding nonrecurring items of $33.9 in the
prior year.
This discussion summarizes business operations excluding nonrecurring items and
divested operations. In 1997 and 1996, all nonrecurring items and divested
operations were reported in the Engineering, Construction and Consulting
segment.
New orders (net of scope changes and cancellations) were $1,331 for 1997 in
comparison with $1,714 in 1996. Revenue, new orders and backlog for 1997 and
1996 were:
REVENUE, NEW ORDERS AND BACKLOG
Percent
$000s 1997 1996 Incr/(Decr)
Beginning backlog $2,487,552 $1,917,000 30%
New orders 1,330,970 1,714,139 (22)%
Revenue (1,299,220) (1,143,587) (14)%
Ending backlog $2,519,302 $2,487,552 1%
New orders by Division for 1997 and 1996 were:
New Orders by Division
Percent
$000s 1997 1996 Incr/(Decr) Incr/(Decr)
Power $ 640,843 $ 262,137 $ 378,706 144%
Process 340,880 701,354 (360,474) (51)%
Environmental/Infrastructure 55,542 532,163 (476,621) (90)%
Industrial 256,916 188,871 68,045 36%
Other 36,789 29,614 7,175 24%
New orders (net) $1,330,970 $1,714,139 $(383,169) (22)%
The increase in Power Division orders from 1996 to 1997 was due to ongoing
demand for engineering and construction services as the power industry continues
to restructure. Major orders include a combined cycle plant for a large
international power producer, ongoing service awards involving nuclear
engineering work, and several international contracts in Africa, Asia and the
Middle East.
The decrease in Process Division orders reflected both the exceptionally strong
order intake recorded in 1996 and the slowdown that occurred in the second half
of 1997 in the Asian economies. Work on the TPPI project in Indonesia was
suspended in late 1997 pending resolution of financing issues by the client.
This project represented $538 of the 1997 year end backlog.
Power Division revenue grew from 1996 to 1997 due to increased billable hours,
primarily on nuclear service work, and increases in lump sum construction
contracts. Much of the increase in lump sum contracts was achieved on
international projects. Process Division revenue also grew, with the TPPI
project providing a significant component of the Division's revenue. Revenue in
the Environmental/Infrastructure Division did not increase relative to backlog
due to the slow start up of task order releases on major Federal environmental
remediation contracts. Industrial Division revenue decreased due to delays in
anticipated contract awards and completion of several significant projects in
1997. The following table shows Engineering, Construction and Consulting
revenue, excluding divested operations, by Division for 1997 and 1996.
Revenue by Division
Percent
$000s 1997 1996(1) Incr/(Decr) Incr/(Decr)
Power $ 537,809 $ 412,375 $125,434 30%
Process 452,122 409,322 42,800 10%
Environmental/Infrastructure 108,165 107,422 743 1%
Industrial 169,417 182,370 (12,953) (7)%
Other 31,707 29,753 1,954 7%
Total revenue $1,299,220 $1,141,242 $157,978 14%
(1) Excludes divested partnerships.
The operating margin for 1997, excluding nonrecurring items, was 4.3 percent
compared with 3.0 percent in 1996. The improvement in operating margin is due to
increased workload, more effective procurement on lump sum turnkey projects and
improvements in project bidding and execution.
In 1997, the Company completed construction of a pipeline pumping station for a
client who defaulted on payment. The Company filed suit to take ownership of the
project. The Company recorded reserves of $3.1 to write down related accounts
receivable to the anticipated fair value of the pumping station. Also in 1997,
the Company received payment and recorded income of $2.9 associated with
purchased technology for a standardized, pre-certified design for nuclear power
plants.
In 1997, the Company relocated its corporate offices from New York to Boston and
consolidated several corporate functions with those of its principal engineering
subsidiary. Office space in the former corporate offices was sublet or disposed
of in 1997 under terms consistent with the provisions recorded in 1996.
Corporate office costs were reduced by $2.0 between 1996 and 1997, including
1997 expenses associated with the move.
Cold Storage Segment
Percent
$000s 1997 1996 Incr/(Decr) Incr/(Decr)
Revenue $23,320 $21,250 $2,070 10%
Operating income 7,340 5,954 1,386 23%
Identifiable assets 44,026 42,634 1,392 3%
Operating Margin 31.5% 28.0%
Cold Storage reported an increase in revenue and operating income of 10 percent
and 23 percent, respectively. Operating results for 1997 improved due to
increased utilization of the additional 3.7 million cubic feet of space added in
the 1996 expansion of the Rockmart, Georgia facility as well as efficiencies
realized from the implementation of a new information system in 1996.
Pension Related Items
Pension related items, which reduced operating expenses, were $17.1 in 1997
compared with $15.0 in 1996. These amounts increased net income by $10.3 (or
$0.80 per share) in 1997 compared with $9.2 (or $0.69 per share) in 1996.
Pension (Income) Expense
$000s 1997 1996
Net pension credit on qualified U.S. plan $(18,337) $(15,624)
Foreign pension expense 1,238 626
Total pension related items $(17,099) $(14,998)
After-tax total pension related items $(10,345) $ (9,173)
Total pension related items per share $(0.80) $(0.69)
The pension credit was the result of a plan that is funded in excess of the
projected benefit obligation and income from the amortization of a SFAS 87 net
transition asset of $10.2 in 1997 and $10.4 in 1996.
Other Income and Expense
Interest income net of interest expense for 1997 was $2.5 compared with net
interest expense of $3.5 in 1996. This change was due to the higher balances of
cash, cash equivalents and U.S. Government securities and the divestiture of the
Auburn VPS Partnership which had incurred $4.0 of net interest expense in 1996.
The 1997 results included a gain on the sale of assets of $1.0 related to the
sale of an office building in Boston.
Other comprehensive Income
Commencing in 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income." The loss is primarily
attributed to the fluctuation in the Asia markets.
INCOME TAX PROVISION
The income tax provision (benefit) resulted in effective tax rates of 34.0
percent in 1997 and (40.7) percent in 1996. The 1997 rate is lower than the U.S.
statutory rate due to utilization of foreign and state net operating loss
carryforwards. The Company had a valuation allowance of $11.6 at December 31,
1996 for the deferred tax assets related to net operating loss carryforwards.
The valuation allowance decreased by $8.0 to a balance of $3.6 at December 31,
1997. This change resulted primarily from the use of state tax loss
carryforwards in 1997, the use of the net operating loss carryforwards relating
to one of the Company's U.K. subsidiaries and the reversal of $1.5 of the
valuation allowance for this subsidiary. The valuation allowance at December 31,
1997 comprised $0.1 relating to the carryforwards of an international subsidiary
and $3.5 relating to state net operating loss carryforwards.
Financial Condition and Liquidity
Cash, cash equivalents and U.S. Government securities decreased by $61.4 during
1998. Net cash used by operating activities primarily reflects a loss from
operations, deferred taxes, and increases in working capital to fund lump sum
contracts and suspension of the TPPI project, and is offset by depreciation and
amortization. At December 31, 1997, the net working capital position of the TPPI
project was $(25.6) compared with $39.1 at December 31, 1998. The $64.7 increase
in TPPI working capital represents suspension costs and the cost of procurement
of equipment under commitments made prior to project suspension. Bank debt at
December 31, 1998 was $106.4 compared to no bank debt outstanding at December
31, 1997. The increase in bank debt was used to fund the acquisition of The
Nordic Group, working capital increases on lump sum projects and the Company's
operations.
The operating working capital and days operating working capital outstanding are
as follows:
$000s 1998 1997
Accounts receivable $276,235 $180,057
Costs and revenue recognized in excess of billings 49,302 102,476
Accounts payable (96,134) (85,338)
Billings in excess of costs and revenue recognized (176,692) (115,730)
Operating working capital $ 52,711 $ 81,465
Fourth quarter revenue $287,376 $318,541
Days operating working capital outstanding 17 23
Net cash used by investing activities of $54.3 in 1998 includes the acquisition
of The Nordic Group of $77.5 and investment in fixed assets, principally
leasehold improvements and computer systems. These amounts were offset by
proceeds from asset divestitures and proceeds from maturities of U.S. government
securities. Net cash provided by financing activities of $97.2 includes an
increase in bank loans of $106.4, $7.7 to pay dividends and $1.7 to purchase
43,217 shares of Common Stock under the Company's ongoing share repurchase
program.
In July 1994, July 1995 and January 1998, the Company's Board of Directors
authorized the repurchase of 1,000,000, 1,500,000 and 500,000 shares,
respectively, of the Company's common stock. The Company reserves the right to
discontinue the repurchase program at any time. Share repurchase transactions
and total shares outstanding for 1998, 1997 and since inception of the program
have been:
Total
1998 1997 Program
Shares outstanding beginning of year 12,822,513 12,834,618 14,977,850
Shares repurchased under program (43,217) (81,605) (2,279,626)
Other share transactions 259,259 69,500 340,331
Shares outstanding end of year 13,038,555 12,822,513 13,038,555
Percentage of outstanding shares
purchased - 1% 15%
Repurchase cost ($000) $1,700 $3,139 $75,776
Average repurchase cost per share $39.34 $38.47 $33.24
Management believes that the types of businesses in which the Company 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, share repurchase and capital expenditure needs.
Management believes bank lines of credit totaling $115.2 and cash on hand
provide adequate operating liquidity. At December 31, 1998, $106.4 was
outstanding under the Company's banking facilities.
In the fourth quarter, the Company was notified by one of its lenders that a
$25.0 line of credit will not be renewed. The bank has agreed to continue the
facility, which is outstanding in its entirety, on a month-to-month basis, while
the Company negotiates replacement lines with other lenders. The Company is in
active discussions with several financial institutions.
The Company enters into forward exchange contracts to hedge anticipated foreign
currency procurement related to contract execution. The Company's forward
exchange contracts do not subject the Company to significant risk from exchange
rate movements, because gains and losses on such contracts offset losses and
gains, respectively, on the procurement transactions being hedged. Although the
Company can not accurately predict changes in foreign currency exchange rates,
management does not believe that a change will have a material impact.
In the normal course of executing lump sum turnkey engineering, procurement and
construction contracts, the Company may enter into purchase commitments for
equipment, material and services that, depending on the circumstances, may
require payment of cancellation costs in the event of contract termination. It
is the Company's policy to negotiate termination and suspension clauses in a
contract providing for reimbursement to the Company for all reasonable
cancellation costs associated with a project termination or cancellation. In the
event that the contracting party is unable to fulfill their commitment for
reimbursement, the Company could be liable to its suppliers for payment of
cancellation costs.
Outstanding debt consisted of the following as of December 31, 1998 and 1997:
$000s 1998 1997
Long-term (primarily mortgage debt) $ 24,196 $23,882
Lease debt (primarily for office equipment) 206 378
Bank loans 106,350 -
Total debt $130,752 $24,260
Year 2000 Compliance
The Company is in the process of evaluating and 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. In addition, the Company is in
the process of determining significant vendors to be contacted regarding their
Year 2000 compliance. The Company had not contacted any of its significant
suppliers as of December 31, 1998. 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 December 31, 1998, 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 has
identified 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 $0.1. 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
$0.4.
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
This Management's Discussion and Analysis and other sections of this Annual
Report contain forward-looking statements that are based on 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 environments, 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.
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>
Consolidated Statements of Operations and comprehensive income
(Dollars in thousands, except per share amounts.)
