UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K 405/A
Amendment 1
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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from..........to..........
Commission file number 1-1228
Stone & Webster, Incorporated
(Exact name of registrant as specified in its charter)
Delaware 13-5416910
(State of other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
245 Summer Street, Boston, MA 02210
(Address of Principal Executive Offices) (Zip Code)
(617) 589-5111
(Registrant's telephone number, including area code)
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 [ _ ].
<PAGE>
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/A or any amendment to
this Form 10-K/A. [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.)
$45,000,000 approximately, based on the closing price on the New York Stock
Exchange Composite Transactions as of May 8, 2000.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common Stock: 14,226,005 shares as of May 8, 2000.
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
None
<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
Houston, Texas and Schenectady, New York. Stone & Webster develops, takes
ownership interests in, and operates projects for which they may provide
engineering, construction and other services.
Engineering, Construction and Consulting
Stone & Webster provides 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 business includes
three Divisions and a consulting organization which are responsible for
marketing and executing projects within a sector on a worldwide basis. The three
Divisions are held accountable for achieving goals established for their market
sector in the Power, Process/Industrial and Environmental/Infrastructure
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 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 (Discontinued Operation)
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. Offices and processing areas are leased to customers.
Comprehensive freezer services and refrigerated transportation services are
offered to customers.
On October 27, 1999, the Company announced its intention to sell the Nordic
Refrigerated Services business unit (Nordic). The Company is seeking buyers for
Nordic and accordingly, the Nordic results have been classified as a
discontinued operation and prior periods have been reclassified. The 1999
consolidated balance sheet is net of Nordic amounts. The Company's continuing
operations are composed of the Engineering, Construction and Consulting
business.
Competition
The principal business activities of Stone & Webster in the Engineering,
Construction and Consulting business 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 business 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 competes 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 have not historically been considered by the Company to be
indicative of any trend in its 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 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 is 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 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.
Engineering, Construction and Consulting backlog as of December 31, 1999
amounted to $2,602 million compared with $2,636 million as of December 31, 1998.
New work awards, including changes in scope, were $1,106 million in 1999 and
$1,331 million in 1998. Also see "Revenue, New Orders and Backlog" in the
"Management's Discussion and Analysis" in the 1999 comparison with 1998 filed
herewith in Exhibit (13)(i). Although the majority of the Company's contracts in
backlog may be reduced or cancelled by the client at any time, significant
reductions in scope are unusual. Power division orders of $854 million in 1999
decreased by 20 percent from the $1,070 million in orders for 1998, primarily as
a result of lower than anticipated demand by energy companies in the first half
of 1999. However, 1999 power orders increased substantially in the second half
and reflected increased awards for nuclear services, as well as combined-cycle
plants. The 1999 new orders do not include an award for a 720-megawatt
combined-cycle power plant expected to be booked in the first half of 2000 after
completion of owner financing. The 76 percent decline in Process/Industrial
division orders reflects the protracted weakness in the petrochemical industry,
which is the customer base for the Company's process technology, the lingering
effects of the economic slowdown in Asia, which had been a major market for new
process plant construction, and concentration on selected Industrial market
opportunities in cement, forest products and chemical sectors.
Environmental/Infrastructure division orders in 1999 increased as a result of
growth in remediation, transportation and water projects.
Approximately 23 percent of the total backlog as of December 31, 1999 is
expected to be realized within the next year.
In addition, approximately 38 percent of the December 31, 1999 backlog amount is
from contracts for international projects.
The following backlog information is provided as of December 31, 1999 and
December 31, 1998.
BACKLOG
Engineering, Construction and Consulting Services
(in Millions of Dollars)
Changes In Revenue As of
As of 12/31/98 New Work Scope Recognized 12/31/99
$2,636 $760 $346 ($1,140) $2,602
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 Engineering, Construction and Consulting business has
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. The 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 Company commences work on a
particular project, it is unlikely that the client would terminate the
involvement of the Company prior to completion of the project, unless the
project itself is canceled or postponed. Historically the Company has 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 business had no client who accounted
for more than 10 percent of consolidated revenues in 1998 or 1999. In 1997, one
client, PT Trans-Pacific Petrochemical Indotama, accounted for 12 percent of
consolidated revenues.
The cold storage business had no client who accounted for 10 percent or more of
consolidated revenues in 1997, 1998 or 1999.
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 (L) to the consolidated financial statements in the "Notes to Consolidated
Financial Statements" which is filed herewith in Exhibit (13)(i).
The Engineering, Construction and Consulting business 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 its 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" which
is filed herewith in Exhibit (13)(i).
Employees
Stone & Webster had approximately 5,300 regular employees as of December 31,
1999. 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 56 Chairman of the Board 5/8/97
President and Chief Executive
Officer and Director 2/12/96
Peter M. Evans 54 Senior Executive Vice President 1/26/99
Director 3/7/00
Thomas L. Langford 58 Executive Vice President and
Chief Financial Officer 6/2/97
James P. Jones 56 Vice President, Secretary and
General Counsel 1/27/98
Gerard A. Halpin, III 42 Vice President 5/14/98
Treasurer 12/2/96
James P. Carroll 41 Vice President and Controller 9/21/99
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 five years prior to joining the company. 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. Mr. Halpin, who joined the Company in
1996, had been Assistant Treasurer of General Electric Company since 1991. Mr.
Carroll, who joined the Company in 1999, had been Vice President and Corporate
Controller of Invensys Intelligent Automation since 1998 and had held the
positions of Director of Financial Systems, Director of Finance, and Manager of
Strategic Pricing and Commissions from 1995 to 1998.
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 registrant has postponed the
Annual Meeting of Shareholders that had been scheduled to occur on May 23, 2000.
Item 2. Properties.
The important physical properties of Stone & Webster are as follows:
A. 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 the Company with the balance
currently being leased or held for rental to others.
B. A 21.5 acre site in Laporte, Texas, with 7 permanent buildings
comprising approximately 44,000 square feet which is used in
connection with a subsidiary's construction business.
C. 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.
D. 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.
E. 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 also 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.
A 14-story office at 245 Summer Street, Boston, Massachusetts was sold by the
Company in December 1999. This facility continues to be the principal
headquarters building of the Company. The building is approximately 40 percent
occupied by registrant and its subsidiaries under a lease which expires no later
than March 2002.
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 the 1900s. 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) In August 1999, Union Carbide Corporation filed suit against Stone &
Webster Engineering Corporation ("SWEC"), a subsidiary of the registrant,
and one of its employees in the 240th Judicial District Court, Fort Bend
County, Texas. The lawsuit arises out of an expansion of Union Carbide's
Taft, Louisiana ethylene production facility for which SWEC initially
provided a preliminary engineering package, including a preliminary cost
and schedule estimate, and later provided detailed engineering services and
ethylene furnaces. The lawsuit alleges that SWEC breached its contracts
with Union Carbide and fraudulently understated the estimated cost and
schedule to complete the expansion and seeks to recover damages of
approximately $150 million. SWEC and its employee have filed an answer to
the lawsuit denying each and every allegation made by Union Carbide and
asserting affirmative defenses, including affirmative defenses based upon
provisions in the contracts between SWEC and Union Carbide which limit
SWEC's liability to a maximum of $1,500,000. SWEC believes the lawsuit is
without merit, that it has valid legal and contractual defenses, and it
intends to vigorously defend.
(d) Also see Note (L) to the consolidated financial statements as set forth
under "Notes to Consolidated Financial Statements" which is filed herewith
in Exhibit (13)(i).
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" which is filed herewith in Exhibit (13)(i).
Item 6. Selected Financial Data.
The information required by Item 6 is hereby incorporated by reference from
"Selected Financial Data" which is filed herewith in Exhibit (13)(i).
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" which is filed herewith in Exhibit
(13)(i).
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 (G) to the consolidated financial
statements as set forth under "Notes to Consolidated Financial Statements",
which is filed herewith in Exhibit (13)(i).
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 which is filed herewith in Exhibit (13)(i).
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.
(a) Identification of Directors
Certain information, as reported to the Corporation, respecting
Directors of the registrant is set forth below:
- --------------------------------------------------------------------------------
Business Experience for the Past
Directors Five Years, Age and Other Information Since
- --------------------------------------------------------------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 2000
Donna F. Bethell President and Chief Executive Officer, 1994
Radiance Services Company (Microelectronics
cleaning technology) (51)
Kent F. Hansen Lead Director of the Board of the Corporation. 1988
Professor of Nuclear Engineering,
Massachusetts Institute of Technology
(Education) (68). Also Director of EG&G,
Inc.
Elvin R. Heiberg III President, Heiberg Associates, Inc. Retired 1994
Chief of Engineers, U.S. Army Corps of
Engineers (Engineering Consulting) (68).
H. Kerner Smith Chairman of the Board, President and Chief 1996
Executive Officer of the Corporation. Former
Managing Director of Deutsche Babcock AG and
President and Chief Executive Officer of
Deutsche Babcock Technologies, Inc. (56).
DIRECTORS WHOSE TERMS EXPIRE IN 2001
Frank J. A. Cilluffo Managing Partner, Cilluffo Associates, L.P. 1994
(Private investment partnership) (56).
David N. McCammon Retired Vice President - Finance, Ford Motor 1996
Company (Automobile manufacturing) (65).
Also Director of Pulte Corporation.
J. Angus McKee Chairman, Gulfstream Resources Canada Ltd. 1984
(Oil and Gas) (64).
DIRECTORS WHOSE TERMS EXPIRE IN 2002(1)
Peter M. Evans Senior Executive Vice President of the 2000
Corporation). Former President and Chief
Operating Officer of M.W. Kellogg Company.
(54)
Bernard W. Reznicek National Director, Utility Marketing, Central 1995
States Indemnity Co. of Omaha; Former
Chairman, President and Chief Executive
Officer, Boston Edison Company. (Insurance;
Public Utilities) (63). Also Director of
State Street Corporation, CSG Systems
International, Inc., and MidAmerican Energy
Holdings Company.
Peter M. Wood Retired Managing Director, J.P. Morgan & Co. 1996
Incorporated (Finance) (61). Also Director
of Middlesex Mutual Assurance Company,
Payless Cashways, Inc. and Eastman Chemical
Company
- --------------------------------------------------------------------------------
__________
(1) Mr. John P. Merrill, Jr., a Director whose term would have expired in 2002,
resigned from the Board of Directors as of January 10, 2000. Peter M. Evans
was elected by the Board of Directors on March 7, 2000 to fill the vacancy
created by Mr. Merrill's resignation.
No director or executive officer is related by blood, marriage or adoption to
another director or executive officer of the Corporation.
(b) Identification of Executive Officers
See the information concerning executive officers of the registrant which
appears at the end of Item 1 of this Form 10-K/A.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Corporation's Directors, its
executive officers, and persons holding (as defined in the regulations of the
Commission) more than 10 percent of a registered class of the Corporation's
equity securities, to file reports of ownership and reports of changes in
ownership with the Commission and the New York Stock Exchange. Directors,
executive officers, and greater than 10 percent Shareholders are also required
by Commission regulations to furnish the Corporation with copies of all such
reports that they file. Based solely on its review of the copies of such reports
received by it and written representations from certain reporting persons, the
Corporation believes that all filing requirements applicable to its Directors,
executive officers, and greater than 10 percent Shareholders were complied with
during the fiscal year ended December 31, 1999.
Item 11. Executive Compensation.
Compensation of Directors
In order to make Common Stock of the Corporation (Common Stock) a more
significant portion of the Directors' compensation, the 1997 Stock Plan for
Non-Employee Directors of Stone & Webster, Incorporated, which was in effect
during 1999, provides that Directors who, among other things, are not officers
or employees of the Corporation receive an annual retainer consisting of 400
shares of Common Stock and $8,000 in cash, and a fee of $2,000 for each Board
meeting attended and $1,000 for each committee meeting attended, except that the
Chairman of each Committee receives a committee meeting fee of $2,000, and
permits such Directors to elect to receive all or a portion of Board and
Committee meeting fees in Common Stock in lieu of cash. The Long-Term Incentive
Compensation Plan (prior to 1998, the 1995 Stock Option Plan) provides for the
grant of nonqualified options to purchase 2,000 shares initially, and 1,000
shares annually thereafter, of Common Stock to each Director who is not an
officer or employee of the Corporation. Directors are reimbursed for expenses
incurred in performing services as a Director, including expenses for attending
Board, committee and other meetings. Under the non-qualified Non-Employee
Director Deferral Plan adopted by the Corporation in 1997, Directors who are not
employees of the Corporation may elect to defer all or a portion of their annual
retainer, meeting fees or other fees paid in connection with their Board service
to a cash deferral account or a stock deferral account. Amounts in a cash
deferral account accumulate interest generally at the daily average for the
preceding twelve (12) calendar quarters of the prime commercial lending rate of
The Chase Manhattan Bank, N.A., New York, plus 1 percent, while amounts in a
stock deferral account are valued in direct relationship to changes in the fair
market value of Common Stock (including dividends paid) of the Corporation from
time to time.
In addition to the foregoing standard arrangements relating to the compensation
of Directors, Dr. Hansen receives an annual payment of $10,000, payable on a
quarterly pro-rated basis, in consideration of his additional duties as Lead
Director; this arrangement became effective as of his election as Lead Director
on May 8, 1997. Mr. McKee received fees in 1999 from Stone & Webster Canada
Limited for services as a Director of that subsidiary of the Corporation of
$6,231.82 (converted from Canadian dollars based on Cn$1.4442 per U.S. dollar,
the Noon Buying Rate in New York for cable transfers payable in foreign
currencies as of December 31, 1999), plus expenses. In addition, in 1999 the
following Directors received special activity fees for participating, at
management's request, in activities relating to their services performed as a
member of the Board of Directors in the amounts stated: Mr. McCammon - $3,000;
Mr. Reznicek - $4,000; Mr. Wood - $5,000.
Report of the Compensation Committee
Under the direction of the Compensation Committee (the Committee), the
Corporation has developed and implemented compensation plans and programs which
are designed to enhance the long term growth and profitability of the
Corporation and to increase Shareholder value. The Committee is comprised of
five directors, none of whom has ever been an officer or employee of the
Corporation or its subsidiaries. The following is a report of the Corporation's
compensation philosophy and practices, as directed by the Committee.
The Committee's fundamental approach is to compensate the Named Executives
(included in the Summary Compensation Table) and other key executives at a level
commensurate with their responsibilities, while providing compensation
opportunities that are directly linked to the performance of the Corporation.
The objectives of the Corporation's executive compensation programs are to
attract and retain very highly competent individuals, to encourage them to
achieve and surpass the Corporation's challenging business goals and to ensure
that the interests of the Corporation's executives are well aligned with the
interests of Shareholders.
The Corporation, through its operating subsidiaries, is primarily engaged in
providing engineering and construction services. These businesses tend to be
cyclical in nature, driven both by general business cycles and by activity in
our clients' industries. Due to this cyclical nature, it is important to keep
our overhead costs low, while ensuring that the Corporation is able to provide
the specialized technical expertise expected by our clients. As a result, the
Committee recognizes the need to balance limited fixed compensation costs with
the ability to attract and retain highly competent professionals and to reward
them for improving the performance of the Corporation and providing a return to
Shareholders.
Accordingly, the philosophy of the Corporation has been to provide the Named
Executives and the professional and supervisory staff with base salaries that
are relatively competitive, while making the balance of compensation contingent
upon the achievement of the Corporation's financial objectives.
In 1998 and 1999, the Committee retained outside consulting firms to assist the
Corporation in ensuring that its executive compensation programs provide
competitive compensation opportunities with incentives based on improving the
financial performance of the Corporation. In analyzing competitive compensation,
the firms relied upon compensation information from a broader group of companies
than are included in the performance graph to better reflect the Corporation's
relevant market for attracting and retaining executive talent.
1999 Compensation Programs
Base Salary
Based on the Committee's assessment of competitive market conditions, increases
in the rate of base salary were awarded to the Named Executives in 1999 as
reflected in the Summary Compensation Table, except for Mr. Evans who was first
employed in 1999.
Annual Incentives
In 1997, the Committee implemented the Executive Management Incentive
Compensation Plan, and in 1998 it implemented the Annual Incentive Compensation
Plan (which was approved by the Shareholders at the 1998 Annual Meeting of
Shareholders), which were designed to ensure that executives' interests are
strongly aligned with the interests of Shareholders and the financial success of
the Corporation. Under these plans, performance is measured primarily based on
the Corporation's earnings per share and return on Shareholders' equity, as well
as business division and individual performance. The Committee believes that the
current plan encourages the Corporation's management to accomplish annual
objectives, while also focusing executives on the achievement of long term goals
that will result in share price appreciation.
The Committee awarded no incentive-based bonuses for 1999 under the Annual
Incentive Compensation Plan to the Named Executives because minimum performance
goals were not met. As set forth in the Summary Compensation Table, Mr. Evans
and Mr. Jones received bonus awards, which were paid in March 2000, in
accordance with the terms of their respective employment agreements.
Under the plan for 2000, Named Executives other than the CEO are eligible to
receive payments ranging from 0 percent to 125 percent of base salary. Based on
its competitive assessment of the marketplace, the Committee believes that these
award levels are competitive by industry standards. No incentive payments under
the plan will be made for 2000 if the Corporation does not attain at least 70
percent of its targeted Earnings per Share, as approved by the Committee.
Stock Option, Restricted Stock, Performance Share and Performance Unit Awards
Under the Corporation's Long-Term Incentive Compensation Plan, the Committee may
make awards of stock options, restricted stock, performance shares and
performance units to key employees in order to motivate and reward them for
increases in Shareholder value. (Prior to 1998, options were issued under the
1995 Stock Option Plan.) In 1999, the Committee granted stock options,
restricted stock awards and performance shares to the Named Executives as shown
in the Summary Compensation Table, as well as to other key employees. During
1999, restricted stock awards were made to certain employees, including Messrs.
