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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended January 31, 1996 ("Fiscal 1995") 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 0-8493
STEWART & STEVENSON SERVICES, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1051605
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2707 North Loop West, Houston, Texas 77008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 868-7700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Without Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting securities held by nonaffiliates
as of February 29, 1996:
$719,808,723
Number of shares outstanding of each of the issuer's classes of common
stock, as of February 29, 1996:
Common Stock, Without Par Value 33,050,088 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K
________ _________________
Proxy Statement for the 1996 Annual Meeting of Shareholders Part III
PART I
Item 1. Business.
Stewart & Stevenson Services, Inc. (together with its wholly-owned
subsidiaries, the "Company" or "Stewart & Stevenson") was founded in
Houston, Texas in 1902 and was incorporated under the laws of the State of
Texas in 1947. Since its beginning, the Company has been primarily engaged
in custom fabrication enterprises. Stewart & Stevenson consists of three
business segments: the Engineered Power Systems segment, the Distribution
segment and the Tactical Vehicle Systems segment.
The Engineered Power Systems segment designs, engineers, services and
markets engine-driven equipment principally utilizing diesel or gas turbine
engines supplied by independent manufacturers. In addition, this segment
offers operation and maintenance contracts for large gas turbine projects
and petroleum production facilities. The Company's products include gas
turbine generator sets for primary electrical power and diesel generator
sets for primary, emergency or stand-by electrical power sources. Stewart
& Stevenson is a leading packager of aeroderivative gas turbine engines for
electrical power generation. A majority of the gas turbine engines used by
the Company are manufactured by General Electric Corporation. The
Company's engineered power systems and operations and maintenance services
are marketed worldwide, particularly in developing countries where there
has been growth in demand for electrical power.
The Distribution segment markets industrial equipment and related parts
manufactured by others and provides in-shop and on-site repair services for
such products. This segment began operations in 1938 and currently markets
Detroit Diesel engines, General Motors Electro-Motive diesel engines,
Allison automatic transmissions, Waukesha natural gas engines, Deutz diesel
engines, Hyster material handling equipment, Thermo King transport
refrigeration units and John Deere construction, utility and forestry
equipment. The Distribution segment markets primarily in the Southern and
Western United States, as well as in Mexico, Venezuela and Central America.
The Tactical Vehicle Systems segment has received contracts with the United
States Department of Defense to manufacture the U.S. Army's next generation
of medium tactical vehicles (the "Family of Medium Tactical Vehicles" or
"FMTV"). The FMTV contracts call for the production of approximately 11,000
newly-designed 2 1/2-ton and 5-ton trucks in several configurations,
including troop carriers, wreckers, cargo trucks, vans and dump trucks.
All variants of the FMTV incorporate a high level of common parts.
Manufacturing of the FMTV is being performed by the Company's Tactical
Vehicle Systems segment at a facility located near Houston, Texas. The
Company is also offering the FMTV for sale to other branches of the U.S.
Armed Forces and to the armed forces of foreign countries.
The Company's fiscal year begins on February 1 of the year stated and ends
on January 31 of the following year. For example, "Fiscal 1995" commenced
on February 1, 1995 and ended on January 31, 1996. Identifiable assets at
the close of Fiscal 1995, 1994 and 1993 and net sales, operating profit and
export sales for such fiscal years for the Company's business segments and
sales to customers which exceed 10% of consolidated sales are presented
under "Industry Segment Data" in the notes to the Consolidated Financial
Statements in Part II.
ENGINEERED POWER SYSTEMS SEGMENT
Stewart & Stevenson designs, engineers and markets engine-driven equipment
of various descriptions utilizing diesel or gas turbine engines
manufactured by independent suppliers and provides operation and
maintenance services for power generation and petroleum facilities. As a
custom packager of engine-driven equipment, the Company designs its
products to meet the specific needs of its customers in a variety of
applications. Both equipment and services are sold under the "Stewart &
Stevenson" name throughout the world.
Operations of the Engineered Power Systems segment accounted for
approximately 50.9%, 56.5% and 61.4%, respectively, of consolidated sales
during Fiscal 1995, 1994 and 1993.
Gas Turbine Driven Equipment. The Company packages gas turbine products
based on turbine engines purchased from General Electric Corporation
("GE"), European Gas Turbines ("EGT") and the Garrett Corporation
("Garrett"). The table below lists the capacity of generator sets based on
each model of gas turbine engine regularly packaged by the Company.
Generator Set
Capacity
Engine Model in Megawatts
____________ ____________
GE LM6000 . . . . . . . 40.30 Mw
GE LM5000 STIG . . . . 51.60 Mw
GE LM5000 . . . . . . . 34.40 Mw
GE LM2500+ . . . . . . 27.60 Mw
GE LM2500 STIG . . . . 26.50 Mw
GE LM2500 . . . . . . . 22.20 Mw
GE LM1600 . . . . . . . 13.40 Mw
EGT TEMPEST . . . . . . 7.49 Mw
EGT TORNADO . . . . . 6.25 Mw
EGT TYPHOON . . . . . . 4.91 Mw
GARRETT IM831 . . . . . 0.50 Mw
Gas turbine generator sets have a lower capital cost, higher efficiency and
shorter lead times and are more environmentally acceptable than many
alternative technologies. In addition, gas turbine generator sets may be
used for the simultaneous production of electrical power and useful thermal
energy ("cogeneration"). The gas turbine generator sets packaged by the
Company in the 20 Mw to 52 Mw size incorporate GE gas turbine engines and
are marketed primarily to independent power producers for prime power and
cogeneration applications and to electrical utilities for base load
capacity or additional capacity during peak demand periods. Generators in
the 0.5 Mw to 20 Mw range are marketed to hospitals, hotels, office
complexes and industrial facilities, both for prime power and cogeneration
applications. Stewart & Stevenson's package design and full-load testing
prior to shipment permit the complete installation and start-up of the
Company's gas turbine generators in as little as 30 days after shipment and
decrease both the time and expense required to build a complete electrical
generation facility.
The Company assembles turbine-driven mechanical drive packages, including
gas compressor sets, powered by GE and EGT gas turbine engines. The table
below lists the output of each model of gas turbine engine offered by the
Company for mechanical drive applications.
Engine Model Output
____________ __________
GE LM6000. . . . . . . . . . 55,545 Shp
GE LM2500+ . . . . . . . . . 37,000 Shp
GE LM2500. . . . . . . . . . 31,235 Shp
GE LM1600+ . . . . . . . . . 18,745 Shp
EGT TORNADO. . . . . . . . . 8,900 Shp
EGT TYPHOON. . . . . . . . . 6,500 Shp
Like the Company's turbine-driven generator sets, gas compression packages
are designed to be easily and quickly installed at the customer's location
and can be full-load tested at the Company's facility before shipment. Gas
compressor sets are marketed to gas production and pipeline operators for
both offshore and onshore installation.
Stewart & Stevenson believes that the international market provides
significant sale and lease opportunities for the Company's gas turbine
products. The market for electrical power in developing countries is
growing, and the Company's gas turbine generator sets are well suited for
the requirements of developing countries; providing quick delivery, low
initial capital costs and ease of installation in areas without significant
existing electrical power infrastructure.
A majority of the Company's gas turbine sales are derived from packaging
gas turbine engines manufactured by GE and EGT. The Company believes that
its relationship with these key suppliers is good and that its relationship
with GE and EGT will continue. Any interruption of these relationships,
however, would adversely affect the Company.
Sales of gas turbine products accounted for approximately 30.5%, 40.1% and
42.4%, respectively, of consolidated sales in Fiscal 1995, 1994 and 1993.
Gas Turbine Product Support Services. Stewart & Stevenson enters into
operation and maintenance contracts under which the Company provides all
labor, supervision and expertise necessary to operate, maintain and repair
power generation, gas compression and petroleum production, processing and
transportation facilities. Operation and maintenance contracts may have a
term of up to 10 years and provide for a fixed fee out of which the Company
must pay all costs incurred under the contract or for the payment of a
fixed fee plus reimbursement of the costs incurred by the Company. The
Company has provided operation and maintenance services for power
generation facilities since 1986. Operation and maintenance services are
provided on a worldwide basis.
In addition, Stewart & Stevenson offers parts and repair services for
turbine-driven equipment and is authorized to perform complete overhaul
services on GE, EGT and Allison gas turbine engines. Other turbine
products manufactured by the Company include an exhaust flow enhancement
device, manufactured under license from Norlock Technologies, Inc. This
new product improves power output and fuel efficiency and reduces exhaust
gas turbulence.
Sales of Gas Turbine Product Support Services contributed approximately
12.6%, 7.6% and 6.5%, respectively of consolidated sales in Fiscal 1995,
Fiscal 1994 and Fiscal 1993.
Other Power Systems. Stewart & Stevenson is a leading manufacturer of well
stimulation equipment and other diesel equipment for the oilfield service
industries. These products are currently marketed primarily in the
international market. Most of the Company's well stimulation equipment is
manufactured according to the Company's proprietary designs and
incorporates advanced microprocessor-based systems to automatically control
the pressures, density and other characteristics of the high pressure
fluids used to fracture oil-bearing formations. Other oilfield equipment
includes coil-tubing equipment, blowout preventors and high pressure valves
for the drilling and workover industry.
Stewart & Stevenson also manufactures a complete line of aircraft ground
support equipment, including gate tractors, air-start units, ground power
equipment and air conditioning systems.
Sales of other power systems and services accounted for 7.8%, 8.8% and
12.5%, respectively, of consolidated sales in Fiscal 1995, 1994 and 1993.
DISTRIBUTION SEGMENT
Distribution Operations: Stewart & Stevenson markets various industrial
equipment, components, replacement parts, accessories and other material
supplied by independent manufacturers and provides in-shop and on-site
repair services for diesel-driven equipment. The following table contains
the name of each manufacturer with whom the Company presently maintains a
distribution contract, a description of the products and territories
covered thereby and the expiration date thereof.
Expiration
Manufacturer Products Territories Date
____________ ________ ___________ __________
Detroit Diesel Corporation Heavy Duty High Speed Texas, Colorado, New 1998
("Detroit Diesel") Diesel Engines Mexico, Wyoming, Nebraska,
Louisiana, Mississippi,
Alabama and Venezuela
Electro-Motive Division of Heavy Duty Medium Speed Texas, Colorado, New 1998
General Motors Corporation Diesel Engines Mexico, Nebraska, Oklahoma,
("EMD") Arkansas, Louisiana, Tennessee,
Mississippi, Alabama, Mexico,
Central America and most of
South America
Allison Transmission On- and Off-Highway Texas, Colorado, New 1997
Division of General Automatic Transmissions Mexico, Wyoming, Nebraska,
Motors Corporation Power Shift Transmissions Louisiana, Mississippi,
and Torque Converters Alabama and Venezuela
Hyster Company Material Handling Equipment Texas *
John Deere Industrial Construction, Utility and Southeast Texas and *
Equipment Company Forestry Equipment Wyoming
Thermo King Corporation Transport Refrigeration Southeast Texas and 1996
Equipment Southern Louisiana
Waukesha Engine Division of Natural Gas Industrial Colorado, Montana, 1997
Dresser Industries, Inc. Engines North Dakota, Oklahoma,
Wyoming, New Mexico,
Utah, Oregon, Hawaii,
Kansas, Arizona, California,
Washington and Nevada
KHD - Deutz Corporation Diesel Engines Colorado, Wyoming, Arizona, 1997
New Mexico, Washington and
Alaska
________________________
*No expiration date. Agreements may be terminated by written notice of
termination.
Distribution agreements generally require the Company to purchase and stock
the products and repair parts covered thereby for resale to end users,
original equipment manufacturers or independent dealers within the
franchise area of distribution. Such agreements also require the Company
to provide after-sale service within its designated territory and may
contain provisions prohibiting the sale of competitive products within the
franchise territory. Distribution operations are conducted at branch
facilities located in major cities within the Company's franchised area of
distribution. New products are marketed primarily under the trademarks and
the trade names of the original manufacturer.
The Company's principal distribution agreements are subject to early
termination by the suppliers for a variety of causes, including a change in
control or a change in the principal management of the Company. Although
no assurance can be given that such distribution agreements will be renewed
beyond their expiration dates, they have been renewed regularly.