Years ended December 31,
1998 1997 1996
Revenue $1,248,780 $1,322,540 $1,164,837
Cost of revenue 1,250,598 1,206,677 1,109,828
Gross profit (loss) (1,818) 115,863 55,009
Selling, general and administrative
expenses 70,716 68,571 80,929
Operating income (loss) (72,534) 47,292 (25,920)
Other income (expense)
Gain on sale of assets - 985 -
Interest income 3,679 4,269 3,268
Interest expense (4,076) (1,739) (6,737)
Income (loss) before provision
(benefit) for income taxes and
extraordinary item (72,931) 50,807 (29,389)
Income tax provision (benefit) (23,629) 17,297 (11,958)
Income (loss) before extraordinary
item (49,302) 33,510 (17,431)
Extraordinary item, net of taxes - - 6,787
Net income (loss) (49,302) 33,510 (10,644)
Other comprehensive income - change
in cumulative translation adjustment (7,502) 75 759
Comprehensive income (loss) $ (56,804) $ 33,585 $ (9,885)
Per share amounts:
Basic earnings per share:
Earnings (loss) per share before
extraordinary item $(3.83) $2.61 ($1.32)
Extraordinary item per share - - 0.52
Basic earnings (loss) per share $(3.83) $2.61 ($0.80)
Diluted earnings per share:
Earnings (loss) per share before
extraordinary item $(3.83) $2.59 ($1.32)
Extraordinary item per share - - 0.52
Diluted earnings (loss) per share $(3.83) $2.59 ($0.80)
Dividends declared per share $0.60 $0.60 $0.45
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts.)
December 31,
Assets 1998 1997
Current assets:
Cash and cash equivalents $ 45,492 $ 75,030
U.S. Government securities, at amortized cost,
which approximates fair value - 31,909
Accounts receivable, principally trade 276,235 180,057
Costs and revenue recognized in excess of billings 49,302 102,476
Deferred income taxes 20,338 18,835
Other 638 337
Total current assets 392,005 408,644
Assets held for sale 6,744 10,395
Fixed assets, net 219,157 140,177
Domestic prepaid pension cost 155,703 148,155
Note receivable 15,150 15,000
Prepaid assets 9,378 5,396
Other assets 36,545 11,010
$834,682 $738,777
Liabilities and Shareholders' Equity
Current liabilities:
Bank loans $106,350 $ -
Current portion of long-term debt 2,175 1,750
Accounts payable, principally trade 96,134 85,338
Billings in excess of costs and revenue recognized 176,692 115,730
Accrued liabilities 80,036 79,351
Accrued taxes 12,034 14,689
Total current liabilities 473,421 296,858
Long-term debt 22,228 22,510
Deferred income taxes 33,030 57,463
Other liabilities 14,427 16,714
Commitments and contingencies (Note I)
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 54,625 51,426
Retained earnings 367,358 424,287
Other comprehensive income (9,707) (2,205)
430,007 491,239
Less: Common stock held in treasury, at cost
(4,692,933 and 4,908,975 shares,
respectively) 122,030 127,070
Employee stock ownership and restricted
stock plans 16,401 18,937
138,431 146,007
Total shareholders' equity 291,576 345,232
$834,682 $738,777
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Shareholders' Equity
(Dollars in thousands, except per share amounts.)
Years ended December 31,
1998 1997 1996
Common stock:
Balance at beginning and end of year $ 17,731 $ 17,731 $ 17,731
Retained earnings:
Balance at beginning of year 424,287 398,342 414,724
Income tax benefit of Employee Stock
Ownership Plan dividends 92 124 173
Net income (loss) (49,302) 33,510 (10,644)
Dividends declared ($0.60, $0.60, and
$0.45 per share in 1998, 1997 and 1996,
respectively) (7,719) (7,689) (5,911)
Balance at end of year 367,358 424,287 398,342
Accumulated other comprehensive income at
beginning of year (2,205) (2,280) (3,039)
Change in cumulative translation adjustment (7,502) 75 759
Accumulated other comprehensive income at
end of year (9,707) (2,205) (2,280)
Capital in excess of par value of common
stock:
Balance at beginning of year 51,426 50,480 50,360
Excess of market value over cost of
treasury shares issued under restricted
stock plans 30 7 54
Excess of exercise price over cost of
treasury shares issued under the stock
option plans 138 406 21
Tax benefit for shares issued under
restricted stock plans, net 17 3 11
Excess of market value over cost of
treasury shares issued under the stock
plans 53 88 34
Issuance of stock for acquisitions 2,961 - -
Acceleration of stock options - 442 -
Balance at end of year 54,625 51,426 50,480
Common stock in treasury:
Balance at beginning of year (127,070) (125,724) (92,292)
Cost of treasury shares:
Issued under stock plans (3,509, 5,310
and 4,206 shares in 1998, 1997 and
1996, respectively) 91 137 106
Issued under stock option plans (21,250,
63,500, and 4,000 shares in 1998, 1997
and 1996, respectively) 552 1,638 100
Issued under restricted stock plans
(2,224, 690 and 7,533 shares in 1998,
1997 and 1996, respectively) 58 18 190
Treasury stock issued for acquisitions
(232,273 shares in 1998) 6,039 - -
Purchased (43,217, 81,605 and 1,037,037
shares in 1998, 1997 and 1996,
respectively) (1,700) (3,139) (33,828)
Balance at end of year (122,030) (127,070) (125,724)
Employee stock ownership and restricted
stock plans:
Balance at beginning of year (18,937) (21,416) (25,813)
Payments received from Employee Stock
Ownership Trust (principal only) 2,537 2,285 4,538
Market value of shares (issued) under
restricted stock plans, net (88) (25) (244)
Amortization of market value of shares
issued under restricted stock plans 87 219 103
Balance at end of year (16,401) (18,937) (21,416)
Total shareholders' equity $ 291,576 $ 345,232 $ 317,133
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Cash Flows
(Dollars in thousands, except per share amounts.)
Years ended December 31,
1998 1997 1996
Cash flows from operating activities:
Net income (loss) $ (49,302) $ 33,510 $ (10,644)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Restructuring and other charges -
contract-related and operational
items - - 12,377
Restructuring and other charges -
real estate write-downs (3,066) (7,954) 30,509
Loss on divestiture of Auburn VPS
Partnership - - 1,254
Depreciation and amortization (Note E) 23,723 13,681 16,893
Deferred income taxes (25,936) 5,761 (11,193)
Write-down of investments - - 4,172
Domestic pension credit (7,548) (18,337) (15,624)
Gain on sale of assets - (985) -
Amortization of net cost of stock plans 1,243 1,379 1,922
Changes in operating working capital
assets and liabilities 28,754 30,165 (18,814)
Accrued taxes (2,655) 7,525 (791)
Accrued liabilities 1,978 (9,088) 44,792
Prepaid assets (3,982) (2,334) 7,138
Other (35,677 29,861 (33,536)
Net cash (used) provided by operating
activities (72,468) 83,184 28,455
Cash flows from investing activities:
Proceeds from maturities of U.S.
Government securities 31,909 93,671 56,873
Purchases of U.S. Government securities - (121,574) (5,981)
Proceeds from asset divestitures 13,546 4,919 -
Payments for acquisitions, net of cash
acquired (79,430) - -
Purchase of fixed assets (20,290) (25,909) (24,383)
Net cash (used) provided by investing
activities (54,265) (48,893) 26,509
Cash flows from financing activities:
Repayments of long-term debt (1,787) (1,657) (20,954)
Increase in bank loans 106,350 - 10,000
Decrease in bank loans - (5,000) (13,200)
Payments from Employee Stock Ownership
Trust 4,588 4,588 7,216
Payments to Employee Stock Ownership Trust (2,537) (4,251) (6,739)
Purchase of common stock for treasury (1,700) (3,139) (33,828)
Dividends paid (7,719) (7,689) (7,989)
Net cash provided (used) by financing
activities 97,195 (17,148) (65,494)
Net (decrease) increase in cash and cash
equivalents (29,538) 17,143 (10,530)
Cash and cash equivalents at beginning of
year 75,030 57,887 68,417
Cash and cash equivalents at end of year $ 45,492 $ 75,030 $57,887
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts.)
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Stone & Webster, Incorporated and Subsidiaries (the "Company") has prepared its
financial statements in accordance with generally accepted accounting principles
and has adopted accounting policies and practices which are generally accepted
in the industries in which it operates. Unless noted otherwise, earnings per
share amounts are presented on a diluted basis. The following are the Company's
significant accounting policies:
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of Stone
& Webster, Incorporated and its wholly owned subsidiaries. All intercompany
transactions and accounts have been eliminated.
During 1996, substantially all of the Company's subsidiaries outside the United
States and Canada changed their fiscal years from November 30 to December 31.
Therefore, the 1996 consolidated financial statements include the operations of
these subsidiaries for thirteen months. In 1998, several remaining subsidiaries
were also changed to a December 31 fiscal year. This change did not have a
material impact on the 1996 or 1998 consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. The
most significant estimates are related to long-term contracts, pension plans,
income taxes and contingencies. Actual results could differ from these
estimates.
Revenue Recognition on Long-Term Contracts
The Company recognizes engineering and construction revenue on a
percentage-of-completion method, primarily based on contract costs incurred
compared with total estimated costs (contract costs include both direct and
indirect costs). When the Company is contractually responsible for materials,
craft labor, equipment and subcontractor costs, these items are included in
revenue and cost of revenue. Revisions to total estimated contract costs or
losses, if any, are recognized in the period in which they are determined.
Certain contracts contain provisions for performance incentives.
Such incentives are included in revenue when realization is assured. Contract
change orders in excess of agreed contract prices are included in revenue when
approved by the client, or when realization is considered probable. Revenue
recognized in excess of amounts billed is classified in current assets. Accounts
receivable include amounts representing retainages under long-term contracts
which are due within one year. These retainage amounts are not material. The
Company anticipates that substantially all of its costs and revenue recognized
in excess of billings will be billed and collected over the next twelve months
and there were no significant amounts included in accounts receivable or costs
and revenue recognized in excess of billings under contracts for claims subject
to uncertainty as to their ultimate realization. Billings in excess of revenue
recognized are classified in current liabilities.
Cash Equivalents and U.S. Government Securities
Cash equivalents consist of U.S. Government securities held for cash management
purposes having maturities of three months or less from the date of purchase,
and overnight repurchase agreements. Assets classified as U.S. Government
securities have maturity dates of one year or less. All of the Company's U.S.
Government securities are U.S. Treasury bills and notes, which the Company
intends to hold to maturity.
Fixed Assets
Fixed assets are stated at cost. Depreciation generally is provided on a
straight-line basis (accelerated methods for income taxes) over the estimated
useful lives of the assets: 31 to 39 years for buildings and 3 to 15 years for
furniture and equipment. Amortization is provided for leased property and
equipment on a straight-line basis over the life of the lease. The cost and
accumulated depreciation of fixed assets sold are removed from the accounts and
the related gains or losses, if any, are reflected in earnings or loss for the
period. The Company reviews its property, plant and equipment and other long-
lived assets periodically to determine potential impairment. In performing the
review, the Company estimates undiscounted cash flows expected to result from
the use of the asset and its eventual disposition. If the sum of the expected
future cash flows is less than the carrying amount of the asset, an impairment
is recognized. In accordance with Statement of Position 98-1, "Accounting for
Costs of Computer Software Developed or Obtained for Internal Use," costs
associated with the application development stage are capitalized, such as,
direct external costs, directly related internal payroll and payroll related
costs and interest costs.
Equity in Joint Ventures and Limited Partnerships
As is common in the industry, the Company executes certain contracts jointly
with third parties through joint ventures, limited partnerships and limited
liability companies. Investments in joint venture companies and investments in
limited partnerships and limited liability companies owned more than 5 percent
by the Company are accounted for principally by the equity method for the
balance sheet and proportionate consolidation for the statement of operations.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the Company's consolidated
financial statements or tax returns. Undistributed earnings of foreign
subsidiaries for which the Company has not provided deferred U.S. income taxes
because a taxable distribution of these earnings, approximately $17,737 at
December 31, 1998, is not anticipated. On the same basis, deferred U.S. income
taxes have not been provided on the cumulative translation adjustment component
of the comprehensive income. Undistributed earnings represents the accumulated
earnings of consolidated international subsidiaries which are being permanently
reinvested in their operations. Investment tax credits are accounted for by
reducing income taxes currently payable and the provision for income taxes in
the period the related assets are placed in service.
