SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended January 31, 1996 ("Fiscal 1995") or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to________.
Commission file number 0-8493
STEWART & STEVENSON SERVICES, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1051605
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2707 North Loop West, Houston, Texas 77008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 868-7700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Without Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting securities held by nonaffiliates
as of February 29, 1996:
$719,808,723
Number of shares outstanding of each of the issuer's classes of common
stock, as of February 29, 1996:
Common Stock, Without Par Value 33,050,088 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K
________ _________________
Proxy Statement for the 1996 Annual Meeting of Shareholders Part III
PART I
Item 1. Business.
Stewart & Stevenson Services, Inc. (together with its wholly-owned
subsidiaries, the "Company" or "Stewart & Stevenson") was founded in
Houston, Texas in 1902 and was incorporated under the laws of the State of
Texas in 1947. Since its beginning, the Company has been primarily engaged
in custom fabrication enterprises. Stewart & Stevenson consists of three
business segments: the Engineered Power Systems segment, the Distribution
segment and the Tactical Vehicle Systems segment.
The Engineered Power Systems segment designs, engineers, services and
markets engine-driven equipment principally utilizing diesel or gas turbine
engines supplied by independent manufacturers. In addition, this segment<PAGE>
offers operation and maintenance contracts for large gas turbine projects
and petroleum production facilities. The Company's products include gas
turbine generator sets for primary electrical power and diesel generator
sets for primary, emergency or stand-by electrical power sources. Stewart
& Stevenson is a leading packager of aeroderivative gas turbine engines for
electrical power generation. A majority of the gas turbine engines used by
the Company are manufactured by General Electric Corporation. The
Company's engineered power systems and operations and maintenance services
are marketed worldwide, particularly in developing countries where there
has been growth in demand for electrical power.
The Distribution segment markets industrial equipment and related parts
manufactured by others and provides in-shop and on-site repair services for
such products. This segment began operations in 1938 and currently markets
Detroit Diesel engines, General Motors Electro-Motive diesel engines,
Allison automatic transmissions, Waukesha natural gas engines, Deutz diesel
engines, Hyster material handling equipment, Thermo King transport
refrigeration units and John Deere construction, utility and forestry
equipment. The Distribution segment markets primarily in the Southern and
Western United States, as well as in Mexico, Venezuela and Central America.
The Tactical Vehicle Systems segment has received contracts with the United
States Department of Defense to manufacture the U.S. Army's next generation
of medium tactical vehicles (the "Family of Medium Tactical Vehicles" or
"FMTV"). The FMTV contracts call for the production of approximately 11,000
newly-designed 2 1/2-ton and 5-ton trucks in several configurations,
including troop carriers, wreckers, cargo trucks, vans and dump trucks.
All variants of the FMTV incorporate a high level of common parts.
Manufacturing of the FMTV is being performed by the Company's Tactical
Vehicle Systems segment at a facility located near Houston, Texas. The
Company is also offering the FMTV for sale to other branches of the U.S.
Armed Forces and to the armed forces of foreign countries.
The Company's fiscal year begins on February 1 of the year stated and ends
on January 31 of the following year. For example, "Fiscal 1995" commenced
on February 1, 1995 and ended on January 31, 1996. Identifiable assets at
the close of Fiscal 1995, 1994 and 1993 and net sales, operating profit and
export sales for such fiscal years for the Company's business segments and
sales to customers which exceed 10% of consolidated sales are presented<PAGE>
under "Industry Segment Data" in the notes to the Consolidated Financial
Statements in Part II.
ENGINEERED POWER SYSTEMS SEGMENT
Stewart & Stevenson designs, engineers and markets engine-driven equipment
of various descriptions utilizing diesel or gas turbine engines
manufactured by independent suppliers and provides operation and
maintenance services for power generation and petroleum facilities. As a
custom packager of engine-driven equipment, the Company designs its
products to meet the specific needs of its customers in a variety of
applications. Both equipment and services are sold under the "Stewart &
Stevenson" name throughout the world.
Operations of the Engineered Power Systems segment accounted for
approximately 50.9%, 56.5% and 61.4%, respectively, of consolidated sales
during Fiscal 1995, 1994 and 1993.
Gas Turbine Driven Equipment. The Company packages gas turbine products
based on turbine engines purchased from General Electric Corporation
("GE"), European Gas Turbines ("EGT") and the Garrett Corporation
("Garrett"). The table below lists the capacity of generator sets based on
each model of gas turbine engine regularly packaged by the Company.
Generator Set
Capacity
Engine Model in Megawatts
____________ ____________
GE LM6000 . . . . . . . 40.30 Mw
GE LM5000 STIG . . . . 51.60 Mw
GE LM5000 . . . . . . . 34.40 Mw
GE LM2500+ . . . . . . 27.60 Mw
GE LM2500 STIG . . . . 26.50 Mw
GE LM2500 . . . . . . . 22.20 Mw
GE LM1600 . . . . . . . 13.40 Mw
EGT TEMPEST . . . . . . 7.49 Mw
EGT TORNADO . . . . . 6.25 Mw
EGT TYPHOON . . . . . . 4.91 Mw<PAGE>
GARRETT IM831 . . . . . 0.50 Mw
Gas turbine generator sets have a lower capital cost, higher efficiency and
shorter lead times and are more environmentally acceptable than many
alternative technologies. In addition, gas turbine generator sets may be
used for the simultaneous production of electrical power and useful thermal
energy ("cogeneration"). The gas turbine generator sets packaged by the
Company in the 20 Mw to 52 Mw size incorporate GE gas turbine engines and
are marketed primarily to independent power producers for prime power and
cogeneration applications and to electrical utilities for base load
capacity or additional capacity during peak demand periods. Generators in
the 0.5 Mw to 20 Mw range are marketed to hospitals, hotels, office
complexes and industrial facilities, both for prime power and cogeneration
applications. Stewart & Stevenson's package design and full-load testing
prior to shipment permit the complete installation and start-up of the
Company's gas turbine generators in as little as 30 days after shipment and
decrease both the time and expense required to build a complete electrical
generation facility.
The Company assembles turbine-driven mechanical drive packages, including
gas compressor sets, powered by GE and EGT gas turbine engines. The table
below lists the output of each model of gas turbine engine offered by the
Company for mechanical drive applications.