Manufacturing Operations. The Distribution segment also manufactures and
sells generator sets and mechanical drive packages using reciprocating
engines fueled with diesel, natural gas, or both. Generator sets range in
size from 20 kw to 12,700 kw and are based on engines supplied by companies
with whom the Distribution segment has a distributor or packaging
agreement. The Company undertakes the selection of the appropriate engine
and generator based on the intended application and fabricates the
completed package according to a design developed specifically to fit
the needs of the customer. Reciprocating engine driven generator sets are
marketed by the Company as both stand-by power sources for emergency use
and as prime power sources to supply electricity at remote locations.
In addition to reciprocating engine-driven power systems, the Distribution
segment manufactures and sells snow removal equipment, wheel chair lifts
and rail car movers. Some products manufactured by the Distribution
segment are based upon proprietary designs owned by the Company and others
are based upon designs owned by others and licensed to the Company.
Operations of the Distribution segment accounted for approximately 33.7%,
30.4% and 31.8%, respectively, of consolidated sales during Fiscal 1995,
1994 and 1993. The Distribution segment's marketing units regularly sell
certain products manufactured by units of the Engineered Power Systems
segment and also sell to military and airline users. In both cases, such
sales are included in the Distribution segment.
TACTICAL VEHICLE SYSTEMS SEGMENT
In October 1991, the United States Department of Defense selected Stewart &
Stevenson to manufacture the next generation of medium tactical vehicles
(the "Family of Medium Tactical Vehicles" or "FMTV") for the U.S. Army and
awarded the Company contracts, valued at $1.2 billion, for the production
of 2 1/2-ton and 5-ton trucks, spare parts and logistical support. The
Family of Medium Tactical Vehicles is the U.S. Army's next generation of
basic transportation vehicle for personnel and materials. As such, the
FMTV is produced in several variants to carry troops and cargo, including
cargo beds, vans, troop carriers, wreckers, dump trucks and tractors. In
addition, several of the vehicles are specially configured for airdrop
operation. Although more than ten configurations of the FMTV are being
produced, a high degree of common components is incorporated in the Stewart
& Stevenson design.
The Company also sells the FMTV to other government contractors as a
platform for installation weapons systems and other equipment which is then
resold to the Armed Forces. Stewart & Stevenson believes that there will
be opportunities to sell additional vehicles to the U.S. Army, to other
branches of the U.S. Armed Forces and to the armed forces of foreign
countries. The FMTV contracts allow for such sales, and the Company's
facility has capacity to produce vehicles for those additional sales.
Operations of the Tactical Vehicle Systems segment accounted for
approximately 15.3%, 13.0%, and 6.7%, respectively, of consolidated sales
during Fiscal 1995, 1994 and 1993.
COMPETITION
The Company encounters strong competition in all segments of its business.
Competition involves pricing, quality, availability, the range of products
and services and other factors. Some of the Company's competitors have
greater financial resources than Stewart & Stevenson. The Company believes
that its reputation for quality engineering and after-sales service, and
single-source responsibility, are important to its market position.
The Engineered Power Systems segment competes with various entities,
including certain suppliers of major components, for sale of its products.
Manufacturers of gas turbine generator sets in the 20-52 Mw size include
General Electric Corporation, Ruston Gas Turbines Ltd., Seimens,
Westinghouse and ABB Energy Services, Inc., a subsidiary of Asea Brown
Boveri. Competition in the market for the other products manufactured and
services provided by the Engineered Power Systems segment is highly
diversified with no single competitor participating in all of the markets
of the Company.
The Distribution segment competes with distributors for other manufacturers
in the sale of original equipment, with the manufacturers and distributors
of non-original equipment parts for the sale of spare parts and with
independent repair shops for in-shop and on-site repair services.
The Tactical Vehicle Systems segment competes with other domestic companies
for incremental sales to the U.S. Armed Forces. Both domestic and foreign
suppliers compete for the sale of vehicles to foreign governments. The
Company's foreign competitors include Daimler-Benz, Steyr, and other
vehicle manufacturers that have greater international recognition as
vehicle manufacturers.
INTERNATIONAL OPERATIONS
International sales are subject to the risks of international political and
economic changes, such as changes in foreign governmental policies,
currency exchange rates and inflation. Generally, the Company accepts
payments only in United States Dollars and makes most sales to customers
outside the United States against letters of credit drawn on established
international banks, thereby limiting the Company's exposure to the effects
of exchange rate fluctuations and customer credit risks. In the limited
circumstances in which the Company has entered into contracts in foreign
currencies, it has hedged its exposure to fluctuations in such currencies.
The profit margin on export sales is not materially different from that on
domestic sales of the same or similar products with the same or similar
delivery requirements.
The performance of operation and maintenance contracts in some countries
could be disrupted by political unrest, terrorist activity or government
action. The Company believes that any such disruption would be temporary.
UNFILLED ORDERS
Stewart & Stevenson's unfilled orders consist of written purchase orders,
letters of intent and oral commitments. These unfilled orders are
generally subject to cancellation or modification due to customer
relationships or other conditions. Purchase options are not included in
unfilled orders until exercised. Unfilled orders at the close of Fiscal
1995 and Fiscal 1994 were as follows:
Estimated percentage
to be recognized in Fiscal Fiscal
Fiscal 1996 1995 1994
____________________ ______ ______
(Dollars in millions)
Engineered Power Systems
Equipment 67.9% $ 208.9 $ 416.0
Operations and Maintenance 22.2% 321.8 311.6
________ ________
530.7 727.6
Distribution 100.0% 50.9 40.0
Tactical Vehicle Systems 30.8% 862.7 1,017.8
________ ________
Total 36.7% $1,444.3 $1,785.4
======== ========
/TABLE
Although no assurance can be given, the Company expects sales of the
Engineered Power Systems segment to continue to be weighted in favor of
turbine-driven equipment based on the number of unfilled orders for these
units, the number of proposals that are presently outstanding and the
current worldwide need for additional electrical generating capacity.
Unfilled orders of the Tactical Vehicle Systems segment consists
principally of the contracts awarded in October 1991 by the United States
Department of the Army to manufacture medium tactical vehicles, and options
under the FMTV contract that have been exercised by the U.S. Army to
purchase additional vehicles for the National Guard.
EMPLOYEES
At the end of Fiscal 1995, the Company employed approximately 4,511
persons. The Company considers its employee relations to be satisfactory.
Item 2. Properties.
The Company maintains its corporate and executive offices at 2707 North
Loop West, Houston, Texas. The corporate office, which includes the
executive offices, the national sales offices for the Engineered Power
Systems segment and administrative offices for the Distribution segment,
occupies about 109,000 square feet of space leased from a limited
partnership in which the Company owns an 80% limited partnership interest.
Stewart & Stevenson's Engineered Power Systems segment is headquartered in
Houston, where the Company owns approximately 919,000 square feet and
leases approximately 41,000 square feet of space at seven locations devoted
to manufacturing, warehousing and administration. The Company leases gas
turbine operations and maintenance facilities in Long Beach, California,
and Anchorage, Alaska each totaling 5,000 square feet and maintains a sales
office in Alexandria, Virginia and Fort Lauderdale, Florida. The Company
also owns gas turbine parts, service, operations and maintenance facilities
in Syracuse, New York (15,000 square feet) and Bakersfield, California
(14,000 square feet) and a high pressure valve manufacturing facility in
Jennings, Louisiana (89,000 square feet).
Activities of the Distribution segment are coordinated from Houston, where
the Company owns 293,000 square feet of space at three locations devoted to
equipment and parts sales and service. To service its distribution
territory (See "Item 1. Business -- Distribution Segment"), Stewart &
Stevenson maintains Company-operated facilities occupying 607,000 square
feet of owned space and 340,000 square feet of leased space in 25 cities in
Texas, Louisiana, Colorado, New Mexico, Wyoming, Utah, North Dakota,
Kansas, Washington and California.
The Tactical Vehicle Systems segment is located in a 500,000 square foot
Company-owned facility near Houston, Texas. The Tactical Vehicle Systems
segment also leases 88,000 square feet of warehousing facilities in Houston
and Lubbock, Texas.
The Company considers all property owned or leased by it to be well
maintained, adequately insured and suitable for its purposes.
Item 3. Legal Proceedings.
The Company is a defendant in a federal criminal matter and certain related
civil ligation arising from a 1987 subcontract to supply diesel generators
to the Kingdom of Saudi Arabia. See Note 5 to the Consolidated Financial
Statements which is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock is traded on the NASDAQ Stock Market under the
symbol: SSSS. There were 822 shareholders of record as of February 29,
1996. The following table sets forth the high and low sales prices
relating to the Company's Common Stock and the dividends declared by the
Company in each quarterly period within the last two fiscal years.
TABLE
Fiscal Fiscal
1995 1994
_______________________________ ______________________________
High Low Dividend High Low Dividend
______ _____ ________ ______ _____ ________
First Quarter $40 1/2 $28 3/4 $0.07 $53 3/4 $41 1/4 $0.06
Second Quarter 41 1/4 32 3/4 0.08 45 3/4 38 1/4 0.07
Third Quarter 38 3/4 21 1/2 0.08 40 3/4 33 3/4 0.07
Fourth Quarter 26 1/2 21 7/8 0.08 38 3/4 28 0.07
Item 6. Selected Financial Data.
The Selected Financial Data set forth below should be read in conjunction
with the accompanying Consolidated Financial Statements and notes thereto,
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Stewart & Stevenson Services, Inc.
CONSOLIDATED FINANCIAL REVIEW
_________________________________________________________________________________________________
(Dollars in thousands, except
per share data) Fiscal Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1992 1991
_________________________________________________________________________________________________
Financial Data:
Sales $1,233,981 $1,138,336 $981,892 $812,526 $686,363
Earnings before income taxes
and accounting change (a) 91,908 102,852 85,301 64,376 52,259
Earnings before accounting change (a) 61,803 67,558 56,780 43,958 35,703
Net earnings (a) 61,803 67,558 56,780 34,658 35,703
Total assets 1,040,583 875,616 692,624 573,348 477,858
Short-Term Debt (including current
portion of Long-Term Debt) 66,100 43,344 7,219 3,252 4,582
Long-Term Debt 210,800 116,900 68,000 44,451 27,939
Per Share Data:
Earnings before accounting change (a) 1.87 2.05 1.73 1.35 1.18
Net earnings (a) 1.87 2.05 1.73 1.06 1.18
Cash dividends declared 0.31 0.27 0.23 0.19 0.15
(a) The Company adopted Statement of Financial Accounting Standard No. 106
effective February 1, 1992, resulting in a cumulative charge to Fiscal 1992
earnings of $9,300, or $0.29 per share, after a deferred tax benefit of
$4,790.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis, as well as the accompanying
Consolidated Financial Statements and related footnotes, will aid in
understanding the Company's results of operations as well as its financial
position, cash flows, indebtedness and other key financial information.
