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 April 30, 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 32,945,190 Shares
(Class) (Outstanding at April 30, 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 -- April 30, 1994 and
January 31, 1994.
Consolidated Condensed Statement of Earnings -- Three Months Ended April 30,
1994 and 1993.
Consolidated Condensed Statement of Cash Flows -- Three Months Ended April 30,
1994 and 1993.
Notes to Consolidated Condensed Financial Statements.
<TABLE>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
<CAPTION>
April 30 January 31
1994 1994
___________ ___________
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 2,408 $ 7,788
Accounts and notes receivable 167,798 147,292
Recoverable costs and accrued profits
not yet billed 119,633 115,868
Inventories:
Engineered Power Systems 180,872 217,180
Distribution 97,382 98,885
Adjustments to a LIFO Basis (47,555) (46,460)
___________ ___________
230,699 269,605
Other 1,996 224
___________ ___________
TOTAL CURRENT ASSETS 522,534 540,777
PROPERTY, PLANT AND EQUIPMENT 214,309 208,661
Allowances for depreciation and
amortization (86,895) (82,188)
___________ ___________
127,414 126,473
OTHER ASSETS 29,122 25,374
___________ ___________
$679,070 $692,624
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 30,000 $ 5,000
Accounts payable 91,231 131,780
Billings on uncompleted contracts in
excess of incurred costs 19,264 31,088
Current income taxes 33,992 27,931
Other current liabilities 40,017 45,387
___________ ___________
TOTAL CURRENT LIABILITIES 214,504 241,186
LONG-TERM DEBT--less current portion 68,000 68,000
DEFERRED INCOME TAXES 5,436 5,868
ACCRUED POSTRETIREMENT BENEFITS 15,028 15,028
DEFERRED COMPENSATION 4,096 3,884
SHAREHOLDERS' EQUITY
Common Stock, without par value, 50,000,000 shares
authorized; 32,957,010 and 32,948,885 shares
issued at April 30, 1994 and January 31, 1994,
respectively, including 11,820 shares held in
treasury 160,661 160,366
Retained earnings 211,378 198,325
___________ ___________
372,039 358,691
Less cost of treasury stock (33) (33)
___________ ___________
TOTAL SHAREHOLDERS' EQUITY 372,006 358,658
___________ ___________
$679,070 $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>
Three Months Ended
April 30
__________________________
1994 1993
___________ ___________
(Unaudited)
<S> <C> <C>
Sales $259,155 $220,153
Cost of sales 218,609 186,465
___________ ___________
Gross profit 40,546 33,688
Selling and administrative expenses 17,234 15,413
Interest expense 1,039 754
Other income (557) (330)
___________ ___________
17,716 15,837
___________ ___________
Earnings before income taxes 22,830 17,851
Income taxes 7,596 5,710
___________ ___________
Earnings of consolidated companies 15,234 12,141
Equity in net loss of
unconsolidated affiliates (205) (49)
___________ ___________
Net earnings $ 15,029 $ 12,092
=========== ===========
Weighted average number of shares
of Common Stock outstanding 32,942 32,783
=========== ===========
Net earnings per share $ .46 $ .37
=========== ===========
Cash dividends per share $ .06 $ .05
=========== ===========
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Three Months Ended
April 30
_____________________________
1994 1993
___________ ___________
(Unaudited)
<S> <C> <C>
Operating Activities
Net earnings $ 15,029 $ 12,092
Adjustments to reconcile net earnings to
net cash used in operating activities:
Depreciation and amortization 5,700 4,775
Deferred income taxes (432) 196
Other--principally long-term
assets and liabilities (5,477) (408)
Change in operating assets and
liabilities (36,791) (27,410)
___________ ___________
Net Cash Used In Operating Activities (21,971) (10,755)
Investing Activities
Expenditures for property, plant and
equipment (6,742) (8,420)
Disposal of property, plant and equipment 270 167
___________ ___________
Net Cash Used In Investing Activities (6,472) (8,253)
Financing Activities
Additions to long-term borrowings 25,216 52,000
Payments on long-term borrowings (25,472) (50,201)
Borrowings and payments on short-term
notes payable 25,000 -0-
Dividends paid (1,976) (1,640)
Exercise of stock options 295 296
___________ ___________
Net Cash Provided By Financing
Activities 23,063 455
___________ ___________
Decrease in cash and equivalents (5,380) (18,553)
Cash and equivalents, February 1 7,788 21,939
___________ ___________
Cash and equivalents, April 30 $ 2,408 $ 3,386
=========== ===========
Supplemental disclosure of cash flow
information:
Net cash paid during the period for:
Interest payments $ 867 $ 694
Income tax payments $ 2,206 $ 535
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 three
months ended April 30, 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 three months ended April 30, 1994
includes 8,125 shares issued pursuant to exercise of stock options.
Note B--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 a
determination as to whether the Department of Justice will intervene and
pursue the matter on behalf of the United States. 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 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.
