UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............... to ...............
Commission File Number 1-1228
Stone & Webster, Incorporated
(Exact name of registrant as specified in its charter)
Delaware 13-5416910
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
245 Summer Street, Boston, MA 02210
(Address of Principal Executive Offices) (Zip Code)
(617) 589-5111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X. No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: 14,226,005 shares as of May 8, 2000.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Form 10-Q
Index
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited):
Three Months Ended March 31, 2000 and 1999..............3
Consolidated Balance Sheets
March 31, 2000 (Unaudited) and December 31, 1999........4
Condensed Consolidated Statements of Cash Flows
(Unaudited):
Three Months Ended March 31, 2000 and 1999..............5
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................6-9
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition....................10-13
PART II. OTHER INFORMATION
Item 5. Other Information.......................................14
Item 6. Exhibits and Reports on Form 8-K........................14
SIGNATURES................................................................15
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
Stone & Webster, Incorporated and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
(See Note (B))
Three Months Ended
March 31,
2000 1999
Revenue $414,337 $254,656
Cost of revenue 387,013 307,283
-------- --------
Gross profit (loss) 27,324 (52,627)
General and administrative expenses 16,550 16,726
-------- --------
Operating income (loss) 10,774 (69,353)
Other income (expense):
Interest income 674 661
Interest expense (1,086) (1,958)
-------- --------
Total other income (expense), net (412) (1,297)
-------- --------
Income (loss) from continuing operations before
provision for taxes 10,362 (70,650)
-------- --------
Income tax provision (benefit) 4,232 (10,000)
-------- --------
Income (loss) from continuing operations 6,130 (60,650)
Income from discontinued operation, net of tax 1,110 1,956
-------- --------
Net income (loss) $ 7,240 $(58,694)
======== ========
Per share amounts:
- -----------------
Basic and diluted earnings (loss) per share
Continuing operations $0.43 $(4.65)
Discontinued operations 0.08 0.15
----- ------
Total earnings (loss) per share $0.51 $(4.50)
===== ======
Dividends declared per share $ - $ 0.15
===== ======
Weighted-average number of shares outstanding:
Basic 14,219 13,053
====== ======
Diluted 14,219 13,053
====== ======
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands, per share amounts)
(See Note (B))
March 31,
2000 December 31,
(Unaudited) 1999
----------- ------------
Assets
Current assets:
Cash and cash equivalents $ 36,911 $106,481
Accounts receivable, principally trade, net 280,183 288,824
Costs and revenues recognized in excess of
billings 121,043 98,663
Deferred income taxes 20,540 23,286
Other 829 404
-------- --------
Total current assets 459,506 517,658
Fixed assets, net 84,967 73,837
Domestic prepaid pension cost 162,867 157,089
Net assets of discontinued operations 111,681 112,110
Assets held for sale 6,744 6,744
Prepaid expenses 12,378 11,719
Other assets 20,957 36,139
-------- --------
Total assets $859,100 $915,296
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Bank loans $ 24,359 $ 22,793
Current portion of long-term debt 2,328 2,344
Accounts payable, principally trade 136,371 161,218
Billings in excess of costs and revenues
recognized 252,532 275,461
Accrued liabilities 58,066 76,612
Accrued taxes 17,138 17,371
-------- --------
Total current liabilities 490,794 555,799
Long-term debt 19,035 19,950
Deferred income taxes 23,124 23,286
Other liabilities 13,070 11,216
Shareholders' equity:
Preferred stock, no par value; authorized
2,000,000 shares; none issued - -
Common stock, $1 par value; authorized 40,000,000
shares; 17,731,488 shares issued including shares
held in treasury 17,731 17,731
Capital in excess of par value of common stock 42,017 42,579
Retained earnings 369,952 362,712
Accumulated other comprehensive income (9,776) (10,347)
Less: Common stock held in treasury, at cost
(3,495,103 and 3,554,102 shares) 90,560 92,091
Employee stock ownership and restricted
stock plans 16,287 15,539
-------- --------
Total shareholders' equity 313,077 305,045
-------- --------
Total liabilities and shareholders' equity $859,100 $915,296
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months
Ended March 31,
2000 1999
---- ----
Cash Flows from Operating Activities:
Net income (loss) $ 7,240 $(58,694)
Adjustments:
Income from discontinued operation (1,110) -
Depreciation and amortization 4,622 6,066
Amortization of net cost of stock plans 382 562
Deferred income taxes 2,584 (11,205)
Domestic prepaid pension cost (5,778) (3,622)
Changes in operating assets and liabilities (77,545) 60,773
-------- --------
Net cash provided (used) by operating activities (69,605) (6,120)
