<PAGE>




                            FORM 10-Q

               SECURITIES AND EXCHANGE COMMISSION

                    Washington, D. C.  20549

     [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934

        For the quarterly period ended September 30, 1996

                               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 Incorporation)     (I.R.S. Employer Identification No.)




             250 West 34th Street, New York, N.Y.    10119
          (Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number (including area code) (212) 290-7500


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: 12,845,113 shares as of October 31, 1996.




<PAGE>
Form 10-Q                                                                     2.
  For the quarter ended September 30, 1996         Stone & Webster, Incorporated


PART I.  FINANCIAL INFORMATION

Item 1.   Financial Statements.

          The consolidated financial statements required by this Item for Stone
          & Webster, Incorporated and Subsidiaries are contained in Attachment A
          which is filed herewith and made a part hereof.

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

          The Management's Discussion and Analysis of Financial Condition and
          Results of Operations required by this Item for Stone & Webster,
          Incorporated and Subsidiaries is contained in Attachment A which is
          filed herewith and made a part hereof.


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, 1996,  registrant  and its
          subsidiaries  had  outstanding   long-term  debt  (excluding   current
          portion) totaling approximately  $24,681,000 principally in connection
          with mortgages relating to real property for two subsidiaries'  office
          buildings,  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% of the total
          assets of the registrant and its subsidiaries on a consolidated basis;
          the registrant  hereby undertakes to furnish copies of such agreements
          to the Commission upon request.

               (27) Financial Data Schedule.

     (b)  Reports on Form 8-K

               Registrant did not file any reports on Form 8-K during the
          quarter for which this report is filed.


<PAGE>
Form 10-Q                                                                     3.
  For the quarter ended September 30, 1996         Stone & Webster, Incorporated





                              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:  JEREMIAH P. CRONIN
Dated:  November 14, 1996          Jeremiah P. Cronin
                                   Executive Vice President
                                   (Duly authorized officer and
                                   Chief Financial Officer)





                                   DANIEL P. LEVY
                                   Daniel P. Levy
                                   Corporate Controller
                                   (Principal Accounting Officer)




<PAGE>
Form 10-Q                                                                     4.
     For the quarter ended September 30, 1996      Stone & Webster, Incorporated


                                                        ATTACHMENT A


                         Stone & Webster, Incorporated
                               and Subsidiaries

                                     Index

                                                                  Page No.

Condensed Financial Statements: (Unaudited)

     Consolidated Statements of Operations -
         Three Months Ended September 30, 1996 and 1995
         Nine Months Ended September 30, 1996 and 1995                  5

     Consolidated Balance Sheets -
         September 30, 1996 and December 31, 1995                     6-7

     Consolidated Statements of Cash Flows -
         Nine Months Ended September 30, 1996 and 1995                8-9

     Notes to Consolidated Financial Statements                     10-13

Management's Discussion and Analysis of Financial
     Condition and Results of Operations                            14-18









<PAGE>

Form 10-Q                                                                     5.
For the quarter ended September 30, 1996           Stone & Webster, Incorporated

                    Stone & Webster, Incorporated and Subsidiaries

                   Consolidated Statements of Operations (Unaudited)

            (All dollar amounts, except per share amounts, are in thousands)


<TABLE>

<CAPTION>
                                           Three Months Ended           Nine Months Ended
                                             September 30,                 September 30,
                                         -----------------------       ----------------------
<S>                                        <C>            <C>            <C>           <C> 
                                           1996           1995           1996          1995
                                         --------       --------       --------      --------

Revenue (Note A)                         $282,210       $219,160       $856,752      $672,376

Cost of revenue (Note F)                  276,499        199,800        810,650       612,065
                                         --------       --------       --------      --------
   Gross profit                             5,711         19,360         46,102        60,311

Selling, general and administrative
   expenses (Notes E,F and G)              54,979         12,248         77,687        33,728
                                         --------       --------       --------      --------
Operating income (loss)(Notes A,E,F and G)(49,268)         7,112        (31,585)       26,583

Other income (deductions)
   Interest income                            549          1,674          2,544         5,094
   Interest expense                        (1,745)          (958)        (6,160)       (3,073)
                                         --------       --------       --------      --------
                                           (1,196)           716         (3,616)        2,021

Income before provision (benefit)
   for income taxes                       (50,464)         7,828        (35,201)       28,604

Income tax provision (benefit)
   (Notes B,E,F and G)                    (18,784)         2,844        (12,793)       10,970
                                         --------       --------       --------      --------
Income (loss) before extraordinary item   (31,680)         4,984        (22,408)       17,634

Extraordinary item, net of taxes (Note E)   6,787             -           6,787            -
                                         --------       --------       --------      --------
Net income (loss) (Notes E,F and G)      $(24,893)      $  4,984       $(15,621)     $ 17,634
                                         ========       ========       ========      ========
Earnings (loss) per share before
   extraordinary item                      $(2.37)          $.35         $(1.68)        $1.22
                                             ====           ====           ====          ====
Earnings (loss) per share
   (Notes D,E,F,G and L)                   $(1.86)          $.35         $(1.17)        $1.22
                                             ====           ====           ====          ====
Dividends declared per share                 $.15           $.15           $.45          $.45
                                             ====           ====           ====          ====
Average number of shares outstanding   13,137,000     14,326,000     13,364,000    14,439,000

