SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-K/A
Amendment No. 1
(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, 1994 ("Fiscal 1993") 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. [X]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant.
$1,289,619,649
(As of February 28, 1994)
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 32,937,065 Shares
(Class) (Outstanding at February 28, 1994)
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K
__________ __________________
Proxy Statement for the 1994 Annual Meeting of Shareholders Part III
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock is traded in the over-the-counter market and listed
in the NASDAQ National Market (Symbol: SSSS). There were 813 shareholders of
record as of February 28, 1994. The following table sets forth the high and
low sales prices relating to the Company's Common Stock and the dividends paid
by the Company in each quarterly period within the last two fiscal years of
the Company.
<TABLE>
<CAPTION>
Fiscal Fiscal
1993 1992
______________________________ ______________________________
High Low Dividend High Low Dividend
______ ______ ________ ______ ______ ________
<S> <C> <C> <C> <C> <C> <C>
First Quarter 38 1/2 28 0.05 30 22 5/8 0.04
Second Quarter 46 3/4 35 3/4 0.06 30 1/4 22 0.05
Third Quarter 51 3/4 42 1/2 0.06 32 3/4 26 1/4 0.05
Fourth Quarter 53 3/4 44 1/4 0.06 37 3/4 29 3/4 0.05
</TABLE>
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. During Fiscal 1992 the
Company adopted both the Statement of Financial Accounting Standards No. 106
"Employers' Accounting For Postretirement Benefits Other Than Pensions" (SFAS
106), and the Statement of Financial Accounting Standards No. 109 "Accounting
For Income Taxes" (SFAS 109).
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>
<CAPTION>
Relationship to Period to Period
Consolidated Sales Increase (Decrease)
Fiscal Year Fiscal Year
____________________________ ______________________
1993 1992 1991 1992-1993 1991-1992
________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 20.8% 18.4%
Cost of sales 84.1 84.4 83.0 20.4 20.4
_______________________________________________________
Gross profit 15.9 15.6 17.0 23.2 8.6
Selling and administrative expenses 7.0 7.5 8.8 11.7 .9
Interest expense .3 .5 1.0 (10.2) (45.6)
Other income (.1) (.3) (.4) (62.6) (13.1)
_______________________________________________________
7.2 7.7 9.4 13.5 (3.3)
_______________________________________________________
Earnings before income taxes and accounting change 8.7 7.9 7.6 32.5 23.2
Income taxes 2.9 2.5 2.4 35.9 22.8
_______________________________________________________
Earnings of consolidated companies 5.8 5.4 5.2 30.9 23.4
Equity in net earnings (loss) of unconsolidated affiliates .0 .0 .0 N/A (18.3)
_______________________________________________________
Earnings before change in accounting 5.8 5.4% 5.2% 29.2% 23.1%
=======================================================
</TABLE>
RESULTS OF OPERATIONS
Business Segment Highlights
<TABLE>
<CAPTION>
__________________________________________________________________________________________________
(Dollars in thousands)
Annual Annual
Fiscal Percent Fiscal Percent Fiscal
1993 Change 1992 Change 1991
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Sales:
Engineered Power Systems $602,853 +18% $508,898 +27% $400,133
Distribution 311,983 +16% 269,045 -6% 286,230
Tactical Vehicle Systems 65,894 +93% 34,112 N/A -0-
Corporate Services 1,162 +147% 471 N/A -0-
__________________________________________________________
$981,892 +21% $812,526 +18% $686,363
==========================================================
Operating Profit:
Engineered Power Systems $ 70,292 +18% $ 59,578 +20% $ 49,597
Distribution 20,309 +63% 12,478 -21% 15,884
Tactical Vehicle Systems 2,886 +80% 1,602 N/A -0-
Corporate Services 552 +183% 195 N/A -0-
__________________________________________________________
$ 94,039 +27% $ 73,853 +13% $ 65,481
==========================================================
</TABLE>
Fiscal 1993 vs. Fiscal 1992
Sales increased to $982 million for the twelve months ended January 31, 1994
("Fiscal 1993") from $813 million for the twelve months ended January 31, 1993
("Fiscal 1992"). This represents the setting of a new sales record for the
sixth consecutive year and is largely attributable to sales volume increases in
the Engineered Power Systems segment. The Engineered Power System's gas turbine
product lines were the primary source of its growth. The highest rate of
growth was experienced in the gas turbine after market, which consists of the
servicing of customers' equipment and the long-term contracting for the
operation and maintenance of the customers' power plants. The Distribution
segment's increased sales reflect both the general improvement in the U. S.
economy and in the market penetration of the products distributed. The Tactical
Vehicle Systems segment sales, which increased 93% in relation to Fiscal 1992,
reflect the commencement of low volume truck production during Fiscal 1993. The
Company's export sales declined slightly in Fiscal 1993, representing 24% of
consolidated sales in Fiscal 1993 as compared to 32% in Fiscal 1992.
Operating profit increased significantly during Fiscal 1993, with the overall
rate of growth exceeding the growth in revenue. The Distribution segment's
operating profit grew at a rate substantially greater than its sales volume
growth, reflecting primarily operating efficiencies achieved through better
utilization of existing plants. Both the Engineered Power Systems and the
Tactical Vehicle Systems segments' operating profits increased at a rate
comparable to sales volume growth.