SUMMARY
The following table sets forth for the periods indicated (i) percentages
which certain items reflected in the Company's Consolidated Statements of
Earnings bear to consolidated sales of the Company and (ii) the percentage
increase (decrease) of such items as compared to the indicated prior
period:
TABLE
Relationship to
Consolidated Sales Growth Rate
______________________________________________________________________________________________________
Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1994-1995 1993-1994
======================================================================================================
Sales 100.0% 100.0% 100.0% 8.4% 15.9%
Cost of sales 84.4 84.0 84.1 8.9 15.7
______________________________
Gross profit 15.6 16.0 15.9 5.8 17.0
Selling and administrative expenses 7.5 6.6 7.0 22.0 10.1
Interest expense 1.1 .6 .3 102.2 107.2
Other income, net (.4) (.2) (.1) 85.0 161.4
______________________________
8.2 7.0 7.2 26.9 12.6
______________________________
Earnings before income taxes 7.4 9.0 8.7 (10.6) 20.6
Income taxes 2.5 3.0 2.9 (11.2) 23.3
______________________________
Earnings of consolidated
companies 4.9 6.0 5.8 (10.4) 19.3
Equity in net earnings (loss) of
unconsolidated affiliates .1 (.1) .0 172.4 N/A
______________________________
Net Earnings 5.0% 5.9% 5.8% (8.5) 19.0
==============================
RESULTS OF OPERATIONS
Business Segment Highlights
____________________________________________________________________________________________________________________
(Dollars in thousands)
Sales Growth Rate
________________________________________________________________________________________
Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1994-1995 1993-1994
____________________________________________________________________________________________________________________
Engineered Power Systems $627,702 51% $642,804 57% $602,853 61% -2% +7%
Distribution 416,229 34 346,564 30 311,983 32 +20 +11
Tactical Vehicle Systems 189,009 15 147,920 13 65,894 7 +28 +124
Corporate Services 1,041 - 1,048 - 1,162 - -1 -10
_________________________________________________________
$1,233,981 100% $1,138,336 100% $981,892 100% +8 +16
=========================================================
Operating Profit Growth Rate
________________________________________________________________________________________
Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1994-1995 1993-1994
____________________________________________________________________________________________________________________
Engineered Power Systems $73,449 65% $82,395 71% $70,292 75% -11% +17%
Distribution 30,130 27 24,015 21 20,309 22 +25 +18
Tactical Vehicle Systems 9,703 8 8,782 8 2,886 3 +10 +204
Corporate Services 292 - 376 - 552 - -22 -32
_______________________________________________________
$113,574 100% $115,568 100% $94,039 100% -2 +23
=======================================================
Operating Profit as a Percentage of Sales
______________________________________________
Fiscal Fiscal Fiscal
1995 1994 1993
_____________________________________________________________________________
Engineered Power Systems 11.7% 12.8% 11.7%
Distribution 7.2 6.9 6.5
Tactical Vehicle Systems 5.1 5.9 4.4
Corporate Services 28.1 35.9 47.5
Consolidated 9.2 10.2 9.6
Fiscal 1995 vs. Fiscal 1994
Sales for Fiscal 1995 increased 8% to $1.234 billion compared to sales of
$1.138 billion for Fiscal 1994. This increase represents a new sales
record for the ninth consecutive year. The Company's international sales
increased 27% to $382 million in Fiscal 1995 as compared to $301 million in
Fiscal 1994, representing 30% and 26% of consolidated sales for Fiscal 1995
and 1994, respectively.
The Distribution segment was the primary contributor to the Company's sales
growth with an increase in sales of $70 million (20%) in Fiscal 1995
compared to Fiscal 1994. This increase is primarily attributable to the
acquisition of substantially all of the assets of Power Application & Mfg.,
Co. ("PAMCO"), a Waukesha distributor for the Western United States, during
the fourth quarter of Fiscal 1994. The distribution of product lines
acquired from PAMCO contributed sales of $49 million in Fiscal 1995
compared to $5 million in Fiscal 1994. Excluding sales relating to the
PAMCO acquisition, the Distribution segment's sales increased 7% in Fiscal
1995 over Fiscal 1994 reflecting the continued economic growth in the
territories serviced by the Company.
The Tactical Vehicle Systems segment sales increased $41 million (28%)
during Fiscal 1995 as compared to Fiscal 1994. The increase in TVS sales
reflects the increase in truck production under the "Family of Medium
Tactical Vehicles" (FMTV) contract to 1,560 trucks in Fiscal 1995 as
compared to 1,130 trucks in Fiscal 1994. Although sales increased for the
current fiscal year, the increase was less than anticipated. Sales for the
year were adversely affected by the deployment of certain U.S. Army
personnel to Haiti in Fiscal 1994 which delayed the completion of testing
and certification of the FMTV program for high volume production until the
fourth quarter of Fiscal 1995.
The Engineered Power Systems segment of the Company experienced a 2%
decreased in sales in Fiscal 1995. This decline in EPS sales was primarily
within the Gas Turbine equipment product lines which experienced sharply
reduced domestic activity, reflecting the U.S. utility market's response to
deregulation proposals, and delays in contract awards in the international
markets. Gas Turbine product support sales, consisting of the servicing of
customers' equipment and the long-term contracting for operation and
maintenance of power plants, continued to grow with Fiscal 1995 sales
increasing more that 10% above Fiscal 1994.
Operating profit decreased by approximately 2% during Fiscal 1995 to $114
million as compared to $116 million in Fiscal 1994. Both the Distribution
and the Tactical Vehicle Systems segments' operating profits increased at a
rate comparable to the growth in sales volumes. The Engineered Power
Systems segment's operating profit of 12% in Fiscal 1995 declined from 13%
in Fiscal 1994. This decline is primarily related to lower profits
realized on the sale of certain compression equipment during Fiscal 1995,
and to increased market competitiveness.
Fiscal 1994 vs. Fiscal 1993
Sales increased to $1,138 million for Fiscal 1994 from $982 million for
Fiscal 1993. In total, sales increased by 16% with each of the Company's
segments recording new sales records. The Company's international sales
increased 28% to over $301 million. The Tactical Vehicle Systems segment
showed the largest sales growth during Fiscal 1994, increasing sales by
124%. This sales growth, although significant, was less than was
anticipated. Sales growth was restrained by the government's decision to
delay both the testing of trucks and the approval for purchasing of key
components, which effectively precluded the Company from achieving its
planned production quantities.
The Company's Distribution segment's sales increased by 11% in Fiscal 1994.
This increase reflects the continuation of both the growth of the economies
of the territories serviced by the Company and the market's reception of
the products which the Company sells. The Company continued to expand the
territories in which it operates and the products it represents through the
acquisition, during the fourth quarter of Fiscal 1994, of substantially all
of the assets of PAMCO.
The Engineered Power Systems segment of the Company experienced continued
growth with Fiscal 1994 sales increasing 7%. The gas turbine product lines
provided the majority of the sales growth. Gas turbine product support
sales growth continued to exceed expectations and contributed significantly
to this increase. Gas turbine equipment sales increased, but at a slower
rate than the prior year, reflecting the U.S. utility market's uncertain
response to deregulation trends. Excluding the discontinued bus product
line, the diesel products group showed a slight increase in sales,
primarily in products sold to the airline market. During the third quarter
of Fiscal 1994, the Company completed the acquisition of substantially all
of the assets of Creole International, Inc., a provider of operating and
maintenance services for turbine and reciprocating engine driven equipment.
Operating profit grew by approximately 23% during Fiscal 1994 to $116
million. Each of the Company's segment's operating profits increased both
in absolute amounts and as a percentage of sales. The Tactical Vehicle
Systems segment's growth reflects both an increase in production levels and
an improvement in the anticipated profitability of the FMTV program. The
Engineered Power Systems segment had an improved revenue mix resulting
primarily from the rapid growth rate of its gas turbine product support
sales which generally realize a higher operating profit. The Distribution
segment benefitted from improved operating efficiencies and a revenue blend
of higher value added products.
Net Period Expense
(Dollars in thousands)
_________________________________________________________________________________________________________
Percentage Change
Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1994-1995 1993-1994
_________________________________________________________________________________________________________
Selling and administrative expenses $91,814 $75,249 $68,331 + 22% + 10%
Interest expense 13,884 6,865 3,313 +102 +107
Other income, net (4,676) (2,528) (967) + 85 +161
______________________________
$101,022 $79,586 $70,677 + 27 +13
==============================
Net period expense as a percentage of sales 8.2% 7.0% 7.2%
==============================
Net period expenses increased significantly during Fiscal 1995 both in
amount and in relation to sales, when compared to Fiscal 1994. The
increase in net period expense as a percentage of sales is the first time
in more than ten years for such an increase. Fiscal 1995 sales and
administrative expense includes a full year of expenses related to certain
acquisitions made during the second half of Fiscal 1994, which were not
completely integrated into the Company for a significant portion of Fiscal
1995. Sales and administrative expense also grew rapidly within the
Engineered Power System's operations and maintenance group, as the Company
continued to expand these services into international markets. Interest
expense grew significantly in both Fiscal 1995 and 1994 reflecting the
increased borrowings required to fund the Company's operations; primarily
gas turbine inventories relating to international contracts that do not
contain substantial progress payments and inventories of vehicles under the
FMTV contract that accumulated during delays in testing. The growth in
other income during Fiscal 1995 is primarily attributable to both increased
interest income and gains on the disposal of real estate.
Income tax expense, relative to operational profits, was comparable for
Fiscal 1995, 1994 and 1993.
Net Earnings
_________________________________________________________________________________________________________
(Dollars in thousands) Percentage Change
Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1994-1995 1993-1994
_________________________________________________________________________________________________________
Amount $61,803 $67,558 $56,780 -9% +19%
Percentage of sales 5.0% 5.9% 5.8%
=============================================================================
Fiscal 1995 net earnings' decline from Fiscal 1994 is primarily reflective
of the decrease in operational profits and the increase in interest
expense. The increase in net earnings during Fiscal 1994 from Fiscal 1993
is attributable to the increase in operational profits.
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 112 ("SFAS 112"), "Employer's Accounting for
Postemployment Benefits", in November 1992. SFAS 112 requires that the
liability for certain postemployment benefits be recognized over the
employees' service lives when certain conditions are met. The Company
adopted SFAS 112 in Fiscal 1994. The adoption of SFAS 112 did not have a
material impact on the Company's financial statements.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", in March
1995. SFAS 121 requires that long lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company anticipates adopting SFAS 121 in the first
quarter of Fiscal 1996, and that such implementation will not have a
material effect on the Company's consolidated results of operations or
financial position.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation" in October 1995. SFAS 123 establishes financial accounting
and reporting standards for stock-based compensation plans and to
transactions in which an entity issues its equity instruments to acquire
goods and services from non-employees. The new accounting standard
prescribed by SFAS 123 is optional, and the Company may continue to account
for its plans under previous accounting standards. The Company does not
expect to adopt the new accounting standards, consequently, SFAS 123 will
not have a material impact on the Company's consolidated results of
operations or financial position. Pro forma disclosures of net earnings
and earnings per share must be made as if the SFAS 123 had been adopted by
the Company. Such disclosure will be required in Fiscal 1996.
FINANCIAL CONDITION
Company's Capital
____________________________________________________________________________________________________
(Dollars in thousands) Fiscal 1995 Fiscal 1994
Amount Percentage Amount Percentage
____________________________________________________________________________________________________
Long-Term Debt $210,800 30% $116,900 21%
Other Long-Term Liabilities 27,788 4 28,559 5
Shareholders' Equity 471,915 66 419,003 74
___________________________________________________
$710,503 100% $564,462 100%
===================================================
/TABLE
Shareholders' equity increased $52,912 during Fiscal 1995 and $60,345
during Fiscal 1994 primarily as a result of earnings retained after
dividends. During Fiscal 1995, the Company increased its revolving credit
facility with its banks from $105 million to $200 million. The Company had
$65 million and $42 million in short-term borrowings at the end of Fiscal
1995 and 1994, respectively. Total debt increased during Fiscal 1995 and
1994 principally due to the timing of customer progress payments for
contracts in process in Fiscal 1995 and 1994 and delays in testing and
acceptance of vehicles under the FMTV program during Fiscal 1995.
LIQUIDITY
Cash Provided From Operations
_______________________________________________________________________________________________
(Dollars in thousands) Fiscal Fiscal Fiscal
1995 1994 1993
_______________________________________________________________________________________________
Net Earnings $ 61,803 $ 67,558 $ 56,780
Depreciation and amortization 24,732 23,954 21,175
Deferred income taxes (1,244) 2,170 413
_____________________________________
Funds from operations 85,291 93,682 78,368
Change in net operating assets and liabilities (171,433) (146,288) (86,395)
_____________________________________
Net cash used in operating activities $ (86,142) $(52,606) $ (8,027)
=====================================
Funds from operations decreased 9.0% during Fiscal 1995 versus a 20%
increase during Fiscal 1994, reflecting primarily the relative change in
earnings each year. The Company's investment in net operating assets and
liabilities increased by an amount greater than that provided from
operations during Fiscal 1995 and Fiscal 1994. The significant components
of net operating assets and liabilities grew at rates comparable with sales
growth, excluding recoverable costs and accrued profits not yet billed.
Significant growth in recoverable costs and accrued profits not yet billed
occurred in both the Tactical Vehicle Systems segment and the Engineered
Power Systems segment. The Tactical Vehicle Systems segment is primarily
funded by progress payments under government regulations which require that
contractors retain a significant amount of the contract costs until
government acceptance of the product. The Company has experienced cost
increases and delivery delays under the FMTV contract, all of which have
resulted in a build up in the unliquidated contract costs. The government
began taking delivery of the FMTV in January 1996, with full liquidation of
existing progress payments expected to occur in 1996. The Engineered Power
Systems segment's gas turbine product line experienced a significant
increase in the percentage of international contracts, which generally
provide for lower customer contract funding requirements, and resulted in
the increased recoverable costs and accrued profits not yet billed.