<FN>

See accompanying notes to consolidated financial statements.
</FN>
</TABLE>


<PAGE>

Form 10-Q                                                                     6.
For the quarter ended September 30, 1996           Stone & Webster, Incorporated

                  Stone & Webster, Incorporated and Subsidiaries

                      Consolidated Balance Sheets (Unaudited)

         (All dollar amounts, except per share amounts, are in thousands)


                                                September 30,       December 31,
                                                    1996               1995
Assets                                            --------           --------

Current Assets:

   Cash and cash equivalents                      $ 33,784           $ 68,417


   U.S. Government securities, at amortized
     cost, which approximates market (Note C)        3,983             54,899

   Accounts receivable, principally trade          163,625            165,836

   Costs and revenues recognized in
     excess of billings                            115,839             64,494

   Deferred income taxes (Note B)                    7,163              7,202

   Other                                             1,739              3,153
                                                  --------           --------
        Total Current Assets                       326,133            364,001


Fixed assets                                       144,232            212,596
   At cost, less accumulated depreciation
      and amortization of $174,567
      (1995-$165,120) (Note G)

Prepaid pension cost (Note D)                      125,182            114,194

Other assets                                        24,232             25,981
                                                  --------           --------
                                                  $619,779           $716,772
                                                  ========           ========


See accompanying notes to consolidated financial statements.




<PAGE>

Form 10-Q                                                                     7.
For the quarter ended September 30, 1966           Stone & Webster, Incorporated

              Stone & Webster, Incorporated and Subsidiaries

                  Consolidated Balance Sheets (Unaudited)

      (All dollar amounts, except per share amounts, are in thousands)


                                                    September 30,   December 31,
                                                           1996          1995
                                                         --------      --------
Liabilities and Shareholders' Equity

Current Liabilities:
  Bank loans                                             $ 10,000      $  8,200
  Current portion of long-term debt (Note E)                2,437        20,944
  Accounts payable, principally trade                      73,706        56,901
  Dividend payable                                          1,929         2,078
  Billings in excess of costs and
    revenues recognized                                    65,140        66,976
  Accrued liabilities (Note G)                             61,629        43,308
  Accrued taxes                                             6,182         7,955
                                                         --------      --------
         Total Current Liabilities                        221,023       206,362

Long-term debt (Note E)                                    24,681        74,677

Deferred income taxes (Note B)                             40,226        51,262

Other liabilities                                          22,585        22,800

Shareholders' Equity (Notes I and J)
  Preferred stock                                              -             -
    Authorized, 2,000,000 shares of no par value;
      none issued
  Common stock                                             17,731        17,731
    Authorized, 40,000,000 shares of $1 par value;
    issued, 17,731,488 shares, including shares held
    in treasury
Capital in excess of par value of common stock             50,465        50,360
Retained earnings                                         393,322       414,724
Cumulative translation adjustment                          (2,940)       (3,039)
                                                         --------      --------
                                                          458,578       479,776
                                                         --------      --------
Less:  Common stock in treasury, at cost                  124,948        92,292
         4,872,820 shares (1995-3,875,572)
       Employee stock ownership and restricted
         stock plans                                       22,366        25,813
                                                         --------      --------
                                                          147,314       118,105
                                                         --------      --------
        Total Shareholders' Equity                        311,264       361,671
                                                         --------      --------
                                                         $619,779      $716,772
                                                         ========      ========

See accompanying notes to consolidated financial statements.




<PAGE>
Form 10-Q                                                                     8.
For the quarter ended September 30, 1996           Stone & Webster, Incorporated

                 Stone & Webster, Incorporated and Subsidiaries
                Consolidated Statements of Cash Flows (Unaudited)
        (All dollar amounts, except per share amounts, are in thousands)

