UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                
                                
                                    FORM 10-Q
                                
                                
           [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                                
                For the quarterly period ended September 30, 1998
                                
                                       OR
                                
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                                
       For the transition period from ............... to ...............
                                
                          Commission File Number 1-1228
                                
                                
                          Stone & Webster, Incorporated
             (Exact name of registrant as specified in its charter)
                                
                 Delaware                           13-5416910
    (State of other  jurisdiction of     (IRS Employer Identification No.)
     incorporation or organization)
                                
              245 Summer Street, Boston, MA            02210
        (Address of Principal Executive Offices     (Zip Code)

                                 (617) 589-5111
              (Registrant's telephone number, including area code)




Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X. No .

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date. Common Stock: 13,033,377 shares
as of October 31, 1998.

<PAGE>
                 Stone & Webster, Incorporated and Subsidiaries
                                 
                                 
                                    Form 10-Q
                                 
                                 
                                      Index

                                                                        Page No.

PART I. FINANCIAL INFORMATION

        Item 1. Financial Statements

                Consolidated Statements of Operations (Unaudited):
                 Three and Nine Months Ended September 30, 1998
                  and September 30, 1997                                   3

                Consolidated Balance Sheets (Unaudited):
                 September 30, 1998 and December 31, 1997                  4

                Condensed Consolidated Statements of Cash Flows
                 (Unaudited):
                   Nine Months Ended September 30, 1998 and
                    September 30, 1997                                     5

                Notes to Condensed Consolidated Financial Statements
                 (Unaudited)                                              6-11

        Item 2. Management's Discussion and Analysis of Results of
                 Operations and Financial Condition                      12-17

PART II.    OTHER INFORMATION

        Item 6. Exhibits and Reports on Form 8-K                          18


SIGNATURES                                                                19














                                       2

<PAGE>
PART I.  Financial Information
Item 1.  Financial Statements


                 Stone & Webster, Incorporated and Subsidiaries
                Consolidated Statements of Operations (Unaudited)
                    (In thousands, except per share amounts)


                                       Three Months Ended   Nine Months Ended
                                          September 30,       September 30,
                                         1998      1997      1998       1997
                                         ----      ----      ----       ----  
Revenue                                $350,443  $368,216  $961,404  $1,003,999
Cost of revenue                         330,744   337,385   897,257     916,599
                                       --------  --------  --------  ----------
     Gross profit                        19,699    30,831    64,147      87,400
General and administrative expenses      15,818    16,991    47,427      51,710
                                       --------  --------  --------  ----------
Operating income                          3,881    13,840    16,720      35,690
Other income (expense)
     Interest income                        708     1,059     2,208       2,892
     Interest expense                    (1,078)     (430)   (2,086)     (1,258)
                                       --------  --------  --------  ----------
Total other income (expense), net          (370)      629       122       1,634
Income before provision for income
  taxes                                   3,511    14,469    16,842      37,324
Income tax provision                      1,343     5,084     6,410      12,889
                                       --------  --------  --------  ----------
Net income                             $  2,168  $  9,385  $ 10,432  $   24,435
                                       ========  ========  ========  ==========
Per share amounts:
Basic and diluted earnings per share      $0.17     $0.73     $0.81       $1.90
                                          =====     =====     =====       =====
Dividends declared per share              $0.15     $0.15     $0.45       $0.45
                                          =====     =====     =====       =====
Weighted average number of shares
 outstanding:
Basic                                    12,912    12,828    12,835      12,808
                                         ======    ======    ======      ======
Diluted                                  12,957    13,025    12,932      12,902
                                         ======    ======    ======      ======


     See accompanying notes to condensed consolidated financial statements.




                                       3
<PAGE>
                 Stone & Webster, Incorporated and Subsidiaries
                     Consolidated Balance Sheets (Unaudited)
                    (In thousands, except per share amounts)
                                 
                                                 September 30,      December 31,
                                                     1998               1997
                                                     ----               ----
Assets
Current assets:
 Cash and cash equivalents                           $ 33,783        $ 75,030
 U.S. Government securities, at amortized cost,
   which approximates fair value                            -          31,909
 Accounts receivable, principally trade, net          237,395         180,057
 Costs and revenues recognized in excess of
   billings                                           133,587         102,476
 Deferred income taxes                                 19,065          18,835
 Other                                                  1,628             337
                                                     --------        --------
Total current assets                                  425,458         408,644

Assets held for sale                                    6,744          10,395
Fixed assets, net                                     153,238         140,177
Domestic prepaid pension cost                         163,663         148,155
Note receivable                                        15,400          15,000
Other assets                                           31,279          16,406
                                                     --------        --------
Total assets                                         $795,782        $738,777
                                                     ========        ========

Liabilities and Shareholders' Equity
Current liabilities:
 Bank loans                                          $ 25,850        $      -
 Current portion of long-term debt                      2,109           1,750
 Accounts payable, principally trade                   84,106          85,338
 Billings in excess of costs and revenues
  recognized                                          153,975         115,730
 Accrued liabilities                                   68,238          79,351
 Accrued taxes                                         15,402          14,689
                                                     --------        --------
 Total current liabilities                            349,680         296,858

 Long-term debt                                        22,542          22,510
 Deferred income taxes                                 56,865          57,463
 Other liabilities                                     11,331          16,714