-------- --------
Cash Flows from Investing Activities:
Purchases of fixed assets (922) (6,639)
Proceeds from note receivable - 15,150
-------- --------
Net cash provided (used) by investing activities (922) 8,511
-------- --------
Cash Flows from Financing Activities:
Repayments of long-term debt (931) (532)
Bank Loans 1,566 (375)
Dividends paid - (1,959)
-------- --------
Net cash provided (used) by financing activities 635 (2,866)
-------- --------
Net cash provided (by discontinued operation 322 -
-------- --------
Net decrease in cash and cash equivalents (69,570) (475)
Cash and cash equivalents at beginning of period 106,481 45,492
-------- --------
Cash and cash equivalents at end of period $ 36,911 $ 45,017
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(A) The accompanying unaudited condensed consolidated financial statements of
Stone & Webster, Incorporated and Subsidiaries (the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles
for complete financial statements. The December 31, 1999 consolidated
balance sheet data was derived from audited financial statements but does
not include all disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the quarter ended March 31, 2000
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2000 or for any other future period. For
further information, refer to the consolidated financial statements and
notes included in the Company's Annual Report on Form 10- K 405/A for the
fiscal year ended December 31, 1999 filed with the SEC on May 9, 2000.
The preparation of condensed consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
(B) Company officials were recently notified of an unanticipated cost overrun
on a key project by a major subcontractor related to estimates to complete
work during the first half of 2000. As a result of this information, the
Company subsequently conducted a thorough review of this project and, based
on this review, recorded a provision of $27.5 million to complete work on
the project, and its 1999 financial statements were revised for such
matter.
As a result of the liquidity problems created by the unanticipated project
overrun, coupled with previously reported operating losses, the Company
accelerated its discussions with potential lenders and strategic partners
to provide interim and long-term financing. In addition, the Company
initiated substantive discussions regarding possible strategic transactions
that may result in the sale of all or part of its engineering and
construction business, and is continuing to pursue the sale of its Nordic
Refrigerated Services business as planned. The Company also initiated
discussions with certain subcontractors with regard to extended payment
terms.
The issuance of a modified opinion by the Company's independent public
accountants in connection with their audit of the consolidated financial
statements of the Company for the year ended December 31, 1999, is a
default under its recently extended credit facility. The Company has
received a waiver related to this default and certain other matters from
its principal bank lenders until May 31, 2000 and is in discussion with the
agent bank for such bank lenders for further extension of the waiver.
On May 8, 2000, the Company signed a letter of intent to sell substantially
all of its assets in exchange for $150.0 million in cash and stock, and the
assumption of substantially all of the Company's liabilities shown on its
March 31, 2000 balance sheet, standby letters of credit, and its
liabilities under a new credit facility entered into on May 9, 2000
pursuant to which up to $50.0 million of credit is being made available to
the Company. The $50.0 million credit facility is intended to enable the
Company to address its current liquidity difficulties and continue to
operate its business until the asset sale is consummated.
In addition, the Company, as a condition to the proposed sale of its
assets, intends to seek bankruptcy court approval of the asset sale.
Accordingly, the Company intends to file a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code following the
execution of a definitive sale agreement, which is expected to occur by
early June 2000. The proposed asset sale transaction is conditioned on
completion of due diligence by the purchaser, negotiation and execution of
a definitive agreement, approval under Hart-Scott-Rodino Act, and other
customary conditions. The letter of intent contemplates that the purchaser
may not assume liabilities associated with certain of the Company's
existing contracts, which contracts, will not be identified until after
completion of due diligence. Completion of the sale will likely result in
the recognition of a substantial loss since the net book value of the
Company's assets is currently more than $300.0 million. Determination of
the amount of the loss is not reasonably possible at this time until after
negotiation of a definitive sale agreement and completion of the
competitive bid process provided for under Chapter 11.