Fiscal 1992 vs. Fiscal 1991
Sales increased to $813 million in Fiscal 1992 from $686 million in Fiscal
1991. The Engineered Power System's gas turbine product line was the
primary source of its growth. Export sales continued to represent a
significant portion of the Company's revenue, accounting for 32% of total
sales in Fiscal 1992 and 38% in Fiscal 1991. The Distribution segment
recorded lower sales during Fiscal 1992 in relation to Fiscal 1991. The
lower sales volume for the Distribution segment can be attributed to the
continued recession in the markets serviced, which resulted in reduced demand
for new equipment during Fiscal 1992. The Tactical Vehicle Systems segment,
which contributed only slightly to consolidated revenue for Fiscal 1992,
nevertheless had a significant impact on Fiscal 1992 growth.
Operating profits increased at a double digit rate during Fiscal 1992, due
to the significant increase in sales volume. Operating profit growth in the
Engineered Power Systems segment was principally the result of the continued
expansion of the gas sales turbine product lines in Fiscal 1992. The Engineered
Power Systems segment's operating profit growth was restrained during Fiscal
1992 due to lower operating profits in the diesel product lines. The transit
products group's operating losses moderated only slightly in Fiscal 1992.
The Company has ceased the marketing of its transit products and will direct
its resources to other product lines offering better economic opportunities.
Operating profits of the Distribution segment fell sharply during Fiscal 1992,
after experiencing an increase during Fiscal 1991. This decrease in operating
profits was primarily the result of the decline in total volume, a change in
product mix towards lower value added products and the incurrence of market
introduction expense associated with the Company's alternative fuels products.
The Tactical Vehicle Systems segment began to contribute to earnings during
Fiscal 1992 as it recognized its initial revenue under its contract with the
United States Department of the Army.
Net Period Expense
<TABLE>
<CAPTION>
__________________________________________________________________________________________________
(Dollars in thousands)
Annual Annual
Fiscal Percent Fiscal Percent Fiscal
1993 Change 1992 Change 1991
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Selling and administrative expenses $ 68,331 +12% $ 61,168 +1% $ 60,603
Interest expense 3,313 -10% 3,689 -46% 6,780
Other income (967) -63% (2,586) -13% (2,974)
__________________________________________________________
$ 70,677 +13% $ 62,271 -3% $ 64,409
==========================================================
Net period expense as a percentage of
sales 7.2% N/A 7.7% N/A 9.4%
==========================================================
</TABLE>
Net period expense continued to grow at a much slower rate than revenue.
Operating efficiencies as a result of spreading certain fixed administrative
costs over higher sales has facilitated the control of selling and
administrative expenses. The reduction of interest expense in Fiscal 1992
reflects primarily the use of the net proceeds of $58 million, from the sale of
2,300,000 shares of Common Stock in December 1991, to pay down debt.
Earnings Before Change In Accounting
<TABLE>
<CAPTION>
__________________________________________________________________________________________________
(Dollars in thousands)
Annual Annual
Fiscal Percent Fiscal Percent Fiscal
1993 Change 1992 Change 1991
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Amount $ 56,780 +29% $ 43,958 +23% $ 35,703
Percent of sales 5.8% N/A 5.4% N/A 5.2%
==================================================================================================
</TABLE>
Earnings before the change in accounting for SFAS 106 in Fiscal 1992 continued
to increase period to period in both amount and as a percentage of sales in
Fiscal 1993 and 1992. These increases reflect the growth in operating profits
each period and the reduction in interest expense during Fiscal 1992. The
effective income tax rate increased one percent in Fiscal 1993, principally
as a result of the retroactively imposed increase in the United States
corporate tax rate by the Omnibus Budget Reconciliation Act of 1993.
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, including salary continuation,
be recognized over the employees' service lives when certain conditions are
met. The Company currently plans to adopt SFAS 112 in Fiscal 1994 and does
not anticipate the impact will be material to the Company's financial
statements.
The Fiscal 1992 change in accounting represents the Company's adoption of
Statement of Financial Accounting Standards No. 106 (SFAS 106), "Employers'
Accounting for Postretirement Benefits other than Pensions" (see Note 7 in the
notes to consolidated financial statements). This standard requires that the
cost of retiree medical and other non-pension benefits be recognized on the
accrual method of accounting instead of expensing those costs when paid, as
had been the generally accepted practice. The Company elected to expense
previously unrecognized prior service costs immediately. This resulted in
a one-time charge to Fiscal 1992 earnings of $9.3 million, or $0.29 per share,
after a deferred tax benefit of $4.8 million.
The Company also adopted the Statement of Financial Accounting Standards No.
109 (SFAS 109), "Accounting for Income Taxes", effective February 1, 1992.
SFAS 109 changed the criteria for recognition and measurement of deferred tax
assets and reduces the complexity of accounting for income taxes established
by Statement of Financial Accounting Standards No.96 (SFAS 96), "Accounting
for Income Taxes". Since the Company previously followed SFAS 96, adoption
of SFAS 109 did not have a material impact on the Company's financial
statements.
GOVERNMENT CONTRACTING
The Company's government contract operations are subject to U.S. Government
investigations of business practices and cost classifications from which legal
or administrative proceedings can result. Based on government procurement
regulations, under certain circumstances a contractor can be fined, as well as
suspended or barred from government contracts. On November 5, 1993, the Company
was advised that a former consultant had filed a suit on his own behalf and on
behalf of the United States of America alleging that the Company
supplied false information, engaged in fraud and misapplied costs in
connection with a change order under a 1987 government subcontract. The suit
claims total damages of $21 million and unspecified penalties. Management of
the Company has denied any wrongdoing and believes the case will be resolved
with no material adverse effect on the Company's business, its financial
condition or its operating results.