Working capital to support the operations of the Company fluctuates
significantly depending on the progress payment streams of the contracts in
process. The Company regularly bids on commercial and government
contracts, which if awarded to the Company, could significantly affect both
working capital and capital expenditures needs.
The Company's liquidity can be measured using several measures. The
Company's current ratio (current assets divided by current liabilities)
remained somewhat constant at 2.7:1 and 2.3:1 at the end of Fiscal 1995 and
Fiscal 1994, respectively. The small increase is the result of replacing
short-term debt incurred under uncommitted lines with long-term debt under
the Company's revolving credit facility and increases in receivables and
inventories. The long-term debt to equity ratio (long-term debt including
the current portion divided by total shareholders' equity) was 45% at the
end of Fiscal 1995 and 28% at the end of Fiscal 1994, reflecting the
increase in long-term debt under the Company's revolving credit facility
during Fiscal 1995. The Company's interest coverage (earnings before
income taxes and interest expense divided by interest expense) decreased to
7.6 times interest for Fiscal 1995 versus 16.0 times interest for Fiscal
1994, primarily as a result of the increased debt outstanding and lower
earnings.
The Company engaged an agent to assist the Company in the private placement
of at least $100 million in long-term indebtedness. The proceeds of such
proposed private placement, if consummated, will be used primarily to
retire other debt and for general corporate purposes. In the event that
any acquisition of additional operations, growth in existing operations,
changes in inventory levels, accounts receivable or other working capital
items create a need for working capital or capital expenditures in excess
of existing committed lines of credit, the Company may seek to convert
uncommitted borrowing arrangements to committed credit facilities, to
borrow under other long-term financing sources or to issue additional
equity securities. Management believes that the Company's current credit
facilities are adequate to meet its foreseeable cash requirements.
CAPITAL EXPENDITURES AND COMMITMENTS
Capital Expenditures By Industry Segment
______________________________________________________________________________________________
(Dollars in thousands) Percentage Change
Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1994-1995 1993-1994
______________________________________________________________________________________________
Engineered Power Systems $ 9,495 $12,082 $14,502 -21% -17%
Distribution 10,780 17,651 9,302 -39 +90
Tactical Vehicle Systems 2,111 2,929 6,061 -28 -52
Corporate Services 1,101 717 781 +60 -8
____________________________
$23,487 $33,379 $30,646 -30 +9
============================
Capital expenditures decreased significantly in Fiscal 1995 as compared to
Fiscal 1994 and 1993. The Distribution segment's increase during Fiscal
1994 includes the capital assets acquired from PAMCO. The capital
expenditures program at the Tactical Vehicle Systems segment and the
program to upgrade the Engineered Power Systems segment's facilities were
both substantially completed during Fiscal 1993.
Cash Dividends
______________________________________________________________________________________________
(Dollars in thousands, except per share data) Growth Rate
Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1994-1995 1993-1994
______________________________________________________________________________________________
Amount of Cash Dividends $10,243 $8,904 $7,563 +15% +18%
Annual Rate of Cash Dividends per
Share $ 0.31 $ 0.27 $ 0.23 +15 +17
===========================
The amount of cash dividends increased 15% and 18% during Fiscal 1995 and
1994, respectively. Cash dividends represented 17%, 13% and 13% of net
earnings before accounting change for Fiscal 1995, 1994 and 1993,
respectively. The Board of Directors of the Company intends to consider
the payment of dividends on a quarterly basis, commensurate with the
Company's earnings and financial needs.
GOVERNMENT CONTRACTING
Initial Operational Test and Evaluation under the FMTV contract was
completed in the third quarter of Fiscal 1995 and the Company received
approval for full rate production and type classification of the FMTV on
August 25, 1995. Actual shipment of the vehicles to combat troops began in
January 1996 at Ft. Bragg, North Carolina. Under the terms of the FMTV
contract, all vehicles produced before the full rate production decision
must be retrofitted with any changes required by test results or
specification changes ordered by the government. The retrofit began during
the fourth quarter of Fiscal 1995 and is expected to be completed in the
second quarter of 1996. Full rate production is expected to commence after
completion of the retrofit program.
Major contracts for military systems are performed over extended periods of
time and are subject to changes in scope of work and delivery schedules.
Pricing negotiations on changes and settlement of claims often extend over
prolonged periods of time. The Company's ultimate profitability on such
contracts will depend not only upon the accuracy of the Company's cost
projections, but also the eventual outcome of an equitable settlement of
contractual issues with the U.S. Government.
The FMTV contract is a firm fixed-price multi-year contract whereby the
price paid to the Company is not subject to adjustment to reflect the
Company's actual costs, except costs incurred as a result of actions or
inactions of the government. The Company has completed approximately 3,000
(of approximately 11,000 trucks) trucks at low rate initial production as
of January 31, 1996. Full rate production has been approved and is
expected to commence after completion of retrofit of the trucks produced to
date to current specifications. Stewart & Stevenson has incurred
significant cost overruns and delivery schedule delays on the FMTV contract
which the Company believes are primarily due to the government's decision
to delay the testing of trucks and other government directed changes to the
contract. The Company has and will continue to submit a series of Requests
for Equitable Adjustments (REAs), under the FMTV contract, seeking
increases in the FMTV contract price for those additional costs that relate
to government caused delays and changes. Additionally, the Company has
entered into negotiations with the U.S. Army to modify the existing
contract to provide for steady production at rates lower than originally
anticipated through December 1998. However, the Company is not able to
predict whether such modification will be forthcoming on terms acceptable
to the Company and production of vehicles may be interrupted after February
1997.
Revenues and profits realized on the FMTV contract are based on the
Company's estimates of total contract sales value and costs at completion.
Amounts in excess of agreed upon contract price for government caused
delays, disruptions, unpriced change orders and government caused
additional contract costs are recognized in contract value when the Company
believes it is probable that the claim for such amounts will result in
additional contract revenue and the amount can be reasonably estimated. At
January 31, 1996, the Company's FMTV contract accounting position reflects
the expected recovery of substantial amounts in excess of the contract
price for government caused delays, disruptions, unpriced change orders and
other government caused additional contract costs. These claims are in
varying stages of negotiations. Although management believes that the
contract provides a legal basis for the claims and its estimates are based
on reasonable assumptions and on a reasonable analysis of contract costs,
due to uncertainties inherent in the estimation and claims negotiations
process, no assurances can be given that its estimates will be accurate,
and variances between such estimates and actual results could be material.
In the event that the Company is unable to recover a substantial portion of
the additional costs, the Company may suffer a material adverse effect on
its operations during the accounting period in which such contract issues
are resolved.
The funding of the contract is subject to the inherent uncertainties of
congressional appropriations. As is typical of multi-year defense
contracts, the FMTV contracts must be funded annually by the Department of
the Army and may be terminated at any time for the convenience of the
government. The Company has received full funding for the production of
approximately 7,364 vehicles through February 1997. Approximately 3,524
vehicles, scheduled for production after that date have not been funded due
to reductions in the U.S. Army's budget for acquisitions. In the event
that the FMTV contracts are terminated other than for default, the FMTV
contracts provide for termination charges that will reimburse the Company
for allowable costs, but not necessarily all costs.
EFFECT OF CERTAIN LITIGATION
On May 3, 1995, the Company and four employees, including the Company's
President, were indicted by a federal Grand Jury on six counts arising out
of a 1987 subcontract to supply diesel generator sets for installation in
Saudi Arabia. See Note 5: Commitments and Contingencies to the
Consolidated Financial Statements. On May 12, 1995, the U.S. Air Force
suspended the Company from contracting with any agency of the U.S.
Government and from receiving the benefit of federal assistance programs.
This suspension was temporarily terminated on November 8, 1995, pending the
resolution of the charges covered by the indictment, pursuant to an Interim
Administrative Agreement between the Company and the U.S. Air Force. The
Interim Administrative Agreement does not have any effect on the
indictment.
The Interim Administrative Agreement requires the Company to maintain
various internal procedures and policies intended to assure the U.S.
Government that the Company is a responsible contractor. In the event that
the Company or any of the indicted employees are convicted of the charges
contained in the indictment, the U.S. Air Force may re-evaluate whether the
Company should be suspended or debarred based on all of the facts and
circumstances then known. An acquittal of all parties of the charges does
not terminate the Interim Administrative Agreement and any failure by the
Company to perform its obligations thereunder may also be grounds for
suspension or debarment.
If the Company is suspended or debarred, either because of a conviction
pursuant to the indictment or as a result of a breach of the Interim
Administrative Agreement, it would be ineligible to enter into new
contracts or subcontracts with agencies of the U.S. Government or receive
the benefit of federal assistance payments for the duration of such
suspension or debarment. Any such suspension could prevent the Company
from receiving a modification to the FMTV to fund additional vehicles or
extend the delivery schedule of funded vehicles unless the Secretary of the
Army finds a compelling need to enter into such modification. The Company
would also be unable to sell equipment and services to customers that
depend on loans or financial commitments from the Export Import Bank ("EXIM
Bank"), Overseas Private Investment Corporation ("OPIC") and similar
government agencies during a suspension or debarment. The Engineered Power
Systems segment frequently sells equipment to customers that rely on
financial commitments from EXIM and/or OPIC. Any such suspension or
debarment could have a material adverse impact on the Company's financial
condition and results of operations.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Stewart & Stevenson Services, Inc.
We have audited the accompanying consolidated statements of financial
position of Stewart & Stevenson Services, Inc. and subsidiaries as of
January 31, 1996 and 1995, and the related consolidated statements of
earnings, shareholders' equity and cash flows for each of the three years
in the period ended January 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Stewart & Stevenson
Services, Inc. and subsidiaries as of January 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in
the period ended January 31, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 9 to the Consolidated Financial Statements, effective
February 1, 1994, the Company changed its method of accounting for
postemployment benefits to conform with Statement of Financial Accounting
Standard No. 112.