Evans, Langford and Jones, some of which vest in thirds when the market price of
the Corporation's common stock maintains each of three target prices of $25,
$30, and $35 per share over five consecutive trading day periods as determined
by the Compensation Committee, or on the fifth anniversary of the award. No
awards of performance shares were made to any of the Named Executives in 1998.
Performance share awards were made under the LTICP in 1999 to certain employees,
including Messrs. Evans, Langford and Jones, which cover one-, two- and
three-year periods, which result in compensation in the form of shares of Common
Stock only if performance target levels are attained; the one-year awards were
forfeited because the requisite performance targets were not achieved. The
Committee believes that these options, restricted stock awards, and performance
shares are effective ways to encourage executives, since they are rewarded if
the Corporation's share price increases.
Chief Executive Officer Compensation
At the beginning of 1996, the Corporation entered into an employment agreement
with the Corporation's new Chief Executive Officer, Mr. H. Kerner Smith. His
compensation in 1998 and 1999 was in accordance with the terms of his employment
agreement as amended January 15, 1997. In 1999, the Board of Directors, in
accordance with the recommendation of this Committee, authorized an increase in
Mr. Smith's salary for 1999 and a bonus with respect to 1998 in the amount of
$500,000 as set forth in the Summary Compensation Table. In 2000, the Board of
Directors, in accordance with the recommendation of this Committee, agreed to
continue Mr. Smith's salary for 2000 at the same level as in 1999 and did not
authorize any bonus for Mr. Smith with respect to 1999. In order to provide
compensation opportunities that are directly linked to the performance of the
Corporation, pursuant to the Corporation's Long-Term Incentive Compensation Plan
which was approved by the Shareholders at the 1998 Annual Meeting, during 1999
the Board of Directors awarded Mr. Smith 8,688 shares of restricted stock, stock
options with respect to 144,000 shares, and performance share awards covering
one-, two-, and three-year periods, all as described in the Summary Compensation
Table, the notes thereto and the tables which appear below. For the 1-year
awards made in 1999, performance goals were not achieved and no payout was made.
Mr. Smith will continue to participate in the Corporation's Long-Term Incentive
Compensation Plan, and his compensation will be determined based on the
philosophies discussed in this report and the terms of his employment agreement
as amended, as described below. In January 2000, the Board of Directors awarded
40,000 shares of restricted stock to Mr. Smith pursuant to the Long-Term
Incentive Compensation Plan, which shares vest in thirds when the market price
of the Corporation's Common Stock maintains each of three target prices of $25,
$30, and $35 per share over five consecutive trading day periods, or on the
fifth anniversary of the award. This award will be included in the Summary
Compensation Table in the Proxy Statement in connection with the 2001 Annual
Meeting of Shareholders. These shares are included as beneficially owned shares
in the Share Ownership of Directors and Executive Officers table as of March 24,
2000 which appears in Item 12 herein.
Deductibility of Executive Compensation
The Corporation believes that it is desirable that all of its executive
compensation be deductible and fall within the $1 million limit on deductible
compensation provided in Section 162(m) of the Internal Revenue Code of 1986, as
amended (the Internal Revenue Code), although in certain circumstances it may be
appropriate to permit compensation to exceed this limitation. The Corporation
has reviewed its compensation policies with respect to its covered executives
and determined that although Section 162(m) had no impact on the ability of the
Corporation to deduct compensation paid to its Named Executives in 1997, it was
decided to submit the Annual Incentive Compensation Plan and the Long-Term
Incentive Compensation Plan for approval of the Shareholders at the 1998 Annual
Meeting of Shareholders in order for amounts payable under the Plan to comply
with the performance-based compensation exemption of Section 162(m). With the
approval of these plans, the impact of Section 162(m) in 1999 was limited.
The Compensation Committee
Bernard W. Reznicek (Chairman)
Frank J. A. Cilluffo
Elvin R. Heiberg III
David N. McCammon
Peter M. Wood
Executive Compensation
The following table sets forth information concerning compensation awarded to,
earned by or paid to any person serving as the Corporation's Chief Executive
Officer (or any person acting in a similar capacity during the last completed
fiscal year), and each of the four other most highly compensated executive
officers of the Corporation (collectively, the Named Executives), for services
rendered to the Corporation in all capacities during each of the last three
fiscal years in which such person was an executive officer of the Corporation.
Summary Compensation Table
<TABLE>
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- -----------------------------------------------------------------------------------------------------------------------
Long Term Compensation
-----------------------------------
Annual Compensation(1) Awards(4)
-------------------------------- ------------------------
Other Securities All
Annual Restricted Under- Other
Compen- Stock Lying LTIP Compen-
Name and (2) (2) sation Awards Options/ Payouts sation
Principal Position Year Salary($) Bonus($) ($)(3) ($) SARs(#) ($) ($)(5)
- -----------------------------------------------------------------------------------------------------------------------
H. Kerner Smith 1999 625,000 0 0 254,667 144,000 0 3,494
Chairman, President and 1998 550,000 500,000 0 0 44,000 0 3,347
Chief Executive Officer 1997 545,833 550,000 175,039 0 40,000 0 2,808
Peter M. Evans(6) 1999 354,167 375,000 See(6) 477,188 60,000 0 1,953
Senior Executive Vice 1998 - - - - - - -
President 1997 - - - - - - -
Thomas L. Langford(7) 1999 320,000 0 0 206,865 35,000 0 3,494
Executive Vice President 1998 290,000 100,000 0 0 22,000 0 3,347
and Chief Financial 1997 169,167 46,013 0 0 20,000 0 0
Officer
James P. Jones(8) 1999 290,000 101,500 See(8) 304,371 21,000 0 4,144
Vice President, 1998 275,000 101,500 See(8) 0 24,000 0 3,347
1997 - - - - - - -
Gerard A. Halpin, III(9) 1999 193,000 0 0 0 10,000 0 3,494
Vice President and 1998 183,750 10,000 0 0 5,000 0 0
Treasurer 1997 - - - - - - -
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
__________
(1) For 1997, the Compensation Committee developed, and the Board of Directors
adopted, an executive management incentive compensation plan for the
compensation of certain executives of the Corporation and its subsidiaries
in which the Named Executives, among others, were selected to participate,
and pursuant to which the Named Executives received incentive payments, as
shown in the table above for 1997 under "Bonus," based on performance
measured primarily by the Corporation's earnings per share, return on
Shareholders' equity, business division and individual performance for the
year. With respect to 1998 and 1999, the Compensation Committee developed
and the Board of Directors adopted the Annual Incentive Compensation Plan,
which was approved by the Shareholders at the 1998 Annual Meeting of
Shareholders, for the compensation of certain executives and management
personnel of the Corporation and its subsidiaries, in which the Named
Executives, among others, were selected to participate, but, because
minimum performance goals were not met, they received no incentive payments
under that plan in 1998 or in 1999. In 1998, the Committee awarded bonuses
to the Named Executives as shown in the table above, based in part on
individual performance. In 1997, 1998 and 1999, Mr. Smith's compensation
was governed by his employment agreement described below. Mr. Evans'
employment agreement provides that he will receive a minimum bonus for 1999
equal to 100 percent of his base salary. Mr. Jones' employment agreement
provides that he will receive a minimum bonus for 1998, 1999 and 2000 equal
to 35 percent of his base salary. The "Bonus" payments shown in the table
above with respect to 1997, 1998 and 1999 were actually paid in March 1998,
March 1999, and March 2000, respectively, and a payment of $200,000 to Mr.
Smith was paid in August, 1997 with respect to 1996. See also the Report of
the Compensation Committee.
(2) Includes amounts deferred by the Named Executives under provisions of the
Employee Investment Plan pursuant to Section 401(k) of the Internal Revenue
Code.
(3) Perquisites and personal benefits paid to each Named Executive during 1997,
1998 and 1999 in each instance aggregated less than the lesser of $50,000
or 10 percent of the total annual salary and bonus payment set forth in the
columns entitled "Salary" and "Bonus" and, accordingly, are omitted from
the table as permitted by the rules of the Commission, except that,
pursuant to his employment agreement described below, Mr. Smith received
personal benefits in 1997 in the aggregate of $175,039 which included
initiation, annual and other club membership expenses of $90,000 and
related tax expenses of $77,349.
(4) Restrictions on shares awarded pursuant to the Long-Term Incentive
Compensation Plan (the LTICP) (prior to 1998, awards were made under the
Restricted Stock Plan) lapse in equal installments over vesting periods of
three to five years or upon the occurrence of target events determined by
the Compensation Committee. The Named Executives held shares of restricted
stock with a market value as of December 31, 1999 as follows: Mr. Smith
(8,688 shares; $146,067), Mr. Evans (30,000 shares; $504,375), Mr. Langford
(9,344 shares; $157,096), Mr. Jones (17,244 shares; $289,915) and Mr.
Halpin (1,401 shares; $23,554). Dividends are payable on restricted stock
awards directly to the holder of restricted stock. The Corporation did not
have any plans which provide compensation in the form of stock appreciation
rights (SARs) during the years covered by this table. A Stock Option Plan
was first adopted in 1995, and that plan was replaced by the LTICP in 1998
with respect to future stock option grants as discussed below. Performance
share awards were made under the LTICP in 1999 to certain employees,
including Messrs. Smith, Evans, Langford and Jones, which cover one-, two-
and three-year periods, which result in compensation in the form of shares
of Common Stock only if performance target levels are attained; the
one-year awards were forfeited because the requisite performance targets
were not achieved. See also the tables below concerning awards under the
LTICP.
(5) Includes contributions made by the Corporation under the Employee
Investment Plan during 1999 on behalf of Messrs. Smith, Evans, Langford,
Jones, and Halpin in the amount of $2,000, $1,953, $2,000, $2,000 and
$2,000, respectively, and contributions made by the Corporation under the
ESOP during 1999 of $1,494, $0, $1,494, $2,144 and $1,494, respectively.
(6) Mr. Evans was first employed by the Corporation as of January 26, 1999, and
is Senior Executive Vice President and a Director. In connection with the
commencement of his employment and his relocation in 1999, Mr. Evans
borrowed $450,000 from a subsidiary of the Corporation for use in the
purchase of his principal residence. This loan is secured by a mortgage on
the property and bears interest at the rate of 5.59 percent per annum. The
largest aggregate amount outstanding during 1999 was the original amount of
the loan plus accrued interest, and the principal amount outstanding as of
the latest practicable date is approximately $361,000.
(7) Mr. Langford was first employed by the Corporation on June 2, 1997 in the
capacity of Executive Vice President. He is also Chief Financial Officer of
the Corporation.
(8) Mr. Jones was first employed by the Corporation as of January 1, 1998, and
is Vice President, Secretary and General Counsel. In connection with the
commencement of his employment and his relocation in 1998, Mr. Jones
borrowed $400,000 from a subsidiary of the Corporation for use in the
purchase of his principal residence. This loan is secured by a mortgage on
the property and bears interest at the rate of 6 percent per annum. The
largest aggregate amount outstanding during 1999 was the original amount of
the loan plus accrued interest, and the principal amount outstanding as of
the latest practicable date is approximately $300,000.
(9) Mr. Halpin was first employed by the Corporation on October 28, 1996, and
is Vice President and Treasurer. Data with respect to his compensation for
1997 is not included in the table above because he was not an Executive
Officer of the Corporation during 1997.
Stock Options
Option Grants in Last Fiscal Year
The following table shows all individual grants of stock options under the
Corporation's Long-Term Incentive Compensation Plan to the Named Executives
during the fiscal year ended December 31, 1999.
<TABLE>
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- -----------------------------------------------------------------------------------------------------
Individual Grants
-----------------------------------------------------
Percent Potential Realizable
Number of of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation
Options Employees or Base for Option Term($)(3)
Granted in Fiscal Price($/Sh) Expiration ----------------------
Name(a) (#)(1)(b) Year(c) (2)(d) Date(e) (5%)(f) 10%(g)
- -----------------------------------------------------------------------------------------------------
H. K. Smith 100,000 22.32 31.3750 1/26/2009 1,973,157 5,000,367
H. K. Smith 44,000 9.82 24.8750 5/13/2009 688,325 1,744,351
P. M. Evans 25,000 5.58 32.0625 1/25/2009 504,098 1,277,484
P. M. Evans 35,000 7.81 24.8750 5/13/2009 547,531 1,387,552
T. L. Langford 13,000 2.90 32.0625 1/25/2009 262,131 664,292
T. L. Langford 22,000 4.91 24.8750 5/13/2009 344,163 872,176
J. P. Jones 9,000 2.01 32.0625 1/25/2009 181,475 459,894
J. P. Jones 12,000 2.68 24.8750 5/13/2009 187,725 475,732
G. A. Halpin, III 5,000 1.12 32.0625 1/25/2009 100,820 255,497
G. A. Halpin, III 5,000 1.12 24.8750 5/13/2009 78,219 198,222
- -----------------------------------------------------------------------------------------------------
</TABLE>
__________
(1) The stock options become exercisable on dates ranging from February 5, 1999
to August 30, 2003. All options expire ten years from the date of grant,
subject to earlier termination in certain events related to termination of
employment, death, retirement or disability. Upon a change of control, all
outstanding options become exercisable.
(2) The initial exercise price for the options granted in 1999 is determined,
as set forth in the Long-Term Incentive Compensation Plan, to be equal to
100 percent of the fair market value of a share of Common Stock on the date
immediately preceding the date of the grant. The exercise price may be paid
in cash, by the delivery of previously owned shares of Common Stock, or by
such other method as may be permitted by the Compensation Committee.
(3) As required by the rules of the Commission, potential values stated are
based on the prescribed assumption that the Corporation's Common Stock will
appreciate in value from the date of the grant to the end of the option
term (ten years from the date of grant) at annualized rates of 5 percent
and 10 percent (total appreciation of 63 percent and 159 percent),
respectively, and therefore are not intended to forecast future
appreciation, if any, in the price of the Corporation's Common Stock. These
dollar amounts are also calculated based on the assumption that the options
are exercised at the end of the full ten-year term of the option. The
options would have no value to the option holders if the price of the
Common Stock does not increase above the exercise price of the options.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table provides information concerning each option exercised during
the last fiscal year by each of the Named Executives and the value of
unexercised options held by such executive officers at the end of the fiscal
year.
<TABLE>
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- -------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End(#) at Fiscal Year End(#)
Shares ----------------------------- ----------------------------
Acquired on Value Exercisable Unexercisable Exercisable Unexercisable
Exercise(#) Realized ----------- ------------- ----------- -------------
Name(a) (1)(b) ($)(c) (d) (e)
- -------------------------------------------------------------------------------------------------------------
H. K. Smith 0 $0 192,084 172,916 0 0
P. M. Evans 0 0 0 60,000 0 0
T. L. Langford 0 0 28,500 48,500 0 0
J. P. Jones 0 0 15,000 30,000 0 0
G. A. Halpin, III 0 0 12,500 12,500 0 0
- -------------------------------------------------------------------------------------------------------------
</TABLE>
__________
(1) Values stated are calculated by subtracting the option exercise price from
the closing price of $16.8125 per share of the Corporation's Common Stock
as listed in the New York Stock Exchange Composite Transactions on December
31, 1999. Since that closing price was less than the exercise price for all
options reflected in the foregoing table, the fiscal year-end option
values were zero for all of the Named Executives.
Long-Term Incentive Plan Performance Share Awards in Last Fiscal Year
The following table shows all individual Performance Share Awards under the
Corporation's Long-Term Incentive Compensation Plan to the Named Executives
during the fiscal year ended December 31, 1999.
- --------------------------------------------------------------------------------
Number of Estimated Future Payouts Under
Shares Performance Non-Stock Price-Based Plans(3)
Units or Other ----------------------------------
or Other Period Until Threshold Target Maximum
Rights Maturation (Shares) (Shares) (Shares)
Name(a) (#)(1)(b) Payout(2)(c) (d) (e) (f)
- --------------------------------------------------------------------------------
H. K. Smith 0 1/99-12/1999 3,000 12,000 24,000
H. K. Smith 12,000 1/99-12/2000 3,000 12,000 24,000
H. K. Smith 12,000 1/99-12/2001 3,000 12,000 24,000
P. M. Evans 0 1/99-12/1999 1,500 6,000 12,000
P. M. Evans 6,000 1/99-12/2000 1,500 6,000 12,000
P. M. Evans 6,000 1/99-12/2001 1,500 6,000 12,000
T. L. Langford 0 1/99-12/1999 1,500 6,000 12,000
T. L. Langford 6,000 1/99-12/2000 1,500 6,000 12,000
T. L. Langford 6,000 1/99-12/2001 1,500 6,000 12,000
J.P. Jones 0 1/99-12/1999 775 3,100 6,200
J.P. Jones 3,100 1/99-12/2000 775 3,100 6,200
J.P. Jones 3,100 1/99-12/2001 775 3,100 6,200
- --------------------------------------------------------------------------------
__________
(1) The number of performance shares to be earned is based on achievement of
performance measurement goals during the performance period. For the 1-year
awards made in 1999, performance goals were not achieved and no payout was
made.
(2) Performance periods are January 1, 1999 to December 31, 1999 for 1-year
awards; January 1, 1999 to December 31, 2000 for 2-year awards; and
January 1, 1999 to December 31, 2001 for 3-year awards.
(3) Performance measurement goals: Percentage of target awards earned is based
on return on Shareholders' equity relative to peer group and corporate
earnings per share.