 Shareholders' equity:
  Preferred stock, no par value; authorized
   2,000 shares; none issued                                -               -
  Common stock, $1 par value; authorized 40,000
   shares; 17,731 shares issued including shares
   held in treasury                                    17,731          17,731
  Capital in excess of par value of common stock       54,197          51,426
  Retained earnings                                   428,943         424,287
  Accumulated other comprehensive income               (5,719)         (2,205)
  Less:  Common stock held in treasury, at cost
          (4,700 and 4,909 shares)                    122,205         127,070
         Employee stock ownership and restricted
          stock plans                                  17,583          18,937
                                                     --------        --------
Total shareholders' equity                            355,364         345,232
                                                     --------        --------
Total liabilities and shareholders' equity           $795,782        $738,777
                                                     ========        ========


     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
                 Stone & Webster, Incorporated and Subsidiaries
           Condensed Consolidated Statements of Cash Flows (Unaudited)
                                 (In thousands)


                                                               Nine Months
                                                           Ended September 30,
                                                           1998          1997
                                                           ----          ----
Cash Flows from Operating Activities:
  Net income                                             $10,432       $24,435
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Depreciation and amortization                         11,770         9,776
    Amortization of net cost of stock plans                1,286         1,040
    Gain from asset divestiture                           (3,066)            -
    Deferred income taxes                                   (828)        9,245
    Domestic prepaid pension cost                        (15,508)      (13,917)
    Changes in operating assets and liabilities          (91,260)       27,306
                                                         -------       -------
   Net cash (used for) provided by operating
    activities                                           (87,174)       57,885
                                                         -------       -------

Cash Flows from Investing Activities:
 Proceeds from maturities of U.S. Government
  securities                                              31,909        58,178
 Proceeds from asset divestiture                          13,546             -
 Purchases of fixed assets, net                          (24,831)      (12,698)
 Purchases of U.S. Government securities                       -       (88,363)
                                                         -------       -------
 Net cash provided by (used for) investing activities     20,624       (42,883)
                                                         -------       -------

Cash Flows from Financing Activities:
 Acquisition of long-term debt                             1,627             -
 Repayments of long-term debt                             (1,236)       (1,152)
 Increase (decrease) in bank loans                        25,850        (5,000)
 Sales (purchases) of common stock for treasury            4,345        (2,618)
 Dividends paid                                           (5,776)       (5,766)
 Payments received from Employee Stock Ownership Trust     1,835         1,835
 Payments to Employee Stock Ownership Trust               (1,342)       (1,729)
                                                         -------       -------
 Net cash provided by (used for) financing activities     25,303       (14,430)
                                                         -------       -------
Net (decrease) increase in cash and cash equivalents     (41,247)          572
Cash and cash equivalents at beginning of period          75,030        57,887
                                                         -------       -------
Cash and cash equivalents at end of period               $33,783       $58,459
                                                         =======       =======

     See accompanying notes to condensed consolidated financial statements.





                                       5
<PAGE>
                 Stone & Webster, Incorporated and Subsidiaries
          Condensed Consolidated Statements of Cash Flows (Unaudited)
                                 (In thousands)

(A)  The accompanying  unaudited condensed  consolidated financial statements of
     Stone & Webster,  Incorporated and  Subsidiaries  (the "Company") have been
     prepared in accordance with generally  accepted  accounting  principles for
     interim  financial  information and with the  instructions to Form 10-Q and
     Article 10 of Regulation S-X.  Accordingly,  they do not include all of the
     information and notes required by generally accepted accounting  principles
     for complete  financial  statements.  The  December  31, 1997  consolidated
     balance sheet data was derived from audited  financial  statements but does
     not  include all  disclosures  required by  generally  accepted  accounting
     principles.  In the opinion of management,  all adjustments  (consisting of
     normal recurring adjustments)  considered necessary for a fair presentation
     have been included. Operating results for the quarter and nine months ended
     September 30, 1998 are not  necessarily  indicative of the results that may
     be expected  for the fiscal year ending  December 31, 1998 or for any other
     future period. For further information, refer to the consolidated financial
     statements and notes  included in the Company's  Annual Report on Form 10-K
     for the fiscal year ended December 31, 1997.

     The  preparation  of  condensed   consolidated   financial   statements  in
     conformity  with  generally   accepted   accounting   principles   requires
     management  to make  estimates  and  assumptions  that  affect the  amounts
     reported in the consolidated  financial  statements and accompanying notes.
     Actual results could differ from those estimates.

(B)  Fixed assets, net is stated at cost less accumulated depreciation of $186.0
     million at September 30, 1998 and $165.4 million at December 31, 1997.

(C)  Revenue and operating income by business segment were the following for the
     quarter and nine months ended September 30, 1998 and 1997 (in thousands):

                                       Three Months            Nine Months
                                    Ended September 30,    Ended September 30,
                                      1998       1997       1998        1997
                                      ----       ----       ----        ----
     Revenue:
       Engineering, construction
        and consulting services     $343,040   $361,862   $939,524   $  986,913
       Cold storage and related
        activities                     7,403      6,354     21,880       17,086
                                    --------   --------   --------   ----------
          Total revenue             $350,443   $368,216   $961,404   $1,003,999
                                    ========   ========   ========   ==========

     Operating income:
       Engineering, construction
        and consulting services     $  3,735   $ 15,075   $ 15,042   $   38,762
       Cold storage and related
        activities                     1,580      2,186      6,160        5,367
                                    --------   --------   --------   ----------
                                       5,315     17,261     21,202       44,129
       General corporate expenses     (1,434)    (3,421)    (4,482)      (8,439)
                                    --------   --------   --------   ----------
          Total operating income    $  3,881   $ 13,840   $ 16,720   $   35,690
                                    ========   ========   ========   ==========

(D)  The Company had a valuation allowance of $4.7 million at September 30, 1998
     and $3.6 million  December 31, 1997 for deferred tax assets  related to net
     operating loss carryforwards. The valuation allowance at September 30, 1998
     comprises $4.6 million  relating to state net operating loss  carryforwards
     and  $0.1  million   relating  to  the   carryforwards   of   international
     subsidiaries.

