FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1994
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)
(713) 868-7700
(Registrant's telephone number, including area code)
not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, Without Par Value 32,992,815 Shares
(Class) (Outstanding at October 31, 1994)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following information required by Rule 10-01 of Regulation S-X is provided
herein for Stewart & Stevenson Services, Inc. and Subsidiaries (the "Company"):
Consolidated Condensed Statement of Financial Position -- October 31, 1994 and
January 31, 1994.
Consolidated Condensed Statement of Earnings -- Nine Months and Three Months
Ended October 31, 1994 and 1993.
Consolidated Condensed Statement of Cash Flows -- Nine Months Ended October 31,
1994 and 1993.
Notes to Consolidated Condensed Financial Statements.
<TABLE>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
<CAPTION>
October 31 January 31
1994 1994
_____________ _____________
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 3,955 $ 7,788
Accounts and notes receivable 164,669 147,292
Recoverable costs and accrued profits
not yet billed 169,892 115,868
Inventories:
Engineered Power Systems 233,870 217,180
Distribution 107,024 98,885
Adjustments to a LIFO Basis (49,899) (46,460)
____________ ____________
290,995 269,605
Other 800 224
____________ ____________
TOTAL CURRENT ASSETS 630,311 540,777
PROPERTY, PLANT AND EQUIPMENT 226,781 208,661
Allowances for depreciation and
amortization (96,587) (82,188)
____________ ____________
130,194 126,473
OTHER ASSETS 28,408 25,374
____________ ____________
$788,913 $692,624
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 41,000 $ 5,000
Accounts payable 153,401 131,780
Billings on uncompleted contracts in
excess of incurred costs 17,268 31,088
Current income taxes 37,425 27,931
Other current liabilities 44,817 45,387
____________ ____________
TOTAL CURRENT LIABILITIES 293,911 241,186
LONG-TERM DEBT--less current portion 68,000 68,000
DEFERRED INCOME TAXES 4,656 5,868
ACCRUED POSTRETIREMENT BENEFITS 15,028 15,028
DEFERRED COMPENSATION 4,555 3,884
SHAREHOLDERS' EQUITY
Common Stock, without par value, 50,000,000
shares authorized; 33,004,635 and 32,948,885
shares issued at October 31, 1994 and January
31, 1994, respectively, including 11,820
shares held in treasury 161,945 160,366
Retained earnings 240,851 198,325
____________ ____________
402,796 358,691
Less cost of treasury stock (33) (33)
____________ ____________
TOTAL SHAREHOLDERS' EQUITY 402,763 358,658
____________ ____________
$788,913 $692,624
============ ============
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(In thousands, except per share data)
<CAPTION>
Nine Months Ended Three Months Ended
October 31 October 31
____________________________ ____________________________
1994 1993 1994 1993
____________ ____________ ____________ ____________
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $850,521 $737,230 $304,248 $259,141
Cost of sales 718,584 624,651 257,072 218,274
____________ ____________ ____________ ____________
Gross profit 131,937 112,579 47,176 40,867
Selling and administrative
expenses 54,619 50,780 19,284 18,106
Interest expense 4,103 2,254 1,804 766
Other income (1,568) (821) (695) (448)
____________ ____________ ____________ ____________
57,154 52,213 20,393 18,424
____________ ____________ ____________ ____________
Earnings before income taxes 74,783 60,366 26,783 22,443
Income taxes 25,107 20,381 9,014 8,327
____________ ____________ ____________ ____________
Earnings of consolidated
companies 49,676 39,985 17,769 14,116
Equity in net earnings (loss)
of unconsolidated affiliates (556) (36) (166) (48)
____________ ____________ ____________ ____________
Net earnings $ 49,120 $ 39,949 $ 17,603 $ 14,068
============ ============ ============ ============
Weighted average number of
shares of Common Stock
outstanding 32,966 32,839 32,988 32,894
============ ============ ============ ============
Net earnings per share $ 1.49 $ 1.22 $ .53 $ .43
============ ============ ============ ============
Cash dividends per share $ .20 $ .17 $ .07 $ .06
============ ============ ============ ============
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Nine Months Ended
October 31
______________________________
1994 1993
_____________ _____________
(Unaudited)
<S> <C> <C>
Operating Activities
Net earnings $ 49,120 $ 39,949
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation and amortization 17,233 15,330
Deferred income taxes (1,212) (346)
Change in operating assets and liabilities:
Receivables (17,377) 914
Recoverable costs and accrued profits not
yet billed (54,024) (27,188)
Inventories (21,390) (50,794)
Accounts payable 21,621 (19,185)
Billings on uncompleted contracts in excess
of incurred costs (13,820) 20,546
Current income taxes 9,494 10,455
Other current liabilities 352 6,097
Other--principally long-term assets and liabilities (3,189) (1,271)
_____________ _____________
Net Cash Used By Operating Activities (13,192) (5,493)
Investing Activities
Expenditures for property, plant and equipment (21,919) (25,684)
Disposal of property, plant and equipment 1,215 524
_____________ _____________
Net Cash Used By Investing Activities (20,704) (25,160)
Financing Activities
Additions to long-term borrowings 35,290 167,738
Payments on long-term borrowings (36,212) (148,185)
Borrowings and payments on short-term notes payable 36,000 -0-
Dividends paid (6,594) (5,586)
Exercise of stock options 1,579 2,752
_____________ _____________
Net Cash Provided By Financing Activities 30,063 16,719
_____________ _____________
Decrease in cash and equivalents (3,833) (13,934)
Cash and equivalents, February 1 7,788 21,939
_____________ _____________
Cash and equivalents, October 31 $ 3,955 $ 8,005
============= =============
Supplemental disclosure of cash flow information:
Net cash paid during the period for:
Interest payments $ 3,880 $ 2,203
Income tax payments $ 16,465 $ 8,923
See accompanying notes to consolidated condensed financial statements.