Engine Model Output
____________ __________
GE LM6000. . . . . . . . . . 55,545 Shp
GE LM2500+ . . . . . . . . . 37,000 Shp
GE LM2500. . . . . . . . . . 31,235 Shp
GE LM1600+ . . . . . . . . . 18,745 Shp
EGT TORNADO. . . . . . . . . 8,900 Shp
EGT TYPHOON. . . . . . . . . 6,500 Shp
Like the Company's turbine-driven generator sets, gas compression packages
are designed to be easily and quickly installed at the customer's location
and can be full-load tested at the Company's facility before shipment. Gas
compressor sets are marketed to gas production and pipeline operators for
both offshore and onshore installation.<PAGE>
Stewart & Stevenson believes that the international market provides
significant sale and lease opportunities for the Company's gas turbine
products. The market for electrical power in developing countries is
growing, and the Company's gas turbine generator sets are well suited for
the requirements of developing countries; providing quick delivery, low
initial capital costs and ease of installation in areas without significant
existing electrical power infrastructure.
A majority of the Company's gas turbine sales are derived from packaging
gas turbine engines manufactured by GE and EGT. The Company believes that
its relationship with these key suppliers is good and that its relationship
with GE and EGT will continue. Any interruption of these relationships,
however, would adversely affect the Company.
Sales of gas turbine products accounted for approximately 30.5%, 40.1% and
42.4%, respectively, of consolidated sales in Fiscal 1995, 1994 and 1993.
Gas Turbine Product Support Services. Stewart & Stevenson enters into
operation and maintenance contracts under which the Company provides all
labor, supervision and expertise necessary to operate, maintain and repair
power generation, gas compression and petroleum production, processing and
transportation facilities. Operation and maintenance contracts may have a
term of up to 10 years and provide for a fixed fee out of which the Company
must pay all costs incurred under the contract or for the payment of a
fixed fee plus reimbursement of the costs incurred by the Company. The
Company has provided operation and maintenance services for power
generation facilities since 1986. Operation and maintenance services are
provided on a worldwide basis.
In addition, Stewart & Stevenson offers parts and repair services for
turbine-driven equipment and is authorized to perform complete overhaul
services on GE, EGT and Allison gas turbine engines. Other turbine
products manufactured by the Company include an exhaust flow enhancement
device, manufactured under license from Norlock Technologies, Inc. This
new product improves power output and fuel efficiency and reduces exhaust
gas turbulence.
Sales of Gas Turbine Product Support Services contributed approximately
12.6%, 7.6% and 6.5%, respectively of consolidated sales in Fiscal 1995,<PAGE>
Fiscal 1994 and Fiscal 1993.
Other Power Systems. Stewart & Stevenson is a leading manufacturer of well
stimulation equipment and other diesel equipment for the oilfield service
industries. These products are currently marketed primarily in the
international market. Most of the Company's well stimulation equipment is
manufactured according to the Company's proprietary designs and
incorporates advanced microprocessor-based systems to automatically control
the pressures, density and other characteristics of the high pressure
fluids used to fracture oil-bearing formations. Other oilfield equipment
includes coil-tubing equipment, blowout preventors and high pressure valves
for the drilling and workover industry.
Stewart & Stevenson also manufactures a complete line of aircraft ground
support equipment, including gate tractors, air-start units, ground power
equipment and air conditioning systems.
Sales of other power systems and services accounted for 7.8%, 8.8% and
12.5%, respectively, of consolidated sales in Fiscal 1995, 1994 and 1993.
DISTRIBUTION SEGMENT
Distribution Operations: Stewart & Stevenson markets various industrial
equipment, components, replacement parts, accessories and other material
supplied by independent manufacturers and provides in-shop and on-site
repair services for diesel-driven equipment. The following table contains
the name of each manufacturer with whom the Company presently maintains a
distribution contract, a description of the products and territories
covered thereby and the expiration date thereof.
<TABLE>
<CAPTION>
Expiration
Manufacturer Products Territories Date
____________ ________ ___________ __________
<S> <C> <C> <C>
Detroit Diesel Corporation Heavy Duty High Speed Texas, Colorado, New 1998
("Detroit Diesel") Diesel Engines Mexico, Wyoming, Nebraska,<PAGE>
Louisiana, Mississippi,
Alabama and Venezuela
Electro-Motive Division of Heavy Duty Medium Speed Texas, Colorado, New 1998
General Motors Corporation Diesel Engines Mexico, Nebraska, Oklahoma,
("EMD") Arkansas, Louisiana, Tennessee,
Mississippi, Alabama, Mexico,
Central America and most of
South America
Allison Transmission On- and Off-Highway Texas, Colorado, New 1997
Division of General Automatic Transmissions Mexico, Wyoming, Nebraska,
Motors Corporation Power Shift Transmissions Louisiana, Mississippi,
and Torque Converters Alabama and Venezuela
Hyster Company Material Handling Equipment Texas *
John Deere Industrial Construction, Utility and Southeast Texas and *
Equipment Company Forestry Equipment Wyoming
Thermo King Corporation Transport Refrigeration Southeast Texas and 1996
Equipment Southern Louisiana
Waukesha Engine Division of Natural Gas Industrial Colorado, Montana, 1997
Dresser Industries, Inc. Engines North Dakota, Oklahoma,
Wyoming, New Mexico,
Utah, Oregon, Hawaii,
Kansas, Arizona, California,
Washington and Nevada
KHD - Deutz Corporation Diesel Engines Colorado, Wyoming, Arizona, 1997
New Mexico, Washington and
Alaska<PAGE>
________________________
</TABLE>
*No expiration date. Agreements may be terminated by written notice of
termination.
Distribution agreements generally require the Company to purchase and stock
the products and repair parts covered thereby for resale to end users,
original equipment manufacturers or independent dealers within the
franchise area of distribution. Such agreements also require the Company
to provide after-sale service within its designated territory and may
contain provisions prohibiting the sale of competitive products within the
franchise territory. Distribution operations are conducted at branch
facilities located in major cities within the Company's franchised area of
distribution. New products are marketed primarily under the trademarks and
the trade names of the original manufacturer.