                                       6
<PAGE>
(E)  Basic  earnings per share for the nine months ended  September 30, 1998 and
     1997 were computed  based on the weighted  average  number of common shares
     outstanding  during the period of 12,835,460 and 12,807,791,  respectively.
     Diluted earnings per share for the nine months ended September 30, 1998 and
     1997 were  computed  based on the  weighted  average  common  and  dilutive
     potential   shares   outstanding   during  the  period  of  12,931,656  and
     12,901,824, respectively. The difference between the basic and the dilutive
     shares  outstanding  represents the potential dilution from the exercise of
     stock options  during the period  assuming the  application of the treasury
     stock method.

(F)  Pension related items, which reduced operating costs, were $5.1 million and
     $15.4  million for the quarter and nine  months  ended  September  30, 1998
     compared  to $4.3  million and $13.4  million  for the same  periods in the
     prior year. These items increased net income by $3.1 million,  or $0.23 per
     share,  and $9.2  million,  or $0.71 per share,  for the  quarter  and nine
     months ended September 30, 1998,  compared with $2.6 million,  or $0.20 per
     share and $8.1  million  or $0.62 per share for the same  periods  in 1997.
     Pension  related  items  include a net  pension  credit  for the  Company's
     domestic  subsidiaries  and  a  net  pension  cost  for  its  international
     subsidiaries.  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 Statement of Financial Accounting Standards No. 87 net transition asset.
     The plan is overfunded  primarily due to favorable asset  performance.  The
     transition asset will be fully amortized in 1998.

(G)  Following  approval by the  Shareholders at the Company's annual meeting on
     May 14, 1998, the Company's Restricted Stock Plan and the 1995 Stock Option
     Plan were replaced by the Stone & Webster, Incorporated Long-Term Incentive
     Compensation  Plan (the "1998 Plan"),  effective  January 1, 1998. The 1998
     Plan  permits the grant of  nonqualified  stock  options,  incentive  stock
     options,  restricted stock,  performance  shares, and performance units. No
     further awards will be granted under the Restricted  Stock Plan or the 1995
     Stock  Option  Plan.  Options  previously  granted  will  become  or remain
     exercisable  in  accordance  with  the  terms  of  the  award  until  their
     expiration or earlier cancellation.

     Under the 1995 Stock Option Plan for the nine-month  period ended September
     30,  1998,  nonqualified  options  for 21,000  shares of common  stock were
     granted to non-employee  directors and employees at a weighted  average per
     share  option  price of $41.84.  Twenty-five  percent  of the  nonqualified
     options  granted become  exercisable on each of the first four  anniversary
     dates of the grant.  Options with respect to 16,250  shares were  exercised
     and options for 29,750 shares were cancelled during the nine-month  period.
     Nonqualified options for 340,750 shares remain exercisable.

     Under the 1998 Plan for the  nine-month  period ended  September  30, 1998,
     nonqualified and incentive stock options for 245,500 shares of common stock
     were  granted  to  employees  at  a  per  share  option  price  of  $43.19.
     Twenty-five  percent of the options granted will become exercisable on each
     of the first four anniversary  dates of the grants.  Therefore,  no options
     under this plan will be exercisable  before May 14, 1999. Options for 1,000
     shares were cancelled during the nine-month  period.  Nonqualified  options
     for 244,500  shares remain  exercisable.  For the  nine-month  period ended
     September 30, 1998, 1,000 shares of restricted stock were awarded under the
     1998 Plan at an  average  per share  price of $38.44.  No shares  have been
     forfeited as of September 30, 1998.

                                       7
<PAGE>
(H)  In July 1995 and  January  1998,  the  Board of  Directors  of the  Company
     authorized an increase in the share repurchase  program from 1.0 million to
     2.5  million   shares  and  from  2.5   million  to  3.0  million   shares,
     respectively,  of the Company's common stock in open market transactions at
     prevailing  prices.  For the nine months  ended  September  30,  1998,  the
     Company  acquired  43,011 shares at a cost of $1.7 million.  The amount and
     timing of stock  repurchases  will  depend upon  market  conditions,  share
     price,  as well as  other  factors.  The  Company  reserves  the  right  to
     discontinue the repurchase program at any time.

(I)  During the third quarter of 1998,  the Company  entered into three separate
     line of credit agreements totaling $110 million.  These bank loans amounted
     to $40.0  million,  $40.0  million  and $30.0  million,  and there  were no
     borrowings  under any of these bank loans as of September  30,  1998.  Bank
     debt as of  September  30,  1998 was  under  previously  existing  lines of
     credit. In addition, the Company assumed a $2.0 million line of credit from
     Power  Technologies,  Inc. upon the finalization of the merger in the third
     quarter (see Note O). Borrowings under this line of credit amounted to $0.8
     million as of September 30, 1998.