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 the close of Fiscal 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Estimated percentage
to be recognized in Fiscal Fiscal
Fiscal 1994 1993 1992
____________________ ________ ________
(Dollars in millions)
<S> <C> <C> <C>
Engineered Power Systems
Equipment 60.0% $ 491.5 $ 489.4
Operations and Maintenance 16.3% 269.7 189.6
________ ________
761.2 679.0
Distribution 100.0% 32.6 24.3
Tactical Vehicle Systems 21.4% 1,119.5 1,185.2
________ ________
Total 31.9% $1,913.3 $1,888.5
======== ========
</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 manufactured medium tactical vehicles (the "Family of Medium Tactical
Vehicles" or "FMTV").
CAPITAL EXPENDITURES AND COMMITMENTS
Capital Expenditures By Industry Segment
<TABLE>
<CAPTION>
__________________________________________________________________________________________________
(Dollars in thousands)
Annual Annual
Fiscal Percent Fiscal Percent Fiscal
1993 Change 1992 Change 1991
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Engineered Power Systems $ 14,502 -22% $ 18,646 +269% $ 5,058
Distribution 9,302 +67% 5,582 - 21% 7,041
Tactical Vehicle Systems 6,061 -84% 36,852 +166% 13,859
Corporate Services 781 -94% 13,985 +6,435% 214
__________________________________________________________
$ 30,646 -59% $ 75,065 +187% $ 26,172
==========================================================
</TABLE>
Capital expenditures returned to historical levels during Fiscal 1993 after
having increased significantly during Fiscal 1992. The capital expenditures
program at the Tactical Vehicle Systems segment and the program to upgrade the
Engineered Power Systems existing facilities were both substantially completed
during Fiscal 1993. The Corporate Services capital expenditures in Fiscal 1992
consisted primarily of the consolidation of a limited partnership, in which the
Company became a majority limited partner. This limited partnership owns the
building where the Company's corporate office is located. The Company expects
that the level of capital expenditures will moderate during Fiscal 1994.
Cash Dividends
<TABLE>
<CAPTION>
__________________________________________________________________________________________________
(In thousands, except per share data)
Annual Annual
Fiscal Percent Fiscal Percent Fiscal
1993 Change 1992 Change 1991
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Amount of Cash Dividends $ 7,563 +22% $ 6,193 +35% $ 4,601
Annual Rate of Cash
Dividends per share $ 0.23 +21% $ 0.19 +27% $ 0.15
__________________________________________________________________________________________________
</TABLE>
The amount of cash dividends increased 22% and 35% during Fiscal 1993 and 1992,
respectively. The amount of cash dividends represented 13%, 14% and 13% of
earnings before change in accounting for Fiscal 1993, 1992 and 1991,
respectively. Even though substantial dividends were paid, the Company
retained sufficient earnings to invest in new plant and equipment for a wide
variety of capital expenditure projects, particularly those which increase
productivity, and to provide adequate financial resources for internal and
external growth opportunities. 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.
LIQUIDITY AND SOURCES OF CAPITAL
Cash Provided From Operations
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________
(Dollars in thousands)
Annual Annual
Fiscal Percent Fiscal Percent Fiscal
1993 Change 1992 Change 1991
________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Net earnings and accrued postretirement benefits $ 56,689 +14% $ 49,777 +39% $ 35,703
Depreciation and amortization 21,175 +72% 12,305 +49% 8,273
Deferred income taxes 413 N/A (2,935) N/A 3,304
_________________________________________________________
Funds from operations 78,277 +32% 59,147 +25% 47,280
Change in net operating assets and liabilities (86,304) N/A 17,249 N/A (9,462)
_________________________________________________________
Net cash provided by (used in) operating activities $ (8,027) N/A $ 76,396 +102% $ 37,818
=========================================================
</TABLE>
Funds from operations increased 32% during Fiscal 1993 versus a 25% increase
during 1992, reflecting primarily the growth in earnings each year, excluding
the adoption of SFAS 106 during Fiscal 1992. The Company's investment in net
operating assets and liabilities increased by an amount greater than that
provided from operations during Fiscal 1993. The growth in both inventories
(see Note 4 to the consolidated financial statements) and contract costs in
excess of customer funding (see Note 3 to the consolidated financial statements)
were the primary areas of increase in operating assets. The growth in
inventories during Fiscal 1993 is comparable to the sales growth rate for Fiscal
1993. Fiscal 1993's increase occurred primarily within the gas turbine product
lines and reflects the restoration of inventory to pre-1992 levels. The Fiscal
1993 growth in contract cost in excess of customer funding resulted from the
commencement of materials procurement required for higher levels of production
at the Tactical Vehicle Systems segment. The Company anticipates that the
working capital needs of the Tactical Vehicle Systems segment will increase
significantly during Fiscal 1994 as this segment moves from low level
production to high level production. 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 was comparable at the end of both Fiscal 1993 and 1992
using several measures of liquidity and leverage. The Company's current ratio
(current assets divided by current liabilities) remained somewhat constant at
2.2:1 at the end of both Fiscal 1993 and Fiscal 1992. The long-term debt to
equity ratio (long-term debt including the current portion divided by total
shareholders' equity) was a modest 20% at the end of Fiscal 1993 and 16% at the
end of Fiscal 1992. The Company's interest coverage (earnings before income
taxes and interest expense divided by interest expense) was 26.7 times interest
for Fiscal 1993 and 17.8 times interest for Fiscal 1992.