ARTHUR ANDERSEN LLP
Houston, Texas
March 14, 1996
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
______________________________________________________________________________________
(Dollars in thousands) Fiscal Fiscal
1995 1994
______________________________________________________________________________________
Assets
Current Assets
Cash and equivalents $ 6,325 $ 3,987
Accounts and notes receivable, net 196,548 186,814
Recoverable costs and accrued profits not yet billed 317,855 227,467
Inventories 360,718 295,867
Other 393 364
____________ ___________
Total Current Assets 881,839 714,499
Property, Plant and Equipment, net 127,055 131,860
Other Assets 31,689 29,257
____________ ___________
$ 1,040,583 $ 875,616
============ ===========
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 65,000 $ 42,000
Accounts payable 134,562 164,474
Accrued payrolls and incentives 22,450 21,611
Billings on uncompleted contracts in excess of
incurred costs 14,417 11,284
Current income taxes 68,650 42,240
Current portion of long-term debt 1,100 1,344
Other accrued liabilities 23,901 28,201
____________ ___________
Total Current Liabilities 330,080 311,154
Long-Term Debt 210,800 116,900
Deferred Income Taxes 6,794 8,038
Accrued Postretirement Benefits 15,454 15,252
Deferred Compensation 5,540 5,269
Shareholders' Equity
Common Stock, without par value, 100,000,000 and
50,000,000 shares authorized at January 31, 1996
and January 31, 1995, respectively; 33,061,908 and
33,009,635 shares issued at January 31, 1996 and
1995, respectively, including 11,820 shares held
in treasury 163,409 162,057
Retained earnings 308,539 256,979
____________ ____________
471,948 419,036
Less cost of treasury stock (33) (33)
____________ ____________
Total Shareholders' Equity 471,915 419,003
____________ ____________
$1,040,583 $875,616
============ ============
The accompanying notes are an integral part of the consolidated financial
statements
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
_______________________________________________________________________________________________________
(Dollars in thousands, except per share data) Fiscal Fiscal Fiscal
1995 1994 1993
_______________________________________________________________________________________________________
Sales $1,233,981 $1,138,336 $981,892
Cost of sales 1,041,051 955,898 825,914
___________ ___________ _________
Gross profit 192,930 182,438 155,978
___________ ___________ _________
Selling and administrative expenses 91,814 75,249 68,331
Interest expense 13,884 6,865 3,313
Other income, net (4,676) (2,528) (967)
___________ ___________ _________
101,022 79,586 70,677
___________ ___________ _________
Earnings before income taxes 91,908 102,852 85,301
Income taxes 30,665 34,520 27,999
___________ ___________ _________
Earnings of consolidated companies 61,243 68,332 57,302
Equity in net earnings (loss) of unconsolidated affiliates 560 (774) (522)
___________ ___________ _________
Net earnings $ 61,803 $ 67,558 $ 56,780
=========== =========== =========
Weighted average number of shares of Common Stock outstanding 33,035 32,973 32,861
=========== =========== =========
Net earnings per share $ 1.87 $ 2.05 $ 1.73
=========== =========== =========
The accompanying notes are an integral part of the consolidated financial
statements
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
_________________________________________________________________________________________________
(Dollars in thousands) Common Retained Treasury
Stock Earnings Stock Total
_________________________________________________________________________________________________
Balance at end of Fiscal 1992 $156,593 $149,108 $ (33) $305,668
Net earnings 56,780 56,780
Cash dividends (7,563) (7,563)
Exercise of stock options 3,773 3,773
__________ __________ __________ __________
Balance at end of Fiscal 1993 160,366 198,325 (33) 358,658
Net earnings 67,558 67,558
Cash dividends (8,904) (8,904)
Exercise of stock options 1,691 1,691
__________ __________ __________ __________
Balance at end of Fiscal 1994 162,057 256,979 (33) 419,003
Net earnings 61,803 61,803
Cash dividends (10,243) (10,243)
Exercise of stock options 1,352 1,352
__________ __________ __________ __________
Balance at end of Fiscal 1995 $163,409 $308,539 $ (33) $471,915
========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
_______________________________________________________________________________________________________________________
(Dollars in thousands) Fiscal Fiscal Fiscal
1995 1994 1993
_______________________________________________________________________________________________________________________
Operating Activities
Net earnings $ 61,803 $ 67,558 $ 56,780
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Accrued postretirement benefits 202 224 (91)
Depreciation and amortization 24,732 23,954 21,175
Deferred income taxes, net (1,244) 2,170 413
Change in operating assets and liabilities:
Accounts and notes receivable, net (9,734) (39,522) (4,126)
Recoverable costs and accrued profits not yet billed (90,388) (111,599) (59,175)
Inventories (64,851) (26,262) (57,099)
Accounts payable (29,912) 32,694 3,010
Billings on uncompleted contracts in excess
of incurred costs 3,133 (19,804) 14,104
Current income taxes 26,410 14,309 14,081
Other current liabilities (3,776) 6,644 7,126
Other--principally long-term assets and liabilities (2,517) (2,972) (4,225)
__________ __________ __________
Net Cash Used in Operating Activities (86,142) (52,606) (8,027)
Investing Activities
Expenditures for property, plant and equipment (23,487) (33,379) (30,646)
Disposal of property, plant and equipment 3,887 4,372 796
__________ __________ __________
Net Cash Used in Investing Activities (19,600) (29,007) (29,850)
Financing Activities
Additions to long-term debt 200,071 85,000 192,918
Payments on long-term debt (106,100) (36,975) (170,402)
Net borrowings and payments on short-term notes payable 23,000 37,000 5,000
Dividends paid (10,243) (8,904) (7,563)
Exercise of stock options 1,352 1,691 3,773
__________ __________ __________
Net Cash Provided by Financing Activities 108,080 77,812 23,726
__________ __________ __________
Increase (decrease) in cash and equivalents 2,338 (3,801) (14,151)
Cash and equivalents, beginning of fiscal year 3,987 7,788 21,939
__________ __________ __________
Cash and equivalents, end of fiscal year $ 6,325 $ 3,987 $ 7,788
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements
Stewart & Stevenson Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Note 1: Summary of Principal Accounting Policies
Fiscal Year: The Company's fiscal year begins on February 1 of the year
stated and ends on January 31 of the following year. For example, "Fiscal
1995" commenced on February 1, 1995 and ended on January 31, 1996.
Consolidation: The consolidated financial statements include the accounts
of Stewart & Stevenson Services, Inc. and all of its majority-owned
subsidiaries. Investments in other partially-owned companies and joint
ventures in which ownership ranges from 20 to 50 percent are generally
accounted for using the equity method. All significant intercompany
accounts and transactions have been eliminated.
Post Employment Benefits: During the fourth quarter of Fiscal 1994, the
Company adopted, effective February 1, 1994, Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112") (See Note 9).
Long-Lived Assets: The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", in March 1995. The Company anticipates adopting
SFAS 121 in the first quarter of Fiscal 1996, and that such implementation
will not have a material effect on the Company's consolidated results of
operations or financial position.
Cash Equivalents: Interest-bearing deposits and other investments with
original maturities of three months or less are considered cash
equivalents.
Inventories: Inventories are stated at the lower of cost (using LIFO) or
market (determined on the basis of estimated realizable values), less
related customer deposits. Inventory costs include material, labor and
overhead. The carrying values of these assets approximate their fair
values.
Contract Revenues and Costs: Revenues relating to contracts or contract
changes that have not been completely priced, negotiated, documented, or
funded are not recognized unless realization is considered probable.
Generally, revenue is recognized when a product is shipped or accepted by
the customer, except for large gas turbine contracts, where revenue is
recognized using the percentage-of-completion method. The revenues of the
Tactical Vehicle Systems segment are generally recognized under the
units-of-production method, whereby sales and estimated average cost of the
units to be produced under the Family of Medium Tactical Vehicle ("FMTV")
contract are recognized as units are substantially completed. Profits
expected to be realized on contracts are based on the Company's estimates
of total sales value and costs at completion. Changes in estimates for
sales, costs, and profits are recognized in the period which they are
determinable using the cumulative catch-up method of accounting. In
certain cases the estimated sales values include amounts expected to be
realized from contract adjustments or claims subject to negotiations or
legal proceedings. Any anticipated losses on contracts are charged in full
to operations in the period in which they are determinable.
Depreciable Property: The Company depreciates property, plant and
equipment over their estimated useful lives, using accelerated and
straight-line methods. Expenditures for property, plant and equipment are
capitalized and carried at cost. When items are retired or otherwise
disposed of, income is charged or credited for the difference between net
book value and proceeds realized thereon. Ordinary maintenance and repairs
are charged to expense and replacements and betterments are capitalized.
Off-Balance Sheet Risk: The Company occasionally enters into forward
exchange contracts only as a hedge against certain economic exposures and
not for speculative or trading purposes. While the forward contracts
affect the Company's results of operations, they do so only in connection
with the underlying transactions. As a result, they do not subject the
Company to risk from exchange rate movements, because gains and losses on
these contracts offset losses and gains on the transactions being hedged.
The Company limits exposure to foreign currency fluctuations in its
operations and maintenance contracts through provisions that generally
require customer payments in U.S. dollars or other currency corresponding
to the currency in which the costs are incurred. The Company's other off-
balance sheet risks are not material.
Fair Value of Financial Instruments: The Company's financial instruments
consist primarily of cash and equivalents, trade receivables, trade
payables and debt instruments. The book values of cash and cash
equivalents, trade receivables and trade payables are considered to be
representative of their respective fair values. Generally, the Company's
notes receivable and payable have interest rates which are tied to current
market rates. The Company estimates that the book value of its financial
instruments approximates market values.
Warranty Costs: Expected warranty and performance guarantee costs are
accrued as revenue is recorded, based on historical experience and contract
terms.
Net Earnings Per Share: Net earnings per share of Common Stock are
computed by dividing net earnings by the weighted average number of shares
outstanding. Common Stock equivalents (outstanding options to purchase
shares of Common Stock) are excluded from the computations as they are
insignificant.
Use of Estimates and Assumptions: The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications: The accompanying consolidated financial statements for
Fiscal 1994 and 1993 contain certain reclassifications to conform with the
presentation used in Fiscal 1995.
Note 2: Industry Segment Data
The Engineered Power Systems segment includes the designing, packaging,
manufacturing and marketing of diesel and gas turbine engine-driven
equipment and the operations and maintenance of large gas turbine projects
and petroleum production and processing facilities. The Distribution
segment includes the marketing of diesel engines, automatic transmissions,
material handling equipment, transport refrigeration units and construction
equipment and the provision of related parts and service. The Tactical
Vehicle Systems segment includes the designing, manufacturing and marketing
of tactical vehicles, primarily 2 1/2-ton and 5-ton trucks under contract
with the United States Army.
The high degree of integration of the Company's operations necessitates the
use of a substantial number of allocations and apportionments in the
determination of business segment information. Sales are shown net of
intersegment eliminations.
Corporate assets consist primarily of cash and equivalents and the assets
of a limited partnership.
The Company markets its products and services throughout the world and is
not dependent upon any single geographic region or single customer. Other
than the U.S. Government, no single group or customer represents greater
than 10% of consolidated sales. Export sales, including sales to domestic
customers for export, for Fiscal 1995, 1994 and 1993 were $382,452,
$301,885 and $237,807 respectively. Export sales to any single geographic
region in both Fiscal 1995 and 1994 were not material to consolidated
sales. Export sales in Fiscal 1993 included $113,597 destined for Asia.
Financial information relating to industry segments is as follows:
___________________________________________________________________________________________________
Operating Identifiable Capital
Sales Profit Assets Expenditures Depreciation
___________________________________________________________________________________________________
Fiscal 1995
Engineered Power Systems $ 627,702 $ 73,449 $ 601,690 $ 9,495 $ 6,230
Distribution 416,229 30,130 240,390 10,780 6,900
Tactical Vehicle Systems 189,009 9,703 175,174 2,111 10,349
Corporate Services 1,041 292 23,329 1,101 926
___________ __________ ___________ _________ _________
Total $1,233,981 $ 113,574 $1,040,583 $ 23,487 $ 24,405
=========== ========== =========== ========= =========
Fiscal 1994
Engineered Power Systems $ 642,804 $ 82,395 $ 478,354 $ 12,082 $ 6,759
Distribution 346,564 24,015 222,462 17,651 6,113
Tactical Vehicle Systems 147,920 8,782 152,772 2,929 9,943
Corporate Services 1,048 376 22,028 717 805
___________ ___________ __________ _________ _________
Total $1,138,336 $ 115,568 $ 875,616 $ 33,379 $ 23,620
=========== =========== ========== ========= =========
Fiscal 1993
Engineered Power Systems $ 602,853 $ 70,292 $ 396,712 $ 14,502 $ 5,330
Distribution 311,983 20,309 157,696 9,302 5,075
Tactical Vehicle Systems 65,894 2,886 113,917 6,061 9,405
Corporate Services 1,162 552 24,299 781 926
___________ ___________ __________ _________ _________
Total $ 981,892 $ 94,039 $ 692,624 $ 30,646 $ 20,736
=========== =========== ========== ========= =========
A reconciliation of Operating profit to Earnings before income taxes is as
follows:
TABLE
________________________________________________________________________________________________________
Fiscal Fiscal Fiscal
1995 1994 1993
________________________________________________________________________________________________________
Operating profit $113,574 $115,568 $94,039
Corporate expenses (7,782) (5,851) (5,425)
Interest expense (13,884) (6,865) (3,313)
__________ __________ _________
Earnings before income taxes $ 91,908 $102,852 $85,301
========== ========== =========
Note 3: Contracts in Process
Amounts included in the financial statements which relate to recoverable
costs and accrued profits not yet billed on contracts in process are
classified as current assets, billings on uncompleted contracts in excess
of incurred cost and accrued profits are classified as current liabilities.
Summarized below are the components of the amounts:
_________________________________________________________________________________________________
Fiscal Fiscal
1995 1994
_________________________________________________________________________________________________
Costs incurred on uncompleted contracts $913,108 $581,151
Accrued profits 83,824 47,627
_________ _________
996,932 628,778
Less: Customer progress payments (693,494) (412,595)
_________ _________
$303,438 $216,183
========= =========
Included in the statements of financial position:
Recoverable costs and accrued profits not yet billed $317,855 $227,467
Billings on uncompleted contracts in excess of incurred costs (14,417) (11,284)
_________ _________
$303,438 $216,183
========= =========
Recoverable costs and accrued profits related to the Tactical Vehicle
Systems segment include direct costs of manufacturing and engineering and
allocable overhead costs. Generally, overhead costs include general and
administrative expenses allowable in accordance with the United States
Government contract cost principles and are charged to cost of sales at the
time revenue is recognized. General and administrative costs remaining in
recoverable costs and accrued profits not yet billed amounted to $26,640
and $22,582 at January 31, 1996 and 1995, respectively. The Company's
total general and administrative expense incurred amounted to $103,999,
$86,292 and $79,290 in Fiscal 1995, 1994 and 1993, respectively.