(C) Fixed assets, net are stated at cost less accumulated depreciation of
$104.2 million at March 31, 2000 and $102.3 million at December 31, 1999.
(D) On October 27, 1999, the Company announced its intention to sell the Nordic
Refrigerated Services business unit (cold storage segment). The Company is
seeking a buyer and has retained outside consultants to assist with this
sale. Accordingly, the results of the Nordic Refrigerated Services business
unit have been classified as a discontinued operation and prior periods
have been reclassified. The contemplated sale of substantially all of the
Company's assets discussed in Note (B) includes the assets associated with
the cold storage segment (or the proceeds therefrom if the sale of the cold
storage business precedes the sale of the remainder of the Company's
assets). The continuing operations of the Company are the Engineering,
Construction and Consulting business.
Revenue and income from discontinued operation are as follows:
Three Months Ended
March 31,
(in thousands) 2000 1999
---- ----
Revenue $10,693 $11,442
Operating income 1,708 1,956
Income tax expense 598 -
------- -------
Income from discontinued operation $ 1,110 $ 1,956
Net assets from discontinued operation are as follows:
March 31, December 31,
2000 1999
---- ----
(in thousands)
Cash $ 2,186 $ 1,864
Other current assets 5,402 5,933
Property plant and equipment, net 109,484 110,108
Other assets 6,289 4,848
Current liabilities (1,386) (1,201)
Deferred taxes (10,294) (9,442)
-------- --------
Net assets of discontinued operation $111,681 $112,110
======== ========
(E) Basic earnings per share for the three months ended March 31, 2000 and 1999
were computed based on the weighted- average number of common shares
outstanding during the period of 14,218,800 and 13,052,578, respectively.
For the three months ended March 31, 2000, dilutive potential common shares
of 1,139,511 relating to stock options were not included in the computation
of diluted earnings per share since all options outstanding have an
exercise price greater than market value. For the three months ended March
31, 1999, dilutive potential common shares of 986,046 relating to stock
options were not included in the computation of diluted earnings per share
since their effect would be antidilutive.
(F) The Company had a valuation allowance of $17.1 million at March 31, 2000
and $16.0 million at December 31, 1999 for the deferred tax assets related
to net operating loss carryforwards. The valuation allowance at March 31,
2000 comprises $2.7 million relating to U.S. net operating losses, $11.8
million relating to state net operating loss carryforwards and $2.6 million
relating to the loss carryforwards of international subsidiaries.
(G) Pension related items, which reduced operating costs, were $5.3 million for
the quarter ended March 31, 2000 compared to $3.3 million for the same
period in the prior year. These items increased net income by $3.2 million,
or $0.22 per share for the quarter ended March 31, 2000, compared with $2.0
million, or $0.15 per share for the same periods in 1999. Pension related
items include a net pension credit for the Company's domestic subsidiaries
and a net pension cost for its foreign subsidiaries. The pension credit is
the result of a plan that is funded in excess of the projected benefit
obligation, which is primarily due to favorable asset performance.
(H) Under the 1995 Stock Option Plan, as of March 31, 2000, nonqualified
options for 523,000 shares were outstanding and options for 434,125 shares
were exercisable. For the three months ended March 31, 2000, no options
were exercised, 11,250 options were canceled and no options were
accelerated.
Under the Stone & Webster, Incorporated Long-Term Incentive Compensation
Plan (the "1998 Plan") as of March 31, 2000, options for 546,000 shares
were outstanding and 195,542 options were exercisable. For the three months
ended March 31, 2000, no options were exercised, 109,750 options were
canceled, and no options were accelerated. Comprehensive income (loss) was
$7.8 million and $(58.4) million for the quarters ended March 31, 2000 and
1999, respectively. Other comprehensive income consists of translation
adjustments of $0.6 million and $0.3 million for the quarters ended March
31, 2000 and 1999, respectively.
