SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number 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 33,062,088 Shares
(Class) (Outstanding at April 30, 1996)
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, 1996 and
January 31, 1996.
Consolidated Condensed Statement of Earnings -- Three Months Ended April 30,
1996 and 1995.
Consolidated Condensed Statement of Cash Flows -- Three Months Ended April 30,
1996 and 1995.
Notes to Consolidated Condensed Financial Statements.
<TABLE>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands)
April 30 January 31
1996 1996
______________ ______________
<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS
Cash and equivalent $ 6,451 $ 6,325
Accounts and notes receivable, net 229,810 196,548
Recoverable costs and accrued profits
not yet billed 311,884 317,855
Inventories:
Engineered Power Systems 292,993 269,119
Distribution 141,769 145,179
Excess of current cost over LIFO values (54,601) (53,580)
______________ ______________
380,161 360,718
Other 268 393
______________ ______________
TOTAL CURRENT ASSETS 928,574 881,839
PROPERTY, PLANT AND EQUIPMENT 247,174 243,491
Allowances for depreciation and
amortization (122,206) (116,436)
______________ ______________
124,968 127,055
OTHER ASSETS 33,615 31,689
______________ ______________
$1,087,157 $1,040,583
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 134,000 $ 65,000
Accounts payable 111,285 134,562
Billings on uncompleted contracts in
excess of incurred costs 11,577 14,417
Current income taxes 70,638 68,650
Other current liabilities 44,307 47,451
______________ ______________
TOTAL CURRENT LIABILITIES 371,807 330,080
LONG-TERM DEBT 210,775 210,800
DEFERRED INCOME TAXES 7,384 6,794
ACCRUED POSTRETIREMENT BENEFITS 15,483 15,454
DEFERRED COMPENSATION 5,462 5,540
SHAREHOLDERS' EQUITY
Common Stock, without par value, 100,000,000
shares authorized; 33,073,908 and 33,061,908
shares issued at April 30, 1996 and January
31, 1996, respectively, including 11,820
shares held in treasury 163,672 163,409
Retained earnings 312,607 308,539
______________ ______________
476,279 471,948
Less cost of treasury stock (33) (33)
______________ ______________
TOTAL SHAREHOLDERS' EQUITY 476,246 471,915
______________ ______________
$1,087,157 $1,040,583
============== ==============
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(In thousands, except per share data)
Three Months Ended
April 30
_____________________________________
1996 1995
_______________ ________________
(Unaudited)
<S> <C> <C>
Sales $ 219,540 $ 289,022
Cost of sales 181,437 240,480
________________ ________________
Gross profit 38,103 48,542
Selling and administrative expenses 24,332 21,661
Interest expense 4,745 2,950
Other income, net (999) (322)
________________ ________________
28,078 24,289
________________ ________________
Earnings before income taxes 10,025 24,253
Income taxes 3,279 8,128
________________ ________________
Earnings of consolidated companies 6,746 16,125
Equity in net loss of
unconsolidated affiliates (33) (110)
________________ ________________
Net earnings $ 6,713 $ 16,015
================ ================
Weighted average number of shares of
Common Stock outstanding 33,057 33,008
================ ================
Net earnings per share $ 0.20 $ 0.49
================ ================
Cash dividends per share $ 0.08 $ 0.07
================ ================
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Three Months Ended
April 30
________________ ________________
1996 1995
________________ ________________
(Unaudited)
<S> <C> <C>
Operating Activities
Net earnings $ 6,713 $ 16,015
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 6,924 6,066
Deferred income taxes, net 590 (208)
Change in operating assets and liabilities:
Accounts and notes receivable, net (33,263) (19,134)
Recoverable costs and accrued profits not
yet billed 5,971 (33,449)
Inventories (19,442) 43,015
Accounts payable (23,276) (62,550)
Billings on uncompleted contracts in excess
of incurred costs (2,839) 9,306
Current income taxes 1,988 8,238
Other current liabilities (3,148) (6,077)
Other--principally long-term assets and
liabilities (1,931) 410
________________ ________________
Net Cash Used In Operating Activities (61,713) (38,368)
Investing Activities
Expenditures for property, plant and equipment (5,275) (5,919)
Disposal of property, plant and equipment 520 519
________________ ________________
Net Cash Used In Investing Activities (4,755) (5,400)
Financing Activities
Additions to long-term borrowings 0 33
Payments on long-term borrowings (25) (17)
Net borrowings and payments on short-term
notes payable 69,000 46,000
Dividends paid (2,645) (2,312)
Exercise of stock options 264 873
________________ ________________
Net Cash Provided By Financing Activities 66,594 44,577
________________ ________________
Increase In cash and equivalents 126 809
Cash and equivalents, February 1 6,325 3,987
________________ ________________
Cash and equivalents, April 30 $ 6,451 $ 4,796
================ ================
Supplemental disclosure of cash flow information:
Net cash paid during the period for:
Interest payments $ 4,741 $ 2,243
Income tax payments $ 1,380 $ 408
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, 1996 are not necessarily indicative of the results that will be
realized for the fiscal year ending January 31, 1997.