Foreign Exchange Contracts
The Company uses derivative financial instruments to hedge equipment and
material procurement commitments undertaken as contract activities in the
ordinary course of business. The Company's forward exchange contracts do not
subject the Company to risk from exchange rate movements because gains and
losses on such contracts offset losses and gains, respectively, on the assets,
liabilities or transactions being hedged. Accordingly, the unrealized gains and
losses are deferred and accounted for as part of the underlying transactions. At
December 31, 1998, the Company had approximately $4,483 of foreign currency
exchange contracts outstanding relating to contract obligations. In entering
into these contracts, the Company has assumed the risk which might arise from
the possible inability of counterparties to meet the terms of their contracts.
The Company does not expect any losses as a result of counterparty defaults.
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.
Segment Reporting
Effective for the year ended December 31, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which provides a new basis of
determining reportable business segments, which are to be disclosed, i.e., the
management approach. This approach (as contrasted with the prior requirement,
which utilized a specified classification system for determining segments)
designates the Company's internal organization as used by management for making
operating decisions and assessing performance as the source of business
segments. On this basis, the Company has two principal businesses and,
therefore, two reportable business segments: Engineering, Construction and
Consulting and Cold Storage. Segment results, as well as selected geographic
data, are presented on this new basis in 1998, as well as retroactively. This
new accounting pronouncement has no effect on reported net income.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. The Statement establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses). The adoption of the statement only
changes the display and disclosure of information and does not impact amounts
previously reported for net income and shareholders' equity. The Company has
disclosed comprehensive income in the Consolidated Statements of Operations and
Comprehensive Income and the change in comprehensive income in the Consolidated
Statements of Shareholders' Equity.
Retirement Plans
Effective for the year ended December 31, 1998, the Company adopted Statement of
Financial Standards No. 132, Employers' Disclosure about Pensions and Other
Postretirement Benefits. This Statement revises employers' disclosures about
pension and other postretirement benefit plans, and does not change the
measurement or recognition of those plans. See Note O for disclosure.
Long-Lived Assets
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of ("SFAS 121"). Accordingly, the losses on the
asset divestitures recorded in 1996, as discussed in Note D to the consolidated
financial statements, are included as part of the operating loss in the
consolidated statement of operations for the year ended December 31, 1996.
Reclassifications
Certain financial statement items have been reclassified to conform to the
current year's presentation.
(B) ACQUISITIONS
In January 1998, the Company purchased the assets of Belmont Constructors, Inc.
("Belmont"). At the closing, the Company paid approximately $5,300; however, the
final purchase price is contingent upon the results of certain long-term
contracts, which will be completed by the end of 1999. Belmont 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 fair value of assets acquired exceeded
the purchase price, and therefore, in accordance with APB Opinion No.16
"Business Combinations," the long-term assets have been reduced.
In August 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 the form of 232,723 shares of common stock of the Company having a
value of $9,000. Along with certain other contingent cash considerations related
to a specific project, PTI shareholders may receive up to 206,518 additional
shares of the Company's common stock having a value (based on the stock price
used in connection with the initial closing) of up to $8,000 based on meeting
certain performance requirements over the next five years. The contingent
consideration, if incurred, will be recorded as an adjustment to goodwill. The
Company recorded this transaction using the purchase method of accounting for
business combinations. Goodwill related to this transaction amounted to $3,354
which is being amortized over 20 years.
In October 1998, a subsidiary of the Company completed the acquisition of The
Nordic Group. The Nordic Group was a multi location privately owned cold storage
company. At the closing, the purchase price was approximately $80,000, paid
primarily in cash. The acquisition was financed through lines of credit
facilities. The Company recorded this transaction using the purchase method of
accounting for business combinations. Goodwill related to this transaction
amounted to $1,633 which is being amortized over 20 years.
The results of these three acquisitions have been included in the consolidated
statement of operations and comprehensive income from the respective dates of
acquisition. The pro forma unaudited results of operations as though these
acquisitions had occurred as of the beginning of 1997 are as follows:
(Unaudited) 1998 1997
Revenues $1,273,685 $1,469,449
Operating income (loss) (70,207) 22,618
Net income (loss) (50,184) 10,514
Weighted average outstanding common shares:
Basic $(3.89) $0.82
Diluted $(3.89) $0.81
Pro forma results are not indicative of future performance.
(C) INCOME TAXES
The tax provision (benefit) consists of the following:
1998 1997 1996
Current tax expense (benefit)
United States $ (5,998) $ 4,851 $ (2,396)
State and local 1,491 3,133 704
International (1) 6,814 3,552 1,627
Total current 2,307 11,536 (65)
Deferred tax expense (benefit)
United States (21,525) 5,046 (10,280)
State and local (3,321) 586 (353)
International (1,090) 129 (1,260)
Total deferred (25,936) 5,761 (11,893)
Income tax provision (benefit) $(23,629) $17,297 $(11,958)
(1) Includes taxes, in lieu of income taxes, of $291 in 1998, $921 in 1997 and
$360 in 1995 on international projects which are calculated based on gross
receipts.
Deferred tax liabilities (assets) are composed of the following:
December 31,
1998 1997
Long-term liabilities:
Depreciation $ 5,294 $12,188
Retirement 62,099 60,836
Other 911 1,202
Total long-term liabilities 68,304 74,226
Long-term assets:
Deferred rent (2,513) (1,944)
Employee Stock Ownership Plan interest payments
and contributions (3,317) (4,165)
Incentive Retirement Program - (3,501)
AMT credit carryforward (5,142) (1,013)
Foreign net operating loss carryforward (6,730) (2,127)
State net operating loss carryforwards (7,149) (3,459)
U.S. net operating loss carryforwards (18,324) -
Noncurrently deductible accruals (1,246) (4,131)
Total long-term assets (44,421) (20,340)
Net operating loss valuation allowance 9,147 3,577
Net long-term deferred tax liabilities 33,030 57,463
Current assets:
Vacation pay (4,671) (4,995)
Severance pay (589) (430)
State net operating loss carryforwards (660) (660)
Capital loss carryforward - (760)
Contract reserves (13,771) (7,904)
Other (647) (4,086)
Total current deferred tax assets (20,338) (18,835)
Net deferred tax liabilities $12,692 $38,628
The Company, as a result of a NOL carryback claim, restored an amount of federal
alternative minimum tax ("AMT") credit and the AMT credit carryforward was
$5,142 at December 31, 1998. This AMT credit can be carried indefinitely to
reduce future federal income taxes payable.
The Company had a valuation allowance of $3,577 at December 31, 1997 for the
deferred tax assets related to net operating loss carryforwards. The net change
in the valuation allowance for 1998 was an increase of $5,570 for a total
valuation allowance of $9,147 at December 31, 1998. The increase was due to
domestic state and foreign entity operating losses. The valuation allowance at
December 31, 1998 comprises $7,149 relating to state net operating loss
carryforwards and $1,998 relating to the carryforwards of international
subsidiaries.
For tax purposes, approximately $217,868 (with a tax benefit of $32,863) of the
net operating loss carryforwards remain at December 31, 1998, of which $22,880
(with a tax benefit of $6,730) is applicable to international subsidiaries, of
which $15,448 does not expire, and the remaining $142,633 (with a tax benefit of
$7,809) relates to state net operating loss carryforwards and the remaining
$52,355, (with a tax benefit of $18,324) relates to United States net operating
loss carryforwards. Use of net operating loss carryforwards is limited to future
taxable earnings of the subsidiaries. Operating loss carryforwards will expire
as follows:
1999 $ 2,155
2000 62
2001 4,803
2002 4,313
2003 9,346
2004 219
2005 829
Thereafter 180,693
$202,420
The Company has determined that it will be able to realize a tax benefit of
$23,718 relating to these state, federal and foreign net operating loss
carryforwards and the remaining net operating loss carryforwards (with a tax
benefit of $9,147, which is fully reserved) are expected to expire unused.
The following is an analysis of the difference between the United States
statutory income tax rate and the Company's effective income tax rate:
1998 1997 1996
United States statutory income tax rate (35.0)% 35.0% (35.0)%
Increase (decrease) resulting from:
State and local income taxes, net of
United States tax effect (1.6) 4.8 .8
Meals and entertainment 0.4 1.2 1.7
Difference in effective tax rate of
international operations and projects,
net of United States tax effect 4.9 6.1 -
Foreign Sales Corporation (1.4) - -
Investment tax credit - Canada (0.3) (0.3) (3.7)
Adjustment of prior years' federal income
tax accruals, net of interest effect (0.2) - (0.3)
Utilization of net operating loss
carryforwards of international operations - (12.4) (3.8)
Other 0.8 (0.4) (0.4)
Effective income tax rate (32.4)% 34.0% (40.7)%
Income (loss) before income taxes and extraordinary item were:
1998 1997 1996
Domestic $(76,567) $30,818 $(34,815)
International 3,636 19,989 5,426
$(72,931) $50,807 $(29,389)
(D) DIVESTITURE OF NONCORE ASSETS AND ASSETS HELD FOR SALE
During 1996, the Company completed a review of its organizational structure,
strategic plan and asset base. As a result of this review, the Company decided
to sell a 140,000 square foot building in Boston, Massachusetts and a building
in Cherry Hill, New Jersey. The Company recorded an operating loss of $20,137
($13,751 after tax, or $1.03 per share) in 1996 in connection with the
write-down of these properties in accordance with Statement of Financial
Accounting Standards No.121. The total carrying amount of the properties written
down was $20,885 at December 31, 1996. In December 1997, the Company sold the
building in Boston for $20,000, resulting in income of $8,939 ($5,363 after tax
or $0.41 per share). In 1998, the Company completed its divestiture of
underutilized office space with the sale of its Cherry Hill, New Jersey, office
building for $13,546 in cash. The Company recognized a gain of $3,066 ($1,993
after tax or $0.15 per share).
In 1996, the Company announced its intention to consolidate its New York
corporate headquarters with the Boston headquarters of the Company's principal
operating subsidiary, Stone & Webster Engineering Corporation, and that certain
floors of its New York office space would be offered for sublease. The total
charge recorded in the third quarter of 1996 for the write-down of the leases
was $10,372 ($6,223 after tax, or $0.46 per share), which represents lease
commitments and estimated costs to sublet, net of anticipated sublease income.
In the first quarter of 1996, a reserve of $1,832 was recorded for the expected
sublease loss for a vacant floor in the New York office. These amounts were
recorded as accrued liabilities. As a result of the relocation of the corporate
offices to Boston in 1997, the Company vacated four floors of the New York
office space. In 1997 and 1998, the Company entered into agreements to sublet
one floor and to delete three floors from the lease. During 1998, the Company
completed the disposal of its remaining unused office space in its former New
York corporate office by entering into an agreement to delete the fourth floor,
vacated in the 1997 relocation, from the lease. The costs incurred were
consistent with amounts provided for in 1996.
In 1996, the Company transferred the assets of the Auburn VPS Partnership, in
which the Company owned a 94.3 percent interest, to the partnership's lender in
return for cancellation of the related construction debt. As a result, the
Company recorded an after-tax charge of $989, or $0.07 per share, which included
a loss on forfeiture of $11,538 ($7,776 net of tax, or $0.59 per share) to write
down the partnership's plant to fair value and an extraordinary gain of $10,283
($6,787 net of taxes, or $0.52 per share) for the extinguishment of the
construction debt.
In 1996, the Company recorded a charge of $4,172 ($2,712 net of tax, or $0.21
per share) to write down the Company's one-third interest in the Binghamton
Cogeneration Partnership to fair market value in connection with the
partnership's agreement to sell its power purchase agreement, terminate various
supply and purchase contracts and to cease partnership operations. The sale was
completed in January 1997. During 1997, the Company received cash distributions,
reported as operating income, resulting from liquidation of partnership assets
of $1,612 ($1,048 net of taxes, or $0.08 per share) from the partnership.