                                                              Nine Months
                                                           Ended September 30,
                                                           1996          1995
                                                          --------     --------
Cash Flows from Operating Activities:
  Net income (loss)                                       $(15,621)    $ 17,634
  Adjustments to reconcile net income (loss) to net cash
    used by operating activities:
      Loss on disposition of Auburn VPS LP                   1,254          -
      Restructuring and other charges - Contract related
         and operational items                              12,377          -
      Restructuring and other charges - Real Estate
         write-downs                                        30,509          -
      Depreciation, depletion and amortization              13,319       14,216
      Deferred income taxes                                (10,997)       5,227
      Prepaid pension cost                                 (10,988)     (11,344)
      Write down of capitalized costs                          -          6,500
      Amortization of market value of shares issued
        under Restricted Stock Plan                           (122)          88
      Amortization of net cost of
        Employee Stock Ownership Plan                        1,158        1,167
      Changes in operating assets and liabilities:
        Accounts receivable                                 (3,003)     (40,460)
        Costs and revenues recognized
          in excess of billings                            (61,358)     (35,696)
        Accounts payable                                    18,395       11,809
        Billings in excess of costs
          and revenues recognized                           (1,836)      11,885
        Accrued liabilities                                 13,774        2,858
        Other                                                2,723        8,798
                                                          --------     --------
  Net cash used by operating activities                    (10,416)      (7,318)
                                                          --------     --------
Cash Flows from Investing Activities:
  Maturities of U.S. Government securities                  54,899       95,340
  Purchases of U.S. Government securities                   (3,968)     (83,198)
  Purchase of joint venture, net of cash acquired              -         (2,458)
  Purchases of fixed assets                                (18,369)     (23,522)
                                                          --------     --------
  Net cash provided (used) by investing activities          32,562      (13,838)
                                                          --------     --------
Cash Flows from Financing Activities:
  Proceeds from long-term debt                                 -         19,302
  Repayments of long-term debt                             (19,753)      (3,618)
  Increase in bank loans                                     1,800          -
  Payment to Employee Stock Ownership Trust                 (4,236)      (6,598)
  Payment received from Employee Stock Ownership Trust       4,464        7,217
  Purchases of common stock for treasury                   (32,995)     (12,435)
  Dividends paid                                            (6,059)      (6,537)
                                                          --------     --------
  Net cash used by financing activities                    (56,779)      (2,669)
                                                          --------     --------
Net Decrease in Cash and Cash Equivalents                  (34,633)     (23,825)
Cash and Cash Equivalents at Beginning of Period            68,417       55,650
                                                          --------     --------
Cash and Cash Equivalents at End of Period                $ 33,784     $ 31,825
                                                          ========     ========


<PAGE>
Form 10-Q                                                                     9.
For the quarter ended September 30, 1996           Stone & Webster, Incorporated

                 Stone & Webster, Incorporated and Subsidiaries
                Consolidated Statements of Cash Flows (Unaudited)
        (All dollar amounts, except per share amounts, are in thousands)


Supplemental Disclosures of Investing and Financing Activities:


                                                                Nine Months
                                                             Ended September 30,
                                                           ---------------------
                                                            1996          1995
                                                           ---------    --------
  Transfer of Auburn VPS LP property, plant and equipment
    to construction lenders                                $  53,276    $    -
  Extinguishment of Auburn VPS LP debt                       (48,750)        -
  Other net                                                   (3,272)        -
  Fair value of assets acquired                                 -         10,206
  Liabilities assumed                                           -          7,748
                                                           ---------    --------
                                                           $   1,254    $  2,458
                                                           =========    ========



See accompanying notes to consolidated financial statements.















<PAGE>
Form 10-Q                                                                    10.
For the quarter ended September 30, 1996           Stone & Webster, Incorporated

             Stone & Webster, Incorporated and Subsidiaries

         Notes to Consolidated Financial Statements (Unaudited)

    (All dollar amounts, except per share amounts, are in thousands)


(A)  Revenue and operating  income (loss) by business segment were the following
     for the three and nine months ended September 30, 1996 and 1995:


                                         Three Months          Nine Months
                                     Ended September 30,    Ended September 30,
                                    --------------------    -------------------
                                      1996        1995        1996      1995
                                    --------    --------    --------   --------
Revenue
   Engineering, construction and
     consulting services            $275,999    $210,736    $840,748   $647,387
   Cold storage and
     related activities                6,211       5,331      16,004     15,989
   Other                                 -         3,093         -        9,000
                                    --------    --------    --------   --------
    Total revenue                   $282,210    $219,160    $856,752   $672,376
                                    ========    ========    ========   ========
Operating income (loss)
   Engineering, construction and
     consulting services            $(48,386)   $  6,886    $(28,432)  $ 27,928
   Cold storage and
     related activities                2,092       1,825       4,544      6,002
   Other                                 (35)        520        (163)       744
                                    --------    --------    --------   --------
                                     (46,329)      9,231     (24,051)    34,674
   General corporate expenses         (2,939)     (2,119)     (7,534)    (8,091)
                                    --------    --------    --------   --------
     Total operating income (loss)  $(49,268)   $  7,112    $(31,585)  $ 26,583
                                    ========    ========    ========   ========

(B)  The Company had a valuation  allowance  of $11,604 at December 31, 1995 for
     the deferred tax assets  related to net operating loss  carryforwards.  The
     valuation  allowance at the  end of the second quarter of 1996 was $11,130.
     The net change in the valuation allowance for the third quarter of 1996 was
     a decrease of $26, primarily due to fluctuations  in exchange  rates on the
     foreign net operating loss carryforwards.  The total valuation allowance at
     September 30, 1996 is  $11,104.  The  valuation  allowance at September 30,
     1996 comprises $6,558 relating to the net operating  loss carryforwards  of
     several of the Company's foreign  subsidiaries and $4,546 relating to state
     net operating loss carryforwards.