The Company had $5 million in short-term borrowings at the end of Fiscal 1993
and no short-term borrowings at the end of Fiscal 1992. Long-term debt
increased modestly during Fiscal 1993 and Fiscal 1992 principally due to the
timing of customer progress payments for contracts in process and the
acquisition of a majority interest in a limited partnership, respectively (see
Note 6 to the consolidated financial statements).
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 or growth in existing operations 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. The Company's
current credit facilities appear adequate to meet its foreseeable cash
requirements.
Item 8. Financial Statements and Supplemental 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, 1994
and 1993, and the related consolidated statements of earnings, shareholders'
equity and cash flows for each of the three years in the period ended January
31, 1994. 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, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 7 and Note 10 to the consolidated financial statements, in
Fiscal 1992 the Company changed its method of accounting for postretirement
medical benefit costs to conform with Statement of Financial Accounting
Standards No. 106 and its method of accounting for income taxes to conform with
Statement of Financial Accounting Standards No. 109.
Houston, Texas Arthur Andersen & Co.
April 21, 1994
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
______________________________________________________________________________________
(Dollars in thousands)
Fiscal Fiscal
1993 1992
______________________________________________________________________________________
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 7,788 $ 21,939
Accounts and notes receivable, net 147,292 143,166
Recoverable costs and accrued profits not yet billed 115,868 56,693
Inventories 269,605 212,506
Other 224 1,234
________ ________
Total Current Assets 540,777 435,538
Property, Plant and Equipment, net 126,473 117,359
Other Assets 25,374 20,451
________ ________
$692,624 $573,348
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 5,000 $ -0-
Accounts payable 131,780 128,770
Accrued payrolls and incentives 18,629 16,322
Billings on uncompleted contracts in excess of incurred costs 31,088 16,984
Current income taxes 27,931 13,850
Current portion of long-term debt 2,219 3,252
Other accrued liabilities 24,539 19,720
________ ________
Total Current Liabilities 241,186 198,898
Long-Term Debt--less current portion 68,000 44,451
Deferred Income Taxes 5,868 5,455
Accrued Postretirement Benefits 15,028 15,119
Deferred Compensation 3,884 3,757
Shareholders' Equity
Common Stock, without par value, 50,000,000
shares authorized; 32,948,885 and 32,785,458
shares issued at January 31, 1994 and 1993,
respectively, including 11,820 shares held in
treasury 160,366 156,593
Retained earnings 198,325 149,108
________ ________
358,691 305,701
Less cost of treasury stock (33) (33)
________ ________
Total Shareholders' Equity 358,658 305,668
________ ________
$692,624 $573,348
======== ========
</TABLE>
See notes to consolidated financial statements
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
(In thousands, except per share data)
Fiscal Fiscal Fiscal
1993 1992 1991
____________________________________________________________________________________________________
<S> <C> <C> <C>
Sales $981,892 $812,526 $686,363
Cost of sales 825,914 685,879 569,695
________ ________ ________
Gross profit 155,978 126,647 116,668
Selling and administrative expenses 68,331 61,168 60,603
Interest expense 3,313 3,689 6,780
Other income, net (967) (2,586) (2,974)
________ ________ ________
70,677 62,271 64,409
________ ________ ________
Earnings before income taxes and accounting change 85,301 64,376 52,259
Income taxes 27,999 20,597 16,775
________ ________ ________
Earnings of consolidated companies 57,302 43,779 35,484
Equity in net earnings (loss) of unconsolidated affiliates (522) 179 219
________ ________ ________
Earnings before change in accounting 56,780 43,958 35,703
Cumulative effect of change in accounting for
postretirement medical benefits, net -0- (9,300) -0-
________ ________ ________
Net earnings $ 56,780 $ 34,658 $ 35,703
======== ======== ========
Weighted average number of shares of Common Stock outstanding 32,861 32,560 30,224
======== ======== ========
Earnings per share before change in accounting $ 1.73 $ 1.35 $ 1.18
Cumulative effect of change in accounting for
postretirement medical benefits, per share -0- (.29) -0-
________ ________ ________
Net earnings per share $ 1.73 $ 1.06 $ 1.18
======== ======== ========
</TABLE>
See notes to consolidated financial statements
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
________________________________________________________________________________________________________
(Dollars in thousands)
Common Retained Treasury
Stock Earnings Stock Total
________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Balance at end of Fiscal 1990 $ 92,308 $ 89,703 $ (33) $181,978
Net earnings 35,703 35,703
Cash dividends (4,601) (4,601)
Issuance of Common Stock (net of issuance cost) 58,323 58,323
Exercise of stock options 1,073 1,073
________ ________ ________ ________
Balance at end of Fiscal 1991 151,704 120,805 (33) 272,476
Net earnings 34,658 34,658
Stock dividends 162 (162) -0-
Cash dividends (6,193) (6,193)
Exercise of stock options 4,727 4,727
________ ________ ________ ________
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
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
________________________________________________________________________________________________________
(Dollars in thousands)
Fiscal Fiscal Fiscal
1993 1992 1991
________________________________________________________________________________________________________
<S> <C> <C> <C>
Operating Activities
Net earnings $ 56,780 $ 34,658 $ 35,703
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Accrued postretirement benefits (91) 15,119 -0-
Depreciation and amortization 21,175 12,305 8,273
Deferred income taxes, net 413 (2,935) 3,304
Change in operating assets and liabilities:
Accounts and notes receivable (4,126) (22,136) (20,042)
Recoverable costs and accrued profits not yet billed (59,175) (5,664) 26,557
Inventories (57,099) 21,050 (72,287)
Accounts payable and accrued expenses 10,136 41,114 35,982
Billings on uncompleted contracts in excess of incurred costs 14,104 (8,680) 18,086
Current income taxes 14,081 2,083 69
Other--principally long-term assets and liabilities (4,225) (10,518) 2,173
________ ________ ________
Net Cash Provided by (Used in) Operating Activities (8,027) 76,396 37,818
Investing Activities
Expenditures for property, plant and equipment (30,646) (75,065) (26,172)
Disposal of property, plant and equipment 796 377 873
________ ________ ________
Net Cash Used in Investing Activities (29,850) (74,688) (25,299)
Financing Activities
Additions to long-term borrowings 192,918 190,000 131,200
Payments on long-term borrowings (170,402) (174,818) (142,264)
Net borrowings and payments on short-term notes payable 5,000 -0- (53,013)
Dividends paid (7,563) (6,193) (4,601)
Proceeds from issuance of Common Stock -0- -0- 58,323
Exercise of stock options 3,773 4,727 1,073
________ ________ ________
Net Cash Provided by (Used in) Financing Activities 23,726 13,716 (9,282)
________ ________ ________
Increase (decrease) in cash and equivalents (14,151) 15,424 3,237
Cash and equivalents, beginning of fiscal year 21,939 6,515 3,278
________ ________ ________
Cash and equivalents, end of fiscal year $ 7,788 $ 21,939 $ 6,515
======== ======== ========
</TABLE>
See notes to 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 1993"
commenced on February 1, 1993 and ended on January 31, 1994.