The accounting policies followed by the Company in preparing interim con
solidated financial statements are similar to those described in the "Notes to
Consolidated Financial Statements" in the Company's January 31, 1996 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 1996" commenced on
February 1, 1996 and ends on January 31, 1997.
Net earnings per share of Common Stock are computed by dividing net earnings
by the weighted average number of shares outstanding. Common Stock
equivalents (outstanding options to purchase shares of Common Stock) are
excluded from the computations as they are insignificant. The weighted
average number of shares outstanding for the three months ended April 30, 1996
includes 12,000 shares issued pursuant to exercise of stock options.
Note B--Commitments and Contingencies
Major contracts for military systems are performed over extended periods of
time and are subject to changes in scope of work and delivery schedules.
Pricing negotiations on changes and settlement of REAs often extend over
prolonged periods of time. The company's ultimate profitability on such
contracts will depend not only upon the accuracy of the Company's cost
projection, but also the eventual outcome of an equitable settlement of
contractual issues with the U.S. Government.
On May 3, 1995, an indictment was returned by a federal Grand Jury in Houston,
Texas, accusing the Company, a former consultant and four employees, including
the Company's President, of one count of major fraud against the United
States, four counts of false statements and one count of conspiracy to commit
major fraud, make false statements and interfere with the administration of a
foreign military sale. All of the counts arise from a 1987 subcontract to
supply diesel generator sets for installation at long-range radar sites in
Saudi Arabia (the "Peace Shield"). The indictment alleges that a former
employee of the general contractor for the Peace Shield program, who later
became a consultant to the Company, conspired with the Company and the other
defendants to award the subcontract to the Company. The indictment also
alleges that the government was defrauded out of approximately $5 million in
connection with cost savings from a change order under the Peace Shield
contract and that the Company made false statements relating to cost estimates
in connection with such change order. The Company and each individual have
denied all charges under the indictment and the case is pending in the United
States District Court, Southern District of Texas, Houston Division. The
Company is not able to make a reasonable estimate of the fines or penalties
that could be imposed under the Federal Sentencing Guidelines in the event
of a conviction under the indictment. Such fines and penalties could be
substantial and adversely affect the Company's financial position and results
of operations. If the Company or any of the individuals are convicted of any
charges under the indictment, the Company could also be suspended or debarred
from entering into new contracts or subcontracts with agencies of the U.S.
Government or receiving the benefit of federal assistance payments for the
duration of such suspension or debarment. Any such suspension could prevent
the Company from receiving a modification to the FMTV to fund additional
vehicles or extend the delivery schedule of funded vehicles unless the
Secretary of the Army finds a compelling need to enter into such modification.