Performance Graph
The following graph compares the five year cumulative total Shareholder return
(assuming the reinvestment of dividends) on the Corporation's Common Stock
against the cumulative total return of the Standard & Poor's 500 Stock Index
(S&P 500) and the Dow Jones Heavy Construction Group Index. The graph assumes an
initial investment of $100 on December 31, 1994 in the Corporation's Common
Stock or in the underlying securities which comprise each of those market
indices.
Comparison of Five Year Cumulative Total Return Among Stone & Webster,
Incorporated, S&P 500 and the Dow Jones U.S. Heavy Construction [graph] Group
Index
<TABLE>
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- ------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------
Stone & Webster, Incorporated $100.00 $110.00 $ 98.00 $148.00 $106.00 $ 55.00
S&P 500 $100.00 $138.00 $169.00 $226.00 $290.00 $351.00
Dow Jones U.S. Heavy
Construction Group Index $100.00 $140.00 $133.00 $100.00 $104.00 $ 98.00
- ------------------------------------------------------------------------------------------------
</TABLE>
Long-Term Incentive Compensation Plan
The Long-Term Incentive Compensation Plan (the Long-Term Plan) was approved by
the Shareholders in 1998 and became effective as of January 1, 1998, replacing
the Restricted Stock Plan and the 1995 Stock Option Plan.
Under the provisions of the Long-Term Plan, stock-based and performance-based
awards may be made by the Compensation Committee, subject to forfeiture
provisions, to any employee of the Corporation and its subsidiaries and
affiliates, as selected by the Compensation Committee. Up to six hundred and
fifty thousand (650,000) shares of Common Stock are reserved and authorized for
issuance through the Long-Term Plan, no more than three hundred thousand
(300,000) of which may be granted in the form of restricted stock. In addition,
three hundred thirty thousand, seven hundred seventy-seven (330,777) shares of
Common Stock which were authorized under the Restricted Stock Plan and the 1995
Stock Option Plan are also available to be issued under the Long-Term Plan. The
Long-Term Plan permits the replacement of stock options to the extent shares are
tendered in payment of a stock option exercise price or withheld by the
Corporation to pay taxes on an award.
Awards under the Long-Term Plan may be made in the form of incentive and
nonqualified stock options, restricted stock, performance units and performance
shares. Stock options under the Long-Term Plan expire no later than the tenth
anniversary of the date of grant and have an exercise price at least equal to
the Fair Market Value (as defined in the Long-Term Plan) of a share of Common
Stock on the date the option is granted. Other terms of stock options are as set
by the Compensation Committee at the time of grant. Restricted stock awards
under the Long-Term Plan have such conditions as are set by the Compensation
Committee at the time of grant, including the period during which restrictions
are in effect, which will normally extend over not less than three years from
the date of grant. Upon initial election as a Director, each non-employee
Director receives nonqualified options to purchase 2,000 shares, and thereafter
annually receives nonqualified options to purchase 1,000 shares.
Performance Shares and Performance Units under the Long-Term Plan represent the
right to receive payments based upon meeting specified performance measures.
Performance Units and Performance Shares are granted upon such terms as the
Compensation Committee determines, provided that no more than ten percent of
Performance Shares issuable under the Plan may be issued subject to a
performance period of less than one year. A performance period is the time
period during which the performance goals must be met.
All awards under the Long-Term Plan may be granted subject to the attainment of
certain pre-established objective performance goals during a specified
performance period. The duration of a performance period is set by the
Compensation Committee. The performance measures are earnings per share, net
income (before or after taxes), return measures (including return on assets,
capital, equity or sales), cash flow return on investments (net cash flows
divided by owner's equity), earnings (before or after taxes), gross revenues,
market-to-book value ratio, share price (including growth measures and total
Shareholder return), working capital measures, and economic value added. The
Compensation Committee has the discretion to adjust the determinations of the
degree of attainment of the pre-established performance goals, subject, in
certain cases, to compliance with Section 162(m) of the Internal Revenue Code in
order to preserve the tax deductibility of amounts payable under the Long-Term
Plan. In general, all restrictions upon awards under the Long-Term Plan will
lapse upon a Change of Control of the Corporation (as defined in the Long-Term
Plan), and all target performance criteria will be deemed to have been attained.
Employee Retirement Plan
The Corporation's Employee Retirement Plan is a trusteed, non-contributory,
defined benefit plan which applies to all eligible employees of the Corporation.
Benefits are based upon the length of credited service and the amounts of annual
compensation (as defined in the plan) received during that period of service.
Normal retirement age is generally the employee's Social Security Retirement
Age. The formula for computing benefits provides that, for employees under the
plan who had not attained their retirement date prior to January 1, 1992, annual
retirement benefits are equal to the sum of (a) 0.75 percent of average annual
compensation for the years 1989, 1990 and 1991 up to $21,000 plus 1.35 percent
of such compensation in excess of $21,000, multiplied by the years and months of
credited service before January 1, 1992 for up to 35 years, plus (b) 1 percent
of such annual compensation for the years and months of credited service before
January 1, 1992 in excess of 35 years, plus (c) for each year of credited
service after January 1, 1992, 1 percent of annual compensation up to an indexed
amount (which was $57,750 for 1999) equal to 1.75 times the "Social Security
Covered Compensation" (a 35-year average Social Security earnings base), plus
1.45 percent of such annual compensation in excess of such amount; provided that
employees with more than 35 years of service at retirement will be credited with
a flat 1.33 percent of annual compensation for each year of service after the
35th year. With respect to the Named Executives, compensation, for purposes of
calculating retirement benefits, includes both the fixed and incentive portions
of salaries shown in the Summary Compensation Table under the Salary and Bonus
headings, respectively. As of January 1, 2000, the number of full credited years
of service for Messrs. Smith, Evans, Langford, Jones and Halpin is 3, 0, 2, 2,
and 3 years, respectively, and the estimated annual benefit payable to them upon
retirement at normal retirement age and assuming the continuance of current
rates of compensation for each until normal retirement age is $145,483, $75,182,
$45,070, $49,187 and $69,729, respectively. See "Employment and Change of
Control Agreements" below. These amounts do not reflect any limitations on
annual benefits which may be paid from a tax-qualified retirement plan at the
time of retirement imposed by Section 415 of the Internal Revenue Code, as
amended from time to time, nor do they reflect any limitations imposed by
Section 401(a)(17) of the Internal Revenue Code on the amount of compensation
upon which benefits may be determined. The Board of Directors has adopted a
Supplemental Retirement Program, which was amended in 1989, to fund the payment
of any benefits calculated under the provisions of the Employee Retirement Plan
which would be in excess of the limitations imposed by Sections 415 and
401(a)(17) of the Internal Revenue Code.
Employment and Change of Control Agreements
The Corporation entered into a three-year employment agreement with Mr. Smith on
February 12, 1996 under which Mr. Smith is to serve as President and Chief
Executive Officer of the Corporation. The agreement provides Mr. Smith with: an
annual base salary of $500,000, with increases subject to annual review; an
annual performance bonus for 1996 of $250,000 or such larger amount based upon
performance and at the discretion of the Board, and with such amounts in years
after 1996 to be based upon a long-term performance-based compensation plan to
be adopted by the Board; severance arrangements providing for three (3) times
annual compensation if employment is terminated, or deemed to be terminated,
without cause; a supplemental retirement benefit designed to provide Mr. Smith a
monthly retirement income benefit, commencing at age 60, from all of the
Corporation's pension plans equivalent to 25 percent of Mr. Smith's average last
three years' total compensation, with an equal benefit to be paid to Mr. Smith's
wife for her life if she survives Mr. Smith; and a 10-year stock option for
100,000 shares of Common Stock with an exercise price of $34.875 (the market
price on the trading day immediately prior to the grant date in accordance with
the Corporation's 1995 Stock Option Plan). In accordance with the agreement, the
Board elected Mr. Smith as Chairman of the Board of Directors on May 8, 1997. In
January 1997, the agreement was amended to provide, among other matters, that on
the first anniversary date of the commencement of the agreement, and on each
subsequent anniversary date, the term of the agreement will be extended by one
year, unless sooner terminated by either party; the amendment also provided for
the payment to Mr. Smith of an annual bonus of 50 percent of his base salary for
each of 1997 and 1998 if the amount payable under the Executive Management
Incentive Compensation Plan and/or the long-term performance-based incentive
compensation plan to be adopted by the Board would be less than such amount.
The Corporation entered into an agreement with Mr. Evans in connection with the
commencement of his employment in January 1999 under which Mr. Evans is to serve
as Senior Executive Vice President of the Corporation and President and Chief
Operating Officer of the Corporation's principal engineering and construction
subsidiary. The agreement provides Mr. Evans with: an initial annual base salary
of $375,000, a minimum annual performance bonus for 1999 equal to his base
salary for 1999, participation in the incentive compensation plan and retirement
plans; a 10-year stock option for 25,000 shares of Common Stock vesting at a
rate of 25 percent per year; severance arrangements providing for twenty-four
months compensation if employment is terminated without cause; and mortgage
financing for Mr. Evans' principal residence, as discussed above in the Summary
Compensation Table and footnote (6) thereto.
The Corporation entered into an agreement with Mr. Jones in connection with the
commencement of his employment in January 1998 under which Mr. Jones is to serve
as Vice President, Secretary and General Counsel of the Corporation. The
agreement provides Mr. Jones with: an initial annual base salary of $275,000, an
annual performance bonus for 1998, 1999, and 2000 equal to 35 percent of base
salary or such larger amount as may be determined under the Corporation's
incentive compensation plans; severance arrangements providing for eighteen
months compensation if employment is terminated without cause; a supplemental
retirement benefit designed to provide Mr. Jones a minimum retirement income
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, to vest at
the rate of $10,000 per year of service, with 50 percent of that benefit to be
paid to Mr. Jones' wife for her life if she survives Mr. Jones; a 10-year stock
option for 12,000 shares of Common Stock vesting at a rate of 25 percent per
year, and mortgage financing for Mr. Jones' principal residence, as discussed
above in the Summary Compensation Table and footnote (8) thereto.
Each of Messrs. Smith, Evans, Langford, Jones and Halpin has entered into a
special Change of Control Agreement providing for severance pay and a
continuation of certain benefits should a "Change of Control" occur. Entry into
these agreements, as amended, was unanimously approved by the independent
members of the Board of Directors. In order to receive benefits under these
special agreements, a "Change of Control" must have occurred as a result of any
of the following circumstances:
a. Accumulation by any individual, entity or group of 20 percent or more
of the outstanding voting stock of the Corporation;
b. A change in the make-up of a majority of the persons serving as
Directors of the Corporation from the majority currently in office
(with such majority including those replacements or additions
subsequently approved by a majority of Directors currently in office);
c. A merger or other business combination resulting in persons other than
current shareholders of the Corporation owning more than 50 percent of
the resulting entity;
d. Approval of a liquidation or dissolution of the Corporation.
In order for severance benefits to be payable under these agreements, in
addition to the Change of Control, the executive's employment must be terminated
either involuntarily without cause (actual or "constructive") or if, after a
Change of Control, the executive remains in the employ of the Corporation for a
one year period, the executive may, for a thirty day period subject to the terms
of such agreements, voluntarily terminate his employment and receive the
severance benefits in a lump sum.
Under the special Change of Control Agreements, severance payments would equal,
in the case of Messrs. Smith, Evans, Langford and Jones, an amount equal to
three times the executive's most recent annual base salary and highest recent
bonus, which generally is the highest bonus paid in the last three years. In
addition, medical, life and disability benefits would be provided at the expense
of the Corporation for the applicable period of three years. The executive would
also receive an amount equal to the actuarial equivalent of the benefit that
such executive would have received under the Corporation's defined benefit
retirement plans assuming that the executive had remained in the employ of the
Corporation during the three-year period following the right to receive benefits
under these agreements. Mr. Halpin's agreement has a multiplier of two, and
two-year periods. All options outstanding on the date of a change of control
would become immediately and fully exercisable and all restrictions upon any
restricted shares would lapse immediately and all such shares would become fully
vested.
Payments to executives under these Change of Control Agreements may be subject
to the imposition of the excise tax required by Section 4999 of the Internal
Revenue Code, if payments under these agreements are deemed to be an "excess
parachute payment" pursuant to Section 280G of the Internal Revenue Code. Under
the agreements as amended, such payments can be increased so that the employee
is in the same after-tax position as if there was no excise tax. However, in
order to avoid excessive costs to the Corporation while providing little
after-tax benefit to the executive, the amendment requires a minimum after-tax
benefit to be delivered to the executive before the gross-up is operative.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The Corporation had outstanding, as of March 24, 2000, 14,235,997 shares of
Common Stock (excluding 3,495,491 shares held in the treasury), each share of
which is entitled to one vote. Only Shareholders of record at the close of
business on March 24, 2000 will be entitled to vote at the Annual Meeting or any
adjournments or postponements thereof.
As of March 24, 2000, the institutional trustees under the following employee
benefit plans held of record more than 5 percent of the outstanding Common Stock
of the Corporation:
The Employee Investment Plan of Stone & Webster, Incorporated and
Participating Subsidiaries (the Employee Investment Plan) - 1,246,173
shares (approximately 8.8 percent), with an address in care of the
Corporation at 245 Summer Street, Boston, MA 02210.
The Employee Stock Ownership Plan of Stone & Webster, Incorporated and
Participating Subsidiaries (ESOP) (including PAYSOP shares referred to
below) - 2,075,091 shares (approximately 14.6 percent), with an address in
care of the Corporation at 245 Summer Street, Boston, MA 02210.
The Employee Retirement Plan of Stone & Webster, Incorporated and
Participating Subsidiaries (Retirement Plan - 1,079,800 shares
(approximately 7.6 percent), with an address in care of the Corporation at
245 Summer Street, Boston, MA 02210.
The Employee Benefits Committee of the Board of Directors of the Corporation
(the Committee), which administers the Employee Investment Plan and the
Retirement Plan, may be considered a beneficial owner of the shares held under
the Employee Investment Plan and the Retirement Plan by reason of the definition
of beneficial ownership contained in Rule 13d-3 of the Securities and Exchange
Commission (the Commission) promulgated under the Securities Exchange Act of
1934, as amended (the Exchange Act). The Employee Investment Plan provides that
shares allocated to the investment accounts of participants will be voted as the
participants direct, and shares as to which participants have not given
directions will be voted in accordance with the direction of the Committee. The
Retirement Plan provides that shares held in the trust under the Retirement Plan
will be voted in accordance with the direction of the Committee. To the extent
that the Committee shares or has voting power as aforesaid, the Committee may be
considered a beneficial owner under the Commission definition. The Committee is
presently composed of Donna F. Bethell, Chairman, David N. McCammon, J. Angus
McKee and H. Kerner Smith, a majority of whom are non-employee Directors of the
Corporation and each of whom has a mailing address at the Corporation. Pursuant
to the ESOP, shares allocated to the accounts of participants are voted as the
participants direct, and allocated shares as to which participants have not
given directions and all unallocated shares are voted in the proportions the
allocated shares are voted by the participants. The Payroll-based Employee Stock
Ownership Plan (PAYSOP) trust was merged into the ESOP trust effective as of
January 1, 1995, and shares from the PAYSOP are voted in the same manner as
shares in the ESOP. Shares held under the ESOP may not be transferred by the
trustee of that plan, other than to meet distribution requirements of the ESOP
or in connection with a statutory reclassification of the Corporation's Common
Stock or a statutory merger, consolidation or sale of assets or in certain
limited circumstances, upon the direction of the participants.
In addition to the foregoing, the following table sets forth information
concerning beneficial owners of more than 5 percent of the outstanding Common
Stock of the Corporation:
- --------------------------------------------------------------------------------
Percentage Reported
Number of of Outstanding
Name and Address Shares Common Stock
- --------------------------------------------------------------------------------
Dimensional Fund Advisers, Inc.(1) 788,000 5.6%
1299 Ocean Ave., 11th Floor
Santa Monica, CA 90401
Kennedy Capital Management, Inc.(2) 820,700 6.3%
10829 Olive Boulevard
St. Louis, MO 63141
- --------------------------------------------------------------------------------
__________
(1) Dimensional Fund Advisors, Inc., an investment adviser and investment
manager, has furnished information to the Corporation which disclosed that
as of December 31, 1999 it held sole voting power and sole dispositive
power with respect to, and beneficially owned, 788,000 shares of the
Corporation's Common Stock on behalf of its advisory clients. Dimensional
Fund Advisors, Inc. disclaimed beneficial ownership of such shares.
(2) Kennedy Capital Management, Inc., an investment adviser, has furnished
information to the Corporation which disclosed that as of December 31, 1999
it held sole voting power and sole dispositive power with respect to, and
beneficially owned, 820,700 shares of the Corporation's Common Stock.
To the knowledge of the Corporation, as of March 24, 2000 no other person
beneficially owned more than 5 percent of the outstanding Common Stock of the
Corporation.
Share Ownership of Directors and Executive Officers
The following table sets forth information concerning the beneficial ownership
of the Company's Common Shares as of March 24, 2000, for: (a) each incumbent
Director; (b) the three other most highly compensated executive officers who are
not also Directors; and (c) all Directors and Executive Officers as a group.
Except as otherwise noted, the named individual or their family members have
sole voting and investment power with respect to such securities.