The Company's principal distribution agreements are subject to early
termination by the suppliers for a variety of causes, including a change in
control or a change in the principal management of the Company. Although
no assurance can be given that such distribution agreements will be renewed
beyond their expiration dates, they have been renewed regularly.
Manufacturing Operations. The Distribution segment also manufactures and
sells generator sets and mechanical drive packages using reciprocating
engines fueled with diesel, natural gas, or both. Generator sets range in
size from 20 kw to 12,700 kw and are based on engines supplied by companies
with whom the Distribution segment has a distributor or packaging
agreement. The Company undertakes the selection of the appropriate engine
and generator based on the intended application and fabricates the
completed package according to a design developed specifically to fit
the needs of the customer. Reciprocating engine driven generator sets are
marketed by the Company as both stand-by power sources for emergency use
and as prime power sources to supply electricity at remote locations.
In addition to reciprocating engine-driven power systems, the Distribution
segment manufactures and sells snow removal equipment, wheel chair lifts
and rail car movers. Some products manufactured by the Distribution
segment are based upon proprietary designs owned by the Company and others
are based upon designs owned by others and licensed to the Company.<PAGE>
Operations of the Distribution segment accounted for approximately 33.7%,
30.4% and 31.8%, respectively, of consolidated sales during Fiscal 1995,
1994 and 1993. The Distribution segment's marketing units regularly sell
certain products manufactured by units of the Engineered Power Systems
segment and also sell to military and airline users. In both cases, such
sales are included in the Distribution segment.
TACTICAL VEHICLE SYSTEMS SEGMENT
In October 1991, the United States Department of Defense selected Stewart &
Stevenson to manufacture the next generation of medium tactical vehicles
(the "Family of Medium Tactical Vehicles" or "FMTV") for the U.S. Army and
awarded the Company contracts, valued at $1.2 billion, for the production
of 2 1/2-ton and 5-ton trucks, spare parts and logistical support. The
Family of Medium Tactical Vehicles is the U.S. Army's next generation of
basic transportation vehicle for personnel and materials. As such, the
FMTV is produced in several variants to carry troops and cargo, including
cargo beds, vans, troop carriers, wreckers, dump trucks and tractors. In
addition, several of the vehicles are specially configured for airdrop
operation. Although more than ten configurations of the FMTV are being
produced, a high degree of common components is incorporated in the Stewart
& Stevenson design.
The Company also sells the FMTV to other government contractors as a
platform for installation weapons systems and other equipment which is then
resold to the Armed Forces. Stewart & Stevenson believes that there will
be opportunities to sell additional vehicles to the U.S. Army, to other
branches of the U.S. Armed Forces and to the armed forces of foreign
countries. The FMTV contracts allow for such sales, and the Company's
facility has capacity to produce vehicles for those additional sales.
Operations of the Tactical Vehicle Systems segment accounted for
approximately 15.3%, 13.0%, and 6.7%, respectively, of consolidated sales
during Fiscal 1995, 1994 and 1993.
COMPETITION
The Company encounters strong competition in all segments of its business.
Competition involves pricing, quality, availability, the range of products<PAGE>
and services and other factors. Some of the Company's competitors have
greater financial resources than Stewart & Stevenson. The Company believes
that its reputation for quality engineering and after-sales service, and
single-source responsibility, are important to its market position.
The Engineered Power Systems segment competes with various entities,
including certain suppliers of major components, for sale of its products.
Manufacturers of gas turbine generator sets in the 20-52 Mw size include
General Electric Corporation, Ruston Gas Turbines Ltd., Seimens,
Westinghouse and ABB Energy Services, Inc., a subsidiary of Asea Brown
Boveri. Competition in the market for the other products manufactured and
services provided by the Engineered Power Systems segment is highly
diversified with no single competitor participating in all of the markets
of the Company.
The Distribution segment competes with distributors for other manufacturers
in the sale of original equipment, with the manufacturers and distributors
of non-original equipment parts for the sale of spare parts and with
independent repair shops for in-shop and on-site repair services.
The Tactical Vehicle Systems segment competes with other domestic companies
for incremental sales to the U.S. Armed Forces. Both domestic and foreign
suppliers compete for the sale of vehicles to foreign governments. The
Company's foreign competitors include Daimler-Benz, Steyr, and other
vehicle manufacturers that have greater international recognition as
vehicle manufacturers.
INTERNATIONAL OPERATIONS
International sales are subject to the risks of international political and
economic changes, such as changes in foreign governmental policies,
currency exchange rates and inflation. Generally, the Company accepts
payments only in United States Dollars and makes most sales to customers
outside the United States against letters of credit drawn on established
international banks, thereby limiting the Company's exposure to the effects
of exchange rate fluctuations and customer credit risks. In the limited
circumstances in which the Company has entered into contracts in foreign
currencies, it has hedged its exposure to fluctuations in such currencies.
The profit margin on export sales is not materially different from that on<PAGE>
domestic sales of the same or similar products with the same or similar
delivery requirements.
The performance of operation and maintenance contracts in some countries
could be disrupted by political unrest, terrorist activity or government
action. The Company believes that any such disruption would be temporary.
UNFILLED ORDERS
Stewart & Stevenson's unfilled orders consist of written purchase orders,
letters of intent and oral commitments. These unfilled orders are
generally subject to cancellation or modification due to customer
relationships or other conditions. Purchase options are not included in
unfilled orders until exercised. Unfilled orders at the close of Fiscal
1995 and Fiscal 1994 were as follows:
<TABLE>
<CAPTION>
Estimated percentage
to be recognized in Fiscal Fiscal
Fiscal 1996 1995 1994
____________________ ______ ______
(Dollars in millions)
<S> <C> <C> <C>
Engineered Power Systems
Equipment 67.9% $ 208.9 $ 416.0
Operations and Maintenance 22.2% 321.8 311.6
________ ________
530.7 727.6
Distribution 100.0% 50.9 40.0
Tactical Vehicle Systems 30.8% 862.7 1,017.8
________ ________
Total 36.7% $1,444.3 $1,785.4
======== ========
/TABLE
<PAGE>
Although no assurance can be given, the Company expects sales of the
Engineered Power Systems segment to continue to be weighted in favor of
turbine-driven equipment based on the number of unfilled orders for these
units, the number of proposals that are presently outstanding and the
current worldwide need for additional electrical generating capacity.