The Company would also be unable to sell equipment and services to customers
that depend on loans or financial commitments from the Export Import Bank
("EXIM Bank"), Overseas Private Investment Corporation ("OPIC") and similar
government agencies during a suspension or debarment. The Engineered Power
Systems segment frequently sells equipment to customers that rely on financial
commitments from EXIM Bank and/or OPIC. Any such suspension or debarment
could have a material adverse impact on the Company's financial condition and
results of operations.
Also in connection with the Peace Shield contract, the Company has been
advised that the former consultant of the Company referred to above filed a
suit in the United States District Court, Southern District of Texas, Houston
Division, for himself and the United States of America alleging that the
Company supplied false information in violation of the False REAs Act (the
"Act"), engaged in common law fraud and misapplied costs. Under the
provisions of the Act, the suit has not been served upon the Company pending
an investigation of the case by the U.S. Department of Justice and a
determination as to whether the Department of Justice will intervene and
pursue the matter on behalf of the United States. The suit alleges treble
damages of $21 million plus unspecified penalties. Proceedings in this case
have been stayed pending resolution of the criminal matter referred to above.
The Company cannot predict the outcome of this action or the likelihood that
substantial damages will result. However, the Company intends to vigorously
defend this case if it is served upon the Company.
On May 16, 1995, C. Daniel Chill filed a purported class action suit in the
United States District Court, Southern District of Texas, Houston Division,
against the Company and three of its officers and directors on behalf of
himself and all persons that purchased shares of Common Stock between May 2,
1994 and May 3, 1995 alleging that the Company violated various sections of
and rules under the Securities Exchange Act of 1934 and common law by
disseminating material false and misleading information, failing to disclose
material information and failing to correct earlier statements that were no
longer true, all relating to the Peace Shield investigation and indictment.
The suit claims unspecified compensatory and punitive damages. An Agreement
to settle this litigation on terms that would not be material to the Company
has been preliminarily approved by the court, subject to notice to all class
members and determination by the court as to the fairness of the settlement.
The Company has reserved all costs expected to be incurred in connection with
the settlement of this case.
Except as set forth above, the Company is a defendant in a number of other
lawsuits relating to contractual, product liability, personal injury and
warranty matters and otherwise of the type normally incident to the Company's
business. Management is of the opinion that such lawsuits will not result in
any material liability to the Company. Except as set forth above, the Company
has not established any reserves or accruals for any potential liability that
may be subsequently found in any of the foregoing cases.
Note C--Subsequent Events
On May 30, 1996 the Company completed a $135,000,000 private placement of long-
term debt. The notes are unsecured and were issued pursuant to an agreement
containing a covenant which imposes a maximum debt to total capitalization
requirement. The notes will mature in three, five, seven and ten year
increments with semi-annual interest payments at a weighted average coupon
rate of 7.01%, and have a weighted average life of 5 1/2 years.
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, 1996.
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
______________________________________
1996 1995
________________ ________________
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 82.6 83.2
________________ ________________
Gross profit 17.4 16.8
Selling and administrative expenses 11.1 7.5
Interest expense 2.2 1.0
Other income, net (.5) (.1)
________________ ________________
12.8 8.4
________________ ________________
Earnings before income taxes 4.6 8.4
Income taxes 1.5 2.8
________________ ________________
Earnings of consolidated companies 3.1 5.6
Equity in net loss of unconsolidated affiliates 0 (.1)
________________ ________________
Net earnings 3.1% 5.5%
================ ================
</TABLE>
Sales for the first quarter of the year ending January 31, 1997 ("Fiscal
1996") decreased 24% to $219,540,000 compared to sales of $289,022,000 for the
same period of the year ended January 31, 1996 ("Fiscal 1995").