(J)  Effective  January 1, 1998,  the Company  adopted  Statement  of  Financial
     Accounting Standards No. 130, Reporting  Comprehensive Income ("SFAS 130").
     SFAS 130 establishes  standards for reporting and display of  comprehensive
     income and its  components  (revenues,  expenses,  gains and  losses).  The
     adoption of this  statement  only  changes the  display and  disclosure  of
     information and does not impact amounts previously  reported for net income
     or  shareholders'  equity.  Comprehensive  income was $2.3 million and $9.0
     million for the quarters ended  September 30, 1998 and 1997,  respectively.
     Other  comprehensive  income (loss) consists of translation  adjustments of
     $0.1 million and $(0.4) million for the quarters  ended  September 30, 1998
     and 1997,  respectively.  For the nine months ended  September 30, 1998 and
     1997 comprehensive income was $6.9 million and $23.6 million, respectively.
     Other  comprehensive  income consists of translation  adjustments of $(3.5)
     million and $(0.8) million for the nine months ended September 30, 1998 and
     1997, respectively.

(K)  During the first quarter of 1998, the Company  completed its divestiture of
     underutilized  office space with the sale of its Cherry  Hill,  New Jersey,
     office building for $13.5 million in cash. The Company recognized a gain on
     the sale of this  property of $3.1 million ($2.0 million after tax or $0.15
     per share). In 1996, the carrying value of the building was written down to
     fair value and the loss,  per Statement of Financial  Accounting  Standards
     No. 121, was recorded as an operating  loss. The Company also completed the
     disposal  of its  remaining  unused  office  space in its  former  New York
     corporate  offices.  The provisions  made in 1996 for losses on sublease or
     lease  cancellation  of this space have, in aggregate,  not been materially
     different from the actual costs incurred in disposal of the excess space.

                                       8
<PAGE>
(L)  In January 1998, the Company purchased the assets of Belmont  Constructors,
     Inc.  ("Belmont").  The purchase  price is  contingent  upon the results of
     certain  long-term  contracts  which will be  completed by the end of 1998.
     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
     results of Belmont are  included in the  Company's  condensed  consolidated
     financial statements from the date of acquisition.

(M)  During the second quarter of 1998, the Company  acquired  ownership of S.C.
     Wood,  LLC (SC Wood) in settlement of claims against a client who failed to
     fulfill  certain  contractual  obligations.  The assets of SC Wood  consist
     primarily  of a petroleum  products  pumping  station.  The Company  paid a
     nominal amount as the purchase price.  The assets of SC Wood are carried at
     $6.7 million representing the net book value of services and other advances
     in connection with the project. The Company plans to sell the operations of
     SC Wood and therefore the net assets of SC Wood are  classified as an asset
     held for sale in the Company's  Consolidated Balance Sheet at September 30,
     1998.  SC Wood is  principally  operated  as a pumping  station  which uses
     natural gas to pump petroleum products.

(N)  During  the  third  quarter  of  1998,   Commercial   Cold  Storage,   Inc.
     ("Commercial"),  a subsidiary  of Stone & Webster,  Incorporated,  signed a
     definitive  agreement  to  acquire  the  shares  of seven  companies  which
     comprise The Nordic Group, a multi-location,  privately-owned  cold storage
     company.  The  acquisition  was completed  subsequent to the closing of the
     third quarter and the purchase price of  approximately  $75 million in cash
     plus $3.5  million in working  capital and  approximately  $1.5  million in
     other  adjustments,   subject  to  certain  post-closing  adjustments,  was
     financed  through  lines of credit.  The Nordic Group will be operated as a
     subsidiary of Commercial.

(O)  During the third quarter of 1998, the Company  completed the acquisition of
     Power  Technologies,  Inc.  ("PTI").  PTI provides  engineering  consulting
     services, develops computer software for use by utility companies, develops
     and conducts educational courses and develops customized computer hardware.
     At the closing,  the purchase price was paid in common stock of the Company
     having a value of $9 million.  Along with  certain  other  contingent  cash
     considerations  related to a specific  project,  the PTI  shareholders  may
     receive additional shares of the Company's stock having a value of up to $8
     million based on meeting  certain  performance  requirements  over the next
     five years.  In the event of a contingent  payout,  the number of shares of
     common  stock  issued will be based on the stock  price used in  connection
     with the initial closing.

(P)  Certain financial  statement items have been reclassified to conform to the
     current  year's  presentation.  For the three and nine month  periods ended
     September 30, 1997, the Company made reclassifications  between general and
     administrative expenses and cost of revenue.

(Q)  Although the Company  continues  to have  possible  liabilities  related to
     environmental  pollution and other legal actions,  management believes,  on
     the basis of its assessment of these matters,  including  consultation with
     counsel,  that  none of these  pending  legal  actions  nor  such  possible
     liabilities  will result in payments of amounts,  if any, that would have a
     material  adverse effect on the Company's  financial  position,  results of
     operations or earnings per share calculations.

                                       9
<PAGE>
     The Trans-Pacific  Petrochemical  Indotama ("TPPI") project continues to be
     suspended  pending  resolution  of  financing  issues  by  the  client.  If
     refinancing  efforts are successful,  it is possible that the project could
     be restarted  during 1999.  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 project  been  cancelled  as of
     September 30, 1998,  and if resale of the olefins plant were unlikely to be
     completed,   the  Company   would  have   recorded  a  pre-tax   charge  of
     approximately $63 million representing project working capital plus current
     procurement  commitments  net of the  estimated  salvage  value of procured
     equipment and materials.

     The  Company  is  currently  performing  two  contracts  in  Ghana  for the
     engineering,  procurement and construction of power plants.  Due to various
     factors, including owner directed technical and schedule changes, increases
     in scope of the currently  authorized contracts and other factors, the cost
     to complete  these  contracts  will  significantly  exceed 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 submitted requests for equitable adjustment and
     change  orders in excess of $40 million on one  contract  and is  preparing
     change order requests to be submitted on the second  contract.  The Company
     has  recognized  revenue in excess of $40  million  on these two  contracts
     representing,  in  management's  judgment,  a conservative  estimate of the
     total amount  expected to be realized from the change orders.  Negotiations
     regarding  these change orders are ongoing and management  expects to reach
     agreement with the owner on the first change order by the end of 1998.