</TABLE>
STEWART & STEVENSON SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note A--Basis of Presentation and Significant Accounting Policies
The accompanying consolidated condensed financial statements have been prepared
in accordance with Rule 10-01 of Regulation S-X for interim financial
statements required to be filed with the Securities and Exchange Commission and
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. However, the
information furnished reflects all normal recurring adjustments which are, in
the opinion of management, necessary for a fair statement of the results for
the interim periods. The results of operations for the nine and three months
ended October 31, 1994 are not necessarily indicative of the results that will
be realized for the fiscal year ending January 31, 1995.
The accounting policies followed by the Company in preparing interim
consolidated financial statements are similar to those described in the "Notes
to Consolidated Financial Statements" in the Company's January 31, 1994 Form
10-K.
The Company's fiscal year begins on February 1 of the year indicated and ends
on January 31 of the following year. For example, "Fiscal 1994" commenced on
February 1, 1994 and ends on January 31, 1995.
Net earnings per share of Common Stock were computed by dividing net earnings
by the weighted average number of shares outstanding. Common Stock equivalents
(outstanding options to purchase shares of Common Stock) were excluded from the
computations as they were insignificant. The weighted average number of shares
outstanding for the nine and three months ended October 31, 1994 includes
55,750 and 17,375 shares, respectively, issued pursuant to exercise of stock
options.
Note B--Financing Arrangements
On October 5, 1994 the Company amended its loan agreement for revolving credit
notes with banks ($55,000,000 subject to reduction at the Company's election)
to extend the maturity date to July 31, 1997 and reduce the commitment fee to
.15 of 1% on the daily average unused balance during the revolving period.
Borrowings outstanding under the revolving credit loan bear interest at various
options, the maximum rate being the prime rate. The revolving credit loan was
issued pursuant to an agreement containing covenants which impose a minimum net
worth on the company and restrict indebtedness and other items. Such covenants
are similar to those in effect under the Company's other long-term debt
agreements.
Note C--Commitments and Contingencies
The Company has been advised that on January 5, 1993, a former consultant of
the Company filed a suit 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 incurred in
connection with a change order under a 1987 government subcontract. 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 the U. S.
Attorney's office. The suit alleges damages of $21 million plus unspecified
penalties. The Company has denied any wrongdoing in connection with the
pricing of the change order and believes that the case will be resolved, if a
lawsuit is served on the Company, without any material effect on the financial
position, net worth or results of operations of the Company.
The Company is a defendant in a number of other lawsuits of the type normally
associated with the Company's business and involving claims for damages.