The United States Government has a security interest in unbilled amounts
associated with contracts that provide for progress payments.
In accordance with industry practice, recoverable costs and accrued profits
not yet billed include amounts relating to programs and contracts with long
production cycles, a portion of which is not expected to be realized within
one year.
Note 4: Inventories
Summarized below are the components of inventories:
_________________________________________________________________________________
Fiscal Fiscal
1995 1994
_________________________________________________________________________________
Engineered Power Systems $273,200 $229,898
Customer deposits (4,081) (5,169)
Total Engineered Power Systems 269,119 224,729
Distribution 145,179 121,273
Excess of current cost over LIFO values (53,580) (50,135)
_________ _________
Total Inventories $360,718 $295,867
========= =========
The Company's inventory classifications correspond to its industry
segments. As a custom packager of power systems to customer
specifications, the Engineered Power Systems segment's inventory consists
primarily of work-in-process which includes purchased and manufactured
components in various stages of assembly. The Engineered Power Systems
segment's inventory at January 31, 1996 and 1995 includes approximately
$19,022 and $14,789, respectively, of costs on a certain U.S. Government
contract in excess of contractual authorization which will be billable upon
either contractual amendment or approval of claims increasing contract
funding. During Fiscal 1995, the Company recognized $3,500 of additional
costs under such contract based upon preliminary settlement discussions.
Management's position, supported by outside legal counsel which specializes
in government procurement law, is that the Company will recover a
substantial portion of the amount claimed which significantly exceeds the
inventory carrying value. The Distribution segment's inventory consists
primarily of industrial equipment, equipment under modification and parts
held in the Company's distribution network for resale.
During Fiscal 1994 certain inventories were reduced. The reduction
resulted in liquidation of LIFO inventory quantities carried at lower costs
prevailing in prior fiscal years as compared with the cost of Fiscal 1994
purchases, the effect of which increased pre-tax earnings in Fiscal 1994 by
approximately $1,741.
Note 5: Commitments and Contingencies
As a custom packager of power systems, the Company issues bid and
performance guarantees in the form of performance bonds or standby letters
of credit. Performance type letters of credit totaled $67,837 at the close
of Fiscal 1995.
On May 3, 1995, an indictment was returned by a federal Grand Jury in
Houston, Texas, accusing the Company, a former consultant and four
employees, including the Company's President, of one count of major fraud
against the United States, four counts of false statements and one count of
conspiracy to commit major fraud, make false statements and interfere with
the administration of a foreign military sale. All of the counts arise
from a 1987 subcontract to supply diesel generator sets for installation at
long-range radar sites in Saudi Arabia (the "Peace Shield"). The
indictment alleges that a former employee of the general contractor for the
Peace Shield program, who later became a consultant to the Company,
conspired with the Company and the other defendants to award the
subcontract to the Company. The indictment also alleges that the
government was defrauded out of approximately $5 million in connection with
cost savings from a change order under the Peace Shield contract and that
the Company made false statements relating to cost estimates in connection
with such change order. The Company and each individual have denied all
charges under the indictment and the case is pending in the United States
District Court, Southern District of Texas, Houston Division. The Company
is not able to make a reasonable estimate of the fines or penalties that
could be imposed under the Federal Sentencing Guidelines in the event of a
conviction under the indictment. Such fines and penalties could be
substantial and adversely affect the Company's financial position and
results of operations. If the Company or any of the individuals are
convicted of any charges under the indictment, the Company could also be
suspended or debarred from entering into new contracts or subcontracts with
agencies of the U.S. Government or receiving the benefit of federal
assistance payments for the duration of such suspension or debarment. Any
such suspension could prevent the Company from receiving a modification to
the FMTV to fund additional vehicles or extend the delivery schedule of
funded vehicles unless the Secretary of the Army finds a compelling need to
enter into such modification. The Company would also be unable to sell
equipment and services to customers that depend on loans or financial
commitments from the Export Import Bank ("EXIM Bank"), Investment
Corporation ("OPIC") and similar government agencies during a suspension or
debarment. The Engineered Power Systems segment frequently sells equipment
to customers that rely on financial commitments from EXIM Bank and/or OPIC.
Any such suspension or debarment could have a material adverse impact on
the Company's financial condition and results of operations.
Also in connection with the Peace Shield contract, the Company has been
advised that the former consultant of the Company referred to above filed a
suit in the United States District Court, Southern District of Texas,
Houston Division, for himself and the United States of America alleging
that the Company supplied false information in violation of the False
Claims Act (the "Act"), engaged in common law fraud and misapplied costs.
Under the provisions of the Act, the suit has not been served upon the
Company pending an investigation of the case by the U.S. Department of
Justice and a determination as to whether the Department of Justice will
intervene and pursue the matter on behalf of the United States. The suit
alleges treble damages of $21 million plus unspecified penalties.
Proceedings in this case have been stayed pending resolution of the
criminal matter referred to above. The Company cannot predict the outcome
of this action or the likelihood that substantial damages will result.
However, the Company intends to vigorously defend this case if it is served
upon the Company.
On May 16, 1995, C. Daniel Chill filed a purported class action suit in the
United States District Court, Southern District of Texas, Houston Division,
against the Company and three of its officers and directors on behalf of
himself and all persons that purchased shares of Common Stock between May
2, 1994 and May 3, 1995. An amended complaint was filed on June 7, 1995.
The suit alleges that the Company violated various sections of and rules
under the Securities Exchange Act of 1934 and common law by disseminating
material false and misleading information, failing to disclose material
information and failing to correct earlier statements that were no longer
true, all relating to the Peace Shield investigation and indictment. The
suit claims unspecified compensatory and punitive damages. The Company has
reached an agreement in principle to settle this litigation on terms that
would not be material to the Company. The agreement in principle is
subject to the execution of definitive settlement agreements as well as
approval by the court and the Company's board of directors.
The Company is a defendant in a number of other lawsuits relating to
contractual, product liability, personal injury and warranty matters and
otherwise of the type normally incident to the Company's business.
Management is of the opinion that such lawsuits will not result in any
material liability to the Company.
The Company has not established any reserves or accruals for any potential
liability that may be subsequently found in any of the foregoing cases.
The Company leases certain property and equipment under lease arrangements
of varying terms. Annual rentals under terms of noncancelable leases are
less than 1% of consolidated sales.
Note 6: Government Contracts
Major contracts for military systems are performed over extended periods of
time and are subject to changes in scope of work and delivery schedules.
Pricing negotiations on changes and settlement of claims often extend over
prolonged periods of time. The Company's ultimate profitability on such
contracts will depend not only upon the accuracy of the Company's cost
projections, but also the eventual outcome of an equitable settlement of
contractual issues with the U.S. Government.
The FMTV contract is a firm fixed-price multi-year contract whereby the
price paid to the Company is not subject to adjustment to reflect the
Company's actual costs, except costs incurred as a result of actions or
inactions of the government. The Company has completed approximately 3,000
(of approximately 11,000 trucks) trucks at low rate initial production as
of January 31, 1996. Full rate production has been approved and is
expected to commence after completion of retrofit of the trucks produced to
date to current specifications. Stewart & Stevenson has incurred
significant cost overruns and delivery schedule delays on the FMTV contract
which the Company believes are primarily due to the government's decision
to delay the testing of trucks and other government directed changes to the
contract. The Company has and will continue to submit a series of Requests
for Equitable Adjustments (REAs), under the FMTV contract, seeking
increases in the FMTV contract price for those additional costs that relate
to government caused delays and changes. Additionally, the Company has
entered into negotiations with the U.S. Army to modify the existing
contract to provide for steady production at rates lower than originally
anticipated through December 1998. However, the Company is not able to
predict whether such modification will be forthcoming on terms acceptable
to the Company and production of vehicles may be interrupted after February
1997.
Revenues and profits realized on the FMTV contract are based on the
Company's estimates of total contract sales value and costs at completion.
Amounts in excess of agreed upon contract price for government caused
delays, disruptions, unpriced change orders and government caused
additional contract costs are recognized in contract value when the Company
believes it is probable that the claim for such amounts will result in
additional contract revenue and the amount can be reasonably estimated. At
January 31, 1996, the Company's FMTV contract accounting position reflects
the expected recovery of substantial amounts in excess of the contract
price for government caused delays, disruptions, unpriced change orders and
other government caused additional contract costs. These claims are in
varying stages of negotiations. Although management believes that the
contract provides a legal basis for the claims and its estimates are based
on reasonable assumptions and on a reasonable analysis of contract costs,
due to uncertainties inherent in the estimation and claims negotiations
process, no assurances can be given that its estimates will be accurate,
and variances between such estimates and actual results could be material.
In the event that the Company is unable to recover a substantial portion of
the additional costs, the Company may suffer a material adverse effect on
its operations during the accounting period in which such contract issues
are resolved.
The funding of the contract is subject to the inherent uncertainties of
congressional appropriations. As is typical of multi-year defense
contracts, the FMTV contracts must be funded annually by the Department of
the Army and may be terminated at any time for the convenience of the
government. The Company has received full funding for the production of
approximately 7,364 vehicles through February 1997. Approximately 3,524
vehicles, scheduled for production after that date have not been funded due
to reductions in the U.S. Army's budget for acquisitions. In the event
that the FMTV contracts are terminated other than for default, the FMTV
contracts provide for termination charges that will reimburse the Company
for allowable costs, but not necessarily all costs.
Note 7: Debt Arrangements
The Company has informal borrowing arrangements with banks which may be
withdrawn at the banks' option. Borrowings under these credit arrangements
are unsecured, are due within 90 days and bear interest at varying bid and
negotiated rates. On January 31, 1996 and 1995, the amounts outstanding
under these arrangements were $65,000 and $42,000, respectively, with a
weighted average interest rate of 5.95% and 6.30%, respectively.
Long-Term Debt, which is generally unsecured, consists of the following:
______________________________________________________________________________________________
Fiscal Fiscal
1995 1994
______________________________________________________________________________________________
Notes payable to insurance companies:
-10.20%, principal due $1,000 annually to 1998 $ 3,000 $ 4,000
Debt of consolidated limited partnership:
-note payable to a bank, principal due monthly to 1998 (see note 8,900 9,000
below)
Revolving credit notes payable to banks (see note below) 200,000 105,000
Other 0 244
_________ _________
211,900 118,244
Less current portion (1,100) (1,344)
_________ _________
Long-Term Debt $210,800 $116,900
========= =========
The Company has commitments of $200,000 from banks under revolving credit
notes (subject to reduction at the Company's election) which mature on
December 31, 2000. Under the terms of the revolving credit facility, the
commitment fee is .125 of 1% on the daily average unused balance.
Borrowings outstanding under the revolving credit notes bear interest at
various options, the maximum rate being the prime rate. In Fiscal 1992,
the Company entered into an interest rate swap agreement, which expired in
Fiscal 1995, that converted $10,000 of floating rate debt into fixed rate
debt with an interest rate of 4.28%. The net interest paid or received is
included in interest expense.
The Company's unsecured long-term debt was issued pursuant to agreements
containing covenants which impose working capital requirements on the
Company and designated subsidiaries and restrict indebtedness, guarantees,
rentals, dividends and other items. At the close of Fiscal 1995,
approximately $160,894 of retained earnings were available for payment of
dividends under the most restrictive covenant.
As a result of the acquisition of a majority interest in a partnership in
which the Company is a limited partner, the Company's Consolidated
Statements of Financial Position include the debt of this partnership,
which owns the building where the Company's corporate office is located.
Such debt is solely the obligation of the partnership and is secured by the
office building and garage. Interest is payable in monthly installments at
various rates, the maximum rate being 9%.
Interest paid on both long-term and short-term debt during Fiscal 1995,
1994 and 1993 was $13,261, $6,679 and $3,425, respectively. The amounts of
long-term debt which will become due during Fiscal 1996 through 1999, are
approximately: 1996--$1,100; 1997--$1,100; 1998--$9,700, 1999--$0 and
beyond--$200,000.