(C)  U.S. Government  securities are debt securities issued by the U.S. Treasury
     comprised  entirely  of U.S.  Treasury  bills and notes,  which the Company
     intends to hold to maturity.  These  securities  have maturity dates of one
     year or less. The aggregate fair market value of U.S. Government securities
     at September 30, 1996 and  December   31,  1995  was  $3,983  and  $54,722,
     respectively, the amortized cost basis  at September  30, 1996 and December
     31, 1995  was $3,983  and  $54,899,  respectively,  and the  net unrealized
     holding loss  at December 31, 1995 was $177.  There was  no net  unrealized
     holding gain or loss at September 30, 1996.



<PAGE>
Form 10-Q                                                                    11.
For the quarter ended September 30, 1996           Stone & Webster, Incorporated


                   Stone & Webster, Incorporated and Subsidiaries

               Notes to Consolidated Financial Statements (Unaudited)

          (All dollar amounts, except per share amounts, are in thousands)

(D)  Pension  related  items,  which reduced  operating  costs,  were $4,462 and
     $10,406 for the three and nine month periods of 1996 compared to $3,778 and
     $10,886 for the prior year.  These items increased net income by $2,729, or
     $.21 per share, and $6,364, or $.48 per share, for the three and nine month
     periods of 1996 and by $2,311,  or $.17 per share, and $6,658,  or $.46 per
     share for the prior year.

(E)  As previously reported, the Auburn VPS  Partnership, which was  94.3% owned
     by Stone & Webster, had been unable to  meet its  debt service requirements
     since  the  end  of  the  first  quarter  of  1996,  resulting  in  ongoing
     discussions  with its  lenders  regarding  restructuring  its  debt.  In an
     agreement  reached  with  the  partnership's  lenders,  the  assets  of the
     partnership were transferred to the lenders  in return  for cancellation of
     the related construction debt.  The net impact of  this agreement  with its
     lenders is  a loss of $989 net of tax or $.08 per  share, which includes an
     operating loss  of $11,538 ($7,776 net of tax, or $.59 per share) to write-
     down the Auburn VPS plant to fair market value and an extraordinary gain of
     $10,283 ($6,787  net  of  taxes of $3,496,  or  $.51  per  share)  for  the
     extinguishment of the construction debt.

(F)  In the third  quarter of 1996,  the Company  recorded a charge to recognize
     several contract related and operational items. Among these were provisions
     for  resolution,  reached during the quarter,  of a contract scope dispute,
     damages resulting from contract  performance  delays,  and recognition of a
     judgment  awarded and anticipated  settlement  costs of several  employment
     disputes.  The total amount of this charge is $12,377  ($7,553 after tax or
     $.57 per share.)

(G)  In  the  second  quarter  of  1996,  the  Company  began  a  review  of its
     organizational  structure,  strategic plan and asset base. During the third
     quarter of 1996, the Company  concluded that its corporate  headquarters in
     New York will be consolidated with the Boston headquarters of the Company's
     principal operating  subsidiary,  Stone & Webster Engineering  Corporation,
     and certain of its New York office space will be offered for  sublease.  In
     addition,  the Company  intends to sell its 800,000 square foot building in
     Boston and more  aggressively  market its 460,000  square foot  building in
     Cherry  Hill,  New  Jersey.  The  Company  also  plans to  restructure  its
     ownership position in its other real estate holdings in Boston. While it is
     difficult to anticipate the date that real estate will be sold, the Company
     hopes to sell the Cherry Hill property  within eighteen  months.  Timing of
     the sale of the 800,000  square foot Boston  building is dependent upon the
     Company's final determination of space and location requirements. The total
     carrying amount of the properties  written-down was $20,939 as of September
     30, 1996.  The total charge for these items of $30,509  ($19,974 after tax,
     or $1.49 per share)  consists of $20,137  ($13,751  after tax, or $1.03 per
     share) for the write-down of certain Boston and New Jersey properties to be
     sold to fair market value and $10,372 ($6,223 after tax, or $.46 per share)
     for estimated sublease losses on underutilized New York office space.

(H)  In the third quarter of 1995, a subsidiary of the Company recorded a write-
     down of $6,500 in capitalized costs associated with purchased technology in
     a standardized, pre-certified design for nuclear power plants.  The Company
     had  originally  estimated that  this investment  which commenced  in 1993,
     would be  recoverable from  revenues generated  over a  three to  five-year


<PAGE>
Form 10-Q                                                                    12.
For the quarter ended September 30, 1996           Stone & Webster, Incorporated


                   Stone & Webster, Incorporated and Subsidiaries

               Notes to Consolidated Financial Statements (Unaudited)

          (All dollar amounts, except per share amounts, are in thousands)

     period beginning at the end of 1995.  Based on  a number of external events
     that occurred in  the third quarter, management  has determined that it was
     unlikely that any revenues  would be generated  from  the investment in the
     near term,  necessitating a revaluation  of the net realizable value of the
     investment.