Unfilled orders of the Tactical Vehicle Systems segment consists
principally of the contracts awarded in October 1991 by the United States
Department of the Army to manufacture medium tactical vehicles, and options
under the FMTV contract that have been exercised by the U.S. Army to
purchase additional vehicles for the National Guard.
EMPLOYEES
At the end of Fiscal 1995, the Company employed approximately 4,511
persons. The Company considers its employee relations to be satisfactory.
Item 2. Properties.
The Company maintains its corporate and executive offices at 2707 North
Loop West, Houston, Texas. The corporate office, which includes the
executive offices, the national sales offices for the Engineered Power
Systems segment and administrative offices for the Distribution segment,
occupies about 109,000 square feet of space leased from a limited
partnership in which the Company owns an 80% limited partnership interest.
Stewart & Stevenson's Engineered Power Systems segment is headquartered in
Houston, where the Company owns approximately 919,000 square feet and
leases approximately 41,000 square feet of space at seven locations devoted
to manufacturing, warehousing and administration. The Company leases gas
turbine operations and maintenance facilities in Long Beach, California,
and Anchorage, Alaska each totaling 5,000 square feet and maintains a sales
office in Alexandria, Virginia and Fort Lauderdale, Florida. The Company
also owns gas turbine parts, service, operations and maintenance facilities
in Syracuse, New York (15,000 square feet) and Bakersfield, California
(14,000 square feet) and a high pressure valve manufacturing facility in
Jennings, Louisiana (89,000 square feet).
Activities of the Distribution segment are coordinated from Houston, where<PAGE>
the Company owns 293,000 square feet of space at three locations devoted to
equipment and parts sales and service. To service its distribution
territory (See "Item 1. Business -- Distribution Segment"), Stewart &
Stevenson maintains Company-operated facilities occupying 607,000 square
feet of owned space and 340,000 square feet of leased space in 25 cities in
Texas, Louisiana, Colorado, New Mexico, Wyoming, Utah, North Dakota,
Kansas, Washington and California.
The Tactical Vehicle Systems segment is located in a 500,000 square foot
Company-owned facility near Houston, Texas. The Tactical Vehicle Systems
segment also leases 88,000 square feet of warehousing facilities in Houston
and Lubbock, Texas.
The Company considers all property owned or leased by it to be well
maintained, adequately insured and suitable for its purposes.
Item 3. Legal Proceedings.
The Company is a defendant in a federal criminal matter and certain related
civil ligation arising from a 1987 subcontract to supply diesel generators
to the Kingdom of Saudi Arabia. See Note 5 to the Consolidated Financial
Statements which is incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock is traded on the NASDAQ Stock Market under the
symbol: SSSS. There were 822 shareholders of record as of February 29,
1996. The following table sets forth the high and low sales prices
relating to the Company's Common Stock and the dividends declared by the
Company in each quarterly period within the last two fiscal years.
TABLE
<PAGE>
<CAPTION>
Fiscal Fiscal
1995 1994
_______________________________ ______________________________
High Low Dividend High Low Dividend
______ _____ ________ ______ _____ ________
<S> <C> <C> <C> <C> <C> <C>
First Quarter $40 1/2 $28 3/4 $0.07 $53 3/4 $41 1/4 $0.06
Second Quarter 41 1/4 32 3/4 0.08 45 3/4 38 1/4 0.07
Third Quarter 38 3/4 21 1/2 0.08 40 3/4 33 3/4 0.07
Fourth Quarter 26 1/2 21 7/8 0.08 38 3/4 28 0.07
</TABLE>
Item 6. Selected Financial Data.
The Selected Financial Data set forth below should be read in conjunction
with the accompanying Consolidated Financial Statements and notes thereto,
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Stewart & Stevenson Services, Inc.
CONSOLIDATED FINANCIAL REVIEW
<TABLE>
<CAPTION>
_________________________________________________________________________________________________
(Dollars in thousands, except
per share data) Fiscal Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1992 1991
_________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Financial Data:
Sales $1,233,981 $1,138,336 $981,892 $812,526 $686,363
Earnings before income taxes
and accounting change (a) 91,908 102,852 85,301 64,376 52,259
Earnings before accounting change (a) 61,803 67,558 56,780 43,958 35,703<PAGE>
Net earnings (a) 61,803 67,558 56,780 34,658 35,703
Total assets 1,040,583 875,616 692,624 573,348 477,858
Short-Term Debt (including current
portion of Long-Term Debt) 66,100 43,344 7,219 3,252 4,582
Long-Term Debt 210,800 116,900 68,000 44,451 27,939
Per Share Data:
Earnings before accounting change (a) 1.87 2.05 1.73 1.35 1.18
Net earnings (a) 1.87 2.05 1.73 1.06 1.18
Cash dividends declared 0.31 0.27 0.23 0.19 0.15
</TABLE>
(a) The Company adopted Statement of Financial Accounting Standard No. 106
effective February 1, 1992, resulting in a cumulative charge to Fiscal 1992
earnings of $9,300, or $0.29 per share, after a deferred tax benefit of
$4,790.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis, as well as the accompanying
Consolidated Financial Statements and related footnotes, will aid in
understanding the Company's results of operations as well as its financial
position, cash flows, indebtedness and other key financial information.