Note 8: Postretirement Medical Plan
The Company has a postretirement medical plan which covers most of its
employees and provides for the payment of medical costs of eligible
employees and dependents upon retirement. The plan is currently not
funded. The Company expects to continue financing postretirement medical
costs as covered claims are incurred.
Postretirement medical benefit costs includes the following components:
__________________________________________________________________________________________________________
Fiscal Fiscal Fiscal
1995 1994 1993
__________________________________________________________________________________________________________
Service costs - benefits attributed to service during the period $527 $418 $377
Interest cost on accumulated postretirement medical
benefit obligations 620 678 768
Amortization of prior service costs (718) (718) (618)
_____ _____ _____
Net postretirement medical benefit costs $429 $378 $527
===== ===== =====
The status of the plan is as follows:
_____________________________________________________________________________________________________
January 31 January 31
1996 1995
_____________________________________________________________________________________________________
Accrued Postretirement Benefits
Retirees $ 4,642 $ 4,454
Employees eligible to retire 2,073 1,978
Employees not eligible to retire 2,020 1,500
_________ _________
8,735 7,932
Unrecognized prior service cost 4,701 5,328
Unrecognized net gain (loss) 2,018 1,992
_________ _________
$ 15,454 $ 15,252
========= =========
The actuarial assumptions
used are as follows:
____________________________________________________________________________________________________
Fiscal Fiscal
1995 1994
____________________________________________________________________________________________________
S>
Discount Rate 7.25% 8.75%
Health Care Cost Trend 8.50% - 10.00% (a) 9.50% - 11.50% (b)
(a) Gradually declining to 5.00% by 2004
(b) Gradually declining to 5.50% by 2012
Changing the health care cost trend rates by one percentage point would
change the accumulated postretirement medical benefit obligation at January
31, 1996 by approximately $1,151 and the postretirement medical benefit
costs for Fiscal 1995 by approximately $183.
Note 9: Employee Pension and Other Benefit Plans
The Company has a noncontributory defined benefit pension plan covering
substantially all of its full-time employees. The pension benefits are
based on years of service, limited to 45 years, and the employee's highest
consecutive five-year average compensation out of the last ten years of
employment. The Company funds pension costs in conformity with the funding
requirements of applicable government regulations.
The following table sets forth the plan's funded status and amounts
recognized in the Company's statements of financial position:
_____________________________________________________________________________________________
Fiscal Fiscal
1995 1994
_____________________________________________________________________________________________
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$45,809 in 1995 and $34,096 in 1994 $ 48,720 $ 36,028
========= =========
Projected benefit obligation for service rendered to date $(59,767) $(43,764)
Plan assets at market related value and fair value for
Fiscal 1995 and 1994, respectively; primarily publicly
traded stocks and bonds, including 70,956 shares of the
Company's Common Stock at the end of both Fiscal 1995
and 1994 60,929 60,686
_________ _________
Plan assets in excess of projected benefit obligations 1,162 16,922
Unrecognized net (gain) loss from past experience different from 6,674 (9,114)
that assumed
_________ _________
Prepaid pension cost included in Other Assets $ 7,836 $ 7,808
========= =========
Net pension credit includes the following components:
_____________________________________________________________________________________________________
Fiscal Fiscal Fiscal
1995 1994 1993
_____________________________________________________________________________________________________
Service cost -- benefits earned during the year $ 2,187 $ 1,815 $ 2,012
Interest cost on projected benefit obligation 3,800 3,541 3,108
Actual return on plan assets (2,782) (5,494) (4,883)
Amortization of unrecognized net gain (738) (406) (493)
Net amortization and deferrals (2,494) 200 (540)
_________ _________ ________
Net periodic pension credit $ (27) $ (344) $ (796)
========= ========= ========
The actuarial assumptions used are as follows:
____________________________________________________________________________________________________
Fiscal Fiscal
1995 1994
____________________________________________________________________________________________________
Discount Rate 7.25% 8.75%
Long-term rate of return on assets 9.50% 9.50%
Rate of increase in future compensation 4.50 - 5.00% 4.50 - 5.00%
The expected return on plan assets is determined based on the expected
long-term rate of return on plan assets and the market-related value of
plan assets. The market-related value of plan assets for Fiscal 1995 was
determined using the calculated value and for Fiscal 1994 and 1993 using
the fair value. There was no material impact to operating results as a
result of the change.
The Company has an unfunded defined benefit retirement plan for
non-employee directors which provides for payments upon retirement, death,
or disability. Retirement expense for this plan in Fiscal 1995, 1994 and
1993, respectively, was $141, $68 and $164.
The Company has an unfunded supplemental retirement plan for certain
corporate officers. Retirement expense for the plan in Fiscal 1995, 1994
and 1993 was $459, $216 and $290, respectively. Prior service cost not yet
recognized in periodic pension cost was $1,676, $1,804, and $1,208 at
January 31, 1996, 1995 and 1994, respectively.
In January 1994, the Company adopted an employee savings plan, which
qualifies under Section 401(k) of the Internal Revenue Code. Under the
plan, participating employees may contribute up to 15% of their pre-tax
salary, but not more than statutory limits. The Company contributes twenty
five cents for each dollar contributed by a participant, subject to certain
limitations. The Company's matching contribution to the savings plan was
$788, $399 and $13 in Fiscal 1995, 1994 and 1993, respectively.
Effective February 1, 1994, the Company adopted SFAS 112. The statement
requires the accrual of the estimated costs of benefits provided by the
employer to former or inactive employees after employment but prior to
retirement. Adoption of SFAS 112 did not have a material impact upon the
consolidated financial position or results of operations.
Under a nonqualified deferred compensation plan for certain employees, a
portion of eligible employees' discretionary income can be deferred at the
election of the employee. These deferred funds accrue interest payable to
the employee at the prime rate in effect at the end of the fiscal year.
Note 10: Common Stock
Shareholder Rights Plan: The Company has adopted a shareholders rights
plan to protect shareholders against unsolicited attempts to acquire
control of the Company that do not offer what the Company believes to be an
adequate price to all shareholders. The rights were issued to shareholders
of record on March 20, 1995 and will expire on March 20, 2005.
The plan provides for the issuance of one right for each outstanding share
of the Company's Common Stock. The rights become exercisable only if a
person or group acquires 15% or more of the Company's outstanding voting
stock or announces a tender or exchange offer that would result in
ownership of 15% or more of the Company's stock. Each right entitles the
holder to buy one-third of a share of Common Stock at an exercise price of
$30 per right, subject to antidilution adjustments. The Company's Board of
Directors may, at its option, redeem all rights for $.01 per right at any
time prior to the acquisition of 15% or more of the Company's stock by a
person or group. If a person or group acquires 15% or more of the
Company's outstanding voting stock, each right entitle holders, other than
the acquiring party, to purchase shares of the Company's Common Stock
having a market value of twice the exercise price of the right.
The plan also includes an exchange option. If a person or group acquires
15% or more, but less than 50%, of the outstanding voting stock, the Board
of Directors may at its option exchange the rights in whole or in part for
shares of the Company's stock for each two shares of Common Stock for which
a right is then exercisable. This exchange would not apply to shares held
by the person or group holding 15% or more of the Company's voting stock.
If, after the rights have become exercisable, the Company merges or
otherwise combines with another entity, or sells 50% or more of its assets
or earning power, each right then outstanding entitles its holder to
purchase for $30, subject to antidilution adjustments, a number of the
acquiring party's common shares having a market value of twice that amount.
Stock Options: The Stewart & Stevenson Services, Inc. 1988 Nonstatutory
Stock Option Plan, the Stewart & Stevenson Services, Inc. 1993 Nonofficer
Stock Option Plan and the 1994 Director Stock Option Plan authorize the
grant of options to purchase an aggregate of up to 1,800,000, 514,550 and
150,000 shares of Common Stock, respectively, at not less than fair market
value at the date of grant. The options have a term not exceeding ten
years and vest over periods not exceeding four years. Under the terms of
the 1993 Nonofficer Stock Option Plan, the number of options available for
grant increased from 514,550 to 757,150 shares as of February 1, 1996.
Stock option activity under the plans is as follows:
_____________________________________________________________________________________
Shares Option Price
under Range
Option Per Share
____________________________________________________________________________________
Outstanding at end of Fiscal 1992 471,200 $4.75 - $27.75
Granted 178,000 $32.625
Exercised (171,100) $4.75 - $27.75
_________
Outstanding at end of Fiscal 1993 478,100 $13.125 - $32.625
Granted 180,050 $50.25
Exercised (60,750) $13.125 - $32.625
Cancelled (12,225) $18.75 - $50.25
________
Outstanding at end of Fiscal 1994 585,175 $18.75 - $50.25
Granted 386,300 $33.75 and $35.125
Exercised (52,750) $18.75 - $32.625
Cancelled (20,650) $32.625 - $50.25
________
Outstanding at end of Fiscal 1995 898,075 $18.75 - $50.25
========
Options exercisable at end of Fiscal 1995 299,421 $18.75 - $50.25
========
Options available for future grants at the end of
Fiscal 1995 523,875
========
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock Based
Compensation" in October, 1995. SFAS 123 establishes financial accounting
and reporting standards for stock based compensation plans and to
transactions in which an entity issues equity instruments to acquire goods
or services from non-employees. The new accounting standards prescribed by
SFAS 123 are optional and the Company does not expect to adopt the new
accounting standards. Consequently, SFAS 123 will not have a material
impact on the Company's consolidated results of operations or financial
position. Pro Forma disclosures of net earnings and earnings per share
must be made as if SFAS 123 accounting standards had been adopted by the
Company. Such disclosure will be required in Fiscal 1996.
Note 11: Income Taxes
The components of the income tax provision and the income tax payments are
as follows:
_________________________________________________________________________________________
Fiscal Fiscal Fiscal
1995 1994 1993
_________________________________________________________________________________________
Current $ 20,430 $ 2,194 $10,454
Deferred 10,235 32,326 17,545
_________ ________ ________
Income tax provision $ 30,665 $34,520 $27,999
========= ======== ========
Income tax payments (excluding refunds) $ 13,337 $17,422 $11,965
========= ======== ========
A reconciliation between the provision for income taxes and income taxes
computed by applying the statutory U.S. Federal income tax rates of 35% in
Fiscal 1995, 1994 and 1993 is as follows:
TABLE
_________________________________________________________________________________________
Fiscal Fiscal Fiscal
1995 1994 1993
_________________________________________________________________________________________
Provision at statutory rates $32,190 $35,998 $29,856
Other (1,525) (1,478) (1,857)
________ ________ ________
$30,665 $34,520 $27,999
======== ======== ========
The deferred tax liability is determined under the liability method based
on the difference between the financial statement and tax basis of assets
and liabilities as measured by the enacted statutory tax rates and deferred
tax expense is the result of changes in the net liability for deferred
taxes.
The tax effects of the significant temporary differences which comprise the
deferred tax liability at the end of Fiscal 1995 and 1994 are as follows:
__________________________________________________________________________________________
Fiscal Fiscal
1995 1994
__________________________________________________________________________________________
Deferred Tax Assets
Postretirement benefit obligation $ 5,407 $ 5,338
Accrued expenses and other reserves 9,282 11,072
Other 33 54
_________ _________
Gross deferred tax assets 14,722 16,464
_________ _________
Deferred Tax Liabilities
Property, plant and equipment 4,259 4,602
Pension accounting 2,233 2,449
Contract accounting 36,730 34,817
Prepaid expenses and deferred charges 44,485 37,563
Other 9,902 9,685
_________ _________
Gross deferred tax liabilities 97,609 89,116
_________ _________
Net deferred tax liability $ 82,887 $ 72,652
========= =========
Current portion of deferred tax liability $ 76,093 $ 64,614
Non-current portion of deferred tax liability 6,794 8,038
_________ _________
Net deferred tax liability $ 82,887 $ 72,652
========= =========
Note 12: Supplemental Financial Data
Receivables consist of the following:
________________________________________________________________________________________
Fiscal Fiscal
1995 1994
________________________________________________________________________________________
Accounts receivable $193,406 $186,024
Notes receivable 4,551 2,458
Allowance for doubtful accounts (1,409) (1,668)
_________ _________
$196,548 $186,814
========= =========
No single group or customer, other than the U.S. Government, represents
greater than 10% of total accounts receivable. The U.S. Government
accounted for approximately 16.3% and 12.7% of accounts receivable at
January 31, 1996 and 1995, respectively. Due to the large number of
entities and diversity of the Company's customer base, concentration of
credit risk with respect to trade receivables is limited.