(I)  During the nine months ended September 30, 1996,  nonqualified  options for
     15,000 shares of Common Stock were awarded to non-employee  directors under
     the 1995 Stock  Option  Plan at  exercise  prices  ranging  from  $32.75 to
     $34.25,  nonexercisable  for six months.  Nonqualified  options for 100,000
     shares  of  Common  Stock  were  awarded  under  the plan to a newly  hired
     President and Chief Executive Officer at an exercise price of $34.875,  and
     are exercisable  immediately.  Nonqualified options for 236,500 shares were
     issued to employees at prices ranging from $32.875 to $34.25,  of which 25%
     becomes  exercisable  on the first  anniversary of the date of grant and an
     additional  25%  becomes  exercisable  on  the  second,  third  and  fourth
     anniversaries of the date of grant.  During the nine months ended September
     30, 1996, options were exercised by non-employee Directors for an aggregate
     of 4,000  shares.  Additionally,  options  with  respect  to 17,000  shares
     terminated unexercised.

A summary of stock option transactions follows:

                =====================================================
                                                                 1996
                -----------------------------------------------------
                Outstanding January 1                         135,500
                    Options granted                           351,500
                    Options canceled                          (17,000)
                    Options exercised                          (4,000)
                -----------------------------------------------------
                Outstanding at September 30                   466,000
                =====================================================

     At September 30, 1996, options  for  116,000 shares  were  exercisable  and
     280,000 shares were available  for grant.  Per share  option  prices ranged
     from $30.25 to $36.50.

     Under the 1995 Stock  Plan,  non-employee  directors  of the  Company  will
     receive grants of Common Stock in payment of their annual  retainer and may
     elect to receive director meeting fees in Common Stock. The total number of
     shares to be issued  under the Stock  Plan may not exceed  100,000  shares.
     During the nine months ended September 30, 1996, 3,534 shares  were  issued
     to  non-employee  directors.  At September 30,  1996,  94,214  shares  were
     available for grant.

(J)  In July 1995, the Board of Directors of the Company  authorized an increase
     in the share  repurchase  program  from 1 million to 2.5 million  shares of
     Common Stock in open market  transactions at prevailing prices. The Company
     acquired  1,010,782 shares  in  the  nine  months ended September 30, 1996,
     bringing  total  purchases  to 2,128,549  shares  under this program. As of
     September 30, 1996,  the Company  had 12,858,668  shares  outstanding.  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.


<PAGE>
Form 10-Q                                                                    13.
For the quarter ended September 30, 1996           Stone & Webster, Incorporated

                  Stone & Webster, Incorporated and Subsidiaries

              Notes to Consolidated Financial Statements (Unaudited)

         (All dollar amounts, except per share amounts, are in thousands)

(K)  In the  third  quarter  of 1995,  a  settlement  was  reached  relating  to
     environmental   matters  in  which  a  charge  of  $2,500   was   incurred,
     representing the amount of the settlement,  net of insurance  recoveries of
     $1,500.  In another legal action taken to recover damages,  attorney's fees
     and other monetary relief from insurance carriers, a settlement was reached
     in which $16,000 was received shortly after the end of the third quarter of
     1995.  This  settlement,  after  reduction  for current and deferred  legal
     expenses of $8,780, was recognized as a gain of $7,220 in the third quarter
     of 1995.  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 payment of amounts,  if any, that
     would  have  a  material  adverse  effect  on  the  consolidated  financial
     statements.

(L)  Earnings per share are based on the weighted  average  number of common and
     common equivalent shares (stock options) outstanding during the period.

(M)  During  the  second  quarter of 1996,  substantially  all of the  Company's
     subsidiaries  outside the United  States and Canada  changed  their  fiscal
     year-end  from  November  30 to  December  31. The  consolidated  financial
     statements  for the three and nine-month  periods ended  September 30, 1996
     include  the  operations  of these  subsidiaries  for three and ten months,
     respectively.   This  change  did  not  have  a  material   effect  on  the
     consolidated financial statements.

(N)  These statements are unaudited,  and in the opinion of management,  include
     all adjustments, consisting of normal recurring adjustments necessary for a
     fair statement of the results for the interim periods. The year-end balance
     sheet data was derived  from  audited  financial  statements,  but does not
     include  all  disclosures   required  by  generally   accepted   accounting
     principles.  Reference  is made to the  Consolidated  Financial  Statements
     included in the Company's Annual Report to Shareholders.

     Interim results of operations are not necessarily indicative of the results
     for a full year.