(I) Certain financial statement items have been reclassified to conform to the
current presentation.
(J) Although the Company continues to have possible liabilities related to
environmental pollution and other legal actions, management believes, on
the basis of its assessment of these matters, including consultation with
counsel, that none of these pending legal actions nor such possible
liabilities will result in payments of amounts, if any, that would have a
material adverse effect on the Company's financial position, results of
operations or earnings per share calculations.
The Trans-Pacific Petrochemical Indotama ("TPPI") project remains suspended
pending resolution of financing issues by the client. The 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. Had the TPPI project been cancelled as of March 31, 2000, and if
resale of the olefins plant was unlikely to be completed, the Company would
have recorded a pre-tax charge of $78.6 representing project working
capital plus current procurement commitments, net of the estimated salvage
value of procured equipment and materials. On a similar basis, the pre-tax
charge would have been $72.3 million in 1999. The TPPI project is included
in the Company's backlog in the amounts of $399.6 million and $426.0
million, respectively, at March 31, 2000 and 1999.
The first quarter 2000 results include operating income of $12.9 million
from a settlement reached on an international project, which settlement
reduces amounts expected to be paid by the Company to the customer. The
1999 first quarter results reflected provisions of $74.2 million to cover
completion costs for two international projects, one of which was the
project for which a settlement was reached in the current quarter.
Management believes that it has valid contractual and equitable grounds for
change orders providing additional compensation under the other project.
The Company has or expects to submit claims greater than losses incurred to
date.
A joint venture, in which the Company is a 50 percent owner, has submitted
claims to recover approximately $115.0 million in connection with scope and
specification changes on a major petrochemical project in the Middle East.
The joint venture has been notified of claims of approximately $62.0
million which have been submitted by a subcontractor who has filed for
arbitration. Substantially all of the subcontractor's claims have been
included in the claims submitted by the joint venture to its client. The
Company believes that current reserves are adequate to cover these claims,
and has not recognized any contract revenue in anticipation of recovery on
its claims. In 1997, the Company recognized losses of $25.8 million related
to this contract.
The Company recognized approximately $35.0 million in revenue in 1998 for
change orders that have not yet received client approval, which in
management's judgment, is a conservative estimate of the probable amount to
be realized.
(K) In June 1998, the Financial Accounting Standards Board (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. In June
1999, the FASB agreed to defer the effective date of the Statement for one
year. The Statement is now effective for fiscal years beginning after June
15, 2000. The Company will adopt the new standard by January 1, 2001.
Management is evaluating the impact this Statement may have on the
Company's financial statements.
In December 1999, the SEC released Staff Accounting Bulletin (SAB) 101,
"Revenue Recognition in Financial Statements." SAB 101 clarifies the SEC's
views related to revenue recognition and disclosure. SAB 101A was
subsequently issued in March 2000, deferring the requirement to adopt the
revised guidance until the period ended June 30, 2000. The Company is in
the process of assessing the impact of this SAB and does not anticipate
this having a material effect on the consolidated financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions involving Stock Compensation." FIN 44
clarifies the application of APB Opinion No. 25 regarding (a) the
definition of employee for purposes of applying APB Opinion No. 25, (b) the
criteria for determining whether a stock option plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and
(d) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain
conclusions cover specific events that occur after either December 15,
1998, or January 12, 2000. The Company believes that the adoption of FIN 44
will not have a material effect on the financial position or results of
operations of the Company.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
The following is management's discussion and analysis of certain significant
factors that have affected the financial condition and results of operations of
Stone & Webster, Incorporated and Subsidiaries (the "Company") for the periods
noted. This discussion and analysis should be read in conjunction with the
Company's 1999 Annual Report on Form 10-K/A. Unless noted otherwise, earnings
per share calculations disclosed are basic and diluted.