Management is of the opinion that such lawsuits will not result in any material
liability to the Company.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the fiscal year
ended January 31, 1994.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
sales represented by certain items reflected in the Company's Consolidated
Condensed Statement of Earnings.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
October 31 October 31
1994 1993 1994 1993
_________ _________ _________ _________
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 84.5 84.7 84.5 84.2
_________ _________ _________ _________
Gross profit 15.5 15.3 15.5 15.8
Selling and administrative
expenses 6.4 6.9 6.3 7.0
Interest expense .5 .3 .6 .3
Other income (.2) (.1) (.2) (.2)
_________ _________ _________ _________
6.7 7.1 6.7 7.1
_________ _________ _________ _________
Earnings before income taxes 8.8 8.2 8.8 8.7
Income taxes 2.9 2.8 2.9 3.2
_________ _________ _________ _________
Earnings of consolidated
companies 5.9 5.4 5.9 5.5
Equity in net earnings (loss)
of unconsolidated affiliates (.1) .0 (.1) .0
_________ _________ _________ _________
Net earnings 5.8% 5.4% 5.8% 5.5%
========= ========= ========= =========
</TABLE>
Sales for the first nine months of the year ending January 31, 1995 ("Fiscal
1994") increased 15.4% to $850,521,000 compared to sales of $737,230,000 for
the same period in the year ended January 31, 1994 ("Fiscal 1993"). The
Tactical Vehicle Systems (TVS) segment was the primary contributor to the
Company's sales growth as its sales increased $84,332,000 (172%) for the first
nine months of Fiscal 1994 compared to the same period in Fiscal 1993. The
increase in TVS sales reflects the increase in truck production under the
"Family of Medium Tactical Vehicles" (FMTV) contract to 1,046 trucks in Fiscal
1994 compared to 262 trucks in Fiscal 1993. Excluding transit product sales
which were discontinued in Fiscal 1993, the Engineered Power Systems (EPS)
segment sales increased $40,449,000 (9%) for the first nine months of Fiscal
1994 compared to the same period in Fiscal 1993. This growth was driven by the
gas turbine division, as the operations and maintenance group continued its
strong performance with sales for the first nine months of Fiscal 1994
exceeding sales over the same period in Fiscal 1993 by 48%. Turbine-driven
generator sales increased slightly compared to the first nine months of Fiscal
1993. Within the diesel group, airline product sales continue to be
outstanding reflecting the successful integration of two additional product
lines which were acquired in the second quarter of Fiscal 1993. The
Distribution segment also continued its steady growth which is attributable to
the improving economy in the markets and territories serviced and expanded
product lines.
Sales for the third quarter of Fiscal 1994 increased 17.4% to $304,248,000
compared to sales of $259,141,000 during the third quarter of Fiscal 1993. The
TVS segment and EPS segment contributed to this increase. TVS segment sales
increased $23,575,000 (98%) for the third quarter of Fiscal 1994 compared to
the same period in Fiscal 1993. Truck production under the FMTV contract was
331 trucks in the third quarter of Fiscal 1994, compared to 478 and 237 for the
second and first quarters of Fiscal 1994, respectively. The third quarter
reduced production rate is mainly the result of model changes requested by the
U. S. Army. EPS segment sales increased $20,906,000 (14%) for the third
quarter of Fiscal 1994 compared to the same period in Fiscal 1993. This
increase is mainly attributable to the gas turbine product lines as production
of turbine-driven generators and the aftermarket revenues from operations and
maintenance contracts increased over the same period in Fiscal 1993. Within
the diesel group, petroleum equipment sales rebounded in the third quarter,
resulting in a 27% sales increase over the third quarter of Fiscal 1993. The
Distribution segment sales increase of 6% over the third quarter of Fiscal 1993
is consistent with the increase in the first half of Fiscal 1994.
Gross profit margins for the first nine months and third quarter of Fiscal 1994
remained consistent with the same periods in Fiscal 1993.
Selling and administrative expenses incurred by the Company during the first
nine months and third quarter of Fiscal 1994 increased 7.6% and 6.5%,
respectively, when compared to the same periods in Fiscal 1993, primarily due
to increases in spending levels associated with the increased sales volume.
However, selling and administrative expenses for the first nine months and
third quarter of Fiscal 1994 have declined as a percentage of sales to 6.4% and
6.3%, respectively, as compared to 6.9% and 7.0% for the same periods in Fiscal
1993.
Interest expense as a percentage of sales for the first nine months and third
quarter of Fiscal 1994 increased over the same periods in Fiscal 1993 due to an
increase in both outstanding debt and interest rates.
Net earnings of $49,120,000 ($1.49 per share) and $17,603,000 ($.53 per share)
for the first nine months and third quarter of Fiscal 1994, respectively,
represent 23% and 25% increases over the same periods in Fiscal 1993. This
growth in earnings is primarily the result of the increases in sales discussed
above.
FMTV CONTRACT STATUS
The Company has been requested by the U. S. Government to rebaseline the FMTV
contract to consolidate the pending and submitted contract change requests
related to government directed changes and delays. Rebaselining involves
establishment of an updated contract schedule and a repricing of the contract.
The Company expects to begin the negotiation of this rebaselining during the
fourth quarter of Fiscal 1994. During the third quarter, the Company was
notified that the U. S. Government had experienced an interruption in its
testing of the FMTV trucks due to the redeployment of testing personnel to more
urgent military matters. This interruption precipitated a government request
to the Company to reduce FMTV production levels through August 1995. Finally,
the Company anticipates that during Fiscal 1995, the government may request
modification to the contract to spread the Fiscal 1994, 1995, and 1996 contract
quantities of trucks over a longer time period, possibly into Fiscal 1998.