In connection with the sale of gas turbine engine-driven equipment and the
execution of an operating and maintenance contract, the Company has entered
into an agreement with a bank under which the Company will repurchase a power
plant in the event that the owner defaults in the repayment of the loan
secured by the power plant. The repurchase obligation runs for eight years
from the date of commercial operation of the power plant and specifies a
repurchase price not to exceed $29 million.
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>
Three Months Ended
April 30
1994 1993
________ ________
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 84.4 84.7
________ ________
Gross profit 15.6 15.3
Selling and administrative expenses 6.6 7.0
Interest expense .4 .3
Other income (.2) (.1)
________ ________
6.8 7.2
________ ________
Earnings before income taxes 8.8 8.1
Income taxes 2.9 2.6
________ ________
Earnings of consolidated companies 5.9 5.5
Equity in net earnings of unconsolidated affiliates (.1) .0
________ ________
Net earnings 5.8% 5.5%
======== ========
</TABLE>
Sales for the first quarter of Fiscal 1994 increased 17.7% to $259,155,000
compared to sales of $220,153,000 for the same period in Fiscal 1993. The
Company's Engineered Power Systems (EPS) and Tactical Vehicle Systems (TVS)
segments were the primary contributors to this increase. The EPS and TVS
segments increased sales $18,533,000 (13.3%) and $17,810,000 (215.8%)
respectively, for the first quarter of Fiscal 1994 compared to Fiscal 1993.
The growth in the EPS segment sales is attributed to the gas turbine product
lines. The number of contracts for turbine-driven products and the
aftermarket revenues from operations and maintenance contracts produced a
17.6% growth rate in gas turbine products. The EPS segment was restrained by
a lack of sales in the bus product line which was discontinued in the second
half of Fiscal 1993, but which recorded sales of $9,341,000 during the first
quarter of Fiscal 1993. The TVS segment has moved from test production in the
first quarter of Fiscal 1993 to production of 237 trucks in the first quarter
of Fiscal 1994. The Company expects 2,400 trucks to be completed in Fiscal
1994.
Gross profit margins for the first three months of Fiscal 1994 were consistent
with the same period in Fiscal 1993.
Selling and administrative expenses incurred by the Company during the three
months ended April 30, 1994 increased 11.8% when compared to the same period
in Fiscal 1993, but have grown at a much slower rate than sales. When
analyzed as a percentage of sales, selling and administrative expenses have
declined to 6.6% of sales in the first quarter of Fiscal 1994 as compared to
7.0% of sales in the first quarter of Fiscal 1993.
Interest expense for the three months ended April 30, 1994 was up 37.8% over
the same period in Fiscal 1993 due primarily to an increase in both
outstanding debt and interest rates.
The net earnings of $15,029,000 ($.46 per share) for the three months ended
April 30, 1994 represents a 24.3% increase compared to $12,092,000 ($.37 per
share) for the three months ended April 30, 1993. This growth in earnings is
primarily a result of the increase in sales discussed above.
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 April 30, 1994, and at the close of Fiscal 1993
were as follows:
<TABLE>
______________________________________________________________________________________________
<CAPTION>
April 30, January 31,
1994 1994
______________________________________________________________________________________________
(Dollars in millions)
<S> <C> <C>
Engineered Power Systems
Equipment . . . . . . . . . . . . $ 516.9 $ 491.5
Operations and Maintenance . . . 266.3 269.7
___________ ___________
783.2 761.2
Distribution . . . . . . . . . . . 27.8 32.6
Tactical Vehicle Systems . . . . . 1,093.4 1,119.5
___________ ___________
Total . . . . . . . . . . . . . . $1,904.4 $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 need for additional electrical generating capacity in the United
States and in many foreign countries.
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 (the "Family of Medium
Tactical Vehicles" or "FMTV").
CAPITAL EXPENDITURES AND COMMITMENTS
Capital spending for property, plant and equipment totalled $6,742,000 in the
first quarter of Fiscal 1994 compared to $8,420,000 in the first quarter of
Fiscal 1993. This decrease in the first quarter of 1994 reflects the return
to historical capital expenditure levels after expansion programs at the EPS
and TVS segment locations during the two previous fiscal years.
LIQUIDITY AND SOURCES OF CAPITAL
Long-term borrowings at April 30, 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 April 30, 1994. The Company also has additional banking
relationships which provide uncommitted borrowing arrangements. These short-
term borrowings increased to $30,000,000 at April 30, 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 and the TVS 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 the event that such
activities create a need for working capital or capital expenditures in excess
of existing committed lines of credit, the Company may seek to convert its
uncommitted borrowing arrangements to committed credit facilities, to borrow
under other long-term financing sources or to issue additional equity
securities. The Company's current credit facilities appear adequate to 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" (FASB 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 FASB 112 will not have a material impact on the
Company's financial position or results of operations.
PART II. OTHER INFORMATION
All items within Part II of this report are not applicable.
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: June 2, 1994 By: /s/ Robert L. Hargrave
Robert L. Hargrave
Group Vice President, Chief Financial
Officer & Treasurer
(Principal Financial Officer)