<PAGE>
Form 10-Q                                                                    14.
For the quarter ended September 30, 1996           Stone & Webster, Incorporated

                  Stone & Webster, Incorporated and Subsidiaries
                      Management's Discussion and Analysis of
                   Financial Condition and Results of Operations
         (All dollar amounts, except per share amounts, are in thousands)

Results of Operations

In the third  quarter of 1996,  the  Company  recorded  restructuring  and other
charges of $28,516,  after tax and an extraordinary item, or $2.14 per share, in
connection  with a major  operational and financial  restructuring.  This charge
consists of the following:

     Write-down of real estate assets to be sold and  recognition of anticipated
     ---------------------------------------------------------------------------
     sublease losses on underutilized leased facilities.
     -------------------------------------------------- 
     The Company  recorded a charge of $30,509 before tax ($19,974 after tax, or
     $1.49 per share) to write down certain Boston and New Jersey  properties to
     fair market value and to provide for anticipated sublease losses in its New
     York office.  During 1996, the Company began a review of its organizational
     structure,  strategic  plan and asset base. The Company  concluded,  in the
     third quarter of 1996, that its corporate  headquarters in New York will be
     consolidated  with  the  Boston  headquarters  of the  Company's  principal
     operating subsidiary,  Stone & Webster Engineering Corporation, and certain
     of its New York office space will be offered for sublease. In addition, the
     Company intends to sell its 800,000 square foot building in Boston and more
     aggressively  market its 460,000  square foot building in Cherry Hill,  New
     Jersey. The Company also plans to restructure its ownership position in its
     other real estate  holdings in Boston.  While it is difficult to anticipate
     the date that  real  estate  will be sold,  the  Company  hopes to sell the
     Cherry Hill  property  within  eighteen  months.  Timing of the sale of the
     800,000 square foot Boston  building is dependent upon the Company's  final
     determination of space and location requirements. The total carrying amount
     of these  properties  was  $47,944 as of  September  30,  1996.  The charge
     consists  of  $20,137  ($13,751  after  tax,  or $1.03 per  share)  for the
     write-down of certain  Boston and New Jersey  properties to be sold to fair
     market  value  and  $10,372  ($6,223  after  tax,  or $.46 per  share)  for
     estimated sublease losses on underutilized New York office space.

     Recognizing  write-downs on several contracts and other operational issues.
     ---------------------------------------------------------------------------
     In the third  quarter of 1996,  the Company  recorded a charge to recognize
     several contract related and operational items. Among these were provisions
     for  resolution,  reached during the quarter,  of a contract scope dispute,
     damages resulting from contract  performance  delays,  and recognition of a
     judgment  awarded and anticipated  settlement  costs of several  employment
     disputes.  The total amount of this charge is $12,377  ($7,553 after tax or
     $.57 per share.)

     Liquidation of Auburn VPS  Partnership  assets and  cancellation of related
     ---------------------------------------------------------------------------
     debt.
     -----
     As previously reported,  the Auburn VPS Partnership,  which was 94.3% owned
     by Stone & Webster,  had been unable to meet its debt service  requirements
     since  the  end  of  the  first  quarter  of  1996,  resulting  in  ongoing
     discussions  with its  lenders  regarding  restructuring  its  debt.  In an
     agreement  reached  with  the  partnership's  lenders,  the  assets  of the
     partnership  were  transferred to the lenders in return for cancellation of
     the related  construction  debt.  The net impact of the agreement  with its
     lenders is a loss of $989 or $.08 per share,  which  includes an  operating
     loss of  $11,538  ($7,776  after tax or $.59 per share) to  write-down  the
     Auburn VPS plant to fair market value and an extraordinary  gain of $10,283
     ($6,787 after taxes of $3,496, or $.51 per share) for the extinguishment of
     the construction debt.



<PAGE>
Form 10-Q                                                                    15.
For the quarter ended September 30, 1996           Stone & Webster, Incorporated

                   Stone & Webster, Incorporated and Subsidiaries
                      Management's Discussion and Analysis of
                   Financial Condition and Results of Operations
         (All dollar amounts, except per share amounts, are in thousands)

Results of Operations (continued)

     All  restructuring  and other  charges  were  incurred in the  Engineering,
     Construction  and  Consulting  segment.  The effects  of these  charges are
     summarized below:
<TABLE>
<CAPTION>

                                                                         Contract
                                        Auburn VPS     Real Estate     Adjustments
                                        Partnership    Adjustments     and Other           Total
<S>                                     <C>            <C>              <C>               <C>  

Cost of Revenue                         $      -       $      -         $  (9,919)        $  (9,919)
Gross Profit (Loss)                            -              -            (9,919)           (9,919)
Selling, general and administrative
   expenses                               (11,538)       (30,509)          (2,458)          (44,505)
Operating (Loss)                          (11,538)       (30,509)         (12,377)          (54,424)
(Loss) before Extraordinary Item           (7,776)       (19,974)          (7,553)          (35,303)
Extraordinary Item -
   gain on extinguishment of debt           6,787             -                -              6,787
Net (Loss)                                   (989)       (19,974)          (7,553)          (28,516)
(Loss) per Share before
   Extraordinary Item                   $   (0.59)     $   (1.49)       $   (0.57)        $   (2.65)
(Loss) per Share including
   Extraordinary Item                   $   (0.08)     $   (1.49)       $   (0.57)        $   (2.14)
</TABLE>


For the third quarter ended  September 30, 1996,  Stone & Webster,  Incorporated
reported a net loss of $24,893  including the  extraordinary  item, or $1.86 per
share compared to net income of $4,984,  or $.35 per share,  for the same period
in 1995.  Excluding the restructuring and other charges,  net income was $3,623,
or $.28 per share,  and operating  income for the quarter was $5,156 compared to
operating income of $7,112 for the same period last year.  Revenue  increased by
$63,050 or 29 percent.