In 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 assets of SC Wood are carried at $6,744 representing the
net book value of the 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 December 31, 1998. SC Wood is principally operated
as a pumping station which uses natural gas to pump petroleum products.
(E) FIXED ASSETS
Following is a summary of fixed assets at December 31:
1998 1997
Office buildings and other real estate $ 81,525 $ 75,120
Furniture and equipment 187,107 166,165
Cold storage property, plant and equipment 141,482 64,249
410,114 305,534
Less accumulated depreciation and amortization 190,957 165,357
Fixed assets, net $219,157 $140,177
Fixed assets include computer equipment under capital leases of $2,817 at
December 31, 1998 and $2,731 at December 31, 1997; related amounts included in
accumulated depreciation were $1,899 at December 31, 1998 and $1,663 at December
31, 1997. Total depreciation expense was $23,567 for 1998, $12,018 for 1997 and
$15,429 for 1996. The Company wrote down the value of various fixed assets,
primarily computer equipment, to recognize that little, if any, future benefit
will be obtained from these assets, and revised its estimated useful life for
computer equipment from six to three years. The charges incurred for these
charges were $3,752 ($2,261 after tax or $0.18 per share) and $2,615 ($1,577
after tax or $0.12 per share), respectively.
(F) BANK LOANS
The Company has three separate domestic line of credit agreements totaling
$105,000. As of December 31,1998, these facilities were fully utilized. Two of
these lines, totaling $80,000, expire in September 1999. In addition the Company
has a line of credit in the amount of $30,000, 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 assumed a
$2,000 line of credit through an acquisition in the third quarter of 1998.
Borrowings under this line of credit amounted to $1,350 as of December 31, 1998.
In 1997, the Company had one line of credit agreement totaling $25,000. There
was no balance outstanding under this line of credit at December 31, 1997. The
weighted average interest rate was 6.17 percent in 1998. Borrowings under the
agreements were used for general corporate purposes and to fund the acquisition
of the Nordic Group and incurred interest based on the London Interbank Offered
Rate ("LIBOR"). See Note I to the consolidated financial statements for
international banking facilities and guarantees of affiliated Company
obligations.
In the fourth quarter, the Company was notified by one of its lenders that a
$25,000 line of credit would not be renewed. The bank has agreed to continue the
facility, which is outstanding in its entirety, on a month-to-month basis, while
the Company negotiates replacement lines with other lenders. The Company is in
active discussions with several financial institutions.
(G) LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1998 1997
Mortgage loans, due 2009, 6.44% $22,355 $23,882
Mortgage loans, due 2007, 7.65% 693 -
Mortgage loans, due 2004, 7.91% 874 -
Loan payable, due 1999, 6.75% 71 -
Loan payable, due 2000, 8.75% 26 -
Loan payable, due 2005, 9.00% 178 -
Capitalized lease obligations 206 378
24,403 24,260
Less current portion 2,175 1,750
Total long-term debt $22,228 $22,510
The mortgage loan which is due in 2009 is attributable to a subsidiary of the
Company and is collateralized by an office building and other real estate with a
net book value of $25,833 at December 31, 1998. This 6.44 percent mortgage loan
was obtained to finance the acquisition of land and the construction of an
office building occupied by an engineering subsidiary of the Company.
The Company assumed the remaining two mortgages through an acquisition in the
third quarter of 1998. The mortgages are for two different buildings, with the
respective buildings collateralizing each mortgage. The buildings had
outstanding principal balances and net book values of $1,567 and $2,700,
respectively. The Company also assumed the liability of three loans payable
through the acquisition mentioned above. The loans payable are with a former
stockholder of the subsidiary. One loan payable relates to a stock repurchase,
which is collateralized by an office building with a net book value of $1,775.
The remaining two loans are related to deferred compensation agreements, and are
unsecured.
Principal payments required on long-term debt, for the years ended December 31,
1999 $ 2,175
2000 2,008
2001 2,112
2002 2,237
2003 2,370
Thereafter 13,501
Total $24,403
(H) ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
1998 1997
Salaries and benefits $17,032 $20,033
Insurance accruals and premiums 18,859 17,417
Reserve for loss on sublease - 3,102
Reserve for joint venture activity 20,996 25,781
Accrued professional fees 5,327 4,245
Other 17,822 8,773
Total accrued liabilities $80,036 $79,351
In 1998, the Company utilized $9,060 of the reserve for joint venture contract
loss in connection with a contract being executed by a partially owned joint
venture in the Middle East, which was partially offset by an increase in the
reserve for other joint venture activity of $4,275.
(I) COMMITMENTS AND CONTINGENCIES
In the normal course of executing lump sum turnkey engineering, procurement and
construction contracts, the Company may enter into purchase commitments for
equipment, material and services that, depending on the circumstances, may
require payment of cancellation costs in the event of contract termination. It
is the Company's policy to negotiate termination and suspension clauses in
contracts providing for reimbursement to the Company for all reasonable
cancellation costs associated with a project termination or cancellation. In the
event that the contracting party is unable to fulfill their commitment for
reimbursement, the Company could be liable to its suppliers for payment of
cancellation costs.
Rental expense was $3,600 in 1998, $4,710 in 1997 and $5,800 in 1996. The
Company and subsidiaries have leases for office space, computer equipment and
other office equipment with varying lease terms. All noncancelable leases have
been categorized as either capital or operating and, under most leasing
arrangements, the Company and subsidiaries pay property taxes, insurance and
maintenance and expenses related to the leased properties. Future minimum lease
payments under long-term leases as of December 31, 1998 are as follows:
Capital Operating
Leases Leases
1999 $211 $ 8,289
2000 6,486
2001 5,828
2002 5,079
2003 4,483
2004 and thereafter 13,738
Total minimum lease payments 211 43,903
Amount representing interest 5
Present value of minimum lease payments $206
Less rental and sublease income 8,956
Total $34,947
The current portion of the present value of the minimum lease obligations under
capital leases as of December 31, 1998 amounted to $206.
The Company and certain subsidiaries have been named as defendants, along with
others, in legal actions claiming damages in connection with engineering and
construction projects and other matters. Most such actions involve claims for
personal injury or property damage which occur from time to time in connection
with services performed relating to project or construction sites and for which
coverage under appropriate insurance polices usually applies. Other actions
arising in the normal course of business include employment-related claims and
contractual provisions for which insurance coverage or contractual provisions
may or may not apply. Such contractual disputes normally involve claims relating
to the performance of equipment design or other engineering services or project
construction services provided by subsidiaries of the Company and often such
matters may be resolved without going through a complete and lengthy litigation
process. A case involving performance on a client contract was settled in 1996
for a net cost of $2,500.
In 1996, the Company entered into a contract with Trans-Pacific Petrochemical
Indotama ("TPPI") of Indonesia for construction of an integrated ethylene and
olefins complex for $2.3 billion, to be executed by a consortium of contractors.
The Company's portion of the total contract value was $710,000. In the fourth
quarter of 1997, work on the project was suspended pending resolution of
financing issues by the client. The TPPI project is included in the Company's
backlog in the amount of $451,000. If refinancing efforts are successful, it is
possible that the project will restart on a phased basis in 1999 with execution
of the Company's scope of work commencing in 2000. The Company has obtained
approval from the owner 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, subsequent
to the end of 1998, has signed a conditional memorandum of understanding to sell
the plant. Had the TPPI project been cancelled as of December 31, 1998, and if
resale of the olefins plant were unlikely to be completed, the Company would
have recorded a pre-tax charge of $72,400 representing project working capital
plus current procurement commitments net of the estimated salvage value of
procured equipment and materials.
A joint venture, in which the Company is a 50 percent owner, has submitted
claims to recover in excess of $112,000 in connection with scope and
specification changes on a major petrochemical project in the Middle East. The
Company believes that the joint venture will realize substantial recovery on
these claims, and has not recognized any contract revenue associated with these
claims. In addition, the joint venture has been notified of claims in excess of
$53,000, which have been submitted by a subcontractor who has filed for
arbitration of these claims. Substantially all of the subcontractor's claims
have been included in the claims submitted by the joint venture. In 1997, the
Company recognized losses of $25,781 related to this contract.
The Company has recognized approximately $35,000 in revenue in 1998 for change
orders that have not yet received client approval, in management's judgment, a
conservative estimate of the probable amount to be realized associated with
contracts in Africa, the United Kingdom and the Middle East.
The Company is currently performing two contracts in Africa for the engineering,
procurement and construction of thermal power plants. 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 the original contract value. Management
believes that it has valid contractual and equitable grounds for change orders
providing additional compensation under these contracts. The Company has
submitted requests for equitable adjustment and change orders in excess of
$40,000 on one contract and $30,000 on the second contract. Negotiations with
the owner are continuing and the Company expects to reach agreement on the
change orders in 1999. The operating loss on the two contracts in Africa
recognized by the Company in 1998 was $42,900.
The Company continues to have potential liabilities related to environmental
pollution. The Company and two of its subsidiaries are named as defendants in
two legal actions brought by, and have received other claims from, private
parties seeking contributions for costs incurred or to be incurred in
remediation of sites under the Federal Comprehensive Environmental Response,
Compensation and Liability Act and similar state statutes. No government
authority has sought similar redress from the Company or its subsidiaries
(except in the case of one subsidiary in limited connection with claims made
with respect to clients of that subsidiary) nor has the Company been determined
to be a Potentially Responsible Party by the Federal or any state or local
government authority, although some information has been requested with regard
to environmental matters. Based on presently known facts and existing laws and
regulations, management believes that it has valid legal defenses to such
actions and that the costs associated with such matters, including legal costs,
should be mitigated by the presence of other entities which may be Potentially
Responsible Parties, by contractual indemnities, and by insurance coverage.
Management believes, on the basis of its examination and consideration of these
matters and such possible liabilities, including consultation with counsel, that
none of these legal actions, nor such possible liabilities, will result in
payment of amounts, if any, which would have a material adverse effect on the
consolidated financial statements.
In addition to the lines of credit discussed in Note F to the consolidated
financial statements, two international subsidiaries of the Company have
overdraft banking facilities of $8,185 which are used for general corporate
purposes. The overdraft banking facilities incur interest based on 1 percent
over the bank's published rate and on the LIBOR rate plus 75 basis points. At
December 31, 1998 and 1997, no amounts were outstanding under the overdraft
banking facilities.
As discussed in Note D to the consolidated financial statements, the Company
wrote down its investment in the Binghamton Cogeneration Partnership to fair
value in 1996 and the partnership assets were liquidated in 1997. Under the
liquidation agreement the Company was required to provide a standby letter of
credit in the amount of $6,000 to collateralize its obligation under an
indemnity agreement among the parties to the liquidation agreement. The Company
is required to maintain this letter of credit through January 2003.
At December 31, 1998, subsidiaries of the Company have contingent liabilities of
$25,650 arising from guarantees to banks for credit facilities extended to
unconsolidated affiliates for general operating purposes.
(J) EARNINGS PER SHARE (EPS)
For the Year Ended
December 31, 1998
Income Shares Per-share
(loss) (000s) Amount
Basic and Diluted EPS (1)
Income (loss) available to common
shareholders $(49,302) 12,886 $(3.83)
For the Year Ended
December 31, 1997
Income Shares Per-share
(loss) (000s) Amount
Basic EPS
Income available to common shareholders $ 33,510 12,812 $ 2.61
Effect of dilutive securities stock
options - 117 (0.02)
Diluted EPS
Income available to common shareholders
and assumed exercises $ 33,510 12,929 $ 2.59
For the Year Ended
December 31, 1996
Income Shares Per-share
(loss) (000s) Amount
Basic and Diluted EPS (1)
Income (loss) before extraordinary item $(17,431) 13,223 $(1.32)
Income (loss) available to common
shareholders $(10,644) 13,223 $(0.80)
(1) Because the computation of diluted EPS does not assume exercise of
securities that would have an antidilutive effect on earnings per share,
basic and diluted earnings per share are the same.