SUMMARY
The following table sets forth for the periods indicated (i) percentages
which certain items reflected in the Company's Consolidated Statements of
Earnings bear to consolidated sales of the Company and (ii) the percentage
increase (decrease) of such items as compared to the indicated prior
period:
TABLE
<PAGE>
<CAPTION>
Relationship to
Consolidated Sales Growth Rate
______________________________________________________________________________________________________
Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1994-1995 1993-1994
======================================================================================================
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 8.4% 15.9%
Cost of sales 84.4 84.0 84.1 8.9 15.7
______________________________
Gross profit 15.6 16.0 15.9 5.8 17.0
Selling and administrative expenses 7.5 6.6 7.0 22.0 10.1
Interest expense 1.1 .6 .3 102.2 107.2
Other income, net (.4) (.2) (.1) 85.0 161.4
______________________________
8.2 7.0 7.2 26.9 12.6
______________________________
Earnings before income taxes 7.4 9.0 8.7 (10.6) 20.6
Income taxes 2.5 3.0 2.9 (11.2) 23.3
______________________________
Earnings of consolidated
companies 4.9 6.0 5.8 (10.4) 19.3
Equity in net earnings (loss) of
unconsolidated affiliates .1 (.1) .0 172.4 N/A
______________________________
Net Earnings 5.0% 5.9% 5.8% (8.5) 19.0
==============================
</TABLE>
RESULTS OF OPERATIONS<PAGE>
Business Segment Highlights
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________
(Dollars in thousands)
Sales Growth Rate
________________________________________________________________________________________
Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1994-1995 1993-1994
____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Engineered Power Systems $627,702 51% $642,804 57% $602,853 61% -2% +7%
Distribution 416,229 34 346,564 30 311,983 32 +20 +11
Tactical Vehicle Systems 189,009 15 147,920 13 65,894 7 +28 +124
Corporate Services 1,041 - 1,048 - 1,162 - -1 -10
_________________________________________________________
$1,233,981 100% $1,138,336 100% $981,892 100% +8 +16
=========================================================
</TABLE>
<TABLE>
<CAPTION>
Operating Profit Growth Rate
________________________________________________________________________________________
Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1994-1995 1993-1994
____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Engineered Power Systems $73,449 65% $82,395 71% $70,292 75% -11% +17%
Distribution 30,130 27 24,015 21 20,309 22 +25 +18
Tactical Vehicle Systems 9,703 8 8,782 8 2,886 3 +10 +204
Corporate Services 292 - 376 - 552 - -22 -32
_______________________________________________________
<PAGE>
$113,574 100% $115,568 100% $94,039 100% -2 +23
=======================================================
</TABLE>
<TABLE>
<CAPTION>
Operating Profit as a Percentage of Sales
______________________________________________
Fiscal Fiscal Fiscal
1995 1994 1993
_____________________________________________________________________________
<S> <C> <C> <C>
Engineered Power Systems 11.7% 12.8% 11.7%
Distribution 7.2 6.9 6.5
Tactical Vehicle Systems 5.1 5.9 4.4
Corporate Services 28.1 35.9 47.5
Consolidated 9.2 10.2 9.6
</TABLE>
Fiscal 1995 vs. Fiscal 1994
Sales for Fiscal 1995 increased 8% to $1.234 billion compared to sales of
$1.138 billion for Fiscal 1994. This increase represents a new sales
record for the ninth consecutive year. The Company's international sales
increased 27% to $382 million in Fiscal 1995 as compared to $301 million in
Fiscal 1994, representing 30% and 26% of consolidated sales for Fiscal 1995
and 1994, respectively.
The Distribution segment was the primary contributor to the Company's sales
growth with an increase in sales of $70 million (20%) in Fiscal 1995
compared to Fiscal 1994. This increase is primarily attributable to the
acquisition of substantially all of the assets of Power Application & Mfg.,
Co. ("PAMCO"), a Waukesha distributor for the Western United States, during
the fourth quarter of Fiscal 1994. The distribution of product lines
acquired from PAMCO contributed sales of $49 million in Fiscal 1995
compared to $5 million in Fiscal 1994. Excluding sales relating to the
PAMCO acquisition, the Distribution segment's sales increased 7% in Fiscal
1995 over Fiscal 1994 reflecting the continued economic growth in the
territories serviced by the Company.<PAGE>
The Tactical Vehicle Systems segment sales increased $41 million (28%)
during Fiscal 1995 as compared to Fiscal 1994. The increase in TVS sales
reflects the increase in truck production under the "Family of Medium
Tactical Vehicles" (FMTV) contract to 1,560 trucks in Fiscal 1995 as
compared to 1,130 trucks in Fiscal 1994. Although sales increased for the
current fiscal year, the increase was less than anticipated. Sales for the
year were adversely affected by the deployment of certain U.S. Army
personnel to Haiti in Fiscal 1994 which delayed the completion of testing
and certification of the FMTV program for high volume production until the
fourth quarter of Fiscal 1995.
The Engineered Power Systems segment of the Company experienced a 2%
decreased in sales in Fiscal 1995. This decline in EPS sales was primarily
within the Gas Turbine equipment product lines which experienced sharply
reduced domestic activity, reflecting the U.S. utility market's response to
deregulation proposals, and delays in contract awards in the international
markets. Gas Turbine product support sales, consisting of the servicing of
customers' equipment and the long-term contracting for operation and
maintenance of power plants, continued to grow with Fiscal 1995 sales
increasing more that 10% above Fiscal 1994.
Operating profit decreased by approximately 2% during Fiscal 1995 to $114
million as compared to $116 million in Fiscal 1994. Both the Distribution
and the Tactical Vehicle Systems segments' operating profits increased at a
rate comparable to the growth in sales volumes. The Engineered Power
Systems segment's operating profit of 12% in Fiscal 1995 declined from 13%
in Fiscal 1994. This decline is primarily related to lower profits
realized on the sale of certain compression equipment during Fiscal 1995,
and to increased market competitiveness.
Fiscal 1994 vs. Fiscal 1993
Sales increased to $1,138 million for Fiscal 1994 from $982 million for
Fiscal 1993. In total, sales increased by 16% with each of the Company's
segments recording new sales records. The Company's international sales
increased 28% to over $301 million. The Tactical Vehicle Systems segment
showed the largest sales growth during Fiscal 1994, increasing sales by
124%. This sales growth, although significant, was less than was
anticipated. Sales growth was restrained by the government's decision to<PAGE>
delay both the testing of trucks and the approval for purchasing of key
components, which effectively precluded the Company from achieving its
planned production quantities.
The Company's Distribution segment's sales increased by 11% in Fiscal 1994.
This increase reflects the continuation of both the growth of the economies
of the territories serviced by the Company and the market's reception of
the products which the Company sells. The Company continued to expand the
territories in which it operates and the products it represents through the
acquisition, during the fourth quarter of Fiscal 1994, of substantially all
of the assets of PAMCO.