The Engineered Power Systems (EPS) segment sales was the primary contributor
to the Company's sales decline, decreasing $60,848,000 (38%) for the first
quarter of Fiscal 1996 compared to the same period in Fiscal 1995. The sales
decrease in the EPS segment is attributed to the gas turbine product line
which produced $80,000,000 in sales during the first quarter of Fiscal 1996
compared to $144,000,000 for the same period in Fiscal 1995. Turbine-driven
equipment sales decreased $77,000,000 (69%) compared to the first quarter of
Fiscal 1995. Such decrease was partially offset by the gas turbine product
support (consisting of the servicing of customers' equipment and the long-term
contracting for the operation and maintenance of the customers' power plants)
group which contributed increased sales of $13,000,000 (39%) in the first
quarter of Fiscal 1996 compared to the same period in Fiscal 1995.
The Distribution segment sales increased $18,870,000 (20%) in the first
quarter of Fiscal 1996 compared to the same period in Fiscal 1995. The
Distribution segment's growth reflects general strong demand for the Company's
products and services.
The Tactical Vehicle Systems (TVS) segment sales decreased $16,949,000 (55%)
for the first quarter of Fiscal 1996 compared to the same period in
Fiscal 1995. The decrease in TVS sales reflects the decrease in truck
production under the "Family of Medium Tactical Vehicles" (FMTV) contract
during the first quarter due to the scheduled retrofit program of
previously produced vehicles. See "Government Contract Status" below.
The gross profit margin of 17.4% for the first quarter of Fiscal 1996 improved
as compared to 16.8% for the same period in Fiscal 1995. This increase in
gross margin reflects the change in sales mix.
Selling and administrative expenses for the first quarter of Fiscal 1996
increased as a percentage of sales to 11.1% compared to 7.5% for the same
period in Fiscal 1995, primarily due to the decrease in sales. Selling and
administrative expenses increased 12% during the current year which included a
onetime charge of approximately $900,000 related to settling a lawsuit.
Exclusive of the onetime legal expense, service and administrative expense
grew about 8%, primarily in those business lines having sales growth.
Interest expense for the first quarter of Fiscal 1996 increased to $4,745,000,
up from $2,950,000 for the same period in Fiscal 1995 due to an increase
outstanding debt. Such increase is primarily due to an increase in inventory
and an increase in recoverable costs and accrued profits not yet billed
related to the EPS segment.
Net earnings of $6,713,000 ($.20 per share) for the three months ended April
30, 1996 represents a 58.1% decrease compared to $16,015,000 ($.49 per share)
for the three months ended April 30, 1995. This decrease in earnings is
primarily the result of the decrease in EPS segment sales.
GOVERNMENT CONTRACTS STATUS
Initial Operational Test and Evaluation under the FMTV contract was completed
in the third quarter of Fiscal 1995 and the Company received approval for full
rate production and type classification of the FMTV on August 25, 1995.
Actual shipment of the vehicles to combat troops began in January 1996 at Ft.
Bragg, North Carolina. Under the terms of the FMTV contract, all vehicles
produced before the full rate production decision must be retrofitted with any
changes required by test results or specification changes ordered by the
government. The retrofit began during the fourth quarter of Fiscal 1995 and
is expected to be substantially completed in the second quarter of 1996.
Major contracts for military systems are performed over extended periods of
time and are subject to changes in scope of work and delivery schedules.
Pricing negotiations on changes and settlement of claims often extend over
prolonged periods of time. The Company's ultimate profitability on such
contracts will depend not only upon the accuracy of the Company's cost
projections, but also the eventual outcome of an equitable settlement of
contractual issues with the U.S. Government.
The FMTV contract is a firm fixed-price multi-year contract whereby the price
paid to the Company is not subject to adjustment to reflect the Company's
actual costs, except costs incurred as a result of actions or inactions of
the government. The Company has completed approximately 3,000 (of
approximately 11,000 trucks) trucks which are undergoing retrofit as of April
30, 1996. Full rate production has been approved and is expected to commence
after substantial completion of retrofit of the trucks produced to date to
current specifications. Stewart & Stevenson has incurred significant cost
overruns and delivery schedule delays on the FMTV contract which the Company
believes are primarily due to the government's decision to delay the testing of
trucks and other government directed changes to the contract. The Company has
and will continue to submit a series of Requests for Equitable Adjustments
(REAs), under the FMTV contract, seeking increases in the FMTV contract price
for those additional costs that relate to government caused delays and changes.