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.
Change in Accounting: During Fiscal 1992, the Company adopted, effective
February 1, 1992, Statement of Financial Accounting Standards No. 106,
"Employers' Accounting For Postretirement Benefits Other Than Pensions" (SFAS
106)(see Note 7), and No. 109, "Accounting For Income Taxes" (SFAS 109)(see Note
10). In November 1992, the Financial Accounting Standards Board issued SFAS
112, "Employers' Accounting for Postemployment Benefits." The Company plans to
adopt SFAS 112 in Fiscal 1994 and does not anticipate the impact will be
material to the Company's financial statements.
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: 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. Substantially all of
the revenues of the Tactical Vehicle Systems segment are recognized under the
units-of-delivery 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 substantialy completed. Profits expected to be realized
on contracts are based on the Company's estimates of total sales value and costs
at completion. These estimates are reviewed and revised periodically throughout
the lives of the contracts, and adjustments to profits resulting from such
revisions are recorded in the accounting period in which the revisions are made.
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 enters into forward exchange contracts to
hedge certain foreign currency transactions for periods consistent with the
terms of the underlying transactions. The Company does not engage in
speculation, nor does the Company typically hedge nontransaction-related balance
sheet exposure. 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's other off-balance sheet risks are not
material.
Fair Value of Financial Instruments: The Company's financial instruments
consist primarily of cash and cash 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 are in the aggregate
of market values.
Interest Costs: Interest costs incurred during the construction of major assets
for the Company's own use are capitalized, and totalled $228 in Fiscal 1991. No
interest was capitalized in Fiscal 1993 or 1992.
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) were excluded from the computations as they were insignificant.
Common Stock: On December 18, 1991, the Company completed the public sale of
2,300,000 shares of Common Stock. The gross proceeds and total costs of the
issue were $58,512 and $189, respectively. Issuance costs are shown as a
reduction of Common Stock. The net proceeds of $58,323 from the issue were used
to retire debt until the anticipated expenditures related to the Company's
Tactical Vehicle Systems segment were incurred.
Reclassifications: The accompanying consolidated financial statements for
Fiscal 1992 and 1991 contain certain reclassifications to conform with the
presentation used in Fiscal 1993.
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.
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 equivalents and the assets of a
limited partnership, in which the Company is the majority partner, which owns
the building where the corporate office is located. Corporate expenses include
the litigation expense associated with the Serv-Tech, Inc. lawsuit (see Note 5).
The Company markets its engineered power systems throughout the world and is not
dependent upon any single geographic region or single customer. Export sales,
including sales to domestic customers for export, for Fiscal 1993, 1992 and 1991
were $237,807, $256,269 and $258,272, respectively. Export sales in Fiscal
1993 included $113,597 destined for Asia, in Fiscal 1992 included $87,271
destined for South America, and in Fiscal 1991 included $152,217 destined for
the Far East.