     A joint  venture,  in which the  Company is a 50 percent  owner,  submitted
     claims to recover in excess of $112  million in  connection  with scope and
     specification  changes on a major petrochemical project in the Middle East.
     The  Company  believes  that the joint  venture  will  realize  substantial
     recovery  on these  claims.  The Company has not  recognized  any  contract
     revenue  associated with these claims.  The joint venture has been notified
     of claims  in  excess  of $53  million,  which  have  been  submitted  by a
     subcontractor who has filed for arbitration of these claims.  Substantially
     all of  the  subcontractor's  claims  have  been  included  in  the  claims
     submitted by the joint venture.

(R)  In June 1997, the Financial  Accounting Standards Board (the "FASB") issued
     Statement of Financial  Accounting  Standards No. 131,  "Disclosures  about
     Segments  of  an  Enterprise  and  Related   Information."  This  Statement
     specifies new guidelines for determining a company's operating segments and
     related  requirements  for  disclosure.  The  Company is in the  process of
     evaluating  the  impact  of the new  standard  on the  presentation  of the
     financial   statements  and  the  disclosures  therein.  The  Statement  is
     effective for fiscal years  beginning  after December 15, 1997. The Company
     will adopt the new standard for the fiscal year ending December 31, 1998.

     In  February  1998,  the FASB  issued  Statement  of  Financial  Accounting
     Standards  No.  132,  "Employers'  Disclosures  about  Pensions  and  Other
     Postretirement  Benefits." This Statement  revises  employers'  disclosures
     about pension and other  postretirement  benefit plans.  It does not change
     the  measurement or recognition of those plans.  The Statement is effective
     for fiscal years  beginning after December 15, 1997. The Company will adopt
     the new standard for the fiscal year ending December 31, 1998.

                                       10
<PAGE>
     In June 1998, the FASB issued Statement of Financial  Accounting  Standards
     No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities."
     This Statement  provides a  comprehensive  and consistent  standard for the
     recognition  and  measurement of  derivatives  and hedging  activities.  It
     requires  that an entity  recognize  all  derivatives  as either  assets or
     liabilities  in the  statement  of  financial  position  and measure  those
     instruments  at fair value.  The  Statement is  effective  for fiscal years
     beginning  after June 15, 1999.  The Company will adopt the new standard by
     January 1, 2000.  Management  is evaluating  the impact this  Statement may
     have on the Company's financial statements.

















                                       11
<PAGE>
Item 2.  Management's Discussion and Analysis of Results of Operations and
         Financial Condition

                 Stone & Webster, Incorporated and Subsidiaries
                     Management's Discussion and Analysis of
                  Results of Operations and Financial Condition


The following is  management's  discussion  and analysis of certain  significant
factors that have affected the financial  condition and results of operations of
Stone & Webster,  Incorporated and Subsidiaries  (the "Company") for the periods
noted.  This  discussion  and analysis  should be read in  conjunction  with the
Company's 1997 Annual Report on Form 10-K.  The earnings per share  calculations
disclosed are the same for both basic and diluted.

Results of Operations

For the quarter ended September 30, 1998, the Company reported revenue of $350.4
million, a decrease of 4.8 percent from the $368.2 million reported in the third
quarter of 1997. Operating income for the quarter was $3.9 million compared with
$13.8  million for the third  quarter of 1997.  Net income for the quarter ended
September 30, 1998 was $2.1 million or $0.17 per share, compared with net income
of $9.4 million or $0.73 per share for the same period in 1997.  New orders were
$725.1  million for the quarter  ended  September  30, 1998 compared with $211.0
million for the third quarter of 1997.

Revenue for the nine months ended September 30, 1998 was $961.4 million compared
with  $1,004.0  million  reported for the same period in 1997, a decrease of 4.2
percent.  Operating  income for the first nine months of 1998 was $16.7  million
compared with operating income of $35.7 million for the same period in 1997. Net
income for the nine months ended  September  30, 1998 was $10.4 million or $0.81
per share, compared with net income of $24.4 million, or $1.90 per share for the
same period in 1997.  Backlog for the first nine months of 1998 was $2.7 billion
which  increased $0.2 billion  compared to December 31, 1997, and increased $0.1
billion  compared to September 30, 1997. New orders for the first nine months of
1998 were $1.2 billion compared to $1.1 billion for the same period in 1997.

Components of earnings per share were:

                                           Three Months          Nine Months
                                        Ended September 30,  Ended September 30,
                                           1998     1997        1998     1997
                                           ----     ----        ----     ----
Basic and diluted earnings per share
 from:
   Operations                             $(0.06)   $0.53      $(0.05)   $1.22
   Pension related items                    0.23     0.20        0.71     0.62
                                          ------    -----      ------    -----
   Ongoing operations                       0.17     0.73        0.66     1.84
   Divested operations                         -        -           -     0.06
   Asset divestiture                           -        -        0.15        -
                                          ------    -----      ------    -----
   Basic and diluted earnings per share    $0.17    $0.73       $0.81    $1.90
                                           =====    =====       =====    =====

                                       12
<PAGE>
Pension related items reduced  operating costs by $5.1 million and $15.4 million
for the quarter and nine months ended September 30, 1998, respectively, and $4.3
million  and $13.4  million  for the same  periods  in the prior  year.  Pension
related  items  include  a  net  pension  credit  for  the  Company's   domestic
subsidiaries  and a net pension cost for its foreign  subsidiaries.  The pension
credit is the result of a plan that is funded in excess of the projected benefit
obligation and income from the amortization of Statement of Financial Accounting
Standards No. 87 net transition  asset. The plan is overfunded  primarily due to
favorable  asset  performance.  The transition  asset will be fully amortized in
1998.