Additionally, the Company has entered into negotiations with the U.S. Army to
modify the existing contract to provide for steady production at rates lower
than originally anticipated through December 1998. However, the Company is not
able to predict whether such modification will be forthcoming on terms
acceptable to the Company and production of vehicles may be interrupted after
February 1997.
Revenues and profits realized on the FMTV contract are based on the Company's
estimates of total contract sales value and costs at completion. Amounts in
excess of agreed upon contract price for government caused delays,
disruptions, unpriced change orders and government caused additional contract
costs are recognized in contract value when the Company believes it is
probable that the REA for such amounts will result in additional contract
revenue and the amount can be reasonably estimated. At April 30, 1996, the
Company's FMTV contract accounting position reflects the expected recovery of
substantial amounts in excess of the contract price for government caused
delays, disruptions, unpriced change orders and other government caused
additional contract costs. These REAs are in varying stages of negotiations.
Although management believes that the contract provides a legal basis for the
REAs and its estimates are based on reasonable assumptions and on a reasonable
analysis of contract costs, due to uncertainties inherent in the estimation
and REAs negotiations process, no assurances can be given that its estimates
will be accurate, and variances between such estimates and actual results
could be material. In the event that the Company is unable to recover a
substantial portion of the additional costs, the Company may suffer a material
adverse effect on its operations during the accounting period in which such
contract issues are resolved.
The funding of the contract is subject to the inherent uncertainties of
congressional appropriations. As is typical of multi-year defense contracts,
the FMTV contracts must be funded annually by the Department of the Army and
may be terminated at any time for the convenience of the government. The
Company has received full funding for the production of approximately
7,364 vehicles through February 1997. Approximately 3,524 vehicles,
scheduled for production after that date have not been funded due to
reductions in the U.S. Army's budget for acquisitions. In the event that the
FMTV contracts are terminated other than for default, the FMTV contracts
provide for termination charges that will reimburse the Company for allowable
costs, but not necessarily all costs.
EFFECT OF CERTAIN LITIGATION
On May 3, 1995, the Company and four employees, including the Company's
President, were indicted by a federal Grand Jury on six counts arising out of
a 1987 subcontract to supply diesel generator sets for installation in Saudi
Arabia. On May 12, 1995, the U.S. Air Force suspended the Company from
contracting with any agency of the U.S. Government and from receiving the
benefit of federal assistance programs. This suspension was temporarily
terminated on November 8, 1995, pending the resolution of the charges covered
by the indictment, pursuant to an Interim Administrative Agreement between the
Company and the U.S. Air Force. The Interim Administrative Agreement does not
have any effect on the indictment.
The Interim Administrative Agreement requires the Company to maintain various
internal procedures and policies intended to assure the U.S. Government that
the Company is a responsible contractor. In the event that the Company or any
of the indicted employees are convicted of the charges contained in the
indictment, the U.S. Air Force may re-evaluate whether the Company should be
suspended or debarred based on all of the facts and circumstances then known.
An acquittal of all parties of the charges does not terminate the Interim
Administrative Agreement and any failure by the Company to perform its
obligations thereunder may also be grounds for suspension or debarment.
If the Company is suspended or debarred, either because of a conviction
pursuant to the indictment or as a result of a breach of the Interim
Administrative Agreement, it would be ineligible to enter into new contracts
or subcontracts with agencies of the U.S. Government or receive the benefit of
federal assistance payments for the duration of such suspension or debarment.
Any such suspension could prevent the Company from receiving a modification to
the FMTV to fund additional vehicles or extend the delivery schedule of funded
vehicles unless the Secretary of the Army finds a compelling need to enter
into such modification. The Company would also be unable to sell equipment
and services to customers that depend on loans or financial commitments from
the Export Import Bank ("EXIM Bank"), Overseas Private Investment Corporation
("OPIC") and similar government agencies during a suspension or debarment.