- --------------------------------------------------------------------------------
Number Of Common Shares (A)
---------------------------------------
May Be
Acquired
Within
60 Days Deferral
Beneficially Under Plan
Name Owned Options(B) (C) Total
- --------------------------------------------------------------------------------
(a)
- --------------------------------------------------------------------------------
Donna F. Bethell 2,071 6,000 0 8,071
Frank J. A. Cilluffo (D) 667,871 6,000 0 673,871
Peter M. Evans 30,259(E) 15,000 - 45,259
Kent F. Hansen 2,271 6,000 0 8,271
Elvin R. Heiberg III 1,771 6,000 0 7,771
David N. McCammon 2,658 6,000 3,696 12,354
J. Angus McKee 3,615 6,000 0 9,615
Bernard W. Reznicek 5,757 6,000 0 11,757
H. Kerner Smith 69,723(E) 265,690 - 335,413
Peter M. Wood 5,476 6,000 915 12,391
- --------------------------------------------------------------------------------
(b)
- --------------------------------------------------------------------------------
Thomas L. Langford 13,680(E) 38,523 - 52,203
James P. Jones 25,521(E) 23,278 - 48,799
Gerard A. Halpin, III 1,848(E) 16,250 - 18,098
- --------------------------------------------------------------------------------
(c)
- --------------------------------------------------------------------------------
All Directors and Executive
Officers as a Group
(14 Persons) 842,521 406,741 4,611 1,253,873
- --------------------------------------------------------------------------------
__________
(A) The information contained in this column reflects the definition of
beneficial ownership for the purposes of the proxy rules of the Securities
and Exchange Commission. The nature of beneficial ownership for shares
shown in this column is sole voting and investment power, except to the
extent set forth in footnotes (B) through (E).
(B) Shares shown include shares issuable upon exercise of stock options issued
to each non-employee Director and executive officer under the Stone &
Webster, Incorporated Long-Term Incentive Compensation Plan (the Long-Term
Incentive Compensation Plan) (prior to 1998, under the 1995 Stock Option
Plan) which are currently exercisable. Under the Rules of the Commission,
such shares are considered to be beneficially owned. For the purpose of
calculating percentage ownership, such shares were also considered to be
outstanding.
(C) Represents amounts held in stock deferral accounts under the Corporation's
Non-employee Director Deferral Plan. The value of these accounts depends
directly upon the market price of the Common Stock of the Corporation.
Executive Officers are not eligible to participate in this plan.
(D) Frank J. A. Cilluffo has furnished information to the Corporation which
disclosed that as of March 24, 2000 he beneficially owned 667,871 shares.
Mr. Cilluffo disclaims beneficial ownership of 560,400 shares held by
Cilluffo Associates, L.P. and 105,800 shares held by Zenith Associates,
L.P. except to the extent of his pecuniary interest in the securities. He
also disclaims beneficial ownership of 10,000 shares held by the Frank and
Irja Cilluffo Foundation which are not included in the total above. Mr.
Cilluffo also has options to purchase 6,000 shares issued under the
Corporation's 1995 Stock Option Plan and the Stone & Webster, Incorporated
Long-Term Incentive Compensation Plan which are currently exercisable.
(E) Includes (i) shares allocated under the Employee Investment Plan and which
are subject to its terms and provisions with respect to termination and
withdrawal and, in limited circumstances, to forfeiture, and held as of
March 24, 2000 by Putnam Fiduciary Trust Company, trustee under the plan
(with respect to such shares, investment power is determined in accordance
with the provisions of the plan); (ii) shares allocated under the ESOP
(which includes the PAYSOP) and which are subject to its terms with respect
to forfeiture and held as of March 24, 2000 by Putnam Fiduciary Trust
Company, trustee under the plan; and (iii) restricted shares awarded under
the Corporation's Long-Term Incentive Compensation Plan (prior to 1998,
under the Restricted Stock Plan) and which are subject to their terms with
respect to forfeiture. Shares held in accounts of employees in the Employee
Investment Plan and ESOP, including Messrs. Smith, Evans, Langford, Jones,
and Halpin, are voted by the trustee of such plans in accordance with the
instructions of the employees; in the absence of such instructions, such
shares are voted by the trustee in accordance with the terms of such plans.
As of March 24, 2000, the Directors and executive officers of the Corporation,
as a group, beneficially owned 1,253,873 shares or approximately 8.6 percent of
the Corporation's outstanding Common Stock, including shares allocated under the
Employee Investment Plan and the ESOP, and shares issuable with respect to
options granted under the 1995 Stock Option Plan and Long-Term Incentive
Compensation Plan which are currently exercisable or which will be exercisable
within 60 days of that date. The nature of beneficial ownership for said
outstanding shares was sole voting and investment power, except (1) as referred
to in footnotes (B) through (E) above, and (2) 1,092 shares were held under the
Employee Investment Plan for which voting power was shared as described above.
In addition, the Employee Retirement Plan provides that shares held in the trust
under that Plan will be voted in accordance with the direction of the Employee
Benefits Committee. As of March 24, 2000, no Director or Officer beneficially
owned as much as 1 percent of the outstanding Common Stock of the Corporation,
except for Mr. Cilluffo, who beneficially owned approximately 4.6 percent, and
Mr. Smith, who beneficially owned approximately 2.3 percent, as set forth in the
foregoing table and notes.
Item 13. Certain Relationships and Related Transactions.
The Corporation's Audit Committee, which is composed of outside Directors,
monitors the activities of the Corporation which might involve proposed
activities of affiliates of members of the Board of Directors to ensure that
such activities do not create any conflict of interest which would interfere
with a Director's ability to serve the Board and the Corporation without bias.
There were no relationships and related transactions which are required to be
disclosed, except as described in Notes (6) and (8) to the Summary Compensation
Table which appear in Item 11. above and which are incorporated herein.
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, which are included in registrant's 1999
Annual Report to Shareholders, are filed herewith in Exhibit (13)(i).
Management's Discussion and Analysis
Financial Statements (revised for the year ended December 31, 1999):
Consolidated Statements of Operations and Comprehensive Income for
the Three Years Ended December 31, 1999
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Shareholders' Equity for the Three Years
Ended December 31, 1999
Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 1999
Notes to Consolidated Financial Statements
Report of Management
Report of Independent Accountants
Selected Financial Data
Quarterly Financial Data
Market and Dividend Information
(ii) Financial Statement Schedule for the Three Years Ended December
31, 1999:
II. Valuation and Qualifying Accounts
(iii) Report of Independent Accountants
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 (incorporated by
reference to Exhibit (3)(ii) to registrant's Form 10-K for the fiscal
year ended December 31, 1998).
(4) Instruments defining the rights of security holders, including
indentures -
(i) As of December 31, 1999, registrant and its subsidiaries had
outstanding long-term debt (excluding current portion) totaling
approximately $19,950,000, 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) 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)).
(b) 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).
(c) 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).
(d) 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.
(e) 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, 1998).
(f) 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, 1998).
(g) 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).
(h) Form of employment agreement with James P. Jones
(incorporated by reference to Exhibit 10(i) to the registrant's Form
10-K for the fiscal year ended December 31, 1998).
(i) Form of employment agreement with Peter M. Evans
(incorporated by reference to Exhibit 10(i) to the registrant's Form
10-K for the fiscal year ended December 31, 1999).
______________
*Exhibits 10 (a) through (i) are compensatory plans, contracts and
arrangements in which Directors and certain executive officers
participate.
(j) Credit Agreement dated as of July 30, 1999 (incorporated by
reference to Exhibit 10 to the registrant's Form 10-Q for the quarter
ended September 30,1999).
(k) Amendment dated as of November 29, 1999 to Credit Agreement
dated as of July 30, 1999 (incorporated by reference to Exhibit 10(k)
to the registrant's Form 10-K for the fiscal year ended December 31,
1999).
(13) (i) Financial Section (revised) of 1999 Annual Report to
Shareholders for the fiscal year ended December 31, 1999 (filed herewith).
(ii) Financial Statement Schedule (filed herewith).
(iii) Report of Independent Accountants (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 reports on Form 8-K during the last quarter
of the period covered by this report.
Date of Form 8-K Description
- ---------------- -----------
October 27, 1999 Submitted under Item 7, Financial Statements, Pro Forma
Financial Information and Exhibits, relating to the report
of third quarter results, a plan to sell non-core assets
and the omission of a dividend.
December 6, 1999 Submitted under Item 5, Other Events, relating to the
agreement with the registrant's principal bank lending
group to expand and extend its current credit facility, and
relating to the sale of the registrant's headquarters
building in Boston, Massachusetts.
December 17, 1999 Submitted under Item 5, Other Events, relating to the sale
of one million shares of the registrant's common stock held
in its treasury to the Employee Retirement Plan of the
registrant and its participating subsidiaries.
<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: May 9, 2000
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.
May 9, 2000 /S/ H. KERNER SMITH
----------------------------------------------------
H. Kerner Smith
Chairman, President and Chief Executive Officer
Director
May 9, 2000 /S/ PETER M. EVANS
----------------------------------------------------
Peter M. Evans
Senior Executive Vice President
Director
May 9, 2000 *
----------------------------------------------------
Donna F. Bethell
Director
May 9, 2000 *
----------------------------------------------------
Frank J. A. Cilluffo
Director
May 9, 2000 *
----------------------------------------------------
Kent F. Hansen
Director
May 9, 2000 *
----------------------------------------------------
Elvin R. Heiberg III
Director
May 9, 2000 *
----------------------------------------------------
David N. McCammon
Director
May 9, 2000 *
----------------------------------------------------
J. Angus McKee
Director
May 9, 2000 *
----------------------------------------------------
Bernard W. Reznicek
Director
May 9, 2000 *
----------------------------------------------------
Peter M. Wood
Director
May 9, 2000 *By: /S/ JAMES P. JONES
---------------------------------------------
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, 1999 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 (incorporated by reference)
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 - 1995 Stock Option Plan (incorporated by
reference)
(b) Material contracts - 1997 Stock Plan for Non-employee Directors
(incorporated by reference)
(c) Material contracts - Form of change of control agreement (incorporated
by reference)
(d) 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)
(e) Material contracts - Non-employee Director Deferral Plan (incorporated
by reference)
(f) Material contracts - Annual Incentive Compensation Plan (incorporated
by reference)
(g) Material contracts - Long-Term Incentive Compensation Plan
(incorporated by reference)
(h) Material contracts - Employment agreement with James P. Jones
(incorporated by reference)
(i) Material contracts - Employment agreement with Peter M. Evans
(incorporated by reference)
(j) Credit Agreement dated as of July 30, 1999 (incorporated by reference)
(k) Amendment dated as of November 29, 1999 to Credit Agreement dated as
of July 30, 1999 (incorporated by reference)
13 (i) Financial Section (revised) of the 1999 Annual Report to Shareholders
for the fiscal year ended December 31, 1999 (filed herewith)
(ii) Financial Statement Schedule (filed herewith)
(iii) Report of Independent Accountants (filed herewith)
21 Subsidiaries of the Registrant (filed herewith)
<PAGE>
No. Exhibit
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 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.
On October 27, 1999 the Company announced its intention to sell the Nordic
Refrigerated Services business unit (Nordic) and its corporate headquarters
building in Boston, Massachusetts. The Company is seeking buyers for Nordic and
on December 28, 1999 sold its corporate headquarters building. Accordingly, the
Nordic results have been classified as a discontinued operation and prior
periods have been reclassified. The Company's continuing operations are composed
of the Engineering, Construction and Consulting business.
Unless noted otherwise, earnings per share calculations disclosed are on a
diluted basis.
RESULTS OF CONTINUING OPERATIONS - 1999 COMPARED WITH 1998
The Company's Engineering, Construction and Consulting revenue was $1,140 in
1999, a decrease of 6 percent from the $1,214 reported in 1998. Loss from
continuing operations for 1999 was $4.0 or $0.30 per share, which includes $92.2
or $7.03 per share from the sale of the Company's corporate headquarters
building, compared with a loss from continuing operations of $54.6, or $4.24
loss per share for 1998. The operating loss for 1999 was $142.5 compared with an
operating loss of $81.0 in 1998. New orders for 1999 were $1,106 compared with
$1,331 for 1998. New orders consist of the net total of new orders, scope
changes and cancellations. Consistent with the nature of the Company's business,
significant new contracts can create variability in the Company's awards
pattern. Backlog was $2,602 at December 31, 1999 compared to $2,636 at December
31, 1998.
Components of earnings per share in 1999 and 1998 were:
1999 1998
- --------------------------------------------------------------------------------
Continuing operations $(0.27) $(0.55)
Provisions for significant loss contracts (7.08) (4.18)
Pension related items 0.02 0.34
Asset divestitures 7.03 0.15
- --------------------------------------------------------------------------------
Earnings (loss) per share from continuing
operations (0.30) (4.24)
- --------------------------------------------------------------------------------
Discontinued operation 0.39 0.41
- --------------------------------------------------------------------------------
Earnings (loss) per share $0.09 $(3.83)
- --------------------------------------------------------------------------------
For the years ended December 31, 1999 and 1998, the Company's results included
significant nonrecurring items. Operating income from continuing operations
excluding nonrecurring items, for 1999 was $20.7 compared with $22.7 in 1998.
Net income excluding nonrecurring items, was $4.5, compared with $9.1 in 1998.
NONRECURRING ITEMS - 1999
During 1999, the Company recorded a loss of $150.1 ($92.9 after tax or $7.08 per
share) in contract related provisions, primarily due to increases in estimated
costs to complete several lump sum contracts. Projects in Africa and the United
Kingdom recorded $74.2 of charges in the first quarter of 1999 due to various
factors including owner-directed technical and schedule changes and increases in
scope of the authorized contracts. In the third quarter of 1999, a provision of
$10.4 on three domestic lump sum contracts was recorded to reflect increases in
the estimated costs to complete. Additionally, in the fourth quarter of 1999,
while the Company was working to improve its liquidity position, delays in
payments to vendors adversely impacted delivery of vendor materials and services
and, consequently, job scheduling and sequencing were affected. As a result,
provisions of $65.5 were established for additional expenditures to accelerate
certain projects and for increased anticipated costs to complete other projects.
In the fourth quarter of 1999, the Company sold its corporate headquarters
building in Boston, Massachusetts, resulting in a gain of $151.3 ($92.2 after
tax or $7.03 per share). The gain on sale was reported as other income.
In the fourth quarter of 1999, the Company announced a voluntary Incentive
Retirement Program. Of approximately 230 employees eligible for increased
benefits under the program, 164 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 $0.60 per share) and is
reported as an operating expense.
As discussed in "Nonrecurring Items - 1998 and 1997," in 1999 no additional
amount was provided and no estimated recovery of claims was recorded related to
a contract being executed by a joint venture in the Middle East.
The financial statement impact of 1999 nonrecurring items is summarized in the
following table:
NONRECURRING ITEMS - 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
Continuing
Operations
Incentive Sale of Significant Excluding
Continuing Retirement Headquarters Contract Nonrecurring
$000s Operations Program Building Provisions Items
- -------------------------------------------------------------------------------------------------------
Revenue $1,140,348 $ - $ - $(127,500) $1,267,848
Cost of revenue 1,212,979 - - 22,600 1,190,379
- -------------------------------------------------------------------------------------------------------
Gross profit (loss) (72,631) - - (150,100) 77,469
General and administrative
expenses 69,893 13,102 - - 56,791
- -------------------------------------------------------------------------------------------------------
Operating income (loss) from
continuing operations (142,524) (13,102) - (150,100) 20,678
- -------------------------------------------------------------------------------------------------------
Gain on sale of assets 151,251 - 151,251 - -
- -------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations $ (3,968) $ (7,861) $ 92,236 $ (92,864) $ 4,521
- -------------------------------------------------------------------------------------------------------
Income (loss) per share $(0.30) $(0.60) $7.03 $(7.08) $0.35
- -------------------------------------------------------------------------------------------------------
</TABLE>
NONRECURRING ITEMS - 1998
During 1998, the Company recorded a loss of $87.3 ($53.9 after tax or $4.18 per
share) for contract related provisions, primarily due to increases in estimated
costs to complete several international lump sum contracts. 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 re-evaluated resulting in
$68.8 of charges, excluding reversal of income recognized earlier in the year on
certain of those projects. Management believes that it has valid contractual and
equitable grounds for change orders providing additional compensation under
these contracts. The Company has or expects to submit claims greater than losses
incurred to date. Operating losses of $18.5 were 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
following table:
NONRECURRING ITEMS - 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Continuing
Operations
Incentive Sale of Significant Excluding
Continuing Retirement Office Fixed Asset Contract Nonrecurring
$000s Operations Program Building Write Down Provisions Items
- -------------------------------------------------------------------------------------------------------------------
Revenue $1,214,468 $ - $ - $ - $ 90,986 $1,123,482
Cost of revenue 1,224,157 - - - 178,260 1,045,897
- -------------------------------------------------------------------------------------------------------------------
Gross profit (loss) (9,689) - - - (87,274) 77,585
General and administrative
expenses 71,335 13,129 (3,066) 6,367 - 54,905
- -------------------------------------------------------------------------------------------------------------------
Operating income (loss) from
continuing operations (81,024) (13,129) 3,066 (6,367) (87,274) 22,680
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from
continuing operations $ (54,608) $ (7,943) $ 1,993 $(3,838) $(53,891) $ 9,071
- -------------------------------------------------------------------------------------------------------------------
Income (loss) per share $(4.24) $(0.61) $0.15 $(0.30) $(4.18) $0.70
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
REVENUE
The Company's Engineering, Construction and Consulting revenue was $1,140 in
1999, a decrease of 6 percent from the $1,214 reported for the same period last
year. The decrease in revenue was primarily due to a 21 percent decrease in the
Process/Industrial division related to petrochemical market conditions, and a 7
percent decrease in the Power division. These decreases were partially offset by
revenue increases of 28 percent in the Environmental/Infrastructure division
resulting from increased remediation, transportation and water projects, and a
37 percent increase in Other, principally from increased management consulting
revenues.