The Engineered Power Systems segment of the Company experienced continued
growth with Fiscal 1994 sales increasing 7%. The gas turbine product lines
provided the majority of the sales growth. Gas turbine product support
sales growth continued to exceed expectations and contributed significantly
to this increase. Gas turbine equipment sales increased, but at a slower
rate than the prior year, reflecting the U.S. utility market's uncertain
response to deregulation trends. Excluding the discontinued bus product
line, the diesel products group showed a slight increase in sales,
primarily in products sold to the airline market. During the third quarter
of Fiscal 1994, the Company completed the acquisition of substantially all
of the assets of Creole International, Inc., a provider of operating and
maintenance services for turbine and reciprocating engine driven equipment.
Operating profit grew by approximately 23% during Fiscal 1994 to $116
million. Each of the Company's segment's operating profits increased both
in absolute amounts and as a percentage of sales. The Tactical Vehicle
Systems segment's growth reflects both an increase in production levels and
an improvement in the anticipated profitability of the FMTV program. The
Engineered Power Systems segment had an improved revenue mix resulting
primarily from the rapid growth rate of its gas turbine product support
sales which generally realize a higher operating profit. The Distribution
segment benefitted from improved operating efficiencies and a revenue blend
of higher value added products.
Net Period Expense<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands)
_________________________________________________________________________________________________________
Percentage Change
Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1994-1995 1993-1994
_________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Selling and administrative expenses $91,814 $75,249 $68,331 + 22% + 10%
Interest expense 13,884 6,865 3,313 +102 +107
Other income, net (4,676) (2,528) (967) + 85 +161
______________________________
$101,022 $79,586 $70,677 + 27 +13
==============================
Net period expense as a percentage of sales 8.2% 7.0% 7.2%
==============================
</TABLE>
Net period expenses increased significantly during Fiscal 1995 both in
amount and in relation to sales, when compared to Fiscal 1994. The
increase in net period expense as a percentage of sales is the first time
in more than ten years for such an increase. Fiscal 1995 sales and
administrative expense includes a full year of expenses related to certain
acquisitions made during the second half of Fiscal 1994, which were not
completely integrated into the Company for a significant portion of Fiscal
1995. Sales and administrative expense also grew rapidly within the
Engineered Power System's operations and maintenance group, as the Company
continued to expand these services into international markets. Interest
expense grew significantly in both Fiscal 1995 and 1994 reflecting the
increased borrowings required to fund the Company's operations; primarily
gas turbine inventories relating to international contracts that do not
contain substantial progress payments and inventories of vehicles under the
FMTV contract that accumulated during delays in testing. The growth in
other income during Fiscal 1995 is primarily attributable to both increased<PAGE>
interest income and gains on the disposal of real estate.
Income tax expense, relative to operational profits, was comparable for
Fiscal 1995, 1994 and 1993.
Net Earnings
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________
(Dollars in thousands) Percentage Change
Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1994-1995 1993-1994
_________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Amount $61,803 $67,558 $56,780 -9% +19%
Percentage of sales 5.0% 5.9% 5.8%
=============================================================================
</TABLE>
Fiscal 1995 net earnings' decline from Fiscal 1994 is primarily reflective
of the decrease in operational profits and the increase in interest
expense. The increase in net earnings during Fiscal 1994 from Fiscal 1993
is attributable to the increase in operational profits.
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 112 ("SFAS 112"), "Employer's Accounting for
Postemployment Benefits", in November 1992. SFAS 112 requires that the
liability for certain postemployment benefits be recognized over the
employees' service lives when certain conditions are met. The Company
adopted SFAS 112 in Fiscal 1994. The adoption of SFAS 112 did not have a
material impact on the Company's financial statements.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", in March
1995. SFAS 121 requires that long lived assets and certain identifiable<PAGE>
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company anticipates adopting SFAS 121 in the first
quarter of Fiscal 1996, and that such implementation will not have a
material effect on the Company's consolidated results of operations or
financial position.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation" in October 1995. SFAS 123 establishes financial accounting
and reporting standards for stock-based compensation plans and to
transactions in which an entity issues its equity instruments to acquire
goods and services from non-employees. The new accounting standard
prescribed by SFAS 123 is optional, and the Company may continue to account
for its plans under previous accounting standards. The Company does not
expect to adopt the new accounting standards, consequently, SFAS 123 will
not have a material impact on the Company's consolidated results of
operations or financial position. Pro forma disclosures of net earnings
and earnings per share must be made as if the SFAS 123 had been adopted by
the Company. Such disclosure will be required in Fiscal 1996.
FINANCIAL CONDITION
Company's Capital
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
(Dollars in thousands) Fiscal 1995 Fiscal 1994
Amount Percentage Amount Percentage
____________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Long-Term Debt $210,800 30% $116,900 21%
Other Long-Term Liabilities 27,788 4 28,559 5
Shareholders' Equity 471,915 66 419,003 74
___________________________________________________
$710,503 100% $564,462 100%
===================================================
/TABLE
<PAGE>
Shareholders' equity increased $52,912 during Fiscal 1995 and $60,345
during Fiscal 1994 primarily as a result of earnings retained after
dividends. During Fiscal 1995, the Company increased its revolving credit
facility with its banks from $105 million to $200 million. The Company had
$65 million and $42 million in short-term borrowings at the end of Fiscal
1995 and 1994, respectively. Total debt increased during Fiscal 1995 and
1994 principally due to the timing of customer progress payments for
contracts in process in Fiscal 1995 and 1994 and delays in testing and
acceptance of vehicles under the FMTV program during Fiscal 1995.
LIQUIDITY
Cash Provided From Operations
<TABLE>
<CAPTION>
_______________________________________________________________________________________________
(Dollars in thousands) Fiscal Fiscal Fiscal
1995 1994 1993
_______________________________________________________________________________________________
<S> <C> <C> <C>
Net Earnings $ 61,803 $ 67,558 $ 56,780
Depreciation and amortization 24,732 23,954 21,175
Deferred income taxes (1,244) 2,170 413
_____________________________________
Funds from operations 85,291 93,682 78,368
Change in net operating assets and liabilities (171,433) (146,288) (86,395)
_____________________________________
Net cash used in operating activities $ (86,142) $(52,606) $ (8,027)
=====================================
</TABLE>
Funds from operations decreased 9.0% during Fiscal 1995 versus a 20%
increase during Fiscal 1994, reflecting primarily the relative change in
earnings each year. The Company's investment in net operating assets and
liabilities increased by an amount greater than that provided from
operations during Fiscal 1995 and Fiscal 1994. The significant components
of net operating assets and liabilities grew at rates comparable with sales
growth, excluding recoverable costs and accrued profits not yet billed.