Results of Operations
For the quarter ended March 31, 2000, the Company reported net income of $7.2
million or $0.51 per share, compared with a net loss of $58.7 million or $4.50
per share for the same period last year. Operating income was $10.8 million
compared with an operating loss of $69.4 million, respectively, for the quarters
ended March 31, 2000 and 1999. The first quarter 2000 results include operating
income of $12.9 million from a settlement reached on an international project,
which settlement reduces amounts expected to be paid by the Company to the
customer. The 1999 first quarter results reflected provisions of $74.2 million
to cover completion costs for two international projects, one of which was the
project for which a settlement was reached in the current quarter.
Engineering, Construction and Consulting revenue was $414.3 million, a 63
percent increase from the first quarter 1999 reported revenue of $254.7 million.
The increase in revenue was primarily due to higher revenues in the Power
division and also due to the effect of the $74.2 million job provision that was
offset against revenue in 1999. New orders were $188.0 million compared with
$148.8 million for the first quarter of 1999. Backlog was $2.4 billion compared
with $2.6 billion at December 31, 1999.
Three Months
Ended March 31,
2000 1999
Basic and diluted earnings per share from:
Continuing operations $0.21 $(4.80)
Pension related items 0.22 0.15
----- ------
Ongoing operations 0.43 (4.65)
Discontinued operations 0.08 0.15
----- ------
Basic and diluted earnings per share $0.51 $(4.50)
===== ======
Pension related items reduced operating costs by $5.3 million for the quarter
ended March 31, 2000. The pension credit is the result of a plan that is funded
in excess of the projected benefit obligation, which is primarily due to
favorable asset performance.
The Trans-Pacific Petrochemical Indotama ("TPPI") project remains suspended
pending resolution of financing issues by the client. 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. Had the TPPI
project been cancelled as of March 31, 2000, and if resale of the olefins plant
was unlikely to be completed, the Company would have recorded a pre-tax charge
of $78.6 representing project working capital plus current procurement
commitments, net of the estimated salvage value of procured equipment and
materials. On a similar basis, the pre-tax charge would have been $72.3 in 1999.
The TPPI project is included in the Company's backlog in the amounts of $399.6
and $426.0, respectively, at March 31, 2000 and 1999.
A joint venture, in which the Company is a 50 percent owner, has submitted
claims to recover approximately $115.0 million in connection with scope and
specification changes on a major petrochemical project in the Middle East. The
joint venture has been notified of claims of approximately $62.0 million which
have been submitted by a subcontractor who has filed for arbitration.
Substantially all of the subcontractor's claims have been included in the claims
submitted by the joint venture to its client. The Company believes that current
reserves are adequate to cover these claims, and has not recognized any contract
revenue in anticipation of recovery on its claims. In 1997, the Company
recognized losses of $25.8 million related to this contract.
The Company recognized approximately $35.0 million in revenue in 1998 for change
orders that have not yet received client approval, which in management's
judgment, is a conservative estimate of the probable amount to be realized.
Engineering, Construction and Consulting business orders and backlog for the
three months ended March 31, 2000 and 1999 were (in thousands):
Three Months
Ended March 31,
2000 1999
Beginning backlog $2,601,969 $2,636,166
Orders 187,990 148,833
Revenue (414,337) (254,656)
---------- ----------
Ending backlog $2,375,622 $2,530,343
========== ==========
Orders represent the net amount of new orders, cancellations and scope changes.
Discontinued Operation
- ----------------------
On October 27, 1999 the Company announced its intention to sell the Nordic
Refrigerated Services business unit (cold storage segment). The Company is
seeking buyers and has retained outside consultants to assist with these sales.
Accordingly, the results of the Nordic Refrigerated Services business unit have
been classified as a discontinued operation and prior periods have been
reclassified.
General and Administrative Expenses, Other Income (Expenses) and Income Taxes
General and administrative expenses for the quarter ended March 31, 2000 were
$16.6 million compared with $16.7 million for the same period in 1999. Net
interest expense for the quarter ended March 31, 2000 was $0.4 million compared
to net interest expense of $1.3 million for the same period in 1999.
Financial Condition
Company officials were recently notified of an unanticipated cost overrun on a
key project by a major subcontractor related to estimates to complete work
during the first half of 2000. As a result of this information, the Company
subsequently conducted a thorough review of this project and, based on this
review, recorded a provision of $27.5 million to complete work on the project,
and its 1999 financial statements were revised for such matter.