REVENUE BY DIVISION
Percent
$000s 1999 1998 Incr/(Decr) Incr/(Decr)
- --------------------------------------------------------------------------------
Power $ 566,824 $ 610,013 $(43,189) (7)%
Process/Industrial 337,069 424,698 (87,629) (21)%
Environmental/
Infrastructure 140,555 109,989 30,566 28%
Other 95,900 69,768 26,132 37%
- --------------------------------------------------------------------------------
Total revenue $1,140,348 $1,214,468 $(74,120) (6)%
- --------------------------------------------------------------------------------
NEW ORDERS AND BACKLOG
Power division orders of $854 in 1999 decreased by 20 percent from the $1,070 in
orders for 1998, primarily as a result of lower than anticipated demand by
energy companies in the first half of 1999. However, 1999 power orders increased
substantially in the second half and reflected increased awards for nuclear
services, as well as combined-cycle plants. The 1999 new orders do not include
an award for a 720-megawatt combined-cycle power plant expected to be booked in
the first half of 2000 after completion of owner financing. The 76 percent
decline in Process/Industrial division orders reflect the protracted weakness in
the petrochemical industry, which is the customer base for the Company's process
technology, the lingering effects of the economic slowdown in Asia, which had
been a major market for new process plant construction, and being more selective
with Industrial market opportunities in cement, forest products and chemical
sectors. Environmental/Infrastructure division orders increased significantly in
1999 as a result of growth in remediation, transportation and water projects.
The 1998 orders reported as Other in the table includes backlog acquired through
the acquisition of Belmont Constructors and Power Technologies, Inc.
New orders by division and backlog for 1999 and 1998 were:
NEW ORDERS BY DIVISION
Percent
$000s 1999 1998 Incr/(Decr) Incr/(Decr)
- --------------------------------------------------------------------------------
Power $ 854,344 $1,070,117 $(215,773) (20)%
Process/Industrial 77,208 323,265 (246,057) (76)%
Environmental/
Infrastructure 121,107 (168,861) 289,968 172%
Other 53,492 106,811 (53,319) (50)%
- --------------------------------------------------------------------------------
New orders (net) $1,106,151 $1,331,332 $(225,181) (17)%
- --------------------------------------------------------------------------------
BACKLOG
Percent
$000s 1999 1998 Incr/(Decr)
- --------------------------------------------------------------------------------
Beginning backlog $2,636,166 $ 2,519,302 5%
New orders 1,106,151 1,331,332 (17)%
Revenue (1,140,348) (1,214,468) (6)%
- --------------------------------------------------------------------------------
Ending backlog $2,601,969 $ 2,636,166 (1)%
- --------------------------------------------------------------------------------
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 December 31, 1999, and if resale of the olefins
plant was unlikely to be completed, the Company would have recorded a pre-tax
charge of $76.8 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 $72.4 in 1998.
The TPPI project is included in the Company's backlog in the amounts of $398 and
$451, respectively, at December 31, 1999 and 1998.
DISCONTINUED OPERATION
The Nordic Refrigerated Services business unit (Nordic) has been classified as a
discontinued operation and prior periods have been reclassified. 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. Nordic provides low cost, energy efficient
refrigerator and freezer storage facilities, customized material handling
services, and blast freezing capacity. It 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.
Revenue increased by 36 percent in 1999, due to the acquisition of The Nordic
Group and to increased volume and space utilization at the Company's existing
facilities. The decrease in operating margin percentage resulted from higher
nonrecurring costs associated with restructuring preacquisition facilities.
Revenue and income from the discontinued operation were:
$000s 1999 1998
- --------------------------------------------------------------------------------
Revenue $46,768 $34,312
Operating income 8,576 8,490
Income tax expense 3,440 3,184
- --------------------------------------------------------------------------------
Income from discontinued operation $ 5,136 $ 5,306
- --------------------------------------------------------------------------------
Operating margin 18.3% 24.7%
- --------------------------------------------------------------------------------
PENSION RELATED ITEMS
Pension related items, which reduced operating expenses, were $0.4 in 1999
compared with $7.3 in 1998. These items increased net income by $0.2 (or $0.02
per share) in 1999 compared with $4.4 (or $0.34 per share) in 1998.
PENSION (INCOME) EXPENSE
$000s 1999 1998
- --------------------------------------------------------------------------------
Net pension credit on qualified U.S. plan $(14,488) $(20,677)
Foreign pension expense 1,004 203
Incentive Retirement Program 13,102 13,129
- --------------------------------------------------------------------------------
Total pension related items $ (382) $ (7,345)
- --------------------------------------------------------------------------------
After-tax total pension related items $ (229) $ (4,444)
- --------------------------------------------------------------------------------
Total pension related items per share $(0.02) $(0.34)
- --------------------------------------------------------------------------------
The pension credit is the result of a plan that is funded in excess of the
projected benefit obligation and the amortization of the SFAS 87 net transition
asset of $9.8 in 1998. The transition asset was fully amortized in 1998. The
plan is overfunded primarily due to favorable asset performance.
OTHER INCOME AND EXPENSE
The 1999 results include a $151.3 gain on the sale of the Company's corporate
headquarters building in Boston, Massachusetts. Net interest expense was $10.6
in 1999 compared with $0.4 in 1998. Interest expense increased due to the higher
levels of working capital needed to fund operating losses and bank debt related
to the 1998 acquisition of The Nordic Group.
INCOME TAX PROVISION
The income tax provision (benefit) from continuing operations resulted in
effective tax rates of 108.4 percent in 1999 and (32.9) percent in 1998. The
1999 provision was higher than the United States statutory rate primarily
because of state income taxes, foreign taxes and an increase in the net
operating loss valuation reserve. The Company had a valuation allowance of $9.1
at December 31, 1998 for the deferred tax assets related to net operating loss
carryforwards. The valuation allowance increased by $6.9 to a balance of $16.0
at December 31, 1999. The increase was due to U.S., state and foreign entity
losses. The valuation allowance at December 31, 1999 was composed of $2.2
relating to U.S. net operating loss carryforwards, $2.2 relating to the
carryforwards of international subsidiaries and $11.6 relating to state net
operating loss carryforwards.
RESULTS OF CONTINUING OPERATIONS - 1998 COMPARED WITH 1997
Engineering, Construction and Consulting revenue for 1998 was $1,214, a decrease
of 6.5 percent from the $1,299 reported in 1997. The operating loss for 1998 was
$81.0 compared with operating income of $40.0 in 1997. The loss from continuing
operations for 1998 was $54.6, or $4.24 per share, compared with income from
continuing operations of $29.2, or $2.25 per share for 1997. New orders for 1998
of $1,331 were equal to new orders reported for 1997. Backlog increased to
$2,636 at December 31, 1998 from $2,519 at December 31, 1997.
During the first quarter of 1998, the Company acquired the assets of Belmont
Constructors ("Belmont"), 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
contributed approximately $72.2 to revenue and $(3.4) to the Company's net loss.
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, principally in the international Power market. These items were
partially offset by a gain of $3.1 associated with the sale of the Cherry Hill
property.
The Company executed 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 increased during 1998. The Company is also
providing engineering services, 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 1998 estimated cost to complete this
contract was anticipated to exceed the contract value. Accordingly, 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 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.
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.
Components of earnings per share in 1998 and 1997 were:
$000s 1998 1997
- --------------------------------------------------------------------------------
Continuing operations $(0.55) $2.16
Provisions for significant loss contracts (4.18) (1.20)
Pension related items 0.34 0.80
Divested operations - 0.08
Asset divestitures 0.15 0.41
- --------------------------------------------------------------------------------
Earnings (loss) per share from continuing
operations (4.24) 2.25
- --------------------------------------------------------------------------------
Discontinued operation 0.41 0.34
- --------------------------------------------------------------------------------
Earnings (loss) per share $(3.83) $2.59
- --------------------------------------------------------------------------------
NONRECURRING ITEMS - 1998 AND 1997
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. The Company sold an
office building in 1998 for $13.5 in cash, resulting in a gain of $3.1 ($2.0
after tax or $0.15 per share), which was reported as operating income. In 1998,
the Company offered a voluntary Incentive Retirement Program at a cost of $13.1
($7.9 after tax or $0.61 per share) which was reported as an operating expense.
Also in 1998, the Company wrote down the value of various fixed assets,
primarily computer equipment, and reduced the estimated useful life for computer
equipment resulting in charges of $3.8 ($2.3 after tax or $0.18 per share) and
$2.6 ($1.6 after tax or $0.12 per share), respectively.
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, 1998 or 1999
results. The joint venture has been notified of claims of approximately $62.0,
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. 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 which 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.
The financial statement impact of 1997 nonrecurring items is summarized in the
table below:
NONRECURRING ITEMS - 1997
<TABLE>
<S> <C> <C> <C> <C> <C>
Continuing
Operations
Middle Gain from Excluding
Continuing East Joint Sale of Divested Nonrecurring
$000s Operations Venture Assets Operations Items
- -----------------------------------------------------------------------------------------------------
Revenue $1,299,220 $ - $ - $ - $1,299,220
Cost of revenue 1,190,697 25,781 - (1,612) 1,166,528
- -----------------------------------------------------------------------------------------------------
Gross profit (loss) 108,523 (25,781) - 1,612 132,692
General and administrative
expenses 68,571 - (7,954) - 76,525
- -----------------------------------------------------------------------------------------------------
Operating income (loss) from
continuing operations 39,952 (25,781) 7,954 1,612 56,167
- -----------------------------------------------------------------------------------------------------
Income (loss) from
continuing operations $ 29,151 $(15,469) $ 5,363 $1,048 $ 38,209
- -----------------------------------------------------------------------------------------------------
Income (loss) per share $2.25 $(1.20) $0.41 $0.08 $2.96
- -----------------------------------------------------------------------------------------------------
</TABLE>
REVENUE
Engineering, Construction and Consulting revenue decreased from $1,299 in 1997
to $1,214 in 1998. Process/Industrial division revenue declined by 32 percent.
This decrease was largely related to the lingering effects of the economic
slowdown in Asia, where much of the Company's process work had been conducted,
and to the suspension of the TPPI project. 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
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/Industrial 424,698 621,539 (196,841) (32)%
Environmental/
Infrastructure 109,989 108,165 1,824 2%
Other 69,768 31,707 38,061 120%
- --------------------------------------------------------------------------------
Total revenue $1,214,468 $1,299,220 $(84,752) (7)%
- --------------------------------------------------------------------------------
NEW ORDERS AND BACKLOG
New orders for 1998 were approximately equal to those of 1997. Power division
orders of $1,070 increased by 67 percent from the $641 in orders for 1997.
Increases in Power division orders, primarily from domestic clients, reflect the
effects of deregulation on the power industry. The 46 percent decline in
Process/Industrial division orders reflects the protracted weakness in the
Petrochemical Industry, which is the customer base for the Company's process
technology and the lingering effects of 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 increase in orders reported as Other in the
table includes the backlog acquired through the acquisitions of Belmont and PTI.
New orders by division and backlog for 1998 and 1997 were:
NEW ORDERS BY DIVISION
Percent
$000s 1998 1997 Incr/(Decr) Incr/(Decr)
- --------------------------------------------------------------------------------
Power $1,070,117 $ 640,843 $ 429,274 67%
Process/Industrial 323,265 597,796 (274,531) (46)%
Environmental/
Infrastructure (168,861) 55,542 (224,403) (404)%
Other 106,811 36,789 70,022 190%
- --------------------------------------------------------------------------------
New orders (net) $1,331,332 $1,330,970 $ 362 -
- --------------------------------------------------------------------------------
BACKLOG
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%
- --------------------------------------------------------------------------------
DISCONTINUED OPERATION
Revenue for Nordic Refrigerated Services 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 1998 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.
Revenue and income from the discontinued operation were:
$000s 1998 1997
- --------------------------------------------------------------------------------
Revenue $34,312 $23,320
Operating income 8,490 7,340
Income tax expense 3,184 2,981
- --------------------------------------------------------------------------------
Income from discontinued operation 5,306 4,359
- --------------------------------------------------------------------------------
Operating margin 24.7% 31.5%
- --------------------------------------------------------------------------------
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 at a cost of $13.1 which was
reported as a reduction of income from pension related items.
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 from continuing operations resulted in
effective tax rates of (32.9) percent in 1998 and 32.9 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 composed of
$2.0 relating to the carryforwards of international subsidiaries and $7.1
relating to state net operating loss carryforwards.
FINANCIAL CONDITION AND LIQUIDITY
Cash and cash equivalents increased by $61.0 during 1999. Net cash used for
operating activities of $50.8 reflects the operating loss of $142.5 offset by a
decrease in operating working capital (which consists of accounts receivable and
costs and revenue in excess of billings less accounts payable and billings in
excess of costs and revenue recognized) and depreciation and amortization
expense. The decrease in operating working capital was primarily due to
provisions for increased anticipated costs to complete certain projects and
additional expenditures to accelerate other projects. Net cash provided by
investing activities of $186.7 includes proceeds of $187.0 from the sale of the
Company's headquarters building, and proceeds from a note receivable reduced by
purchases of fixed assets used in the Company's operations. Net cash used by
financing activities of $74.4 reflects the repayment of bank loans and long-
term debt and the payment of dividends, offset by the $15.4 sale of treasury
stock to the Employee Retirement Plan. Total debt was $45.1 at December 31,1999,
compared to $130.8 at December 31, 1998.
As of the end of the third quarter of 1999, the Company had fully drawn the cash
available to it under its credit facility and the amount of the Company's past
due trade payables had increased, with certain of the Company's vendors and
subcontractors having delayed work to be performed by them. As a result,
provisions were established in the fourth quarter of 1999 for acceleration of
certain of the affected projects. In order to improve the Company's cash
liquidity, the Company retained financial advisors who are continuing to work
with the Company to arrange both interim and longer term financing, to
restructure the Company's balance sheet and assist with the planned sale of
Nordic.
On November 29, 1999, the Company reached an agreement with its principal
bank-lending group to expand and extend its current credit facility. Under the
agreement, the borrowing facility was increased by $30.0 to a maximum of $160.0
and extended through May 31, 2000. Upon sale of the Boston headquarters
building, $140.0 of borrowings was repaid permanently reducing the amount
available to be borrowed to $20.0. As of December 31, 1999, the entire $20.0
available for direct borrowings had been borrowed and $88.2 of letters of credit
were outstanding under this new agreement. In addition, at December 31, 1999,
$7.2 of letters of credit were outstanding under other bank arrangements. As of
December 31, 1999, the Company had foreign subsidiary banking facilities
available totaling $8.4 of which $2.8 was utilized. The available amount for
issuance of letters of credit was $11.8 as of December 31, 1999.
The Company has experienced recurring operating losses and liquidity problems
during the past year. To address these issues, on April 14, 2000, the Company
completed negotiations and entered into an agreement with its current lending
group to extend the credit facility to January 31, 2001. The amended credit
facility contains certain quarterly financial covenants and stipulates that
proceeds from the sale of the discontinued operation will be used to repay the
outstanding direct borrowings and to provide support to the lending group for
the Company's outstanding letters of credit. The remaining proceeds will be used
to enhance the Company's working capital position. The credit agreement also
requires the Company to deposit with the lending group $ 5.0 per month for three
months beginning in October 2000, as additional support for the Company's
letters of credit.
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, has recorded a provision of $27.5 to complete work on the project, and
has revised its 1999 financial statements for such matter.
As a result of the liquidity problems created by the unanticipated project
overrun, coupled with previously reported operating losses, the Company has
accelerated its discussions with potential lenders and strategic partners to
provide interim and long-term financing. In addition, the Company is in
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 has also initiated discussions with certain
subcontractors with regard to extended payment terms. The Company's ability to
continue as a going concern is dependent on the success of these initiatives.
Management believes that its plans will allow the Company to obtain adequate
financing to continue to operate the Company; however, the potential failure to
execute on these plans raises substantial doubt as to the Company's ability to
continue as a going concern.
In addition, the issuance of a modified opinion by the Company's independent
public accountants is an event of default under its recently extended credit
facility. The Company is in discussions with the agent bank for the lending
group to provide a waiver for this event of default.
On May 8, 2000, the Company signed a letter of intent to sell substantially all
of its assets. In connection with this proposed transaction the Company will
enter into a $50.0 secured credit facility with the proposed buyer to finance
operations until the sale is consummated. The Company intends to file a
voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy
Code after the Company signs a definitive sale agreement.
In light of the Company's liquidity needs, on October 26, 1999 and January 25,
2000, the Board of Directors decided to forego the Company's quarterly dividend
which had previously been $0.15 per share. During 1999, the Company also
suspended making purchases under its share repurchase program, which is
described in Note N to the consolidated financial statements, and no shares were
purchased during the year.
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 cannot accurately predict changes in foreign currency exchange rates,
management does not believe that such changes 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, 1999 and 1998:
$000s 1999 1998
- --------------------------------------------------------------------------------
Long-term (primarily mortgage debt) $20,938 $ 24,197
Lease debt (primarily for office equipment) 1,356 206
Bank loans 22,793 106,350
- --------------------------------------------------------------------------------
Total debt $45,087 $130,753
- --------------------------------------------------------------------------------
OTHER ACCOUNTING MATTERS
In June 1998, the FASB issued Statement of Financial Accounting Standards (FAS)
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 implementation date was modified by FAS 137 and is effective for
fiscal years beginning after June 15, 2000. The Company will adopt the new
standard on January 1, 2001. Management is evaluating the impact this Statement
may have on the Company's financial statements.
YEAR 2000 COMPLIANCE
The Company evaluated and upgraded its computer applications in part to ensure
their functionality with respect to the Year 2000.