Significant growth in recoverable costs and accrued profits not yet billed
occurred in both the Tactical Vehicle Systems segment and the Engineered<PAGE>
Power Systems segment. The Tactical Vehicle Systems segment is primarily
funded by progress payments under government regulations which require that
contractors retain a significant amount of the contract costs until
government acceptance of the product. The Company has experienced cost
increases and delivery delays under the FMTV contract, all of which have
resulted in a build up in the unliquidated contract costs. The government
began taking delivery of the FMTV in January 1996, with full liquidation of
existing progress payments expected to occur in 1996. The Engineered Power
Systems segment's gas turbine product line experienced a significant
increase in the percentage of international contracts, which generally
provide for lower customer contract funding requirements, and resulted in
the increased recoverable costs and accrued profits not yet billed.
Working capital to support the operations of the Company fluctuates
significantly depending on the progress payment streams of the contracts in
process. The Company regularly bids on commercial and government
contracts, which if awarded to the Company, could significantly affect both
working capital and capital expenditures needs.
The Company's liquidity can be measured using several measures. The
Company's current ratio (current assets divided by current liabilities)
remained somewhat constant at 2.7:1 and 2.3:1 at the end of Fiscal 1995 and
Fiscal 1994, respectively. The small increase is the result of replacing
short-term debt incurred under uncommitted lines with long-term debt under
the Company's revolving credit facility and increases in receivables and
inventories. The long-term debt to equity ratio (long-term debt including
the current portion divided by total shareholders' equity) was 45% at the
end of Fiscal 1995 and 28% at the end of Fiscal 1994, reflecting the
increase in long-term debt under the Company's revolving credit facility
during Fiscal 1995. The Company's interest coverage (earnings before
income taxes and interest expense divided by interest expense) decreased to
7.6 times interest for Fiscal 1995 versus 16.0 times interest for Fiscal
1994, primarily as a result of the increased debt outstanding and lower
earnings.
The Company engaged an agent to assist the Company in the private placement
of at least $100 million in long-term indebtedness. The proceeds of such
proposed private placement, if consummated, will be used primarily to
retire other debt and for general corporate purposes. In the event that
any acquisition of additional operations, growth in existing operations,<PAGE>
changes in inventory levels, accounts receivable or other working capital
items create a need for working capital or capital expenditures in excess
of existing committed lines of credit, the Company may seek to convert
uncommitted borrowing arrangements to committed credit facilities, to
borrow under other long-term financing sources or to issue additional
equity securities. Management believes that the Company's current credit
facilities are adequate to meet its foreseeable cash requirements.
<TABLE>
CAPITAL EXPENDITURES AND COMMITMENTS
Capital Expenditures By Industry Segment
______________________________________________________________________________________________
(Dollars in thousands) Percentage Change
Fiscal Fiscal Fiscal Fiscal
1995 1994 1993 1994-1995 1993-1994
______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Engineered Power Systems $ 9,495 $12,082 $14,502 -21% -17%
Distribution 10,780 17,651 9,302 -39 +90
Tactical Vehicle Systems 2,111 2,929 6,061 -28 -52
Corporate Services 1,101 717 781 +60 -8
____________________________
$23,487 $33,379 $30,646 -30 +9
============================
</TABLE>
Capital expenditures decreased significantly in Fiscal 1995 as compared to
Fiscal 1994 and 1993. The Distribution segment's increase during Fiscal
1994 includes the capital assets acquired from PAMCO. The capital
expenditures program at the Tactical Vehicle Systems segment and the
program to upgrade the Engineered Power Systems segment's facilities were
both substantially completed during Fiscal 1993.
Cash Dividends
<TABLE>
<CAPTION>
______________________________________________________________________________________________
(Dollars in thousands, except per share data) Growth Rate
Fiscal Fiscal Fiscal Fiscal <PAGE>
1995 1994 1993 1994-1995 1993-1994
______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Amount of Cash Dividends $10,243 $8,904 $7,563 +15% +18%
Annual Rate of Cash Dividends per
Share $ 0.31 $ 0.27 $ 0.23 +15 +17
===========================
</TABLE>
The amount of cash dividends increased 15% and 18% during Fiscal 1995 and
1994, respectively. Cash dividends represented 17%, 13% and 13% of net
earnings before accounting change for Fiscal 1995, 1994 and 1993,
respectively. The Board of Directors of the Company intends to consider
the payment of dividends on a quarterly basis, commensurate with the
Company's earnings and financial needs.
GOVERNMENT CONTRACTING
Initial Operational Test and Evaluation under the FMTV contract was
completed in the third quarter of Fiscal 1995 and the Company received
approval for full rate production and type classification of the FMTV on
August 25, 1995. Actual shipment of the vehicles to combat troops began in
January 1996 at Ft. Bragg, North Carolina. Under the terms of the FMTV
contract, all vehicles produced before the full rate production decision
must be retrofitted with any changes required by test results or
specification changes ordered by the government. The retrofit began during
the fourth quarter of Fiscal 1995 and is expected to be completed in the
second quarter of 1996. Full rate production is expected to commence after
completion of the retrofit program.
Major contracts for military systems are performed over extended periods of
time and are subject to changes in scope of work and delivery schedules.
Pricing negotiations on changes and settlement of claims often extend over
prolonged periods of time. The Company's ultimate profitability on such
contracts will depend not only upon the accuracy of the Company's cost
projections, but also the eventual outcome of an equitable settlement of
contractual issues with the U.S. Government.<PAGE>
The FMTV contract is a firm fixed-price multi-year contract whereby the
price paid to the Company is not subject to adjustment to reflect the
Company's actual costs, except costs incurred as a result of actions or
inactions of the government. The Company has completed approximately 3,000
(of approximately 11,000 trucks) trucks at low rate initial production as
of January 31, 1996. Full rate production has been approved and is
expected to commence after completion of retrofit of the trucks produced to
date to current specifications. Stewart & Stevenson has incurred
significant cost overruns and delivery schedule delays on the FMTV contract
which the Company believes are primarily due to the government's decision
to delay the testing of trucks and other government directed changes to the
contract. The Company has and will continue to submit a series of Requests
for Equitable Adjustments (REAs), under the FMTV contract, seeking
increases in the FMTV contract price for those additional costs that relate
to government caused delays and changes. Additionally, the Company has
entered into negotiations with the U.S. Army to modify the existing
contract to provide for steady production at rates lower than originally
anticipated through December 1998. However, the Company is not able to
predict whether such modification will be forthcoming on terms acceptable
to the Company and production of vehicles may be interrupted after February
1997.