UNFILLED ORDERS
The Company'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 October 31, 1994, and at the close of Fiscal 1993 were as follows:
<TABLE>
____________________________________________________________________________________________
<CAPTION>
October 31 January 31
1994 1994
____________________________________________________________________________________________
(Dollars in millions)
<S> <C> <C>
Engineered Power Systems
Equipment $ 420.9 $ 491.5
Operations and Maintenance 264.5 269.7
________ ________
685.4 761.2
Distribution 45.9 32.6
Tactical Vehicle Systems 1,032.2 1,119.5
________ ________
$1,763.5 $1,913.3
======== ========
</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 because of the large 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.
CAPITAL EXPENDITURES AND COMMITMENTS
Capital spending for property, plant and equipment totalled $21,919,000 in the
first nine months of Fiscal 1994 compared to $25,684,000 in the same period of
Fiscal 1993. Total capital expenditures for Fiscal 1994 includes approximately
$3,780,000 associated with the acquisition of Creole. The overall reduction in
capital expenditures during Fiscal 1994 in comparison to Fiscal 1993 reflects
the substantial completion of both the capital expenditure program for the TVS
segment and the program to upgrade EPS segment facilities during Fiscal 1993.
LIQUIDITY AND SOURCES OF CAPITAL
Long-term borrowings at October 31, 1994 were unchanged from the end of Fiscal
1993. The Company has $55,000,000 in committed credit facilities, which were
fully utilized as of October 31, 1994. The Company also has additional banking
relationships which provide uncommitted borrowing arrangements. These short-
term borrowings increased to $41,000,000 at October 31, 1994 as compared to
$5,000,000 at the end of Fiscal 1993. The increase in overall borrowing levels
is primarily attributable to increased working capital needs of the gas turbine
operations of the EPS segment which fluctuate significantly depending on the
progress payment streams of the contracts-in-process. The Company regularly
bids on large commercial and military contracts which, if awarded to the
Company, could significantly affect both working capital and capital
expenditure needs. The Company may expand its Distribution and Engineered
Power Systems segments by selective acquisition of additional distribution
territories and product lines. In November 1994, the Company signed an
agreement for the acquisition of Power Application & Mfg. Co., a Waukesha
distributor for the western United States, for approximately $17,600,000. Such
activities have created a need for working capital and capital expenditures in
excess of existing committed lines of credit. The Company plans to increase
its committed credit facilities to adequately meet its foreseeable cash
requirements.
ACCOUNTING DEVELOPMENTS
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112 "Employers' Accounting for
Postemployment Benefits" (SFAS 112), which is effective for fiscal years
beginning after December 15, 1993. The effect of initially applying this
statement is to be reported as the effect of a change in accounting principle.
This new statement will require accrual of postemployment benefits during the
years an employee provides services. The Company anticipates adoption of the
new standard in the fourth quarter of Fiscal 1994, and management's initial
estimates indicate that SFAS 112 will not have a material impact on the
Company's financial position or results of operations.
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
(a) Inapplicable.
(b) Note B to the consolidated condensed financial statements in Part I of
this report is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as a part of this report pursuant to
Item 601 of Regulation S-K.
4 Agreement to File Loan Agreement
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months ended October
31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STEWART & STEVENSON SERVICES, INC.
Date: December 2, 1994 By: /s/ Robert L. Hargrave
_________________ _______________________
Robert L. Hargrave
Group Vice President, Chief Financial
Officer & Treasurer
(Principal Financial Officer)
EXHIBIT INDEX
Exhibit Number and Description
4 Agreement to File Loan Agreement
27 Financial data schedule
EXHIBIT 4
The Company has several instruments which define the rights of holders of long-
term debt. As of October 31, 1994, the total of all 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. Accordingly, such instruments and any amendments thereto are not filed
as a part of this report. The Company agrees to furnish upon request of the
Securities and Exchange Commission any instruments not filed herewith relating
to its long-term debt.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> OCT-31-1994
<CASH> 3,955
<SECURITIES> 0
<RECEIVABLES> 164,669
<ALLOWANCES> 0
<INVENTORY> 460,887
<CURRENT-ASSETS> 630,311
<PP&E> 226,781
<DEPRECIATION> (96,587)
<TOTAL-ASSETS> 788,913
<CURRENT-LIABILITIES> 293,911
<BONDS> 68,000
<COMMON> 161,945
0
0
<OTHER-SE> 240,818
<TOTAL-LIABILITY-AND-EQUITY> 788,913
<SALES> 850,521
<TOTAL-REVENUES> 850,521
<CGS> 718,584
<TOTAL-COSTS> 718,584
<OTHER-EXPENSES> 57,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,103
<INCOME-PRETAX> 74,783
<INCOME-TAX> 25,107
<INCOME-CONTINUING> 49,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,120
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.49
</TABLE>