The Company completed its evaluation of all software and information systems
which it uses and implemented the systems and programming changes necessary to
address the Year 2000 issue during 1999. Key financial systems became compliant
through implementation of new enterprise-wide financial systems. The primary
objective of implementing these new systems was 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 were
not considered Year 2000 compliance costs.
The Company's Year 2000 readiness review of material customers, major suppliers
and third party software and hardware vendors was completed in 1999 and, based
upon this review, management does not believe that the Company will experience
any significant exposure.
The cost to correct internal systems and review external systems was
approximately $0.5.
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."
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. 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 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>
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands, except per share amounts.)
- --------------------------------------------------------------------------------
Years ended December 31,
1999 1998 1997
- --------------------------------------------------------------------------------
Revenue $1,140,348 $1,214,468 $1,299,220
Cost of revenue 1,212,979 1,224,157 1,190,697
- --------------------------------------------------------------------------------
Gross profit (loss) (72,631) (9,689) 108,523
General and administrative expenses 69,893 71,335 68,571
- --------------------------------------------------------------------------------
Operating income (loss) (142,524) (81,024) 39,952
Other income (expense):
Gain on sale of assets 151,251 - 985
Interest income 2,328 3,679 4,269
Interest expense (12,959) (4,076) (1,739)
- --------------------------------------------------------------------------------
Income (loss) from continuing
operations before provision for
taxes (1,904) (81,421) 43,467
Income tax provision (benefit) 2,064 (26,813) 14,316
- --------------------------------------------------------------------------------
Income (loss) from continuing
operations (3,968) (54,608) 29,151
Income from discontinued operation,
net of taxes 5,136 5,306 4,359
- --------------------------------------------------------------------------------
Net income (loss) 1,168 (49,302) 33,510
- --------------------------------------------------------------------------------
Other comprehensive income - change
in cumulative translation adjustment (640) (7,502) 75
- --------------------------------------------------------------------------------
Comprehensive income (loss) $ 528 $ (56,804) $ 33,585
================================================================================
Per share amounts:
Basic earnings (loss) per share:
Continuing operations $(0.30) $(4.24) $2.27
Discontinued operation 0.39 0.41 0.34
- --------------------------------------------------------------------------------
Total earnings (loss) per share $0.09 $(3.83) $2.61
- --------------------------------------------------------------------------------
Diluted earnings (loss) per share:
Continuing operations $(0.30) $(4.24) $2.25
Discontinued operation 0.39 0.41 0.34
- --------------------------------------------------------------------------------
Total earnings (loss) per share $0.09 $(3.83) $2.59
- --------------------------------------------------------------------------------
Dividends declared per share $0.45 $ 0.60 $0.60
================================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts.)
- --------------------------------------------------------------------------------
December 31,
ASSETS 1999 1998
- --------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $106,481 $ 45,492
Accounts receivable 288,824 293,240
Costs and revenue recognized in excess of billings 98,663 79,102
Deferred income taxes 23,286 20,338
Other 404 638
- --------------------------------------------------------------------------------
Total current assets 517,658 438,810
Fixed assets, net 73,837 219,157
Domestic prepaid pension cost 157,089 155,703
Net assets of discontinued operation 112,110 -
Assets held for sale 6,744 6,744
Note receivable - 15,150
Prepaid expenses 11,719 9,378
Other assets 36,139 36,545
- --------------------------------------------------------------------------------
$915,296 $881,487
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current liabilities:
Bank loans $ 22,793 $106,350
Current portion of long-term debt 2,344 2,175
Accounts payable, principally trade 161,218 113,139
Billings in excess of costs and revenue recognized 275,461 206,492
Accrued liabilities 76,612 80,036
Accrued taxes 17,371 12,034
- --------------------------------------------------------------------------------
Total current liabilities 555,799 520,226
Long-term debt 19,950 22,228
Deferred income taxes 23,286 33,030
Other liabilities 11,216 14,427
Commitments and contingencies (Note M)
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 42,579 54,625
Retained earnings 362,712 367,358
Accumulated other comprehensive income (loss) (10,347) (9,707)
- --------------------------------------------------------------------------------
412,675 430,007
- --------------------------------------------------------------------------------
Less: Common stock held in treasury, at cost
(3,554,102 and 4,692,933 shares,
respectively) 92,091 122,030
Employee stock ownership and restricted
stock plans 15,539 16,401
- --------------------------------------------------------------------------------
107,630 138,431
- --------------------------------------------------------------------------------
Total shareholders' equity 305,045 291,576
- --------------------------------------------------------------------------------
$915,296 $881,487
================================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands.)
- --------------------------------------------------------------------------------
Years ended December 31,
1999 1998 1997
- --------------------------------------------------------------------------------
Common stock:
Balance at beginning and end of year $ 17,731 $ 17,731 $ 17,731
- --------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 367,358 424,287 398,342
Income tax benefit of Employee Stock
Ownership Plan dividends 64 92 124
Net income (loss) 1,168 (49,302) 33,510
Dividends declared (5,878) (7,719) (7,689)
- --------------------------------------------------------------------------------
Balance at end of year 362,712 367,358 424,287
- --------------------------------------------------------------------------------
Accumulated other comprehensive income
at beginning of year (9,707) (2,205) (2,280)
Change in cumulative translation
adjustment (640) (7,502) 75
- --------------------------------------------------------------------------------
Accumulated other comprehensive income
at end of year (10,347) (9,707) (2,205)
- --------------------------------------------------------------------------------
Capital in excess of par value of
common stock:
Balance at beginning of year 54,625 51,426 50,480
Excess (deficit) of market value over
cost of treasury shares issued:
Under restricted stock plans (1,393) 30 7
Under stock plans - 53 88
On sale to Employee Retirement
Plan (10,655) - -
Excess of exercise price over cost
of treasury shares issued under
the stock option plans - 138 406
Tax benefit for shares issued under
restricted stock plans, net 2 17 3
Issuance of stock for acquisitions - 2,961 -
Acceleration of stock options - - 442
- --------------------------------------------------------------------------------
Balance at end of year 42,579 54,625 51,426
- --------------------------------------------------------------------------------
Common stock in treasury:
Balance at beginning of year (122,030) (127,070) (125,724)
Cost of treasury shares:
Sold to Employee Retirement Plan 26,005 - -
(1,000,000 shares)
Issued under stock plans (4,039,
3,509 and 5,310 shares in 1999,
1998 and 1997, respectively) 104 91 137
Issued under stock option plans
(21,250 and 63,500 shares in 1998
and 1997, respectively) - 552 1,638
Issued under restricted stock plans
(134,792, 2,224 and 690 shares in
1999, 1998 and 1997, respectively) 3,830 58 18
Treasury stock issued for
acquisitions (232,273 shares in
1998) - 6,039 -
Purchased (43,217 and 81,605 shares
in 1998 and 1997, respectively) - (1,700) (3,139)
- --------------------------------------------------------------------------------
Balance at end of year (92,091) (122,030) (127,070)
- --------------------------------------------------------------------------------
Employee stock ownership and restricted
stock plans:
Balance at beginning of year (16,401) (18,937) (21,416)
Payments received from Employee Stock
Ownership Trust (principal only) 2,815 2,537 2,285
Market value of shares (issued) under
restricted stock plans, net (2,437) (88) (25)
Amortization of market value of
shares issued under restricted
stock plans 484 87 219
- --------------------------------------------------------------------------------
Balance at end of year (15,539) (16,401) (18,937)
- --------------------------------------------------------------------------------
Total shareholders' equity $305,045 $291,576 $345,232
================================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands.)
- --------------------------------------------------------------------------------
Years ended December 31,
1999 1998 1997
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 1,168 $ (49,302) $ 33,510
Adjustments:
Income from discontinued operation (5,136) - -
Restructuring and other charges -
real estate write-downs - (3,066) (7,954)
Depreciation and amortization ` 16,678 23,723 13,681
Deferred income taxes (12,692) (25,936) 5,761
Domestic pension credit (1,386) (7,548) (18,337)
Gain on sale of assets (151,251) - (985)
Amortization of net cost of stock
plans 1,637 1,243 1,379
Changes in operating assets and
liabilities:
Accounts receivable 4,416 (113,183) 1,843
Costs and revenue recognized in
excess of billings (19,561) 23,374 7,547
Accounts payable 48,079 27,801 8,787
Billings in excess of costs and
revenue recognized 68,969 90,762 11,988
Accrued taxes 5,337 (2,655) 7,525
Accrued liabilities (3,424) 1,978 (9,088)
Prepaid expenses (2,341) (3,982) (2,334)
Other (1,317) (35,677) 29,861
- --------------------------------------------------------------------------------
Net cash provided (used) by continuing
operations (50,824) (72,468) 83,184
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of U.S.
Government securities - 31,909 93,671
Purchases of U.S. Government
securities - - (121,574)
Proceeds from asset divestitures 187,000 13,546 4,919
Proceeds from note receivable 15,150 - -
Payments for acquisitions, net of
cash acquired - (79,430) -
Purchase of fixed assets (15,449) (20,290) (25,909)
- --------------------------------------------------------------------------------
Net cash provided (used) by investing
activities 186,701 (54,265) (48,893)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of long-term debt (2,109) (1,787) (1,657)
Proceeds from bank loans 62,464 106,350 -
Payments of bank loans (146,021) - (5,000)
Payments from Employee Stock
Ownership Trust 4,588 4,588 4,588
Payments to Employee Stock Ownership
Trust (2,815) (2,537) (4,251)
Purchase of common stock for treasury - (1,700) (3,139)
Sale of treasury stock to Employee
Retirement Plan 15,350 - -
Dividends paid (5,878) (7,719) (7,689)
- --------------------------------------------------------------------------------
Net cash provided (used) by financing
activities (74,421) 97,195 (17,148)
- --------------------------------------------------------------------------------
Net cash (used) by discontinued
operation (467) - -
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 60,989 (29,538) 17,143
- --------------------------------------------------------------------------------
Cash and cash equivalents at beginning
of year 45,492 75,030 57,887
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of
year $ 106,481 $ 45,492 $ 75,030
- --------------------------------------------------------------------------------
Supplemental disclosures:
Cash paid for interest $ 12,964 $ 4,072 $ 1,731
Cash paid for income taxes $ 5,285 $ 5,651 $ 5,634
Receipt of note for asset held for
sale - - $ 15,000
- --------------------------------------------------------------------------------
Fair value of assets acquired $ - $ 13,653 $ -
Liabilities assumed - (4,653) -
- --------------------------------------------------------------------------------
$ - $ 9,000 $ -
================================================================================
The accompanying notes are an integral part of the 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.
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 overnight repurchase agreements and U.S. Government
securities held for cash management purposes having maturities of three months
or less from the date of purchase. The carrying amounts for cash, cash
equivalents and U.S. Government securities approximate their fair values because
of the short maturity of the instruments.
FIXED ASSETS
Fixed assets are stated at cost. Fixed assets include amounts relating to
software capitalized for internal use. The costs associated with the application
development stage are capitalized, such as direct external costs and directly
related internal payroll and payroll related costs. Depreciation and
amortization are generally 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. Leasehold
improvements are amortized over the shorter of the useful lives or the remaining
terms of the related leases. Upon retirement or sale, the cost and accumulated
depreciation are removed from the accounts and any resulting gains or losses 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.
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 is not anticipated, total
approximately $15,366 at December 31, 1999. On the same basis, deferred U.S.
income taxes have not been provided on the cumulative translation adjustment
component of 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.
TRANSLATION ADJUSTMENTS
Assets and liabilities of international subsidiaries are translated into U.S.
dollars at year-end exchange rates, and income and expense items are translated
at the average exchange rates for the year. Resulting translation adjustments
are reported as a separate component of stockholders' equity. These adjustments
account for the balance of accumulated other comprehensive income.
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, 1999, the Company had approximately $2,185 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 (FAS)
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 implementation date was modified by FAS No. 137 and is effective for
fiscal years beginning after June 15, 2000. The Company will adopt the new
standard on January 1, 2001. Management is evaluating the impact this statement
will have on the Company's 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.
RECLASSIFICATIONS
Certain financial statement items have been reclassified to conform to the
current year's presentation.
(B) DISCONTINUED OPERATION
On October 27, 1999, the Company announced its intention to sell the Nordic
Refrigerated Services business unit (Nordic). Accordingly, the results have been
classified as a discontinued operation and prior periods have been reclassified.
The Company does not anticipate a loss on the sale of this segment and,
accordingly, no loss provision has been recorded. Income from discontinued
operation from the measurement date to December 31, 1999 was $1,537 ($921 after
tax).
In October 1998, the Company acquired The Nordic Group, a multi-location
privately-owned cold storage company. At the closing, the purchase price of
approximately $80,000 was paid, primarily in cash. 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.
Revenue and income from discontinued operation were:
1999 1998 1997
- --------------------------------------------------------------------------------
Revenue $46,768 $34,312 $23,320
Operating income 8,576 8,490 7,340
Income tax expense 3,440 3,184 2,981
- --------------------------------------------------------------------------------
Income from discontinued operation $ 5,136 $ 5,306 $ 4,359
- --------------------------------------------------------------------------------
Net assets from discontinued operation were:
1999 1998
- --------------------------------------------------------------------------------
Cash $ 1,864 $ 2,331
Other current assets 5,933 7,566
Fixed assets, net 110,108 114,795
Other assets 4,848 2,165
Current liabilities (1,201) (8,487)
Deferred taxes (9,442) (4,680)
- --------------------------------------------------------------------------------
Net assets of discontinued operation $112,110 $113,690
- --------------------------------------------------------------------------------
(C) DIVESTITURE OF NONCORE ASSETS AND ASSETS HELD FOR SALE
In December 1999, the Company sold its corporate headquarters building in Boston
for $187,000, resulting in a gain of $151,251 ($92,236 after tax or $7.03 per
share). In 1998, the Company sold its Cherry Hill, New Jersey, office building
for $13,546, resulting in a gain of $3,066 ($1,993 after tax or $0.15 per
share). In December 1997, the Company sold a building in Boston for $20,000,
resulting in a gain of $8,939 ($5,363 after tax or $0.41 per share).
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, and 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
Sheets at December 31, 1999 and 1998.
(D) ACQUISITIONS
In January 1998, the Company purchased the assets of Belmont Constructors
Company, Inc. ("Belmont"). At the closing, the Company paid approximately
$5,300. The final purchase price, which was contingent upon the results of
certain long-term contracts, was $3,733. 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, 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 four 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 and recorded goodwill related to this transaction in the
amount of $3,354. In 1999, the Company completed its valuation of the carrying
value of assets in conjunction with the purchase of PTI. This resulted in a
reduction to certain assets and a purchase price adjustment which increased
goodwill by $2,093, and is being amortized over 20 years.
In October 1998, the Company acquired The Nordic Group. Refer to Note B for
additional information relating to this acquisition.
The results of these 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, excluding the Nordic
discontinued operation, are as follows:
(Unaudited) 1998 1997
- --------------------------------------------------------------------------------
Revenue $1,258,332 $1,449,725
Operating income (loss) (73,015) 16,502
Net income (loss) (49,728) 9,434
- --------------------------------------------------------------------------------
Basic earnings (loss) per share $(3.86) $0.74
Diluted earnings (loss) per share $(3.86) $0.73
- --------------------------------------------------------------------------------
Pro forma results are not indicative of future performance.
(E) INCOME TAXES
Income (loss) from continuing operations before income taxes and the components
of the income tax provision (benefit) for continuing operations for the years
ended December 31, 1999, 1998 and 1997 are as follows:
Income (loss) from continuing 1999 1998 1997
operations before income taxes:
- --------------------------------------------------------------------------------
Domestic $29,336 $(85,058) $23,479
International (31,240) 3,637 19,988
- --------------------------------------------------------------------------------
$(1,904) $(81,421) $43,467
- --------------------------------------------------------------------------------
Income tax provisions (benefit) for
continuing operations:
Current tax expense (benefit):
United States $ 723 $ (5,998) $ 4,851
State and local 6,818 1,491 3,133
International (1) 1,298 6,814 3,552
- --------------------------------------------------------------------------------
Total current 8,839 2,307 11,536
- --------------------------------------------------------------------------------
Deferred tax expense (benefit):
United States 10,057 (24,381) 2,699
State and local (5,350) (3,649) (48)
International (11,482) (1,090) 129
- --------------------------------------------------------------------------------
Total deferred (6,775) (29,120) 2,780
- --------------------------------------------------------------------------------
Income tax provision (benefit) for
continuing operations $ 2,064 $(26,813) $14,316
- --------------------------------------------------------------------------------
(1) Includes taxes, in lieu of income taxes, of $355 in 1999, $291 in 1998, and
$921 in 1997 on international projects which are calculated based on gross
receipts.
Deferred tax liabilities (assets) are composed of the following:
December 31,
1999 1998
- --------------------------------------------------------------------------------
Long-term liabilities:
Depreciation $ 4,423 $ 5,294
Retirement 63,460 62,099
Other 1,125 911
- --------------------------------------------------------------------------------
Total long-term liabilities 69,008 68,304
Long-term assets:
Deferred rent (1,792) (2,513)
Employee Stock Ownership Plan interest
payments and contributions (1,369) (3,317)
AMT credit carryforward (5,906) (5,142)
Foreign net operating loss carryforward (14,585) (6,730)
State net operating loss carryforwards (15,013) (7,149)
U.S. net operating loss carryforwards (22,900) (18,324)
Noncurrently deductible accruals (203) (1,246)
- --------------------------------------------------------------------------------
Total long-term assets (61,768) (44,421)
- --------------------------------------------------------------------------------
Net operating loss valuation allowance 16,046 9,147
- --------------------------------------------------------------------------------
Net long-term deferred tax liabilities 23,286 33,030
- --------------------------------------------------------------------------------
Current assets:
Vacation pay (4,049) (4,671)
Severance pay (458) (589)
U.S. net operating loss carryforwards (5,685) -
Foreign net operating loss carryforward (3,893) -
State net operating loss carryforwards (850) (660)
Contract reserves (1,564) (13,771)
Other (6,787) (647)
- --------------------------------------------------------------------------------
Total current deferred tax assets (23,286) (20,338)
- --------------------------------------------------------------------------------
Net deferred tax liabilities $ - $ 12,692
- --------------------------------------------------------------------------------
The Company, as a result of the net operating loss (NOL), paid $706 of federal
alternative minimum tax ("AMT") in 1999. The AMT credit carryforward was $5,906
at December 31, 1999. This AMT credit can be carried indefinitely to reduce
future federal income taxes payable.