During the first  quarter of 1998,  the Company  completed  the  divestiture  of
underutilized office space with the sale of its Cherry Hill, New Jersey,  office
building for $13.5 million in cash. The Company recognized a gain on the sale of
this property of $3.1 million ($2.0 million after tax or $0.15 per share).  Also
in the first quarter the Company  completed the disposal of its remaining unused
office space in its former New York corporate  offices.  The provisions  made in
1996 for  losses on  sublease  or lease  cancellation  of this  space  have,  in
aggregate,  not been  materially  different  from the actual  costs  incurred in
disposal of the excess space.

Engineering, Construction and Consulting

The Company's Engineering,  Construction and Consulting segment reported revenue
of $343.0  million in the third  quarter of 1998, a decrease of 5.2 percent from
the $361.9  million  reported  for the same  period last year.  The  decrease in
revenue is primarily attributed to lower revenues in the Process Division due to
suspension of the Trans-Pacific  Petrochemical  Indotama  ("TPPI")  project.  In
addition,  there has been lower than  expected new work and higher than expected
activity  on the assumed  lump sum  projects  from  Belmont  Constructors,  Inc.
("Belmont"),  which the Company  acquired in January 1998.  Operating income was
$3.7  million for the third  quarter of 1998  compared  to $15.1  million in the
third  quarter of 1997.  The  decrease in operating  income is primarily  due to
losses on several Power and Process Division projects.

For the first nine months of 1998, the Engineering,  Construction and Consulting
segment had  revenue of $939.5  million,  a decrease of 4.8 percent  compared to
revenue of $986.9 million for the same period in 1997.  Operating income for the
first nine months of 1998 was $15.0 million  compared with  operating  income of
$38.8 million for the same period in 1997.

New orders for the  Engineering,  Construction  and  Consulting  segment for the
quarter and nine months ended  September  30, 1998 were $725.1  million and $1.2
billion,  respectively,  compared  with $211.0  million and $1.1 billion for the
same periods in 1997.

The  Trans-Pacific  Petrochemical  Indotama  ("TPPI")  project  continues  to be
suspended  pending  resolution of financing issues by the client. If refinancing
efforts are  successful,  it is possible  that the  project  could be  restarted
during  1999.  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 project been cancelled as of September 30, 1998, and if resale
of the olefins  plant were  unlikely  to be  completed,  the Company  would have
recorded a pre-tax charge of $63 million  representing  project  working capital
plus current  procurement  commitments  net of the  estimated  salvage  value of
procured equipment and materials.

                                       13
<PAGE>
The Company is currently  performing two contracts in Ghana for the engineering,
procurement and construction of power plants. Due to various factors,  including
owner  directed  technical  and  schedule  changes,  increases  in  scope of the
currently  authorized  contracts and other  factors,  the cost to complete these
contracts will significantly  exceed 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  submitted
requests for equitable  adjustment and change orders in excess of $40 million on
one  contract  and is  preparing  change  order  requests to be submitted on the
second contract.  The Company has recognized revenue in excess of $40 million on
these two contracts  representing,  in  management's  judgment,  a  conservative
estimate of the total  amount  expected to be realized  from the change  orders.
Negotiations regarding these change orders are ongoing and management expects to
reach agreement with the owner on the first change order by the end of 1998.

Orders and backlog for the nine months  ended  September  30, 1998 and 1997 were
(in thousands):

                                  Three Months                Nine Months
                               Ended September 30,        Ended September 30,
                               1998          1997         1998          1997
                               ----          ----         ----          ----
Beginning backlog           $2,357,122    $2,756,334   $2,519,302    $2,487,552
Orders                         725,113       210,809    1,099,473     1,104,651
Backlog acquired (Belmont)           -             -       59,944             -
Revenue                       (343,040)     (361,863)    (939,524)     (986,923)
                            ----------    ----------   ----------    ----------
Ending backlog              $2,739,195    $2,605,280   $2,739,195    $2,605,280
                            ==========    ==========   ==========    ==========

Orders represent the net amount of new orders, cancellations and scope changes.

Cold Storage And Related Activities

The Company's Cold Storage segment reported operating income of $1.6 million and
$6.2  million  for the  quarter  and  nine  months  ended  September  30,  1998,
respectively,  compared with  operating  income of $2.2 million and $5.4 million
for the same periods in 1997. The decrease in operating income was primarily due
to an increase in direct labor  expense  from  overtime  incurred and  increased
customer  claims  during the third  quarter.  Revenue was $7.4 million and $21.9
million for the quarter and nine months ended September 30, 1998,  respectively,
compared  with revenue of $6.4 million and $17.1 million for the same periods in
1997. The increase in revenue and operating  income of the Cold Storage  segment
is  primarily  the result of  increased  volume and  continued  expansion of the
customer base.  Commercial Cold Storage,  Inc., a wholly owned subsidiary of the
Company,  completed its acquisition of the seven  corporations  constituting The
Nordic Group subsequent to the third quarter.