As a result of the liquidity problems created by the unanticipated project
overrun, coupled with previously reported operating losses, the Company
accelerated its discussions with potential lenders and strategic partners to
provide interim and long-term financing. In addition, the Company initiated
substantive discussions regarding possible strategic transactions that may
result in the sale of all or part of its engineering and construction business,
and is continuing to pursue the sale of its Nordic Refrigerated Services
business as planned. The Company also initiated discussions with certain
subcontractors with regard to extended payment terms.
The issuance of a modified opinion by the Company's independent public
accountants in connection with their audit of the consolidated financial
statements of the Company for the year ended December 31, 1999, is a default
under its recently extended credit facility. The Company has received a waiver
related to this default and certain other matters from its principal bank
lenders until May 31, 2000 and is in discussion with the agent bank for such
bank lenders for further extension of the waiver.
On May 8, 2000, the Company signed a letter of intent to sell substantially all
of its assets in exchange for $150.0 million in cash and stock, and the
assumption of substantially all of the Company's liabilities shown on its March
31, 2000 balance sheet, standby letters of credit, and its liabilities under a
new credit facility entered into on May 9, 2000 pursuant to which up to $50
million of credit is being made available to the Company. The $50.0 million
credit facility is intended to enable the Company to address its current
liquidity difficulties and continue to operate its business until the asset sale
is consummated.
In addition, the Company, as a condition to the proposed sale of its assets,
intends to seek bankruptcy court approval of the asset sale. Accordingly, the
Company intends to file a voluntary petition for reorganization under Chapter 11
of the U.S. Bankruptcy Code following the execution of a definitive sale
agreement, which is expected to occur by early June 2000. The proposed asset
sale transaction is conditioned on completion of due diligence by the purchaser,
negotiation and execution of a definitive agreement, approval under
Hart-Scott-Rodino Act, and other customary conditions. The letter of intent
contemplates that the purchaser may not assume liabilities associated with
certain of the Company's existing contracts, which contracts, will not be
identified until after completion of due diligence.
Completion of the sale will likely result in the recognition of a substantial
loss since the net book value of the Company's assets is currently more than
$300.0 million. Determination of the amount of the loss is not reasonably
possible at this time until after negotiation of a definitive sale agreement and
completion of the competitive bid process provided for under Chapter 11.
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. In
June 1999, the FASB agreed to defer the effective date of the Statement for one
year. The Statement is now effective for fiscal years beginning after June 15,
2000. The Company will adopt the new standard by January 1, 2001. Management is
evaluating the impact this Statement may have on the Company's financial
statements.
In December 1999, the SEC released Staff Accounting Bulletin (SAB) 101, "Revenue
Recognition in Financial Statements." SAB 101 clarifies the SEC's views related
to revenue recognition and disclosure. SAB 101A was subsequently issued in March
2000, deferring the requirement to adopt the revised guidance until the period
ended June 30, 2000. The Company is in the process of assessing the impact of
this SAB and does not anticipate this having a material effect on the
consolidated financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions involving Stock Compensation." FIN 44
clarifies the application of APB Opinion No. 25 regarding (a) the definition of
employee for purposes of applying APB Opinion No. 25, (b) the criteria for
determining whether a stock option plan qualifies as a noncompensatory plan, (c)
the accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions cover specific events that occur after either December
15, 1998, or January 12, 2000. The Company believes that the adoption of FIN 44
will not have a material effect on the financial position or results of
operations of the Company.
Forward-Looking Information
- ---------------------------
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of the Company. Any of the
statements or comments made in this From10-Q that refer to the Company's
estimated or future results are forward -looking and reflect the Company's
current analysis of existing trends and information. The Company cautions that a
variety of factors, including but not limited to the following, could cause
business conditions and results to differ materially from what is contained in
forward-looking statements: changes in the rate of economic growth in the United
States and other major international economies, changes in investment by the
energy, power and environmental industries, the uncertain timing of awards and
contracts, changes in regulatory 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 Company
undertakes no obligation to publicly release any revisions to the
forward-looking statements or reflect events or circumstances after the date of
this document.