Financial information relating to industry segments follows:
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________
Operating Identifiable Capital
Sales Profit Assets Expenditures Depreciation
___________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
Fiscal 1992
Engineered Power Systems $508,898 $ 59,578 $311,075 $ 18,646 $ 3,267
Distribution 269,045 12,478 138,359 5,582 5,041
Tactical Vehicle Systems 34,112 1,602 86,351 36,852 3,303
Corporate Services 471 195 37,563 13,985 468
________ ________ ________ ________ ________
Total $812,526 $ 73,853 $573,348 $ 75,065 $ 12,079
======== ======== ======== ======== ========
Fiscal 1991
Engineered Power Systems $400,133 $ 49,597 $312,463 $ 5,058 $ 3,300
Distribution 286,230 15,884 130,272 7,041 4,528
Tactical Vehicle Systems -0- -0- 26,865 13,859 202
Corporate Services -0- -0- 8,258 214 121
________ ________ ________ ________ ________
Total $686,363 $ 65,481 $477,858 $ 26,172 $ 8,151
========= ======== ======== ======== ========
</TABLE>
Reconciliation of Operating profit to Earnings before income taxes and
accounting change follows:
<TABLE>
<CAPTION>
_____________________________________________________________________________________________
Fiscal Fiscal Fiscal
1993 1992 1991
_____________________________________________________________________________________________
<S> <C> <C> <C>
Operating profit $ 94,039 $ 73,853 $ 65,481
Corporate expenses (5,425) (5,819) (6,501)
Interest expense, net (3,313) (3,658) (6,721)
________ ________ ________
Earnings before income taxes and accounting change $ 85,301 $ 64,376 $ 52,259
======== ======== ========
</TABLE>
Note 3: Recoverable Costs and Accrued Profits Not Yet Billed
Amounts included in the financial statements which relate to recoverable costs
and accrued profits not yet billed on contracts in process are as follows:
<TABLE>
<CAPTION>
_______________________________________________________________________________________________
Fiscal Fiscal
1993 1992
_______________________________________________________________________________________________
<S> <C> <C>
Costs incurred on uncompleted contracts $355,184 $190,670
Accrued profits 33,300 13,117
________ ________
388,484 203,787
Less: Customer progress payments (303,704) (164,078)
________ ________
$ 84,780 $ 39,709
======== ========
Included in the statements of financial position:
Recoverable costs and accrued profits not yet billed $115,868 $ 56,693
Billings on uncompleted contracts in excess of incurred costs (31,088) (16,984)
________ ________
$ 84,780 $ 39,709
======== ========
</TABLE>
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 goods sold at the time revenue is
recognized. General and administrative costs remaining in recoverable costs and
accrued profits not yet billed amounted to $17,852 and $9,585 at January 31,
1994 and 1993, respectively. The Company's total general and administrative
expense incurred amounted to $79,290, $70,075 and $62,915 in Fiscal 1993, 1992
and 1991, 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
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:
<TABLE>
<CAPTION>
______________________________________________________________________
Fiscal Fiscal
1993 1992
______________________________________________________________________
<S> <C> <C>
Engineered Power Systems $218,358 $185,338
Customer deposits (1,178) (6,827)
________ ________
Total Engineered Power Systems 217,180 178,511
Distribution 98,885 76,463
Excess of current cost over LIFO values (46,460) (42,468)
________ ________
Total Inventories $269,605 $212,506
======== ========
</TABLE>
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 includes approximately $14,271
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. 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. The Tactical Vehicle Systems segment's inventory is
purchased solely for the production of the FMTV and, accordingly, is recorded as
recoverable costs and accrued profits not yet billed.
During Fiscal 1992, certain inventories were reduced. These reductions resulted
in liquidations of LIFO inventory quantities carried at lower costs prevailing
in prior fiscal years as compared with the cost of Fiscal 1992 purchases, the
effect of which increased pre-tax earnings in Fiscal 1992 by approximately $204.
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 $73,189 at the close of Fiscal 1993.
On April 21, 1994, the Fourteenth Court of Appeals of the State of Texas
reversed a $17.5 million judgment against the Company in a case filed by Serv-
Tech, Inc. of Houston, Texas. In the opinion of management, any future action
in connection with this lawsuit will not have a material impact on the Company's
financial position or results of operations.
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.
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 revenue.
Note 6: 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, 1994, the amount outstanding under these
arrangements was $5,000, with an interest rate of 3.39%.
Long-Term Debt, which is generally unsecured, consisted of the following:
<TABLE>
<CAPTION>
_______________________________________________________________________________________
Fiscal Fiscal
1993 1992
_______________________________________________________________________________________
<S> <C> <C>
Notes payable to insurance companies:
-10.20%, principal due $1,000 annually to 1998 $ 5,000 $ 6,000
-10.25%, principal retired in 1993 -0- 1,417
-Installment note, 10.20%, due monthly to 1994 451 1,286
Debt of consolidated limited partnership:
-note payable to a bank, principal due monthly
commencing January 1, 1995 with a final maturity
date of January 1, 1998 (see note below) 9,000 9,000
Revolving credit notes payable to banks (see note below) 55,000 30,000
Other 768 -0-
________ ________
70,219 47,703
Less current portion (2,219) (3,252)
________ ________
Long-term Debt -- less current portion $ 68,000 $ 44,451
======== ========
</TABLE>
The Company has commitments of $55,000 from banks under revolving credit notes
(subject to reduction at the Company's election) which mature on July 31, 1995,
all of which was used at the end of Fiscal 1993. A commitment fee at the rate
of 1/4 of 1% is paid on the daily average unused balance during the revolving
period. 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 expires in Fiscal
1995, that presently converts $20,000 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 1993, approximately $94,715
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 1993, 1992 and
1991 was $3,425, $3,707 and $6,921, respectively. The Company anticipates long-
term revolving lines of credit will be available when the current revolving
credit notes become due in 1995. The amounts of long-term debt which will
become due during Fiscal 1994 through 1998, are approximately: 1994--$2,219;
1995--$56,108; 1996--$1,100; 1997--$9,792 and 1998--$1,000.
Note 7: 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. Effective February 1, 1992, the Company adopted
SFAS 106 and changed its method of accounting for such costs to the accrual
basis of accounting instead of expensing these costs when paid as had been the
generally accepted method. The Company elected to record the previously
unrecognized prior service cost of such benefits on the immediate recognition
basis 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. Postretirement medical
benefit costs for Fiscal 1993 and Fiscal 1992 consisted of the following:
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
Fiscal Fiscal
1993 1992
____________________________________________________________________________________________________
<S> <C> <C>
Service costs - benefits attributed to service during the period $ 377 $ 466
Interest cost on accumulated postretirement medical benefit obligation 768 1,105
Amortization of prior service costs (618) -0-
________ ________
Net postretirement medical benefit costs $ 527 $ 1,571
======== ========
</TABLE>
The amount paid in Fiscal 1991 for postretirement medical benefit costs was
$332.