                                       14
<PAGE>
General and Administrative Expenses, Other Income (Expenses) and Income Taxes

General and  administrative  expenses  for the  quarter  and nine  months  ended
September 30, 1998 were $15.8 million and $47.4 million, respectively,  compared
with $17.0 million and $51.7 million for the same periods in 1997.  The decrease
in general and administrative  expenses for the quarter ended September 30, 1998
is  primarily  attributable  to  lower  occupancy  costs  as  a  result  of  the
divestiture of unused office space.  Interest expense net of interest income for
the quarter ended September 30, 1998 was $0.4 million and interest income net of
interest  expense  for the first nine  months was $0.1  million,  compared  with
interest  income net of interest  expense for the quarter and nine months  ended
September 30 1997, of $0.6 million and $1.6 million, respectively.

Financial Condition

Cash and cash  equivalents  decreased  by $41.3  million  during  the first nine
months  of  1998.  Net cash  used  for  operating  activities  of $87.2  million
reflected an increase in operating  working  capital (which consists of accounts
receivable and costs and revenues recognized in excess of billings less accounts
payable  and  billings  in  excess  of costs  and  revenues  recognized)  due to
procurement  commitments  on  the  TPPI  project,  funding  requirements  of the
recently  acquired  Belmont  Constructors,   Inc.  assets  and  working  capital
requirements  for several  projects  including the power projects in Ghana.  Net
cash provided by investing  activities of $20.6 million  reflects  maturities of
U.S.  Government  securities and proceeds from the sale of the Company's  Cherry
Hill, New Jersey,  office  building  offset by purchases of fixed assets used in
the Company's  operations.  Net cash  provided by financing  activities of $25.3
million  reflects  the  payment  of  dividends,  repayment  of  long-term  debt,
borrowings under a bank loan. The Company's ongoing share repurchase  program is
discussed in Note H to the condensed  consolidated  financial statements.  Total
debt was $50.5  million  at  September  30,1998,  compared  to $24.3  million at
year-end 1997.

The Company believes that the types of businesses in which it is engaged require
that it maintain a strong financial  condition.  The Company has on hand and has
access  to  sufficient  sources  of  funds to meet  its  anticipated  operating,
dividend and capital  expenditure needs. Cash on hand and temporary  investments
provide adequate operating  liquidity.  Additional liquidity is provided through
lines of credit and revolving  credit  facilities that total $145.2 million.  At
September 30, 1998, there was $25.9 million outstanding under these facilities.

Subsequent to the end of the third  quarter,  the Company was notified by one of
its lenders that a $25.0  million  line of credit will not be renewed.  The bank
has agreed to continue the facility,  which is outstanding in its entirety, on a
month-to-month basis,  while the Company negotiates replacement lines with other
lenders.   The  Company  is  in  active   discussions  with  several   financial
institutions.  The Company anticipates repaying this line of credit by year end,
regardless of the status of negotiations with the new lenders.

Year 2000 Compliance

The  Company  is in  the  process  of  evaluating  and  upgrading  its  computer
applications,  including all of its information  technology and  non-information
technology such as embedded  technology,  in part to ensure their  functionality
with respect to the Year 2000 millennium change.

                                       15
<PAGE>
The Company has  substantially  completed  its  evaluation  of all  software and
information  systems  which  it uses  that  are to be  validated  as  Year  2000
compliant.  The  Company  expects to  implement  successfully  the  systems  and
programming  changes  necessary to address the Year 2000 issue during 1999.  Key
financial   systems  will  become  compliant   through   implementation  of  new
enterprise-wide  financial systems.  The primary objective of implementing these
new systems is to improve access to financial  information of the Company and to
implement a state-of-the-art project accounting system. Therefore, costs related
to this implementation effort are not all considered Year 2000 compliance costs.

The Company is giving  consideration  to  compliance  by third party  suppliers.
Failure by third party  suppliers to become Year 2000 compliant  could result in
the Company's inability to obtain products as scheduled, which could potentially
lead to delays in meeting client  orders.  The Company will also review the Year
2000 readiness of clients which are material to the Company's business,  if any.
Failure by material  customers to become Year 2000 compliant could result in the
Company's  inability  to  obtain  or  perform  work on a timely  basis  for such
customers, leading to delays in receipt of revenue.

The Company is taking  protective  measures  regarding the purchases  from third
party  suppliers of software,  hardware and computer  information  systems.  The
Company  is  obtaining  assurances  that the  information  systems  and  related
products  supplied will be Year 2000 compliant.  In addition,  the Company is in
the process of determining  significant  vendors to be contacted regarding their
Year 2000  compliance.  The Company  had not  contacted  any of its  significant
suppliers  as of September  30,  1998.  No  definitive  conclusions  can be made
regarding  whether the software or systems of third party  suppliers will have a
materially  adverse effect on the Company's  business,  results of operations or
financial condition. However, at this time, management does not believe that the
Company will experience  significant exposure related to the software or systems
of third party suppliers.

The  Company  has  initiated  a  process  of  reviewing   existing   contractual
obligations  with its  clients to  determine  whether  any Year 2000  compliance
exposure  exists to its clients or third  parties.  As of September 30, 1998, no
such exposure had been determined.  The Company currently  believes that systems
and  equipment  purchased by it for delivery to third  parties will be made Year
2000 compliant during 1999.

A formal  contingency  plan  will  not be  formulated  unless  the  Company  has
identified  specific areas where there is substantial risk of Year 2000 problems
occurring,  and no such areas have been  identified as of this date. The Company
has not yet  developed  an estimate of  material  lost  revenue due to Year 2000
issues in a most reasonably  likely worst case Year 2000 scenario because it has
not yet completed all of the necessary  review,  which is ongoing.  To date, the
cost of the reviews and analysis have totaled less than $0.1  million.  The Year
2000 review is intended to correct the remaining  internal  systems that are not
Year 2000 compliant and to identify any client or other  external  situations in
which the Company or its vendors  have  provided  systems that are not Year 2000
compliant.  The cost of correcting external Year 2000 compliance situations,  if
any,  cannot be determined  until such cases,  if any exist,  are identified and
evaluated.  The cost to correct  internal systems and review external systems is
estimated to be $0.4 million.