<PAGE>
PART II. Other Information
Item 5. Other Information
On or about May 8, May 9 and May 11, 2000, three purported class action
lawsuits, one encaptioned Adele Brody v. Stone & Webster, Incorporated, et al,
00 CV 10874RCL, a second encaptioned Fred Dubois, Jr., vs. Stone & Webster,
Incorporated, et al, 00 CV 10883CL, and one captioned Albert A. Blank vs. Stone
& Webster, Incorporated, et al, 00 CV 10926RCL (collectively the "Complaints")
were filed in the United States District Court for the District of Massachusetts
against the Company and certain of its officers and directors. The Complaints
allege, among other things, that during the purported class period, from April
27, 1999 to April 28, 2000, the Defendants issued materially false and
misleading statements and failed to disclose purportedly material information
concerning the Company's financial results and overstated the Company's revenues
and earnings and violated generally accepted accounting principles in violation
of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder, and Section 20(a) of the Securities Exchange Act of
1934. Plaintiffs seek an unspecified amount of damages, interest, attorney's
fees, expert fees and other costs. The Defendants intend to vigorously defend
against the Complaints.
Item 6. Exhibits and Reports on Form 8-K
Stone & Webster, Incorporated and Subsidiaries
Exhibits and Reports on Form 8-K.
(a) Exhibit Index
(4) Instruments defining the rights of security holders, including
indentures.
As of March 31, 2000, registrant and its subsidiaries had outstanding
long-term debt (excluding current portion) totaling approximately
$19.0 million, principally in connection with a mortgage relating to
real property for a subsidiary's office building and in connection
with capitalized lease commitments for the acquisition of certain
office equipment. None of these agreements are filed herewith because
the amount of indebtedness authorized under each such agreement does
not exceed 10 percent of the total assets of the registrant and its
subsidiaries on a consolidated basis; the registrant hereby undertakes
to furnish copies of such agreements to the Commission upon request.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
Registrant did not file any reports on Form 8-K during the quarter for
which this report is filed.
<PAGE>
Stone & Webster, Incorporated and Subsidiaries
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STONE & WEBSTER, INCORPORATED
By: /S/ THOMAS L. LANGFORD
Dated: May 15, 2000 -------------------------------------
Thomas L. Langford
Executive Vice President
(Duly authorized officer and
principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 36911
<SECURITIES> 0
<RECEIVABLES> 280183
<ALLOWANCES> 6674
<INVENTORY> 0
<CURRENT-ASSETS> 459506
<PP&E> 189147
<DEPRECIATION> 104180
<TOTAL-ASSETS> 859100
<CURRENT-LIABILITIES> 490794
<BONDS> 19035
0
0
<COMMON> 17731
<OTHER-SE> 295346
<TOTAL-LIABILITY-AND-EQUITY> 859100
<SALES> 0
<TOTAL-REVENUES> 414337
<CGS> 0
<TOTAL-COSTS> 387013
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1086
<INCOME-PRETAX> 10362
<INCOME-TAX> 4232
<INCOME-CONTINUING> 6130
<DISCONTINUED> 1110
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7240
<EPS-BASIC> 0.51
<EPS-DILUTED> 0.51
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 45017
<SECURITIES> 0
<RECEIVABLES> 273083
<ALLOWANCES> 5247
<INVENTORY> 0
<CURRENT-ASSETS> 403926
<PP&E> 367974
<DEPRECIATION> 148244
<TOTAL-ASSETS> 839324
<CURRENT-LIABILITIES> 539511
<BONDS> 21736
0
0
<COMMON> 17731
<OTHER-SE> 213768
<TOTAL-LIABILITY-AND-EQUITY> 839324
<SALES> 0
<TOTAL-REVENUES> 254646
<CGS> 0
<TOTAL-COSTS> 307283
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1958
<INCOME-PRETAX> (70,650)
<INCOME-TAX> (10000)
<INCOME-CONTINUING> (60650)
<DISCONTINUED> 1956
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (58694)
<EPS-BASIC> (4.50)
<EPS-DILUTED> (4.50)
</TABLE>