(K) TREASURY STOCK
In January 1998, the Board of Directors of the Company authorized an increase in
the share repurchase program from 2,500,000 to 3,000,000 shares, of the
Company's common stock in open market transactions at prevailing prices. The
Company reserves the right to discontinue the repurchase program at any time.
The Company acquired 43,217 shares in 1998 and 81,605 shares in 1997 under the
repurchase program. Through December 31, 1998, the Company has repurchased
2,279,626 shares.
(L) COMMON STOCK
Beginning in the fourth quarter of 1996, the Company changed the quarterly
dividend declaration date to the first month of the quarter from the month
preceding the quarter. Accordingly, the first quarter 1997 dividend was declared
in January 1997 instead of in December 1996. This change had no effect on the
annual dividend payment of $0.60 per share, although only $0.45 was declared in
1996.
In 1996, the Board of Directors of the Company approved a Shareholder Rights
Plan and declared a dividend of one preferred share purchase right ("Right") for
each outstanding share of Common Stock. Each Right entitles the holder to
purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock of the Company at a price of $125 per one
one-hundredth of a Preferred Share, subject to adjustment ("Purchase Price").
The description and terms of the Rights are set forth in a Rights Agreement
dated as of August 15, 1996. The Rights will expire on August 15, 2006 unless
extended or unless the Rights are earlier redeemed or exchanged by the Company.
The Rights are not exercisable (unless waived by the Board of Directors) until
the earlier to occur of: (i) 10 days following a public announcement that a
person or group of affiliated or associated persons ("Acquiring Person") have
acquired beneficial ownership of 15 percent or more of the outstanding shares of
Common Stock or (ii) 10 business days (or such later date decided by the Board
of Directors) following the commencement of, or announcement of an intention to
make, a tender offer or exchange offer for 15 percent or more of the outstanding
shares of Common Stock. In such event, each holder (other than such Acquiring
Person) of a Right will have the right to receive upon exercise of the Right
that number of shares of Common Stock having a market value of two times the
Purchase Price. In the event that the Company is acquired or 50 percent or more
of its assets are sold after a person or group has become an Acquiring Person,
each holder of a Right, upon exercise thereof, will have the right to receive
that number of shares of common stock of the acquiring company which will have a
market value of two times the then Purchase Price.
(M) EMPLOYEE STOCK OWNERSHIP AND RESTRICTED STOCK PLANS
Under the terms of the Employee Stock Ownership Plan (the "ESOP"), the Company
and participating subsidiaries make contributions to the Employee Stock
Ownership Trust (the "Trust") which can acquire from the Company up to 5,000,000
shares of common stock of the Company, for the exclusive benefit of
participating employees.
A note receivable from the Trust, issued in 1976 as consideration for 2,400,000
shares of common stock sold by the Company to the Trust was paid in full in
September 1996. The amount of the note, including interest, was $52,872. The
remaining notes receivable from the Trust, received as consideration by the
Company for the 1,600,000 shares of common stock sold to the Trust subsequent to
1976, are payable in level payments of principal and interest over 20 years. The
last sale of shares to the Trust by the Company occurred in 1985. At December
31, 1998, the balance of the notes receivable from the Trust was $16,117. The
unamortized cost of the shares is being funded by annual contributions necessary
to enable the Trust to meet its current obligations, after taking into account
dividends received on the common stock held by the Trust. The net cost of the
ESOP is being amortized over 20-year periods from the dates of acquisition of
shares. The charge to income was $1,156 in 1998, $1,160 in 1997 and $1,819 in
1996. The accrued cost of the ESOP, included in other liabilities, was $7,741
and $9,165 at December 31, 1998 and 1997, respectively.
In May 1995, the number of shares of common stock remaining available for future
awards under the Restricted Stock Plan (the "Restricted Plan") was reduced. The
Restricted Plan, awarded 1,224 shares in 1998, 690 shares in 1997 and 7,533
shares in 1996, of the Company's stock previously held as Company treasury
stock, were granted subject to the restrictions described in the Restricted
Plan. The market value of the shares awarded is being charged to income over the
vesting period, typically five years. At December 31, 1998, 1,732,447 shares
have been awarded, net of shares forfeited and the unamortized portion of the
market value was $249.
Following approval by the Shareholders at the Company's annual meeting on May
14, 1998, the Company's Restricted Stock Plan and the 1995 Stock Option Plan
were replaced by the Stone & Webster, Incorporated Long-Term Incentive
Compensation Plan (the "1998 Plan"), effective January 1, 1998. The 1998 Plan
permits the grant of nonqualified stock options, incentive stock options,
restricted stock, performance shares and performance units. No further awards
will be granted under the Restricted Stock Plan or the 1995 Stock Option Plan.
Options previously granted will become or remain exercisable in accordance with
the terms of the award until their expiration or earlier cancellation.
Restricted stock awards under the 1998 Plan during the year ended December 31,
1998 amounted to 1,000 shares. The market value of the shares awarded is being
charged to income over the vesting period, typically five years. At December 31,
1998, 1,000 shares have been awarded, no shares have been forfeited and the
unamortized portion of the market value was $35.
(N) STOCK OPTION PLAN AND STOCK PLAN
In May 1998, the Company's Restricted Stock Plan and the 1995 Stock Option Plan
were replaced by the 1998 Plan. For additional information see Note M. No
further awards will be granted under the Restricted Stock Plan or the 1995 Stock
Option Plan. Options previously granted will become or remain exercisable in
accordance with the terms of the award until their expiration or earlier
cancellation.
Nonqualified options to purchase 1,000 shares will be granted to each
non-employee director on a yearly basis. In addition, non-qualified options to
purchase 2,000 shares will be granted to each non-employee director upon initial
election or appointment to the Board of Directors. The total number of shares
which may be issued under the 1998 Plan may not exceed 980,777 shares. No more
than 300,000 shares may be granted in the form of restricted stock in the 1998
Plan. A summary of the nonqualified options granted and respective price ranges
follows:
Nonemployee Directors Key Employees
Options Options
Granted Price Range Granted Price Range
1996 15,000 32 3/4 - 34 1/4 341,500 32 5/8 - 34 7/8
1997 9,000 40 1/2 255,000 32 1/8 - 47 1/8
1998 9,000 42 5/8 257,500 41 1/4 - 43 3/16
In 1998, 9,000 shares were granted to Nonemployee Directors and 12,000 of the
shares granted to key employees were granted under the 1995 Stock Option Plan.
The remainder of the shares granted to key employees were granted under the 1998
Plan, of these, 165,500 shares were granted as incentive stock options and
80,000 shares were granted as nonqualified stock options. All options awarded to
nonemployee directors are nonexercisable for the first six months. Twenty-five
percent of the nonqualified options granted to key employees in 1996, 1997 and
1998 become exercisable on each of the first four anniversary dates of the
grant, with the exception of 100,000 options granted in 1996 which were
exercisable immediately. The maximum term of the options granted under the plans
are 10 years.
As permitted under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), the Company has elected to
continue to follow Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25") and related interpretations in accounting
for its employee stock options. Using the intrinsic value-based method of
accounting prescribed by APB 25, no compensation expense is recognized upon the
issuance of employee stock options if the exercise price of the options equals
the quoted market price of the underlying stock on the date of grant.
However, as required by SFAS 123, for companies electing to remain with APB 25,
pro forma information regarding net income and earnings per share is presented
below and has been determined as if the Company had accounted for its
nonemployee director and employee stock options under the fair value method of
SFAS 123. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996, respectively: risk-free interest rates of
5.66 percent, 6.67 percent and 6.02 percent; dividend yields of 1.4 percent, 1.6
percent and 1.9 percent; volatility factors of the expected market price of the
Company's common stock of .237, .210 and .193; and a weighted-average expected
life of the option of 5 years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Had compensation costs
for the Company's stock option plan awards been determined based on the fair
value at the date of grant, consistent with the provisions of SFAS 123, the
Company's net income and earnings per share would have been as shown in the
following table:
1998 199 7 1996
As reported net income (loss) $(49,302) $33,510 $(10,644)
As reported net income (loss) per share $(3.83) $2.59 $(0.80)
Pro forma net income (loss) (unaudited) $(50,383) $32,803 $(11,536)
Pro forma net income (loss) per share
(unaudited) $(3.91) $2.54 $(0.83)
<TABLE>
<CAPTION>
1998 1997 1996
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning
of year 656,500 $35.05 471,000 $32.98 135,500 $31.19
Granted 266,500 43.08 264,000 37.89 356,500 33.56
Exercise 21,250 32.70 63,500 32.20 4,000 30.25
Canceled 61,000 35.44 15,000 32.34 17,000 31.46
Outstanding - end of year 840,750 37.63 656,500 35.05 471,000 32.98
Exercisable at end of year 338,625 34.49 186,370 34.27 153,000 33.96
Weighted-average fair
value of options granted
during the year $11.91 $10.30 $ 7.90
</TABLE>
A summary of the Company's stock option activity, and related information for
the years ended December 31 is displayed above:
Exercise prices for options outstanding as of December 31, 1998 ranged from
$30.25 to $47.13. The weighted-average remaining contractual life of those
options is 8.1 years.
In January 1997, the Board of Directors terminated the 1995 Stock Plan for
Nonemployee Directors (the "1995 Stock Plan") and adopted the 1997 Stock Plan
for Nonemployee Directors (the "1997 Stock Plan"). Before the 1995 Stock Plan
was terminated, nonemployee directors of the Company received shares in payment
of their annual retainer and were able to elect to receive all or a portion of
director meeting fees in common stock. Under the 1997 Stock Plan, nonemployee
directors will receive an annual stock grant of 400 shares, payable on a
quarterly basis, as part of their annual retainer. Nonemployee directors may
also elect to receive all or a portion of director meeting fees in shares of
common stock. Effective January 1, 1998, the Board of Directors approved the
Stone & Webster, Incorporated Nonemployee Director Deferral Plan (the "Deferral
Plan"). Under the Deferral Plan, any nonemployee Director may elect to defer all
or a portion of their annual retainer, meeting fees, or other fees paid in
connection with the Board service to a Cash Deferral Account or a Stock Unit
Account. During the year ended December 31, 1998, 5,104 shares were earned,
under the 1997 Stock Plan of which, 1,595 shares were deferred under the
Deferral Plan. During 1997, 5,310 shares were issued to nonemployee directors
under the 1997 Stock Plan and 4,206 shares were issued to nonemployee directors
during 1996 under the 1995 Stock Plan.
(O) RETIREMENT PLANS
The Company and its domestic subsidiaries have a noncontributory defined benefit
plan covering executive, administrative, technical and other employees. The
benefits of this plan are based primarily on years of service and employees'
career average pay. The Company's policy is to make contributions which are
equal to current year cost plus amortization of prior service cost, except as
limited by full funding restrictions. Plan assets consist principally of common
stocks, bonds and U.S. Government obligations.
The Company's international subsidiaries in the United Kingdom and Canada have
defined benefit plans covering executive, administrative, technical and other
employees. The U.K. plan is contributory and the benefits are based primarily on
years of service and employees' average pay during their last ten years of
service. The Canada plan is noncontributory and the benefits are based primarily
on years of service and employees' career average pay. The Company's policy is
to make contributions which are equal to the current year cost plus amortization
of prior service cost. Plan assets consist principally of common stocks and
bonds.