Readers are cautioned that forward-looking statements contained in the Year 2000
Issue disclosure  should be read in conjunction  with the Company's  disclosures
under the heading: "Forward- Looking Information" on page 17.

                                       16
<PAGE>
Other Accounting Matters

In June 1997,  the  Financial  Accounting  Standards  Board (the "FASB")  issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of  an  Enterprise  and  Related  Information."  This  Statement  specifies  new
guidelines  for   determining  a  company's   operating   segments  and  related
requirements  for  disclosure.  The Company is in the process of evaluating  the
impact of the new standard on the  presentation of the financial  statements and
the disclosures  therein.  The Statement is effective for fiscal years beginning
after  December 15, 1997. The Company will adopt the new standard for the fiscal
year ending December 31, 1998.

In February 1998, the FASB issued  Statement of Financial  Accounting  Standards
No.  132,  "Employers'  Disclosures  about  Pensions  and  Other  Postretirement
Benefits." This Statement revises employers' disclosures about pension and other
postretirement  benefit plans. It does not change the measurement or recognition
of those plans.  The  Statement is effective  for fiscal years  beginning  after
December 15,  1997.  The Company will adopt the new standard for the fiscal year
ending December 31, 1998.

In June 1998, the FASB issued  Statement of Financial  Accounting  Standards No.
133,  "Accounting  for  Derivative  Instruments  and Hedging  Activities."  This
Statement  provides a comprehensive and consistent  standard for the recognition
and  measurement  of  derivatives  and hedging  activities.  It requires that an
entity  recognize  all  derivatives  as  either  assets  or  liabilities  in the
statement of financial position and measure those instruments at fair value. The
Statement  is  effective  for fiscal years  beginning  after June 15, 1999.  The
Company will adopt the new standard by January 1, 2000. Management is evaluating
the impact this Statement may have on the Company's financial statements.


Forward-Looking Information

Any of the  statements or comments in this Form 10-Q that refer to the Company's
estimated  or future  results are  forward-looking  and  reflect  the  Company's
current analysis of existing trends and information. The Company cautions that a
variety of factors  including,  but not  limited to, the  following  could cause
business  conditions and results to differ  materially from what is contained in
forward-looking statements: changes in the rate of economic growth in the United
States and other major  international  economies,  changes in  investment by the
energy, power and environmental  industries,  the uncertain timing of awards and
contracts,  changes in  regulatory  environment,  changes in project  schedules,
changes in trade, monetary and fiscal policies worldwide, currency fluctuations,
outcomes of pending and future  litigation,  protection  and validity of patents
and other intellectual  property rights,  and increasing  competition by foreign
and  domestic  companies  and  other  risks  detailed  from  time to time in the
Company's filings with the Securities and Exchange Commission.

The statements under the caption "Year 200 Compliance"  describing the Company's
plans and objectives for handling the Year 2000 issue and the expected impact of
the Year  2000  issue  on the  Company  are  forward-looking  statements.  Those
statements  involve risks and  uncertainties  that could cause actual results to
differ  materially from the results  discussed  above.  Factors that might cause
such a difference include,  but are not limited to, delays in executing the plan
outlined  above  and  unforeseen  or  increased   costs   associated   with  the
implementation of the plan and any necessary  changes to the Company's  systems.
Any inability  experienced by the Company during  implementation  resulting from
necessary  changes not completed in a timely manner could have an adverse effect
on the  results  of  operations.  Moreover,  even  if the  Company  successfully
implements the changes necessary to address the Year 2000 issue, there can be no
assurances  that the Company  will not be  adversely  affected by the failure of
others, including vendors and clients, to become Year 2000 compliant.



                                       17
<PAGE>
PART II. Other Information
Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibit Index

    (4)  Instruments   defining  the  rights  of  security  holders,   including
         indentures.

         As  of  September  30,  1998,   registrant  and  its  subsidiaries  had
         outstanding  long-term debt (excluding  current portion) totaling $22.5
         million,  principally  in connection  with a mortgage  relating to real
         property for a  subsidiary's  office  building and in  connection  with
         capitalized  lease  commitments  for the  acquisition of certain office
         equipment.  None of these  agreements  are filed  herewith  because the
         amount of  indebtedness  authorized  under each such agreement does not
         exceed  10  percent  of the  total  assets  of the  registrant  and its
         subsidiaries on a consolidated  basis; the registrant hereby undertakes
         to furnish copies of such agreements to the Commission upon request.
   
    (27) Financial Data Schedule.

(b) Reports on Form 8-K

    Registrant did not file any reports on Form 8-K during the quarter for which
    this report is filed. Stone & Webster, Incorporated and Subsidiaries








                                       18
<PAGE>
                                    FORM 10-Q
                                
                                
                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                            STONE & WEBSTER, INCORPORATED




                            By:  /S/ THOMAS L. LANGFORD
                                 _________________________________________
Dated:  November 13, 1998        Thomas L. Langford
                                 Executive Vice President
                                 (Duly authorized officer and
                                  Chief Financial Officer)




                            By:  /S/ DANIEL. P. LEVY
                                 _________________________________________
                                 Daniel P. Levy
                                 Vice President and Controller
                                 (Principal Accounting Officer)













                                       19