Stone & Webster reported a net loss for the first nine months of 1996 of $15,621
including the  extraordinary  item, or $1.17 per share compared to net income of
$17,634,  or $1.22  per  share,  for the same  period  in  1995.  Excluding  the
restructuring and other charges,  net income was $12,895,  or $.97 per share for
the first nine months,  and operating income was $22,839,  compared to operating
income of $26,583 for the same period last year.

Components  of earnings per share for the three and nine months ended  September
30, 1996 and 1995 were:

                                      Three Months Ended     Nine Months Ended
                                         September 30,          September 30, 
                                      ----------------        -----------------
                                        1996      1995          1996       1995
                                      ------     -----         -----      -----
Operations                             $0.20     $0.18         $1.01      $0.76
Pension related items                   0.21      0.17          0.48       0.46
Auburn VPS Partnership operations      (0.13)       --         (0.52)        --
Earnings per share before             ------     -----        ------      -----
  restructuring and other charges       0.28      0.35          0.97       1.22
Restructuring and other charges (1)    (2.14)       --         (2.14)        --
                                       -----     -----        ------      -----
Earnings per share                    ($1.86)    $0.35        ($1.17)     $1.22
                                      ======     =====        ======      =====

(1) Includes  extraordinary  gain of $.51 due to the  extinguishment  of debt in
connection  with the  transfer  of the  Auburn  VPS  assets to the  construction
lenders.

<PAGE>

Form 10-Q                                                                    16.
For the quarter ended September 30, 1996           Stone & Webster, Incorporated

                  Stone & Webster, Incorporated and Subsidiaries
                      Management's Discussion and Analysis of
                   Financial Condition and Results of Operations
         (All dollar amounts, except per share amounts, are in thousands)

Results of Operations (continued)



ENGINEERING, CONSTRUCTION AND CONSULTING

Stone & Webster's  Engineering,  Construction  and Consulting  segment  reported
revenue  of  $275,999  in the third  quarter  of 1996,  up 31  percent  from the
$210,736  for the same period last year.  The  industrial  and process  business
units continue to provide most of the revenue growth.  Operating income for this
segment  was  $8,065,   before  Auburn  VPS  operating   losses  of  $2,027  and
restructuring  and other  charges of  $54,424,  compared  to $6,886 in the third
quarter of 1995.

For the nine month period, the Engineering,  Construction and Consulting segment
had revenue of $840,748,  an increase of 30 percent  from  $647,387 for the same
period last year. Operating income for the first nine months was $33,619, before
Auburn VPS Partnership  operating losses of $7,627 and  restructuring  and other
charges of $54,424, compared to $27,928 for the first nine months of 1995.


Orders and backlog for the three and nine month periods ended September 30, 1996
and 1995 were:
<TABLE>
<CAPTION>

                          Three Months Ended                 Nine Months Ended
                           September 30,                       September 30,   
                    ------------------------           ------------------------
                                              %(Dec.)
                          1996         1995   %Incr.        1996          1995    %Incr.
                    ----------   ----------   -------  ---------     ---------    ------
<S>                 <C>          <C>           <C>     <C>           <C>             <C>

Beginning backlog   $2,799,200   $1,664,800       -    $1,917,000    $1,541,800       -
Orders                 132,900      234,200    (43)%    1,579,800       793,900      99%
Revenue               (276,000)    (210,700)    31%      (840,700)     (647,400)     30%
                    ----------   ----------            ----------    ---------- 
Ending backlog      $2,656,100   $1,688,300     57%    $2,656,100    $1,688,300      57%
                    ==========   ==========            ==========    ==========
</TABLE>

Orders are the total of new orders, scope changes and cancellations.

Through the first nine months of 1996,  the 99% increase in orders has reflected
continuing strength in the Company's key markets. This increase includes several
major contract awards, including a contract for the engineering, procurement and
construction  of  an  olefins  complex  in  Indonesia  valued  at  approximately
$475,000.  In addition,  Stone and Webster has been named the general contractor
for the Malden  Mills  textile  plant,  and was awarded a $300,000  contract for
military site  environmental  restoration  for the U.S. Army Corps of Engineers.
The Process, Government and Industrial business units showed increases in orders
of 238%, 200% and 195%, respectively,  for the nine month period ended September
30,  1996,  as  compared  to the same  period in 1995.  Orders  during the third
quarter  of 1996 were  impacted  by the  cancellation  of an $80  million  power
contract originally recorded in 1995.