Information about the Company's pension plans is as follows:
December 31, 1998 Domestic International Total
Changes in benefit obligation
Benefit obligation, beginning of year $480,138 $53,351 $533,489
Service cost 8,547 1,826 10,373
Interest cost 32,700 3,591 36,291
Employee contributions - 557 557
Actuarial loss 18,191 2,122 20,313
Special termination benefits 11,552 - 11,552
Curtailment loss 1,265 185 1,450
Settlements - (1,937) (1,937)
Benefits paid (25,271) (2,261) (27,532)
Foreign currency impact - (630) (630)
Benefit obligation, end of year $527,122 $56,804 $583,926
Change in plan assets
Fair value of plan assets, beginning
of year $684,655 $56,727 $741,382
Actual return on plan assets 52,570 1,109 53,679
Contribution - 2,066 2,066
Defined contribution plan contribution
payment - (341) (341)
Settlements - (1,937) (1,937)
Expenses - (182) (182)
Benefits paid (25,271) (2,261) (27,532)
Foreign currency impact - (742) (742)
Fair value of plan assets, end of year $711,954 $54,439 $766,393
Funded status $184,832 $ (2,365) $182,467
Fourth quarter contribution - 503 503
Unrecognized prior service cost 8,576 355 8,931
Unrecognized net (gain) loss (37,668) 5,780 (31,888)
Unrecognized net transition asset (37) (1,479) (1,516)
Prepaid pension cost $155,703 $ 2,794 $158,497
Prepaid pension cost, beginning of year $148,155 $ 898 $149,053
(Expense) income for year 20,677 (203) 20,474
Contributions - 2,012 2,012
Foreign currency impact - 87 87
Curtailment loss (1,265) - (1,265)
Prior service cost recognition (312) - (312)
Special termination benefit (11,552) - (11,552)
Prepaid pension cost $155,703 $ 2,794 $158,497
December 31, 1997 Domestic International Total
Changes in benefit obligation
Benefit obligation, beginning of year $423,876 $46,685 $470,561
Service cost 6,995 2,044 9,039
Interest cost 31,924 3,886 35,810
Employee contributions - 557 557
Actuarial loss 41,693 2,958 44,651
Plan changes - 683 683
Benefits paid (24,350) (2,496) (26,846)
Foreign currency impact - (966) (966)
Benefit obligation, end of year $480,138 $53,351 $533,489
Change in plan assets
Fair value of plan assets, beginning
of year $618,772 $50,030 $668,802
Actual return on plan assets 90,233 8,102 98,335
Contribution - 2,380 2,380
Expenses - (188) (188)
Benefits paid (24,350) (2,496) (26,846)
Foreign currency impact - (1,101) (1,101)
Fair value of plan assets, end of year $684,655 $56,727 $741,382
Funded status $204,517 $ 3,376 $207,893
Unrecognized prior service cost 10,681 802 11,483
Unrecognized net gain (57,210) (1,418) (58,628)
Unrecognized net transition asset (9,833) (1,862) (11,695)
Prepaid pension cost $148,155 $ 898 $149,053
Prepaid pension cost, beginning of year $129,818 $ 363 $130,181
(Expense) income for year 18,337 (1,238) 17,099
Contributions - 1,720 1,720
Foreign currency impact - 53 53
Prepaid pension cost $148,155 $ 898 $149,053
Domestic pension cost is separately captioned in the balance sheet as domestic
prepaid pension cost and is included in long-term assets. The plan's funded
status as of any measurement date is based on prevailing market conditions as to
discount rate and plan assets, and is accordingly subject to volatility. The
projected benefit obligation was determined using assumed discount rates of 6.75
percent at December 31, 1998 and of 7.0 percent at December 31, 1997 and an
assumed long-term rate of compensation increase of 4.5 percent at December 31,
1998 and 1997. Pension cost was determined using an assumed long-term rate of
return on plan assets of 9.25 percent at January 1, 1998, 1997 and 1996.
Net international prepaid pension cost is included in the consolidated balance
sheets in other long-term assets. The plans' funded status as of any measurement
date is based on prevailing market conditions as to discount rate and plan
assets, and is accordingly subject to volatility. The projected benefit
obligation was determined using an assumed weighted discount rate ranging from 6
percent to 8 percent at December 31, 1998 and 7 percent to 8 percent at December
31, 1997, and assumed long-term rates of compensation increases of 4.75 percent
to 5 percent at December 31, 1998 and 5 percent at December 31, 1997. Pension
cost was determined using assumed long-term rates of return on plan assets
ranging from 8 percent to 9 percent for 1998, 1997 and 1996.
The components of net pension (income) expense are as follows:
1998 Domestic International Total
Service cost $ 8,547 $ 1,826 $10,373
Interest cost on projected benefit
obligation 32,700 3,591 36,291
Expected return on assets (53,922) (4,655) (58,577)
Amortization of unrecognized transition
asset (9,795) (299) (10,094)
Amortization of unrecognized prior
service cost 1,793 68 1,861
Curtailment loss 1,265 (309) 956
Prior service cost recognition 312 (360) (48)
Defined contribution expense - 341 341
Special termination benefit 11,552 - 11,552
Pension expense (income) $ (7,548) $ 203 $(7,345)
1997 Domestic International Total
Service cost $ 6,995 $ 2,044 $ 9,039
Interest cost on projected benefit
obligation 31,924 3,886 35,810
Expected return on assets (48,850) (4,336) (53,186)
Amortization of unrecognized transition
asset (10,199) (312) (10,511)
Amortization of unrecognized prior
service cost 1,793 31 1,824
Prior service cost recognition - (75) (75)
Pension expense (income) $(18,337) $1,238 $(17,099)
1996 Domestic International Total
Service cost $ 7,309 $1,565 $ 8,874
Interest cost on projected benefit
obligation 30,496 3,558 34,054
Expected return on assets (45,533) (4,053) (49,586)
Amortization of unrecognized transition
asset (10,383) (321) (10,704)
Amortization of unrecognized prior
service cost 1,793 33 1,826
Amortization of gain and asset gain
deferred 694 - 694
Prior service cost recognition - (156) (156)
Pension expense (income) $(15,624) $ 626 $(14,998)
In the fourth quarter of 1998 a voluntary Incentive Retirement Program (the
"Program") was offered to approximately 600 employees. The Program was accepted
by 206 employees at a total cost of $13,129 ($7,943 after tax, or $0.61 per
share). This charge reduced the domestic pension asset.
Fluctuations in the actual return on plan assets reflect fluctuations in the
market prices of equity securities as well as debt securities owned by the
pension plan.
The Company maintains an Employee Investment Plan ("EIP") which covers
substantially all U.S. based full time employees who meet certain eligibility
requirements. The EIP allows employee participants an election to defer a
percentage of their compensation up to the limitations as determined under
federal law. In addition, the Company contributes a matching amount equal to 25
percent of the employees' elective deferral to the plan, up to the first 5
percent of the employees' annual compensation. The Company, at the discretion of
the Board of Directors, may make discretionary contributions to the plan. For
the years ended December 31, 1998, 1997 and 1996, the Company made matching
contributions of $2,334, $2,461, and $2,374, respectively.
(P) INTERNATIONAL SUBSIDIARIES
Net income (loss) and assets, net of liabilities, of international subsidiaries
amounted to $925 and $32,486 in 1998, $16,308 and $35,248 in 1997 and $5,602 and
$20,018 in 1996, respectively.
(Q) CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, U.S. Government
securities and accounts receivable. The Company maintains its cash balances with
several major financial institutions thus limiting the amount of credit exposure
to any one financial institution. The Company invests all excess cash balances
in U.S. Government treasury securities and repurchase agreements. Concentrations
of credit risk with respect to trade receivables are limited due to the large
number of engineering and construction clients comprising the Company's customer
base and their dispersion across different business and geographic areas. Most
contracts require payments as the projects progress or in certain cases advance
payments. Consistent with industry practices, the Company generally does not
require collateral, but in most cases can place liens against the property,
plant or equipment constructed if a default occurs. The Company maintains
adequate reserves for potential credit losses and such losses have been within
management's estimates.
(R) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, cash equivalents and U.S. Government securities
approximate their fair values because of the short maturity of the instruments.
At December 31, 1998, long-term debt, excluding capital lease obligations,
consists of mortgage loans relating to office buildings and notes payable (see
Note G). The carrying value of these long-term debts was $24,196, which
approximates fair value.
The Company had several foreign exchange forward contracts at December 31, 1998.
These contracts had varying maturities through September 1999. At December 31,
1998, the notional amount of foreign exchange forward contracts outstanding was
$4,483. The fair value and unrealized loss on these contracts was $(286) and
$262, respectively, at December 31, 1998.
The Company and its subsidiaries have entered into other financial agreements in
the normal course of business. These agreements, which by their nature contain
potential risk of loss, include lines of credit, letters of credit, performance
bonds and performance guarantees. The fair values of these agreements are
estimated at $1,225 and $709 at December 31, 1998 and 1997, respectively, based
on the fees paid to obtain the obligations.
(S) BUSINESS SEGMENTS
The Company has two principal businesses: Engineering, Construction and
Consulting and Cold Storage. Each business segment has its respective financial
performance detailed in this report.
The Engineering, Construction and Consulting segment is principally engaged in
providing professional engineering, design, procurement, construction,
consulting and full environmental services for power, process,
environmental/infrastructure and industrial projects worldwide. The Company's
Cold Storage segment offers consolidated distribution of frozen products for
food processors and others throughout the southeastern United States. Although
the Company has numerous clients and is not dependent on any single client, one
or a few clients may contribute a substantial portion of the Company's
consolidated revenue in any one year or over a period of several consecutive
years due to the size of major engineering and construction projects and the
progress accomplished on those projects in that year or period of years. The
Engineering, Construction and Consulting segment had no clients in 1998, one
client in 1997 (12 percent), and no clients in 1996, who accounted for 10
percent or more of consolidated revenue. The Cold Storage segment had no single
customer providing 10 percent or more of consolidated revenue.
Information regarding business segments is shown on page 47 and is incorporated
herein.
(T) QUARTERLY FINANCIAL DATA (UNAUDITED)
1998 First Second Third Fourth
Quarter Quarter Quarter Quarter Year
Revenue $293,957 $317,004 $350,443 $287,376 $1,248,780
Operating income 11,634 1,205 3,881 (89,254) (72,534)
Income before income
taxes 12,420 911 3,511 (89,773) (72,931)
Net income 7,613 651 2,168 (59,734) (49,302)
Basic and diluted
earnings (loss) per
share 0.59 0.05 0.17 (4.64) (3.83)
Diluted earnings per
share(1) 0.59 0.05 0.17 (4.64) (3.83)
(1) Diluted earnings per share includes earnings per share from the following:
Operations $0.20 $(0.19) $(0.06) $(4.27) $(4.32)
Pension related
items 0.24 0.24 0.23 (0.37) 0.34
Earnings per share
from ongoing
operations 0.44 0.05 0.17 (4.64) (3.98)
Asset divestitures 0.15 - - - 0.15
Earnings (loss) per
share $0.59 $0.05 $0.17 $(4.64) $(3.83)
1997 First Second Third Fourth
Quarter Quarter Quarter Quarter Year
Revenue $349,525 $286,258 $368,216 $318,541 $1,322,540
Operating income(loss) 8,802 13,048 13,840 11,602 47,292
Income before income
taxes 9,205 13,650 14,469 13,483 50,807
Net income (loss) 5,568 9,482 9,385 9,075 33,510
Basic earnings per
share 0.43 0.74 0.73 0.71 2.61
Diluted earnings per
share(2) 0.43 0.74 0.73 0.69 2.59
(2) Diluted earnings per share includes earnings per share from the following:
Operations $0.22 $0.47 $0.53 $0.08 $1.30
Pension related items 0.21 0.21 0.20 0.18 0.80
Earnings per share
from ongoing
operations 0.43 0.68 0.73 0.26 2.10
Divested operations - 0.06 - 0.02 0.08
Asset divestitures - - - 0.41 0.41
Earnings per share $0.43 $0.74 $0.73 $0.69 $2.59
A substantial portion of the Company's business is derived from long-term
engineering and construction contracts. Revenue is determined on the
percentage-of-completion method. Under this method, revisions to earnings
estimates recorded in any quarterly period may be adjusted to revenue and cost
of revenue recognized in prior periods and may in turn be further adjusted
during subsequent quarters. Accordingly, historical results may vary from
quarter to quarter.