The Engineered Power Systems segment frequently sells equipment to customers
that rely on financial commitments from EXIM and/or OPIC. Any such suspension
or debarment could have a material adverse impact on the Company's financial
condition and results of operations.
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, 1996 and at the close of Fiscal 1995
were as follows:
<TABLE>
<CAPTION>
________________________________________________________________________________________________________
April 30 January 31
1996 1996
________________________________________________________________________________________________________
(Dollars in millions)
<S> <C> <C>
Engineered Power Systems
Equipment $ 177.5 $ 208.9
Operations and Maintenance 334.7 321.8
______________ ______________
512.2 530.7
Distribution 53.9 50.9
Tactical Vehicle Systems 850.3 862.7
______________ ______________
Total $ 1,416.4 $ 1,444.3
============== ==============
Although no assurance can be given, the Company expects sales of the
Engineered Power Systems segment to continue to be weighted in favor of
turbine-driven equipment based on the number of unfilled orders for these
units, the number of proposals that are presently outstanding and the
current worldwide need for additional electrical generating capacity.
Unfilled orders of the Tactical Vehicle Systems segment consists principally
of the contracts awarded in October 1991, by the United States Department of
the Army, to manufacture medium tactical vehicles, and options under the
FMTV contract that have been exercised by the U.S. Army to purchase
additional vehicles for the National Guard.
CAPITAL EXPENDITURES AND COMMITMENTS
Capital spending for property, plant and equipment of $5,275,000 for the
first quarter of Fiscal 1996 was comparable to $5,919,000 for the same
period in Fiscal 1995. These amounts are consistent with the historical
capital expenditure levels of the Company.
LIQUIDITY AND SOURCES OF CAPITAL
Long-term borrowings at April 30, 1996 decreased slightly from the end of
Fiscal 1995. The Company has $200,000,000 in committed credit facilities
which were fully utilized at April 30, 1996 and at the end of Fiscal 1995.
The Company has additional banking relationships which provide uncommitted
borrowing arrangements. These short-term borrowings increased to
$134,000,000 at April 30, 1996 from $65,000,000 at the end of Fiscal 1995.
This debt increase of $69,000,000 is principally a result of the timing of
customer progress payments for contracts-in-process of the EPS segment's gas
turbine group.
On May 30, 1996, the Company completed a private placement of $135,000,000
debt securities with an average maturity of 5 1/2 years. The notes are
unsecured and were issued pursuant to an agreement containing a covenant
which imposes a debt to total capitalization requirement. The notes will
mature in three, five, seven and ten years increments with semi-annual
interest payments at a weighted average life and coupon rate of 5 1/2 years
and 7.01%, respectively. The proceeds from the sale of the notes were used
to reduce other outstanding indebtedness of the Company in the amount of
$129,000,000 and for general corporate purposes.
The Company's working capital needs can fluctuate significantly depending on
the progress payment streams of contracts-in-process. The Company regularly
bids on large commercial contracts which, if awarded to the Company,
could also affect working capital needs.
In the event that any acquisition of additional operations, growth in
existing operations, changes in inventory levels, accounts receivable or
other working capital items create a need for working capital or capital
expenditures in excess of existing committed lines of credit, the Company
may seek to convert uncommitted borrowing arrangements to committed credit
facilities or to issue additional equity securities. Management believes
that the Company's current credit facilities are adequate to meet its
foreseeable cash requirements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See Note B to the Consolidated Condensed Financial Statements.
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.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months ended
April 30, 1996.
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 11, 1996 By: /s/ Robert L. Hargrave
Robert L. Hargrave
Chief Executive Officer
EXHIBIT INDEX
Exhibit Number and Description
27 Financial data schedule
</TABLE>
<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> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> APR-30-1996
<CASH> 6,451
<SECURITIES> 0
<RECEIVABLES> 231,558
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0
0
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<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