Components of property, plant and equipment are as follows:
_______________________________________________________________________________________
Fiscal Fiscal
1995 1994
_______________________________________________________________________________________
Machinery and equipment $126,306 $114,592
Buildings and leasehold improvements 91,298 89,178
Revenue earning assets 12,917 10,556
Accumulated depreciation and amortization (116,436) (98,355)
_________ _________
114,085 115,971
Construction-in-progress 6 1,585
Land 12,964 14,304
_________ _________
$127,055 $131,860
========= =========
Note 13: Consolidated Quarterly Data (unaudited)
_______________________________________________________________________________________________
Fiscal 1995
_______________________________________________________________________________________________
Fourth Third Second First
Quarter Quarter Quarter Quarter
_______________________________________________________________________________________________
Sales $301,340 $323,779 $319,840 $289,022
Gross profit 46,482 47,957 49,949 48,542
Net earnings 13,861 15,000 16,927 16,015
Net earnings per share .42 .45 .51 .49
Fiscal 1994
_______________________________________________________________________________________________
Fourth Third Second First
Quarter Quarter Quarter Quarter
_______________________________________________________________________________________________
Sales $287,815 $304,248 $287,118 $259,155
Gross profit 50,501 47,176 44,215 40,546
Net earnings 18,438 17,603 16,488 15,029
Net earnings per share .56 .53 .50 .46
Note 14: Vulnerability Due To Certain Concentrations
A majority of the Engineered Power Systems Segment sales is derived from
packaging, operating and servicing gas turbine engines manufactured by
General Electric Company ("GE") and European Gas Turbines ("EGT"). The
Company has no reason to believe that its relationship with GE and EGT will
not continue for the foreseeable future. Any interruption of these
relationships, however, would adversely affect the Company.
The Company's principal distribution agreements are subject to termination
by the suppliers for a variety of causes. Although no assurance can be
given that such distribution agreements will be renewed beyond their
expiration dates, they have been renewed regularly.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
In accordance with General Instruction G(3) to Form 10-K, Items 10 through
13 have been omitted since the Company will file with the Commission a
definitive proxy statement complying with Regulation 14A involving the
election of directors not later than 120 days after the close of its fiscal
year. Such information is incorporated herein by reference.
CROSS REFERENCE
Form 10-K Item Caption in Definitive
Number and Caption Proxy Statement
__________________ _____________________
Item 10. Directors and Executive
Officers of the Registrant . . . . Election of Directors;
Executive Officers;
Compliance with
Securities Laws
Item 11. Executive Compensation . . . . . . Election of Directors;
Performance of Stewart
& Stevenson Common
Stock; Report of the
Compensation and
Management Development
Committee; Executive
Compensation
Item 12. Security Ownership of
Certain Beneficial Owners
and Management . . . . . . . . . . Voting Securities and
Ownership Thereof by
Certain Beneficial Owners
and Management
Item 13. Certain Relationships
and Related Transactions . . . . . Transactions with
Management and Certain
Business Relationships
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)1. The following financial statements for Stewart & Stevenson Services
Inc. are filed as a part of this report:
Consolidated Statements of Financial Position--January 31, 1996 and
1995.
Consolidated Statements of Earnings--Years ended January 31, 1996,
1995 and 1994.
Consolidated Statements of Shareholders' Equity--Years ended January
31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows--Years ended January 31, 1996,
1995 and 1994.
Notes to Consolidated Financial Statements.
2. Schedules are omitted because of the absence of conditions under
which they are required or because the information is included in the
financial statements or notes thereto.
3. The Company has several instruments which define the rights of
holders of long-term debt. Except for the instruments listed as
exhibits 4.1, 4.2, 4.3, 4.4 and 4.5 below, the total amount of
securities authorized under any individual instrument with respect to
long-term debt does not exceed 10% of the total assets of the Company
and its subsidiaries on a consolidated basis. The Company agrees to
furnish upon request by the Securities and Exchange Commission any
instruments not filed herewith relating to its long-term debt.
The Company will furnish to any shareholder of record as of April 25,
1995, a copy of any exhibit to this annual report upon receipt of a
written request addressed to Mr. Lawrence E. Wilson, Vice President
and Secretary, P. O. Box 1637, Houston, Texas 77251-1637 and the
payment of $.20 per page with a minimum charge of $5.00 for
reasonable expenses prior to furnishing such exhibits.
The following exhibits are part of this report pursuant to item 601 of
regulation S-K.
3.1 Third Restated Articles of Incorporation of Stewart & Stevenson
Services, Inc., effective as of September 13, 1995
(incorporated by reference to Exhibit 3(a) of the Form 10-Q of
Stewart & Stevenson for the quarterly period ended October 31,
1995 under the Commission File No. 001-11443).
3.2 Fourth Restated Bylaws of Stewart & Stevenson Services, Inc.,
effective as of September 13, 1995 (incorporated by reference to
Exhibit 3(b) of the Form 10-Q of Stewart & Stevenson for the
quarterly period ended October 31, 1995 under the Commission
File No. 001-11443).
4.1 Loan Agreement effective September 3, 1993, between Stewart
Stevenson Services, Inc. and Texas Commerce Bank National
Association and ABN AMRO Bank, N.V., Houston Agency and The Bank
of New York, a New York Banking Corporation and NationsBank of
Texas, National Association. (incorporated by reference to
Exhibit 4.1 of the Form 10-K of Stewart & Stevenson for the
fiscal year ended January 31, 1995 under the Commission File
No. 0-8493).
4.2 Agreement and First Amendment to Loan Agreement effective July
31, 1994, between Stewart & Stevenson Services, Inc. and Texas
Commerce Bank National Association and ABN AMRO Bank, N.V.,
Houston Agency and The Bank of New York, a New York Banking
Corporation and NationsBank of Texas, National Association.
(incorporated by reference to Exhibit 4.2 of the Form 10-K of
Stewart & Stevenson for the fiscal year ended January 31, 1995
under the Commission File No. 0-8493).
4.3 Agreement and Second Amendment to Loan Agreement effective
December 23, 1994, between Stewart & Stevenson Services, Inc.
and Texas Commerce Bank National Association and ABN AMRO Bank,
N.V., Houston Agency and The Bank of New York, a New York
Banking Corporation and NationsBank of Texas, National
Association and Bank of America Illinois, an Illinois Banking
Association and PNC Bank, National Association. (incorporated
by reference to Exhibit 4.3 of the Form 10-K of Stewart &
Stevenson for the fiscal year ended January 31, 1995 under the
Commission File No. 0-8493).
4.4 Agreement and Third Amendment to Loan Agreement effective August
1, 1995, between Stewart & Stevenson Services, Inc. and Texas
Commerce Bank National Association, ABN AMRO Bank, N.V., Houston
Agency, The Bank of New York, NationsBank of Texas, National
Association, Bank of America Illinois and PNC Bank, National
Association. (incorporated by reference to Exhibit 4(d) of the
Form 10-Q of Stewart & Stevenson for the quarterly period ended
October 31, 1995 under the Commission File No. 001-11443).
4.5 Agreement and Fourth Amendment to Loan Agreement effective
November 30, 1995, between Stewart & Stevenson Services, Inc.
and Texas Commerce Bank National Association, ABN AMRO Bank,
N.V., Houston Agency, The Bank of New York, NationsBank of
Texas, National Association, Bank of America Illinois and PNC
Bank, National Association. (incorporated by reference to
Exhibit 4(e) of the Form 10-Q of Stewart & Stevenson for the
quarterly period ended October 31, 1995 under the Commission
File No. 001-11443).
4.6 Rights Agreement effective March 13, 1995, between Stewart &
Stevenson Services, Inc. and The Bank of New York (incorporated
by reference to Exhibit 1 of the Form 8-A Registration Statement
of Stewart & Stevenson under the Commission File No. 001-11443).
10.1 Lease Agreement effective January 1, 1988, between Miles McInnes
and Faye Manning Tosch, as Lessors, and the Company, as Lessee
(incorporated by reference to Exhibit 10.3 of the Form 10-K of
Stewart & Stevenson for the fiscal year ended January 31, 1994
under the Commission File No. 0-8493).
*10.2 Distributor Sales and Service Agreement effective January 1,
1996, between the Company and Detroit Diesel Corporation.
10.3 Contract Number DAAE07-92-R001 dated October 11, 1991 between
Stewart & Stevenson Services, Inc. and the United States
Department of Defense, U.S. Army Tank-Automotive Command, as
modified (incorporated by reference to Exhibit 28.1 of the Form
S-3 Registration Statement of Stewart & Stevenson under the
Commission File No. 33-44149).
10.4 Contract Number DAAE07-92-R002 dated October 15, 1991 between
Stewart & Stevenson Services, Inc. and the United States
Department of Defense, U.S. Army Tank-Automotive Command, as
Modified (incorporated by reference to Exhibit 28.2 of the Form
S-3 Registration Statement of Stewart & Stevenson under the
Commission File No. 33-44149).
10.5 Stewart & Stevenson Services, Inc. Deferred Compensation Plan
dated as of December 31, 1979 (incorporated by reference to
Exhibit 10.8 of the Form 10-K of Stewart & Stevenson for the
fiscal year ended January 31, 1994 under the Commission File
No. 0-8493).
10.6 Stewart & Stevenson Services, Inc. 1988 Nonstatutory Stock
Option Plan (incorporated by reference to Exhibit 10.9 of the
Form 10-K of Stewart & Stevenson for the fiscal year ended
January 31, 1994 under the Commission File No. 0-8493).
10.7 Amendment No. 1 to Stewart & Stevenson Services, Inc. 1988
Nonstatutory Stock Option Plan, dated September 11, 1990
(incorporated by reference to Exhibit 10.10 of the Form 10-K of
Stewart & Stevenson for the fiscal year ended January 31, 1994
under the Commission File No. 0-8493).
10.8 Stewart & Stevenson Services, Inc. Supplemental Executive
Retirement Plan (incorporated by reference to Exhibit 10.11 of
the Form 10-K of Stewart Stevenson for the fiscal year ended
January 31, 1994 under the Commission File No. 0-8493).
10.9 Stewart & Stevenson Services, Inc. 1994 Director Stock Option
Plan (incorporated by reference to Exhibit 4.1 of the Form S-8
Registration Statement of Stewart & Stevenson under the
Commission File No. 33-58685).
*21.1 List of Subsidiaries.
*23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
*27.1 Financial Data Schedule.
____________
* Filed with this report.
(b) The following reports on Form 8-K were filed during the three
months ended January 31, 1996.
Form 8-K Reporting Date November 8, 1995.
Items Reported - Item 5. Other Events (Interim Agreement ending
suspension).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized on the
9th day of April, 1996.
STEWART & STEVENSON SERVICES, INC.
By /s/ Robert L. Hargrave
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 9th day of April, 1996.
/s/ Robert L. Hargrave
Robert L. Hargrave Bob H. O'Neal
Director, Principal Executive Officer Director
and Principal Financial Officer
/s/ C. Jim Stewart II /s/ J. Carsey Manning
C. Jim Stewart II J. Carsey Manning
Director Director
/s/ Donald E. Stevenson /s/ Robert H. Parsley
Donald E. Stevenson Robert H. Parsley
Director Director
/s/ Jack W. Lander, Jr. /s/ Jack T. Currie
Jack W. Lander, Jr. Jack T. Currie
Director Director
/s/ Robert S. Sullivan /s/ Richard R. Stewart
Robert S. Sullivan Richard R. Stewart
Director Director
/s/ Orson C Clay /s/ Brian H. Rowe
Orson C Clay Brian H. Rowe
Director Director
EXHIBIT INDEX
Filed with Incorporated by Reference
Exhibit Number and Description this report From Date File Exhibit
______________________________ ___________ ____ ____ ____ _______
10.2 Distributor Sales and Service Agreement
effective January 1, 1996, between the
Company and Detroit Diesel Corporation. *
21.1 List of subsidiaries. *
23.1 Consent of Arthur Andersen LLP,
Independent Public Accountants. *
27.1 Financial Data Schedule. *
1