(U) CONSOLIDATED STATEMENT OF CASH FLOWS
The changes in operating working capital as shown in the Consolidated Statement
of Cash Flows consists of:
Years Ended December 31,
1998 1997 1996
Decrease (increase) in:
Accounts receivable $(96,178) $ 1,843 $(21,278)
Costs and revenue recognized in excess of
billings 53,174 7,547 (55,542)
Increase in:
Accounts payable 10,796 8,787 21,240
Billings in excess of costs and revenue
recognized 60,962 11,988 36,766
Changes in operating working capital
assets and liabilities $ 28,754 $30,165 $(18,814)
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 4,072 $1,731 $3,658
Income taxes $ 5,651 $5,634 $3,920
Supplemental disclosures of noncash
investing and financing activities:
Receipt of note for asset held for sale $ - $15,000 $ -
Transfer of Auburn VPS Partnership
property, plant and equipment to
construction lenders - - 53,276
Extinguishment of Auburn VPS Partnership
debt - (48,750)
Other, net - (3,272)
Fair value of assets acquired 13,653 - -
Liabilities assumed (4,653) - -
$ 9,000 $15,000 $ 1,254
Selected Financial Data
(Dollars in thousands, except per share amounts.)
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Revenue:
Engineering, Construction
and Consulting $1,214,468 $1,299,220 $1,143,587 $ 981,631 $761,975
Cold Storage 34,312 23,320 21,250 21,188 17,280
Total revenue $1,248,780 $1,322,540 $1,164,837 $1,002,819 $779,255
Operating income (loss)(3) $ (72,534) $ 47,292 $ (25,920) $ 35,041 $(42,097)
Income (loss) from
continuing operations $ (49,302) $ 33,510 $ (17,431) $ 14,880 $ (7,807)
Net income (loss)(1,2 and 3) $ (49,302) $ 33,510 $ (10,644) $ 14,880 $ (7,807)
Weighted average shares of
common and common stock
equivalents outstanding 12,886 12,929 13,223 14,376 14,907
Basic income (loss) from
continuing operations per
share $(3.83) $2.61 $(1.32) $1.04 $(0.52)
Diluted income (loss) from
continuing operations per
share $(3.83) $2.59 $(1.32) $1.04 $(0.52)
Basic earnings (loss) per
share (1, 2 and 3) $(3.83) $2.61 $(0.80) $1.04 $(0.52)
Diluted earnings (loss) per
share (1, 2 and 3) $(3.83) $2.59 $(0.80) $1.04 $(0.52)
Dividends declared per
share(4) $0.60 $0.60 $ 0.45 $0.60 $ 0.60
Total assets $ 834,682 $ 738,777 $ 692,065 $ 716,772 $678,384
Long-term debt $ 22,058 $ 22,510 $ 24,260 $ 74,677 $ 89,642
</TABLE>
Notes:
(1) Reflects gain or loss on sale of assets, which increased net income by
$1,993, or $0.15 per share in 1998, $5,363, or $0.41 per share in 1997,
decreased net income by $7,511, or $0.52 per share in 1995, and increased
net income by $21,208, or $1.42 per share in 1994.
(2) Includes income from divested operations of $1,048, or $0.08 per share in
1997, and an extraordinary gain of $6,787, or $0.52 per share in 1996 on
debt extinguishment from transfer of Auburn VPS Partnership assets to the
construction lenders.
(3) Net Income includes a provision for contract losses of $53,891 or $4.18 per
share (operating income includes $87,274) and a write-down of fixed assets
of $3,838 or $0.30 per share (operating income includes $6,367) in 1998, a
provision for the Company's share of contract losses on a joint venture in
the Middle East of $15,469, or $1.20 per share (operating income includes
$25,781) in 1997, restructuring and other charges of $28,516, or $2.14 per
share (operating income includes $54,424 for these items) in 1996 (see Note
D to the consolidated financial statements), a write-down of the Company's
equity interest in Binghamton Cogeneration Partnership to fair value in
1996 which reduced net income by $2,712, or $0.21 per share, costs
associated with the Incentive Retirement Program of $7,943, or $0.61 per
share in 1998, $1,416, or $0.10 per share in 1995, pension curtailment
gains which increased net income by $218, or $0.02 per share in 1994,
severance costs which decreased net income by $12,596, or $0.84 per share
in 1994.
(4) In the fourth quarter of 1996, the Company changed the quarterly dividend
declaration date to the first month of the quarter from the month preceding
the quarter. This change had no effect on the annual dividend payment rate
of $0.60 per share, although dividends declared in 1996 totaled $0.45 per
share.
Market and Dividend Information (Unaudited)
Principal Market - New York Stock Exchange
Sales Price of Dividends Paid
Common Shares Per Share (1)
1998 1997 1998 1997
Quarter High Low High Low
First $46 3/4 $38 $37 1/2 $31 1/8 $0.15 $0.15
Second 50 1/8 37 7/8 45 3/8 36 0.15 0.15
Third 41 30 7/8 55 41 7/8 0.15 0.15
Fourth 34 1/8 28 15/16 55 1/8 41 1/4 0.15 0.15
(1) See Note L to the consolidated financial statements.
The Company has purchased and may continue to purchase from time to time
additional shares of its common stock for general corporate purposes on the New
York Stock Exchange, or otherwise. However, there is no assurance that the
Company will continue to purchase shares of its common stock. Also, see Note K
to the consolidated financial statements. The approximate number of record
holders of common stock as of December 31, 1998 was 5,200. The common stock is
also listed for trading on the Boston Stock Exchange.
<PAGE>
Report of Management
The management of Stone & Webster, Incorporated is responsible for the
preparation of the financial statements and related notes included in this
annual report to shareholders. The financial statements have been prepared in
conformity with generally accepted accounting principles and accordingly include
certain amounts which represent management's best estimates and judgments.
Management maintains internal systems to assist it in fulfilling its
responsibility for financial reporting, including careful selection of
personnel, segregation of duties and the maintenance of formal accounting and
reporting policies and procedures. While no system can ensure elimination of all
errors and irregularities, the systems have been designed to provide reasonable
assurance that assets are safeguarded, policies and procedures are followed and
transactions are properly executed and reported. These systems are reviewed and
modified in response to changing conditions. Management believes that the
Company's system of internal controls is adequate to accomplish the objectives
discussed herein.
The system is supported by an internal auditing function that operates worldwide
and reports its findings to management throughout the year. The Company's
independent accountants are engaged to express an opinion on the year-end
financial statements. The independent accountants review and test the system of
internal accounting controls and the data contained in the financial statements
to the extent required by generally accepted auditing standards as they deem
necessary to arrive at an opinion on the fairness of the financial statements
presented herein.
The Audit Committee of the Board of Directors, which is comprised of outside
directors, meets regularly with management, the internal auditors and the
independent accountants to discuss the adequacy of internal controls, the
reported financial results and the results of the auditors' examinations. The
internal auditors and the independent accountants have direct access to the
Audit Committee and meet privately with the Committee.
H. Kerner Smith Thomas L. Langford
Chairman, President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of Stone & Webster, Incorporated:
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations and comprehensive income, shareholders'
equity and cash flows present fairly, in all material respects, the financial
position of Stone & Webster, Incorporated and its subsidiaries at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999
<PAGE>
Business Segment Information
(See Note S to the consolidated financial statements.
All dollar amounts are in thousands.)
Business Segments 1998 1997 1996
Revenue (1)
Engineering, Construction and
Consulting $1,214,468 $1,299,220 $1,143,587
Cold Storage 34,312 23,320 21,250
Total revenue $1,248,780 $1,322,540 $1,164,837
Operating income (loss)(2)
Engineering, Construction and
Consulting $ (81,024) $ 39,952 $ (31,874)
Cold Storage 8,490 7,340 5,954
Operating income (loss) (72,534) 47,292 (25,920)
Interest and dividend income 3,679 4,269 3,268
Interest expense (4,076) (1,739) (6,737)
Gain on sale of assets - 985 -
Income (loss) before taxes and
extraordinary item $ (72,931) $ 50,807 $ (29,389)
Identifiable assets (3)
Engineering, Construction and
Consulting $ 710,381 $ 694,751 $ 649,431
Cold Storage 124,301 44,026 42,634
Total identifiable assets $ 834,682 $ 738,777 $ 692,065
Depreciation, depletion and
amortization
Engineering, Construction and
Consulting $ 19,876 $ 11,041 $ 14,629
Cold Storage 3,847 2,640 2,264
Total depreciation, depletion and
amortization $ 23,723 $ 13,681 $ 16,893
Capital expenditures
Engineering, Construction
and Consulting $ 14,706 $ 23,454 $ 14,388
Cold Storage 5,584 2,455 9,995
Total capital expenditures $ 20,290 $ 25,909 $ 24,383
Geographic Areas 1998 1997 1996
Revenue
United States - Domestic $ 517,644 $ 659,005 $ 703,832
United States - Export(4) 274,490 396,194 187,324
United States - Total 792,134 1,055,199 891,156
International 456,646 267,341 273,681
Total revenue $1,248,780 $1,322,540 $1,164,837
Operating income (loss)(2)
United States $ (76,885) $ 27,995 $ (31,071)
International 4,351 19,297 5,151
Operating income (loss) $ (72,534) $ 47,292 $ (25,920)
Identifiable assets(3)
United States $ 739,617 $ 620,111 $ 644,173
International 95,065 118,666 47,892
Total identifiable assets $ 834,682 $ 738,777 $ 692,065
(1) Total segment revenue includes revenue from unaffiliated customers as
reported in the consolidated statements of operations and comprehensive
income.
(2) The pension related items included in operating income (loss) are:
(Income) Expense 1998 1997 1996
Engineering, Construction and
Consulting $ (7,458) $ (17,200) $ (15,098)
Cold Storage 113 101 100
Total pension related items $ (7,345) $ (17,099) $ (14,998)
Pension related items include the effect of incentive retirement programs.
Domestic and international pension related items are presented in Note O to the
consolidated financial statements.
(3) Identifiable assets are those assets used in the operation of each segment.
(4) Far East/Pacific geographic area includes Indonesia which accounted for 10
percent of consolidated revenue in 1998 and 13 percent in 1997. No other
international geographic area accounted for more than 10 percent of
consolidated revenue in 1998, 1997 or 1996.
1998 1997 1996
Far East/Pacific $ 157,870 $ 246,743 $ 105,925
Other 116,620 149,451 81,399
United States - Export $ 274,490 $ 396,194 $ 187,324
<PAGE>
EXHIBIT 13 (ii)
Stone & Webster, Incorporated and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(All dollar amounts are in thousands.)