The Company had a valuation allowance of $9,147 at December 31, 1998 for the
deferred tax assets related to net operating loss carryforwards. The net change
in the valuation allowance for 1999 was an increase of $6,899 for a total
valuation allowance of $16,046 at December 31, 1999. The increase was due to
U.S., state and foreign entity operating losses. The valuation allowance at
December 31, 1999 comprises $2,204 relating to U.S. net operating losses,
$11,613 relating to state net operating loss carryforwards and $2,229 relating
to the carryforwards of international subsidiaries.
For tax purposes, approximately $386,093 (with a tax benefit of $62,926) of the
net operating loss carryforwards remain at December 31, 1999, of which $60,597
(with a tax benefit of $18,478) is applicable to international subsidiaries, of
which $54,716 does not expire, $240,716 (with a tax benefit of $15,863) relates
to state net operating loss carryforwards and the remaining $84,780 (with a tax
benefit of $28,585), 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:
2000 $ 62
2001 4,921
2002 4,596
2003 42,994
2004 16,952
2005 828
Thereafter 261,024
- --------------------------------------------------------------------------------
Total $331,377
- --------------------------------------------------------------------------------
The Company has determined that it will be able to realize a tax benefit of
$46,880 relating to these state, federal and foreign net operating loss
carryforwards and the remaining net operating loss carryforwards (with a tax
benefit of $16,046, 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:
1999 1998 1997
- --------------------------------------------------------------------------------
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 50.2 (1.8) 4.6
Meals and entertainment 24.1 0.4 1.4
Difference in effective tax rate of
international operations and projects,
net of United States tax effect 13.1 4.4 7.2
Foreign sales corporation (52.5) (1.2) -
Investment tax credit - Canada - (0.2) (0.3)
Adjustment of prior years' federal income
tax accruals, net of interest effect (20.7) (0.2) -
Utilization of net operating loss
carryforwards of international operations - - (14.5)
Increase in net operating loss valuation
reserve 126.2
Other 3.0 0.7 (0.5)
- --------------------------------------------------------------------------------
Effective income tax rate 108.4% (32.9)% 32.9%
- --------------------------------------------------------------------------------
(F) EARNINGS PER SHARE (EPS)
The following is the calculation of basic and fully diluted EPS:
EPS 1999 1998 1997
- --------------------------------------------------------------------------------
Income (loss) from continuing operations $(3,968) $(54,608) $29,151
Income (loss) from discontinued operation 5,136 5,306 4,359
- --------------------------------------------------------------------------------
Net income (loss) $ 1,168 $(49,302) $33,510
- --------------------------------------------------------------------------------
Weighted average shares outstanding -
basic (000s) 13,116 12,886 12,812
- --------------------------------------------------------------------------------
Basic EPS $0.09 $(3.83) $2.61
- --------------------------------------------------------------------------------
Weighted average shares outstanding -
diluted (000s) 13,116 12,886 12,929
- --------------------------------------------------------------------------------
Diluted EPS (1) $0.09 $(3.83) $2.59
- --------------------------------------------------------------------------------
(1) In 1999, dilutive potential common shares of 1,140,535 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. In 1998, dilutive potential common shares of 722,443 relating to
stock options were not included in the computation of diluted earnings per
share since their effect would be antidilutive. In 1997, dilutive potential
common shares included in the calculation of earnings per share related
solely to the dilutive impact of stock options.
(G) FINANCIAL INSTRUMENTS
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.
The Company had several foreign exchange forward contracts at December 31, 1999.
These contracts had varying maturities through May 2001. At December 31, 1999,
the notional amount of foreign exchange forward contracts outstanding was
$2,185. The fair value and unrealized loss on these contracts was $659 and
$(118), respectively, at December 31, 1999.
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 $1,832 and $1,225 at December 31, 1999 and 1998, respectively,
based on the fees paid to obtain the obligations.
(H) FIXED ASSETS
Following is a summary of fixed assets at December 31:
1999 1998
- --------------------------------------------------------------------------------
Office buildings and other real estate $ 43,450 $101,472
Furniture and equipment 132,669 167,160
Cold storage property, plant and equipment 140,763 141,482
- --------------------------------------------------------------------------------
316,882 410,114
Less: Accumulated depreciation and
amortization 132,937 190,957
- --------------------------------------------------------------------------------
$183,945 $219,157
Less: Fixed assets of discontinued
operation, net 110,108 -
- -------------------------------------------------------------------------------
Fixed assets, net $ 73,837 $219,157
- --------------------------------------------------------------------------------
Fixed assets include computer equipment under capital leases of $1,548 at
December 31, 1999 and $2,817 at December 31, 1998; related amounts included in
accumulated amortization were $185 at December 31, 1999 and $1,899 at December
31, 1998. Total depreciation expense was $22,138 for 1999, $23,567 for 1998 and
$12,018 for 1997. In 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 revised its estimated useful
life for computer equipment from six to three years. The amounts 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.
(I) BANK LOANS AND LIQUIDITY
During 1999, the Company expanded and extended its principal credit facility to
$260,000 with an expiration date of May 31, 2000. This facility provided up to
$160,000 in direct borrowings for operating funds and $100,000 in letters of
credit. In December 1999, the Company fully utilized the $160,000 available for
direct borrowings, and upon the sale of its Boston headquarters building, repaid
$140,000 permanently reducing the amount available under this facility to
$120,000. As of December 31, 1999, the entire $20,000 in direct borrowings was
fully utilized and $88,200 of letters of credit were outstanding out of the
$100,000 available. In addition, at December 31, 1999, $7,200 of letters of
credit were outstanding under other bank arrangements. The total available
amount for issuance of letters of credit was $11,800 as of December 31, 1999.
The Company has experienced recurring operating losses and liquidity problems
during the past year. To address these issues, on April 14, 2000, the Company
completed negotiations and entered into an agreement with its current lending
group to extend the credit facility to January 31, 2001. The amended credit
facility contains certain quarterly financial covenants and stipulates that
proceeds from the sale of the discontinued operation will be used to repay the
outstanding direct borrowings and to provide support to the lending group for
the Company's outstanding letters of credit. The remaining proceeds will be used
to enhance the Company's working capital position. The credit agreement also
requires the Company to deposit with the lending group $5,000 per month for
three months beginning in October 2000, as additional support for the Company's
letters of credit (see Note S).
At December 31, 1998, the Company had three separate domestic line of credit
agreements totaling $105,000 which were fully utilized. In addition the Company
had a line of credit in the amount of $30,000, against which no amount had been
or was allowed to be borrowed. 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.
The weighted average interest rate was 9.5 percent and 6.17 percent at December
31, 1999 and 1998, respectively. Borrowings under the agreements were used for
general corporate purposes and to fund the 1998 acquisition of The Nordic Group.
Outstanding borrowings incur interest based on the prime rate plus an additional
margin.
In addition to the domestic lines of credit, two international subsidiaries of
the Company have overdraft banking facilities of $8,376 which are used for
general corporate purposes. The overdraft banking facilities incur interest
based on the prime rate. At December 31, 1999, $2,793 was outstanding under the
lines of credit. At December 31, 1998, no amounts were outstanding under the
overdraft banking facilities. (See Note L to the consolidated financial
statements for guarantees of affiliated obligations.)
(J) ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
1999 1998
- --------------------------------------------------------------------------------
Salaries and benefits $17,235 $17,032
Insurance accruals and premiums 18,946 18,859
Reserve for joint venture activity 9,977 20,996
Accrued professional fees 13,515 6,818
Other 16,939 16,331
- --------------------------------------------------------------------------------
Total accrued liabilities $76,612 $80,036
- --------------------------------------------------------------------------------
In 1999, the Company utilized $6,926 of the reserve for a joint venture contract
loss in connection with a contract being executed by a partially owned joint
venture in the Middle East, and an additional $4,093 of the reserve for other
joint venture activity.
(K) LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1998 1997
- --------------------------------------------------------------------------------
Mortgage loans, due 2009, 6.44% $20,727 $22,355
Mortgage loans, due 2007, 7.65% - 693
Mortgage loans, due 2004, 7.91% - 874
Loan payable, other 211 275
Capitalized lease obligations 1,356 206
- --------------------------------------------------------------------------------
22,294 24,403
- --------------------------------------------------------------------------------
Less current portion 2,344 2,175
- --------------------------------------------------------------------------------
Total long-term debt $19,950 $22,228
- --------------------------------------------------------------------------------
The 6.44 percent mortgage loan due in 2009 is collateralized by an office
building and other real estate with a net book value of $25,144 and $25,833 at
December 31, 1999 and 1998, respectively, which approximates fair values. The
7.65 percent and 7.91 percent mortgage loans were repaid in July 1999. The
Company assumed the liability of three loans payable through an acquisition in
1998. These loans are with a former stockholder of the subsidiary and are due
through 2005 at interest rates ranging from 6.75 percent to 9.00 percent. 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 consist of the following for the
years ended December 31:
2000 $ 2,344
2001 2,407
2002 2,286
2003 2,133
2004 2,306
Thereafter 10,818
- --------------------------------------------------------------------------------
Total $ 22,294
- --------------------------------------------------------------------------------
(L) 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.
In connection with the sale of its corporate headquarters building in 1999, the
Company entered into a lease agreement which extends no later than March 2002,
for office space it occupied prior to the sale. The lease is cancelable at the
Company's option based upon the terms of the agreement. The Company also leases
other office space, computer equipment and office equipment with varying lease
terms. All noncancelable leases have been categorized as either capital or
operating. The Company pays property taxes, insurance and maintenance and
expenses related to the leased properties under most leasing arrangements.
Rental expense was $3,288 in 1999, $3,600 in 1998 and $4,710 in 1997.
Future minimum lease payments under long-term leases as of December 31, 1999 are
as follows:
Capital Operating
Leases Leases
- --------------------------------------------------------------------------------
2000 $ 587 $17,571
2001 587 12,577
2002 349 8,826
2003 - 6,081
2004 - 5,895
2005 and thereafter - 8,343
- --------------------------------------------------------------------------------
Total minimum lease payments 1,523 59,293
- --------------------------------------------------------------------------------
Amount representing interest 167
- --------------------------------------------------------------------------------
Present value of minimum lease payments $1,356
- --------------------------------------------------------------------------------
Less rental and sublease income 8,103
- --------------------------------------------------------------------------------
Total $51,190
- --------------------------------------------------------------------------------
The current portion of the present value of the minimum lease obligations under
capital leases as of December 31, 1999 amounted to $538.
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 claims for which insurance coverage or contractual provisions
limiting the Company's liability 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.
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, and remains suspended,
pending resolution of financing issues by the client. The Company has obtained
approval to resell or use committed materials and procured equipment to reduce
costs of project suspension. The Company has also had substantive discussions
with potential purchasers of the olefins plant which constitutes the majority of
the Company's scope for the project. Had the TPPI project been cancelled as of
December 31, 1999, and if resale of the olefins plant were unlikely to be
completed, the Company would have recorded a pre-tax charge of approximately
$76,800 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 $72,400 in
1998. The TPPI project is included in the Company's backlog in the amount of
$398,000 and $451,000 respectively, at December 31, 1999 and 1998.
The Company was engaged in certain international projects that incurred losses
totaling $74,200 in 1999 and $42,900 in 1998. One of these projects is now
finished and another is in the final stages of completion. 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 has significantly exceeded each contract's value.
Management believes that it has valid contractual and equitable grounds for
change orders providing additional compensation under these contracts. The
Company has or expects to submit claims greater than losses incurred to date.
The Company recognized approximately $35,000 in revenue in 1998 for change
orders that have not yet received client approval. These change orders are
included in the claims and, in management's judgment, reflect a conservative
estimate of the probable amount to be realized.
In 1999, a provision of $10,400 on three domestic lump sum contracts was
recorded to reflect increases in the estimated costs to complete. Additionally,
while the Company was working to improve its liquidity position, delays in
payments to vendors adversely impacted delivery of vendor materials and services
and, consequently, job scheduling and sequencing were affected. As a result,
provisions of $65,500 on certain projects (see Note S), including the three
domestic lump sum contracts, were established for additional expenditures to
accelerate certain projects and for increased anticipated costs to complete
other projects.
A joint venture, in which the Company is a 50 percent owner, has submitted
claims to recover approximately $115,000 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 $62,000, 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 $25,781 related to this contract.
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.
The Company liquidated its investment in the Binghamton Cogeneration Partnership
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, 1999, subsidiaries of the Company have contingent liabilities of
$8,350 arising from guarantees to banks for credit facilities extended to
unconsolidated affiliates for general operating purposes.
(M) COMMON STOCK
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.
(N) TREASURY STOCK
In January 1998, the Board of Directors of the Company approved an increase in
the share repurchase program originally authorized in July 1994 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 no shares in
1999 under the repurchase program. Through December 31, 1999, the Company has
repurchased 2,279,626 shares.
In 1999, the Employee Retirement Plan of Stone & Webster, Incorporated and
Participating Subsidiaries (the "Retirement Plan"), the Company's domestic
defined benefit plan, and the Trust Agreement under the Retirement Plan were
amended to permit the investment of a portion of the assets of the Retirement
Plan in common stock or other qualifying securities issued by the Company,
provided that such investment is in compliance with and subject to the
limitations of the Employee Retirement Income Security Act of 1974, as amended,
and other applicable laws. The Board of Directors has directed that such
investment be made in an orderly manner from time to time in accordance with
investment guidelines and objectives established by the Board.
On December 14, 1999, the Company sold 1,000,000 shares of its common stock from
treasury shares to the Retirement Plan for a per share price of $15.35.
(O) EMPLOYEE STOCK OWNERSHIP PLAN
Under the terms of the Employee Stock Ownership Plan (the "ESOP"), the Company
makes 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.
Notes receivable from the Trust, received as consideration by the Company for
the 1,600,000 shares of common stock sold to the Trust in 1980 and 1985, are
payable in level payments of principal and interest over 20 years. At December
31, 1999, the balance of the notes receivable from the Trust was $13,301. 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 $1,153 in 1999, $1,156 in 1998 and $1,160 in
1997. The accrued cost of the ESOP, included in other liabilities, was $6,092
and $7,741 at December 31, 1999 and 1998, respectively.
(P) STOCK COMPENSATION PLANS
The Company has a long-term incentive compensation plan under which outside
directors and certain employees receive stock options and other equity-based
awards. The plan provides for the grant of nonqualified and incentive stock
options, performance shares and units, and restricted stock awards. The total
number of shares reserved for issuance under the plan is 980,777 and no more
than 300,000 shares may be granted in the form of restricted stock. Nonqualified
stock options to purchase 1,000 shares are granted to each nonemployee director
on an annual basis. In addition, nonqualified stock options to purchase 2,000
shares are granted to each nonemployee director upon initial election or
appointment to the Board of Directors. Awards which have been cancelled or
forfeited under the current plan become available for future awards.
In 1999, 9,000 nonqualified stock options were granted to nonemployee directors
and 448,000 options were granted to certain employees. All options awarded to
nonemployee directors become exercisable six months after the date of grant. The
options granted to employees generally become exercisable over four years and
remain exercisable for 10 years from the date of award or upon cancellation. Of
the options granted to employees, 128,085 were incentive stock options and
319,915 were nonqualified stock options.
A summary of the Company's stock option activity, and related information for
the years ended December 31 is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997
- ---------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- ---------------------------------------------------------------------------------------------
Outstanding at
beginning of year 840,750 $37.63 656,500 $35.05 471,000 $32.98
Granted 457,000 28.46 266,500 43.08 264,000 37.89
Exercised - - 21,250 32.70 63,500 32.20
Canceled 116,750 37.80 61,000 35.44 15,000 32.34
Outstanding at end
of year 1,181,000 34.06 840,750 37.63 656,500 35.05
Exercisable at end
of year 661,459 35.43 338,625 34.49 186,370 34.27
- ---------------------------------------------------------------------------------------------
Weighted-average $10.10 $11.91 $10.30
fair value of
options granted
during the year
- ---------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
Weighted Average
Remaining Contractual
Exercise Price Range Shares Life (Years) Shares Exercisable
- --------------------------------------------------------------------------------
$24.38 - $26.94 215,000 9.4 -
$30.25 - $34.88 546,750 7.4 431,709
$36.00 - $41.25 186,500 7.3 121,000
$42.63 - $47.13 232,750 8.3 108,750
- --------------------------------------------------------------------------------
1,181,000 7.9 661,459
- --------------------------------------------------------------------------------
The Company complies with the pro forma disclosure requirements of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS 123"). As prescribed in SFAS 123, the fair value of the options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1999, 1998 and 1997,
respectively: risk-free interest rates of 4.99 percent, 5.66 percent and 6.67
percent; dividend yields of 1.6 percent, 1.4 percent and 1.6 percent; volatility
factors of the expected market price of the Company's common stock of .377, .237
and .210; and an 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:
1999 1998 1997
- --------------------------------------------------------------------------------
As reported net income (loss) $1,168 $(49,302) $33,510
As reported net income (loss) per share $0.09 $(3.83) $2.59
Pro forma net income (loss) $ (945) $(50,383) $32,803
- --------------------------------------------------------------------------------
Pro forma net income (loss) per share $(0.07) $(3.91) $2.54
- --------------------------------------------------------------------------------
Restricted stock awards made from treasury stock were 134,792 shares in 1999,
2,224 shares during 1998 and 690 shares in 1997. The weighted-average grant date
fair value of these awards was $18.08, $39.78 and $36.25 for 1999, 1998 and
1997, respectively. The market value of the shares awarded is being charged to
income over the vesting period. Of the 137,706 shares awarded during the three
years ended December 31, 1999, no shares were forfeited and the unamortized
portion of the market value of the shares was $2,140. Compensation cost
recognized in income (loss) for these shares totaled $483.5, $87.0 and $219.0
for 1999, 1998 and 1997, respectively.