The Company's postretirement medical plan currently is not funded. The Company
expects to continue financing postretirement medical costs as covered claims are
incurred. The status of the plan at January 31, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
_________________________________________________________________________________________
January 31, January 31,
1994 1993
_________________________________________________________________________________________
<S> <C> <C>
Accumulated postretirement medical benefit obligation
Retirees $ 6,201 $ 5,561
Employees eligible to retire 2,561 5,436
Employees not eligible to retire 1,419 4,122
________ ________
10,181 15,119
Unrecognized prior service cost 5,954 -0-
Unrecognized net losses (1,107) -0-
________ ________
$ 15,028 $ 15,119
======== ========
</TABLE>
Postretirement medical benefit amounts were determined by applying health care
costs trend rates of 10.5 to 13.0 percent for Fiscal 1993 and 11.0 to 14.0
percent for Fiscal 1992, gradually decreasing to 6.0 percent by 2010 to gross
eligible medical claims, and using a discount rate of 7.75 percent for Fiscal
1993 and 8 percent for Fiscal 1992. Changing the health care cost trend rates
by one percentage point would change the accumulated postretirement medical
benefit obligation at January 31, 1994 by approximately $863 and would change
postretirement medical benefit costs by approximately $102.
The Company made plan modifications during the fourth quarter of Fiscal 1992.
The plan was amended for employees that retire on or after February 1, 1993, to
modify the attribution period and the cost sharing provisions of the plan.
Note 8: Employee Pension and Other Benefit Plans
The Company has a noncontributory, defined benefit pension plan covering
substantially all of its full-time employees. The 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:
<TABLE>
<CAPTION>
_________________________________________________________________________________________
Fiscal Fiscal
1993 1992
_________________________________________________________________________________________
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $33,051 in 1993 and $26,124 in 1992 $ 34,714 $ 27,284
======== ========
Projected benefit obligation for service rendered to date $(44,421) $(38,785)
Plan assets at fair value, primarily publicly traded stocks
and bonds,including 120,956 shares of the Company's
Common Stock at the end of Fiscal 1993 and 1992 56,099 52,759
________ ________
Plan assets in excess of projected benefit obligations 11,678 13,974
Unrecognized net gain from past experience different
from that assumed (4,020) (6,462)
Unrecognized net asset at February 1, 1985 being amortized
over the average remaining service period (194) (844)
________ ________
Prepaid pension cost included in Other Assets $ 7,464 $ 6,668
======== ========
</TABLE>
Net pension credit for Fiscal 1993, 1992 and 1991 included the following
components:
<TABLE>
<CAPTION>
___________________________________________________________________________________________
Fiscal Fiscal Fiscal
1993 1992 1991
___________________________________________________________________________________________
<S> <C> <C> <C>
Service cost -- benefits earned during the year $ 2,012 $ 1,735 $ 1,645
Interest cost on projected benefit obligation 3,108 3,126 2,837
Actual return on plan assets (4,883) (4,550) (8,405)
Amortization of unrecognized net gain (493) (810) (324)
Net amortization and deferrals (540) (847) 3,840
________ ________ ________
Net periodic pension credit $ (796) $ (1,346) $ (407)
======== ======== ========
</TABLE>
The assumptions used in Fiscal 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
_____________________________________________________________________________
Fiscal Fiscal
1993 1992
_____________________________________________________________________________
<S> <C> <C>
Discount Rate 7.75% 9.00%
Long-term rate of return on assets 9.50% 10.00%
Rate of increase in graduated salary 4.50 - 5.00% 6.00 - 12.00%
</TABLE>
On April 10, 1990, the Company adopted 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 1993, 1992 and
1991, respectively, was $164, $71, and $66.
During Fiscal 1993, the Company adopted an unfunded supplemental retirement plan
for certain corporate officers. Retirement expense for the plan in Fiscal 1993
was $290. Prior service cost not yet recognized in periodic pension cost at
January 31, 1994 was $1,208.
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 $13 in Fiscal 1993.
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 year.
Note 9: Stock Options
The Stewart & Stevenson Services, Inc. 1988 and 1993 Nonstatutory Stock Option
Plans authorize the grant of options to purchase an aggregate of up to 1,800,000
and 300,000 shares of Common Stock respectively, at not less than fair market
value at the date of grant. The options expire five to ten years from the date
of grant and become exercisable in four 25% cumulative annual increments
commencing one year from date of grant. Under the terms of the 1993
Nonstatutory Stock Option Plan, the number of options authorized for grant
increased from 300,000 to 415,000 shares of Common Stock on February 1, 1994.
Stock option activity under the plan was as follows:
<TABLE>
<CAPTION>
___________________________________________________________________________
Shares Option Price
under Range
Option Per Share
___________________________________________________________________________
<S> <C> <C>
Outstanding at end of Fiscal 1990 627,988 $ 4.75 - $ 13.125
Granted 354,000 $ 18.75
Exercised (234,588) $ 4.75 - $ 13.125
________
Outstanding at end of Fiscal 1991 747,400 $ 4.75 - $ 18.75
Granted 58,800 $ 27.75
Exercised (335,000) $ 4.75 - $ 18.75
________
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
========
Options exercisable at end of Fiscal 1993 79,000 $ 13.125 - $ 27.75
========
Options available for future grants 692,800
========
</TABLE>
Note 10: Income Taxes
Effective February 1, 1992, the Company adopted the method of accounting for
income taxes promulgated by SFAS 109. The Company had previously accounted for
income taxes under the method promulgated by Statement of Financial Accounting
Standards No. 96 (SFAS 96). Under both SFAS 109 and SFAS 96, the deferred tax
liability is determined under the liability method based on the difference
between the financial statement and tax bases 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 principal types
of differences between assets and liabilities for financial statement and tax
return purposes are accumulated depreciation, pension accounting, contract
accounting, and nondeductible accruals. Adoption of SFAS 109 did not have a
material effect on Fiscal 1992 earnings before the change in accounting for SFAS
106.