COLD STORAGE AND RELATED ACTIVITIES

The Cold Storage segment reported  operating income of $2,092 and $4,544 for the
third quarter and nine months of 1996 compared to $1,825 and $6,002 for the same
period in 1995.  Revenue increased by 17 percent in the third quarter due to the
opening  of the 3.7  million  cubic  foot cold  storage  facility  expansion  at
Rockmart, Georgia.


<PAGE>

Form 10-Q                                                                    17.
For the quarter ended September 30, 1996           Stone & Webster, Incorporated

                  Stone & Webster, Incorporated and Subsidiaries
                      Management's Discussion and Analysis of
                   Financial Condition and Results of Operations
         (All dollar amounts, except per share amounts, are in thousands)

Results of Operations (continued)

OTHER

The Other segment  consisted of the Oil and Gas  Production  Operations  and the
Real  Estate  Development  business,  both of which were  divested in the fourth
quarter of 1995.  General  corporate  expenses  increased  by $820 for the third
quarter of 1996  compared to the same period in 1995 due primarily to consulting
expenses incurred in 1996.  General corporate expenses have been reduced by $557
in the first  nine  months of 1996  compared  to the same  period in 1995 due to
staff reductions  resulting from an incentive  retirement plan which took effect
in the first quarter of 1996.

Other  expenses  increased in 1996 due primarily to  construction  loan interest
expense of $999 and $4,047 for the Auburn  wastepaper  recycling project for the
three and nine months ended September 30, 1996, respectively.  Construction loan
interest  costs were  capitalized  in 1995 since the  facility  was still  under
construction.

As discussed in the 1995 Annual Report to Shareholders,  the Company has changed
the reporting of pension  related items.  In prior years,  foreign pension plans
were not separately disclosed due to materiality considerations. The Company has
changed the  presentation of pension related items to include the foreign plans.
The following table presents total pension related items and shows,  separately,
the effect of net  pension  credit on U.S.  pension  plans and  foreign  pension
expense:
<TABLE>
<CAPTION>

                                         Three Months Ended       Nine Months Ended
                                               September 30,          September 30, 
                                         --------------------     --------------------    

Pension Related Items                       1996         1995        1996         1995
   (Income)/Expense                         ----         ----        ----         ----
<S>                                      <C>         <C>         <C>          <C>   

Net pension credit on qualified U.S.
   plans (1)                             $(4,628)    $(3,955)    $(10,988)    $(11,344)
Foreign pension expense (2)                  166         177          582          458
                                         ---------------------------------------------
Total pension related items              $(4,462)    $(3,778)    $(10,406)    $(10,886)
                                         ---------------------------------------------
After-tax total pension related items    $(2,729)    $(2,311)    $ (6,364)    $ (6,658)
                                         ---------------------------------------------
Total pension related items per share    $ (0.21)    $ (0.17)    $  (0.48)    $  (0.46)
                                         =============================================
<FN>

(1) SFAS No. 87 income on qualified U.S. plans
(2) SFAS No. 87 expense on qualified foreign plans


</FN>
</TABLE>




<PAGE>
Form 10-Q                                                                    18.
For the quarter ended September 30, 1996           Stone & Webster, Incorporated

               Stone & Webster, Incorporated and Subsidiaries
                   Management's Discussion and Analysis of
                Financial Condition and Results of Operations
      (All dollar amounts, except per share amounts, are in thousands)

Results of Operations (continued)


The pension credit results from a plan that is funded in excess of the projected
benefit obligation. The plan is overfunded primarily due to favorable investment
performance.

The income tax  provision  resulted in effective  tax rates of 37 percent and 36
percent  for the third  quarter  and nine  months of 1996 and 38 percent  and 36
percent for the same periods in 1995.  The effective  rates for the three months
ended  September 30, 1996 and 1995 were higher than the U.S.  statutory tax rate
primarily  due to state  income taxes as well as foreign  taxes,  based on gross
receipts, which are applicable to certain international projects.

Financial Condition

Cash and cash  equivalents,  as shown  in the  Consolidated  Statements  of Cash
Flows,  decreased by $34,633 during the first nine months of 1996. Net cash used
by operating  activities of $10,416  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) of $34,165 (which includes the effect of the restructuring
and other charges and the transfer of the Auburn VPS  Partnership  assets to the
construction lenders) resulting primarily from increased business activity.  Net
cash  provided by investing  activities of $32,562  reflects  maturities of U.S.
Government  securities  offset by purchases of equipment  used in the  Company's
operations.  Net cash used by  financing  activities  of  $56,779  reflects  the
payment of dividends,  repayment of long-term debt and purchases of common stock
under the Company's  ongoing share repurchase  program as explained in Note J to
the consolidated  financial  statements.  Total debt of $37,118 at September 30,
1996 compares to $103,821 at year-end  1995. The  significant  decrease in total
debt is due to the extinguishment of the $48,750 of Auburn VPS Partnership debt.

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  which total $33,608,  of which
$23,608 was available at September 30, 1996.