Col. A Col. B Col. C Col. D Col. E
Additions
Balance at Charged to Charged Balance at
Beginning Costs and to Other End of
Description of Period Expenses Accounts Deductions Period
Allowance deducted from asset to which it applies:
Allowance for doubtful accounts:
Year ended December 31, 1998
$6,689 $1,276 $ - $ 798 (A) $7,167
Year ended December 31, 1997
$3,626 $5,878 $ - $2,815 (A) $6,689
Year ended December 31, 1996
$3,767 $1,280 $ - $1,421 (A) $3,626
Note A - Uncollected receivables written off, net of recoveries
<PAGE>
EXHIBIT 13 (iii)
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors of Stone & Webster, Incorporated:
Our audits of the consolidated financial statements referred to in our report
dated February 12, 1999 appearing in the 1998 Annual Report to Shareholders of
Stone & Webster, Incorporated (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14(a)(1)(ii) of this Form 10-K. In our opinion, the financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999
<PAGE>
EXHIBIT 21
Subsidiaries of Registrant
Subsidiaries of Registrant on December 31, 1998 included:
PLACE OF
NAME OF SUBSIDIARY INCORPORATION
Enclave Parkway Realty, Inc. Delaware
Nordic Holdings, Inc. Delaware
Nordic Rail Services, Inc. North Carolina
Nordic Transportation Services, Inc. North Carolina
Nordic Investors, Inc. Nevada
Nordic Refrigerated Services, Inc. North Carolina
Prescient Technologies, Inc. Delaware
Sabal Corporation Florida
Sabal Real Estate Corporation Delaware
Sleeper Street Realty Corporation Delaware
Stone & Webster Development Corporation Delaware
Auburn VPS General Corporation Delaware
Auburn VPS Limited Corporation Delaware
Stone & Webster Auburn Corporation Delaware
Stone & Webster Binghamton Corporation Delaware
Stone & Webster Wallingford Corporation Delaware
SWL Corporation Delaware
Stone & Webster Engineers and Constructors, Inc. Delaware
3 Executive Campus Corporation Delaware
245 Summer Street Corporation Massachusetts
1430 Enclave Parkway Corporation Delaware
Belmont Constructors Company, Inc. Delaware
DSS Engineers, Inc. Florida
Fast Supply Corporation Delaware
GSES Holding, LLC New Jersey
SC Wood, LLC Delaware
Marion Engineers and Constructors, Inc. Delaware
Rockton Associates, Incorporated Delaware
SAW Consulting Services, Inc. Delaware
Stone & Webster Civil and Transportation Services, Inc. Massachusetts
Stone & Webster Construction Company, Inc. Delaware
Stone & Webster Canada Limited Canada
Rockton Field Services of Canada Ltd. Canada
Stone & Webster Engineering Corporation Massachusetts
Stone & Webster International of Mauritius Limited Mauritius
Stone & Webster India Private Limited India
Stone & Webster Industrial Technology Corporation Delaware
Stone & Webster Management Consultants, Inc. New York
Power Technologies, Inc. New York
Stone & Webster of Argentina Corporation Delaware
Stone & Webster Overseas Consultants, Inc. Delaware
Stone & Webster Michigan, Inc. Michigan
Stone & Webster Operating Corporation Delaware
Stone & Webster Overseas Group, Inc. Delaware
Advanced Technologies (Cayman) Limited Cayman Islands
Selective Technologies Corporation Delaware
Associated Engineers & Consultants, Inc. New York
AEC International Projects, Inc. Delaware
International Associates (Cayman) Limited Cayman Islands
International Engineers & Constructors, Incorporated Delaware
Process Engineers (Cayman) Limited Cayman Islands
Projects Engineers, Incorporated Delaware
Rockton Technical Services Corporation Delaware
Stone & Webster Abu Dhabi (United Arab Emirates), Inc. Delaware
Stone & Webster Asia Corporation Delaware
Stone & Webster Bharat, Incorporated Delaware
Stone & Webster do Brazil Limitada Brazil
Stone & Webster Dominican Republic, Incorporated Delaware
Stone & Webster Far East Technical Services Corp. Delaware
Stone & Webster Group Limited England
Stone & Webster Abu Dhabi (United Arab Emirates)
Limited England
Stone & Webster Anadolu Muhendislik Muteahhitlik
Dis Ticaret Limited Sirketi Turkey
Stone & Webster Construction Limited England
Stone & Webster Engineering Limited England
Stone & Webster Services Limited England
Stone & Webster Services Sdn. Bhd. Malaysia
Stone & Webster Engineering (Mauritius) Limited Mauritius
Stone & Webster Engineering and Field Services
Limited England
Stone & Webster Management Consultants Limited England
Stone & Webster Indonesia Corporation Delaware
Stone & Webster Inter-American Corporation Delaware
Stone & Webster International Corporation Delaware
Stone & Webster International Projects Corporation Delaware
Stone & Webster International Sales Corporation U.S. Virgin Islands
Stone & Webster Italia, Incorporated Delaware
Stone & Webster Korea Corporation Delaware
Stone & Webster Kuwait, Incorporated Delaware
Stone & Webster Lithuania Corporation Delaware
Stone & Webster of Mexico Engineering Corporation Delaware
Stone & Webster Middle East Engineering Services
Corporation Delaware
Stone & Webster Pacific Corporation Delaware
Stone & Webster Power Engineering Corporation Delaware
Stone & Webster Puerto Rico, Incorporated Delaware
Stone & Webster Saudi Arabia, Incorporated Delaware
Stone & Webster Taiwan Corporation Delaware
Stone & Webster Technology Corporation Delaware
Stone & Webster Technology B.V. Netherlands
Stone & Webster (Thailand) Limited Thailand
Stone & Webster Power Projects Corporation Delaware
Stone & Webster Procurement Corporation Delaware
Stone & Webster Worldwide Engineering Corporation Delaware
Stone & Webster Oil Company, Inc. Texas
Summer Street Realty Corporation Massachusetts
<PAGE>
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the registration
statements on Form S-8 (File Nos. 333-19829, 333-19849, 33-60489, 33-60483 and
333-71857) and on Form S-4 (File No. 333-57961) of Stone & Webster, Incorporated
of our report dated February 12, 1999 relating to the consolidated financial
statements, which appears in the Annual Report to Shareholders, which is
incorporated in this Annual Report on Form 10-K. We also consent to the
inclusion of our report on the financial statement schedule, which appears in
this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 26, 1999
<PAGE>
EXHIBIT 24 (i)
Secretary's Certificate
I, James P. Jones, Vice President, Secretary and General Counsel of Stone &
Webster, Incorporated (the "Corporation"), a Delaware corporation, do hereby
certify that the following resolution was duly adopted by the Board of Directors
of the Corporation at a meeting held on February 24, 1998, and that such
resolution is still in full force and effect:
RESOLVED - that any report, registration statement or other form filed on
behalf of this Corporation pursuant to the Securities Exchange Act of 1934, or
any amendment to such report, registration statement or other form, may be
signed on behalf of any Director or Officer of this Corporation pursuant to a
Power of Attorney executed by such Director or Officer.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of
the Corporation this 26th day of March 1999.
/S/ JAMES P. JONES
(Seal) ______________________________________________
James P. Jones
Vice President, Secretary and
General Counsel
<PAGE>
EXHIBIT 24 (ii)
Powers of Attorney
BE IT KNOWN: That the undersigned, in my capacity or capacities as a member
of the Board of Directors and/or Officer of Stone & Webster, Incorporated, a
Delaware corporation (the "Company"), does hereby make, constitute and appoint
H. Kerner Smith and James P. Jones, and each of them acting individually, my
true and lawful attorney-in-fact with power to act without the other and with
full power of substitution, to execute, deliver and file, for and on behalf of
the undersigned, in my name and in my capacity or capacities as aforesaid, an
Annual Report of the Company on Form 10-K for the year ended December 31, 1998,
and any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 23rd day of February 1999.
/s/ DONNA F. BETHELL
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in my capacity or capacities as a member
of the Board of Directors and/or Officer of Stone & Webster, Incorporated, a
Delaware corporation (the "Company"), does hereby make, constitute and appoint
H. Kerner Smith and James P. Jones, and each of them acting individually, my
true and lawful attorney-in-fact with power to act without the other and with
full power of substitution, to execute, deliver and file, for and on behalf of
the undersigned, in my name and in my capacity or capacities as aforesaid, an
Annual Report of the Company on Form 10-K for the year ended December 31, 1998,
and any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 23rd day of February 1999.
/s/ FRANK J. A. CILLUFFO
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in my capacity or capacities as a member
of the Board of Directors and/or Officer of Stone & Webster, Incorporated, a
Delaware corporation (the "Company"), does hereby make, constitute and appoint
H. Kerner Smith and James P. Jones, and each of them acting individually, my
true and lawful attorney-in-fact with power to act without the other and with
full power of substitution, to execute, deliver and file, for and on behalf of
the undersigned, in my name and in my capacity or capacities as aforesaid, an
Annual Report of the Company on Form 10-K for the year ended December 31, 1998,
and any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 23rd day of February 1999.
/s/ KENT F. HANSEN
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in my capacity or capacities as a member
of the Board of Directors and/or Officer of Stone & Webster, Incorporated, a
Delaware corporation (the "Company"), does hereby make, constitute and appoint
H. Kerner Smith and James P. Jones, and each of them acting individually, my
true and lawful attorney-in-fact with power to act without the other and with
full power of substitution, to execute, deliver and file, for and on behalf of
the undersigned, in my name and in my capacity or capacities as aforesaid, an
Annual Report of the Company on Form 10-K for the year ended December 31, 1998,
and any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 23rd day of February 1999.
/s/ ELVIN R. HEIBERG III
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in my capacity or capacities as a member
of the Board of Directors and/or Officer of Stone & Webster, Incorporated, a
Delaware corporation (the "Company"), does hereby make, constitute and appoint
H. Kerner Smith and James P. Jones, and each of them acting individually, my
true and lawful attorney-in-fact with power to act without the other and with
full power of substitution, to execute, deliver and file, for and on behalf of
the undersigned, in my name and in my capacity or capacities as aforesaid, an
Annual Report of the Company on Form 10-K for the year ended December 31, 1998,
and any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 23rd day of February 1999.
/s/ DAVID N. MCCAMMON
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in my capacity or capacities as a member
of the Board of Directors and/or Officer of Stone & Webster, Incorporated, a
Delaware corporation (the "Company"), does hereby make, constitute and appoint
H. Kerner Smith and James P. Jones, and each of them acting individually, my
true and lawful attorney-in-fact with power to act without the other and with
full power of substitution, to execute, deliver and file, for and on behalf of
the undersigned, in my name and in my capacity or capacities as aforesaid, an
Annual Report of the Company on Form 10-K for the year ended December 31, 1998,
and any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 23rd day of February 1999.
/s/ J. ANGUS MCKEE
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in my capacity or capacities as a member
of the Board of Directors and/or Officer of Stone & Webster, Incorporated, a
Delaware corporation (the "Company"), does hereby make, constitute and appoint
H. Kerner Smith and James P. Jones, and each of them acting individually, my
true and lawful attorney-in-fact with power to act without the other and with
full power of substitution, to execute, deliver and file, for and on behalf of
the undersigned, in my name and in my capacity or capacities as aforesaid, an
Annual Report of the Company on Form 10-K for the year ended December 31, 1998,
and any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 23rd day of February 1999.
/s/ JOHN P. MERRILL, JR.
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in my capacity or capacities as a member
of the Board of Directors and/or Officer of Stone & Webster, Incorporated, a
Delaware corporation (the "Company"), does hereby make, constitute and appoint
H. Kerner Smith and James P. Jones, and each of them acting individually, my
true and lawful attorney-in-fact with power to act without the other and with
full power of substitution, to execute, deliver and file, for and on behalf of
the undersigned, in my name and in my capacity or capacities as aforesaid, an
Annual Report of the Company on Form 10-K for the year ended December 31, 1998,
and any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 23rd day of February 1999.
/s/ BERNARD W. REZNICEK
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in my capacity or capacities as a member
of the Board of Directors and/or Officer of Stone & Webster, Incorporated, a
Delaware corporation (the "Company"), does hereby make, constitute and appoint
H. Kerner Smith and James P. Jones, and each of them acting individually, my
true and lawful attorney-in-fact with power to act without the other and with
full power of substitution, to execute, deliver and file, for and on behalf of
the undersigned, in my name and in my capacity or capacities as aforesaid, an
Annual Report of the Company on Form 10-K for the year ended December 31, 1998,
and any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorneys, and each of them, full power and authority to do and perform each and
every act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or capacities as
aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 23rd day of February 1999.
/s/ PETER M. WOOD
<PAGE>
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