The components of the income tax provision and the income tax payments were:
<TABLE>
<CAPTION>
___________________________________________________________________________________
Fiscal Fiscal Fiscal
1993 1992 1991
___________________________________________________________________________________
<S> <C> <C> <C>
Current $ 10,454 $ 17,917 $ 16,215
Deferred 17,545 2,680 560
________ ________ ________
Income tax provision $ 27,999 $ 20,597 $ 16,775
======== ======== ========
Income tax payments (excluding refunds) $ 11,965 $ 13,667 $ 15,761
======== ======== ========
</TABLE>
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 1993 and 34% in Fiscal 1992 and 1991 follows:
<TABLE>
<CAPTION>
________________________________________________________________________
Fiscal Fiscal Fiscal
1993 1992 1991
________________________________________________________________________
<S> <C> <C> <C>
Provision at statutory rates $ 29,856 $ 21,888 $ 17,712
Other (1,857) (1,291) (937)
________ ________ ________
$ 27,999 $ 20,597 $ 16,775
======== ======== ========
</TABLE>
The tax effects of the significant temporary differences which comprise the
deferred tax liability at the end of Fiscal 1993 and Fiscal 1992 are as follows:
<TABLE>
<CAPTION>
____________________________________________________________________________
Fiscal Fiscal
1993 1992
____________________________________________________________________________
<S> <C> <C>
Deferred Tax Assets
Postretirement benefit obligation $ 5,260 $ 5,140
Accrued expenses and other reserves 11,426 8,650
Other 1,316 148
________ ________
Gross deferred tax assets 18,002 13,938
________ ________
Deferred Tax Liabilities
Property, plant and equipment 4,027 2,458
Pension accounting 2,412 2,161
Contract accounting 27,533 22,313
Prepaid expenses and deferred charges 16,997 6,144
Other 7,359 3,642
________ ________
Gross deferred tax liabilities 58,328 36,718
________ ________
Net deferred tax liability $ 40,326 $ 22,780
======== ========
Current portion of deferred tax liability $ 34,458 $ 17,325
Non-current portion of deferred tax liability 5,868 5,455
________ ________
Net deferred tax liability $ 40,326 $ 22,780
======== ========
</TABLE>
Note 11: Supplemental Financial Data
Receivables consist of the following:
<TABLE>
<CAPTION>
______________________________________________________________
Fiscal Fiscal
1993 1992
______________________________________________________________
<S> <C> <C>
Accounts receivable $145,433 $141,484
Notes receivable 3,576 3,430
Allowance for doubtful accounts (1,717) (1,748)
________ ________
$147,292 $143,166
======== ========
</TABLE>
At January 31, 1994, the Company does not have significant credit risk
concentrations. No single group or customer represents greater than 10% of
total accounts receivable.
Components of property, plant and equipment follow:
<TABLE>
<CAPTION>
____________________________________________________________________________________
Fiscal Fiscal
1993 1992
____________________________________________________________________________________
<S> <C> <C>
Machinery and equipment $107,405 $ 91,359
Buildings and leasehold improvements 76,533 69,564
Revenue earning assets 10,154 9,145
Accumulated depreciation and amortization (82,188) (63,338)
________ ________
111,904 106,730
Construction-in-progress 2,050 974
Land 12,519 9,655
________ ________
$126,473 $117,359
======== ========
</TABLE>
Note 12: Consolidated Quarterly Data (unaudited)
<TABLE>
<CAPTION>
_____________________________________________________________________________________________________
(Dollars in thousands, except per share data)
Fiscal 1993
_____________________________________________________________________________________________________
Fourth Third Second First
Quarter Quarter Quarter Quarter
_____________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Sales $244,662 $259,141 $257,936 $220,153
Gross profit 43,399 40,867 38,024 33,688
Net earnings 16,831 14,068 13,789 12,092
Net earnings per share .51 .43 .42 .37
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1992
_____________________________________________________________________________________________________
Fourth Third Second First
Quarter Quarter Quarter Quarter
_____________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Sales $222,732 $208,260 $199,977 $181,917
Gross profit 33,569 33,899 31,459 27,720
Earnings before change in accounting 13,096 11,503 10,456 8,903
Net earnings (loss)<F1> 13,096 11,503 10,456 (397)
Earnings per share before change in accounting .40 .35 .32 .28
Net earnings (loss) per share <F1> .40 .35 .32 (.01)
<FN>
<F1> The net loss reported during the first quarter of Fiscal 1992 is after the change in accounting for postretirement medical
benefits. The effect of the change in accounting was to decrease net earnings and net earnings per share by $9,470 and $.29, $170
and $.01, and $183 and $.01 for the first, second and third quarters of Fiscal 1992, respectively.
</TABLE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
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 5th day of May,
1994.
STEWART & STEVENSON SERVICES, INC.
By: /s/ Bob H. O'Neal
Bob H. O'Neal
President