The Company has a stock plan for nonemployee directors under which such
directors receive an annual stock grant of 400 shares, payable quarterly, as
part of their annual retainer, and may elect to receive all or a portion of
director fees in shares of common stock. The Company also has a Nonemployee
Director Deferral Plan under which any nonemployee Director may elect to defer
all or a portion of their annual retainer, meeting fees, or other fees paid in
connection with their Board service to a Cash Deferral Account or a Stock Unit
Account. During 1999, 1998, and 1997, respectively 6,385, 5,104, and 5,310
shares were earned and 2,346, 1,595, and 0 shares were deferred.
(Q) 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, 1999 Domestic International Total
- --------------------------------------------------------------------------------
Changes in benefit obligation
Benefit obligation, beginning of year $527,122 $56,804 $583,926
Service cost 8,373 2,447 10,820
Interest cost 34,728 3,443 38,171
Employee contributions - 702 702
Actuarial (gain) loss (82,120) (467) (82,587)
Special termination benefits 12,714 - 12,714
Benefits paid (28,972) (2,737) (31,709)
Foreign currency impact - (1,040) (1,040)
- --------------------------------------------------------------------------------
Benefit obligation, end of year $471,845 $59,152 $530,997
- --------------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets, beginning
of year $711,954 $54,439 $766,393
Actual return on plan assets 38,050 8,480 46,530
Contribution - 2,994 2,994
Benefits paid (28,972) (2,737) (31,709)
Foreign currency impact - (912) (912)
- --------------------------------------------------------------------------------
Fair value of plan assets, end of year $721,032 $62,264 $783,296
- --------------------------------------------------------------------------------
Funded status $249,187 $ 3,112 $252,299
Fourth quarter contribution - 516 516
Unrecognized prior service cost 6,458 308 6,766
Unrecognized net (gain) loss (98,556) 1,306 (97,250)
Unrecognized net transition asset - (1,170) (1,170)
- --------------------------------------------------------------------------------
Prepaid pension cost $157,089 $ 4,072 $161,161
- --------------------------------------------------------------------------------
Prepaid pension cost, beginning of
year $155,703 $ 2,794 $158,497
(Expense) income for year 14,488 (1,004) 13,484
Contributions - 2,458 2,458
Foreign currency impact - (176) (176)
Curtailment loss - - -
Prior service cost recognition (388) - (388)
Special termination benefit (12,714) - (12,714)
- --------------------------------------------------------------------------------
Prepaid pension cost $157,089 $ 4,072 $161,161
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Domestic prepaid pension cost is separately captioned in the balance sheet 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 accordingly, is subject to volatility. The projected benefit
obligation was determined using assumed discount rates of 8.0 percent at
December 31, 1999 and of 6.75 percent at December 31, 1998 and an assumed
long-term rate of compensation increase of 4.50 percent at December 31, 1999 and
1998. Pension cost was determined using an assumed long-term rate of return on
plan assets of 9.25 percent at January 1, 1999, 1998 and 1997.
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 accordingly, is subject to volatility. The projected benefit
obligation was determined using an assumed weighted discount rate ranging from
6.5 percent to 7.0 percent at December 31, 1999 and 6.0 percent to 8.0 percent
at December 31, 1998, and assumed long-term rates of compensation increases of
4.75 percent to 5.0 percent at December 31, 1999 and December 31, 1998. Pension
cost was determined using assumed long-term rates of return on plan assets
ranging from 8.0 percent to 8.75 percent for 1999, 1998 and 1997.
The components of net pension (income) expense are as follows:
1999 Domestic International Total
- --------------------------------------------------------------------------------
Service cost $ 8,373 $ 2,447 $ 10,820
Interest cost on projected benefit
obligation 34,728 3,443 38,171
Expected return on assets (59,283) (5,108) (64,391)
Amortization of unrecognized
transition asset (37) (281) (318)
Amortization of unrecognized prior
service cost 1,731 59 1,790
Prior service cost recognition 388 - 388
Defined contribution expense - 444 444
Special termination benefit 12,714 - 12,714
- --------------------------------------------------------------------------------
Pension expense (income) $ (1,386) $ 1,004 $ (382)
- --------------------------------------------------------------------------------
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 (gain) 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)
- --------------------------------------------------------------------------------
In the fourth quarters of 1999 and 1998, voluntary Incentive Retirement programs
were offered to approximately 230 and 600 employees, respectively. These
programs were accepted by 164 employees at a total cost of $13,102 ($7,861 after
tax or $0.60 per share) in 1999 and by 206 employees at a total cost of $13,129
($7,943 after tax, or $0.61 per share) in 1998. The charges reduced the domestic
pension asset in both 1999 and 1998.
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, 1999, 1998 and 1997, the Company made matching
contributions of $2,027, $2,334, and $2,461, respectively.
(R) GEOGRAPHIC REGIONS AND INTERNATIONAL SUBSIDIARIES
The Company has one principal business segment: Engineering, Construction and
Consulting, which is reported as continuing operations. The Company's Nordic
Refrigerated Services business unit (Nordic) previously reported as the cold
storage segment is now reported as a discontinued operation.
Geographic information for continuing operations is as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Revenue
United States - Domestic $ 788,037 $ 483,332 $ 635,685
United States - Export (1) 197,869 274,490 396,194
- --------------------------------------------------------------------------------
United States - Total $ 985,906 $ 757,822 $1,031,879
- --------------------------------------------------------------------------------
International 154,442 456,646 267,341
- --------------------------------------------------------------------------------
Total revenue $1,140,348 $1,214,468 $1,299,220
- --------------------------------------------------------------------------------
Operating income (loss) (2)
United States $ (109,451) $ (85,375) $ 20,655
International (33,073) 4,351 19,297
- --------------------------------------------------------------------------------
Operating income (loss) $ (142,524) $ (81,024) $ 39,952
- --------------------------------------------------------------------------------
Long lived assets
United States $ 266,499 $ 293,985 $ 260,171
International 13,796 15,752 14,079
- --------------------------------------------------------------------------------
Total long lived assets $ 280,295 $ 309,737 $ 274,250
- --------------------------------------------------------------------------------
(1) Includes Far East/Pacific geographic area, including Indonesia which
accounted for 8 percent of consolidated revenue in 1999, 10 percent in 1998
and 13 percent in 1997. No other international geographic area accounted
for more than 10 percent of consolidated revenue in 1999, 1998 or 1997. Far
East/Pacific revenue was $131,386, $157,870 and $246,743 in 1999, 1998 and
1997, respectively.
(2) Pension related items include the effect of incentive retirement programs.
Domestic and international pension related items are presented in Note Q to
the consolidated financial statements. Income from pension related items
for continuing operations was $542 in 1999, $7,458 in 1998 and $17,200 in
1997.
Net income (loss) and assets, net of liabilities, of international subsidiaries
amounted to $(21,415) and $7,549 in 1999, $925 and $32,486 in 1998 and $16,308
and $35,248 in 1997, respectively.
(S) SUBSEQUENT EVENTS
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, has recorded a provision of $27,500 to complete work on the project, and
has revised its 1999 financial statements for such matter.
As a result of the liquidity problems created by the unanticipated project
overrun, coupled with previously reported operating losses, the Company has
accelerated its discussions with potential lenders and strategic partners to
provide interim and long-term financing. In addition, the Company is in
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 has also initiated discussions with certain
subcontractors with regard to extended payment terms. The Company's ability to
continue as a going concern is dependent on the success of these initiatives.
Management believes that its plans will allow the Company to obtain adequate
financing to continue to operate the Company; however, the potential failure to
execute on these plans raises substantial doubt as to the Company's ability to
continue as a going concern.
In addition, the issuance of a modified opinion by the Company's independent
public accountants is an event of default under its recently extended credit
facility. The Company is in discussions with the agent bank for the lending
group to provide a waiver for this event of default.
On May 8, 2000, the Company signed a letter of intent to sell substantially all
of its assets. In connection with this proposed transaction the Company will
enter into a $50,000 secured credit facility with the proposed buyer to finance
operations until the sale is consummated. The Company intends to file a
voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy
Code after the Company signs a definitive sale agreement.
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts.)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Years ended December 31,
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
Revenue $1,140,348 $1,214,468 $1,299,220 $1,143,587 $981,631
Operating income (loss)
from continuing
operations (3) (142,524) (81,024) 39,952 (31,874) 27,258
Income (loss) from
continuing operations
(1, 2 and 3) (3,968) (54,608) 29,151 (21,128) 10,008
Basic income (loss)
from continuing
operations per share $0.30 $(4.24) $2.27 $(1.60) $0.70
Diluted income (loss)
from continuing
operations per share $0.30 $(4.24) $2.25 $(1.60) $0.70
Dividends declared per
share (4) $0.45 $ 0.60 $0.60 $ 0.45 $0.60
- -------------------------------------------------------------------------------------------------
Total assets $ 915,296 $ 881,487 $ 738,777 $ 692,065 $716,772
- -------------------------------------------------------------------------------------------------
Long-term debt $ 19,950 $ 22,228 $ 22,510 $ 24,260 $ 74,677
- -------------------------------------------------------------------------------------------------
</TABLE>
Notes: (1) Reflects gain or loss on sale of assets, which increased net
income by $92,236, or $7.03 per share in 1999, $1,993, or $0.15
per share in 1998, decreased net income by $5,363, or $0.41 per
share in 1997, and decreased net income by $7,511, or $0.52 per
share in 1995.
(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 1997 on debt extinguishment from transfer of Auburn VPS
Partnership assets to the construction lenders.
(3) Income (loss) from continuing operations in 1999 includes a
provision for contract losses of $92,864 or $7.08 per share
(operating income includes $150,100) and in 1998, $53,891 or $4.18
per share (operating income includes $87,274). Income (loss) from
continuing operations also includes 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 1998, restructuring and
other charges of $28,516, or $2.14 per share (operating income
includes $54,424 for these items) in 1996, a write-down of the
Company's equity interest in Binghamton Cogeneration Partnership
to fair value in 1997 of $2,712, or $0.21 per share, and costs
associated with the Incentive Retirement Programs of $7,861 or
$0.60 per share in 1999 and $7,943 or $0.61 per share in 1998 and
$1,416, or $0.10 per share in 1995.
(4) On October 26, 1999 and January 25, 2000, the Board of Directors
decided to forego the normal quarterly dividend of $0.15 per share
due to the Company's liquidity needs. 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.
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in thousands, except per share amounts.)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
First Second Third Fourth
1999 Quarter Quarter Quarter Quarter Year
- -----------------------------------------------------------------------------------------------------
Revenue $254,656 $298,395 $286,071 $301,226 $1,140,348
Gross profit (52,627) 22,222 7,017 (49,243) (72,631)
Operating income (loss) (69,353) 5,309 (6,647) (71,833) (142,524)
Income (loss) from continuing
operations before provision
for taxes (70,650) 3,774 (8,858) 73,830 (1,904)
Income (loss) from continuing
operations (60,650) 3,774 (8,858) 61,766 (3,968)
Income from discontinued
operation, net of tax 1,956 2,440 2,004 (1,264) 5,136
Net income (58,694) 6,214 (6,854) 60,502 1,168
Basic and diluted earnings (loss)
per share (2) $(4.50) $0.48 $(0.52) $4.55 $0.09
- ----------------------------------------------------------------------------------------------------
The sum of quarterly EPS in 1999 does not equal the year amount because of the
limitation on the quarterly tax benefit recognized and differences in the
weighted average shares outstanding on a quarterly versus annual basis.
(1) Basic and diluted earnings per share includes earnings per share from the following:
Continuing operations $(4.80) $0.02 $(0.92) $(1.85) $(7.35)
Pension related items 0.15 0.27 0.25 (0.44) 0.02
Asset divesture - - - 6.94 7.03
- ----------------------------------------------------------------------------------------------------
Ongoing operations (4.65) 0.29 (0.67) 4.65 (0.30)
Discontinued operations 0.15 0.19 0.15 (0.10) 0.39
- ----------------------------------------------------------------------------------------------------
Earnings (loss) per share $(4.50) $0.48 $(0.52) $4.55 $0.09
- ----------------------------------------------------------------------------------------------------
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter Year
- ----------------------------------------------------------------------------------------------------
Revenue $287,097 $309,387 $343,040 $274,944 $1,214,468
Gross profit 25,621 14,324 18,483 (68,117) (9,689)
Operating income (loss) 9,349 (1,090) 2,301 (91,584) (81,024)
Income (loss) from continuing
operations before provision
for taxes 10,135 (1,384) 1,931 (92,103) (81,421)
Income (loss) from continuing
operations 6,296 (672) 1,262 (61,494) (54,608)
Income from discontinued
operation, net of tax 1,317 1,323 906 1,760 5,306
Net income 7,613 651 2,168 (59,734) (49,302)
Basic and diluted earnings
(loss) per share (2) $0.59 $0.05 $0.17 $(4.64) $(3.83)
- ----------------------------------------------------------------------------------------------------
(2) Basic and diluted earnings per share includes earnings per share from the following:
Continuing operations $0.10 $(0.29) $(0.13) $(4.41) $(4.73)
Pension related items 0.24 0.24 0.23 (0.37) 0.34
Asset divesture 0.15 - - - 0.15
- ----------------------------------------------------------------------------------------------------
Ongoing operations 0.49 (0.05) 0.10 (4.78) (4.24)
Discontinued operation 0.10 0.10 0.07 0.14 0.41
- ----------------------------------------------------------------------------------------------------
Earnings (loss) per share $0.59 $0.05 $0.17 $(4.64) $(3.83)
- ----------------------------------------------------------------------------------------------------
</TABLE>
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.
<PAGE>
MARKET AND DIVIDEND INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
Principal Market - New York Stock Exchange
Sales Price of Dividends Paid
Common Shares Per Share (1)
- ----------------------------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------
Quarter High Low High Low
- ----------------------------------------------------------
First $34.38 $19.75 $46.75 $38.00 $0.15 $0.15
Second 27.25 21.94 50.13 37.88 0.15 0.15
Third 28.63 24.19 41.00 30.88 0.15 0.15
Fourth 28.32 13.75 34.00 28.94 - 0.15
- --------------------------------------------------------------------------------
(1) On October 26, 1999, the Board of Directors decided to forego the normal
quarterly dividend of $0.15 per share due to the Company's liquidity needs.
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 N
to the consolidated financial statements. The approximate number of record
holders of common stock as of December 31, 1999 was 5,000. 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. 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 control 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>
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, 1999
$7,167 $ 961 $(291) $1,352(A) $6,485
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
Note A - Uncollected receivables written off, net of recoveries
<PAGE>
EXHIBIT 13 (iii)
Report of Independent Accountants
To the Shareholders and Board of Directors of Stone & Webster, Incorporated:
In our opinion, the accompanying consolidated financial statements listed in the
index appearing under Item 14(a)(1)(i), after the restatement described in Note
S, present fairly, in all material respects, the consolidated financial position
of Stone & Webster, Incorporated and its subsidiaries at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item
14(a)(1)(ii) presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial
statements. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes I and S, the
Company has experienced recurring operating losses and liquidity problems during
the past year, and is in violation of its credit facility. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters, which are described in Notes I
and S, include entering into possible strategic transactions, including the sale
of all or part of its engineering and construction business, and continuing to
pursue the sale of its Nordic Refrigerated Services business as planned. The
financial statements do not include any adjustments that might result from this
uncertainty.
/S/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 14, 2000 (Except as to Note I
for which the date is April 14, 2000 and
Note S for which the date is May 8, 2000)
<PAGE>
EXHIBIT 21
Subsidiaries of Registrant
Subsidiaries of Registrant on December 31, 1999 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
SWL Corporation Delaware
Stone & Webster Engineers and Constructors, Inc. 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 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
<PAGE>
PLACE OF
NAME OF SUBSIDIARY INCORPORATION
- --------------------------------------------------------------------------------
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
<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 14, 2000 (except as to Note I for which the date is
April 14, 2000 and Note S for which the date is May 8, 2000) relating to the
consolidated financial statements, which is incorporated in this Annual Report
on Form 10-K/A.
/S/ PricewaterhouseCoopers LLP
Boston, Massachusetts
May 9, 2000
<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 9th day of May 2000.
(Seal) /S/ JAMES P. JONES
---------------------------------------------
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, 1999,
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 7th day of March 2000.
/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, 1999,
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 7th day of March 2000.
/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, 1999,
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 7th day of March 2000.
/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, 1999,
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 7th day of March 2000.
/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, 1999,
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 7th day of March 2000.
/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, 1999,
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 7th day of March 2000.
/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, 1999,
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 7th day of March 2000.
/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, 1999,
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 7th day of March 2000.
/S/ PETER M. WOOD
---------------------------------------------
<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
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