Revenues and profits realized on the FMTV contract are based on the
Company's estimates of total contract sales value and costs at completion.
Amounts in excess of agreed upon contract price for government caused
delays, disruptions, unpriced change orders and government caused
additional contract costs are recognized in contract value when the Company
believes it is probable that the claim for such amounts will result in
additional contract revenue and the amount can be reasonably estimated. At
January 31, 1996, the Company's FMTV contract accounting position reflects
the expected recovery of substantial amounts in excess of the contract
price for government caused delays, disruptions, unpriced change orders and
other government caused additional contract costs. These claims are in
varying stages of negotiations. Although management believes that the
contract provides a legal basis for the claims and its estimates are based
on reasonable assumptions and on a reasonable analysis of contract costs,
due to uncertainties inherent in the estimation and claims negotiations
process, no assurances can be given that its estimates will be accurate,
and variances between such estimates and actual results could be material. <PAGE>
In the event that the Company is unable to recover a substantial portion of
the additional costs, the Company may suffer a material adverse effect on
its operations during the accounting period in which such contract issues
are resolved.
The funding of the contract is subject to the inherent uncertainties of
congressional appropriations. As is typical of multi-year defense
contracts, the FMTV contracts must be funded annually by the Department of
the Army and may be terminated at any time for the convenience of the
government. The Company has received full funding for the production of
approximately 7,364 vehicles through February 1997. Approximately 3,524
vehicles, scheduled for production after that date have not been funded due
to reductions in the U.S. Army's budget for acquisitions. In the event
that the FMTV contracts are terminated other than for default, the FMTV
contracts provide for termination charges that will reimburse the Company
for allowable costs, but not necessarily all costs.
EFFECT OF CERTAIN LITIGATION
On May 3, 1995, the Company and four employees, including the Company's
President, were indicted by a federal Grand Jury on six counts arising out
of a 1987 subcontract to supply diesel generator sets for installation in
Saudi Arabia. See Note 5: Commitments and Contingencies to the
Consolidated Financial Statements. On May 12, 1995, the U.S. Air Force
suspended the Company from contracting with any agency of the U.S.
Government and from receiving the benefit of federal assistance programs.
This suspension was temporarily terminated on November 8, 1995, pending the
resolution of the charges covered by the indictment, pursuant to an Interim
Administrative Agreement between the Company and the U.S. Air Force. The
Interim Administrative Agreement does not have any effect on the
indictment.
The Interim Administrative Agreement requires the Company to maintain
various internal procedures and policies intended to assure the U.S.
Government that the Company is a responsible contractor. In the event that
the Company or any of the indicted employees are convicted of the charges
contained in the indictment, the U.S. Air Force may re-evaluate whether the
Company should be suspended or debarred based on all of the facts and
circumstances then known. An acquittal of all parties of the charges does<PAGE>
not terminate the Interim Administrative Agreement and any failure by the
Company to perform its obligations thereunder may also be grounds for
suspension or debarment.
If the Company is suspended or debarred, either because of a conviction
pursuant to the indictment or as a result of a breach of the Interim
Administrative Agreement, it would be ineligible to enter into new
contracts or subcontracts with agencies of the U.S. Government or receive
the benefit of federal assistance payments for the duration of such
suspension or debarment. Any such suspension could prevent the Company
from receiving a modification to the FMTV to fund additional vehicles or
extend the delivery schedule of funded vehicles unless the Secretary of the
Army finds a compelling need to enter into such modification. The Company
would also be unable to sell equipment and services to customers that
depend on loans or financial commitments from the Export Import Bank ("EXIM
Bank"), Overseas Private Investment Corporation ("OPIC") and similar
government agencies during a suspension or debarment. The Engineered Power
Systems segment frequently sells equipment to customers that rely on
financial commitments from EXIM and/or OPIC. Any such suspension or
debarment could have a material adverse impact on the Company's financial
condition and results of operations.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Stewart & Stevenson Services, Inc.
We have audited the accompanying consolidated statements of financial
position of Stewart & Stevenson Services, Inc. and subsidiaries as of
January 31, 1996 and 1995, and the related consolidated statements of
earnings, shareholders' equity and cash flows for each of the three years
in the period ended January 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to<PAGE>
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Stewart & Stevenson
Services, Inc. and subsidiaries as of January 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in
the period ended January 31, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 9 to the Consolidated Financial Statements, effective
February 1, 1994, the Company changed its method of accounting for
postemployment benefits to conform with Statement of Financial Accounting
Standard No. 112.
ARTHUR ANDERSEN LLP
Houston, Texas
March 14, 1996
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTIONS>
______________________________________________________________________________________
(Dollars in thousands) Fiscal Fiscal
1995 1994
______________________________________________________________________________________
<S> <C> <C>
Assets
Current Assets
Cash and equivalents $ 6,325 $ 3,987
Accounts and notes receivable, net 196,548 186,814 <PAGE>
Recoverable costs and accrued profits not yet billed 317,855 227,467
Inventories 360,718 295,867
Other 393 364
____________ ___________
Total Current Assets 881,839 714,499
Property, Plant and Equipment, net 127,055 131,860
Other Assets 31,689 29,257
____________ ___________
$ 1,040,583 $ 875,616
============ ===========
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 65,000 $ 42,000
Accounts payable 134,562 164,474
Accrued payrolls and incentives 22,450 21,611
Billings on uncompleted contracts in excess of
incurred costs 14,417 11,284
Current income taxes 68,650 42,240
Current portion of long-term debt 1,100 1,344
Other accrued liabilities 23,901 28,201
____________ ___________
Total Current Liabilities 330,080 311,154
Long-Term Debt 210,800 116,900
Deferred Income Taxes 6,794 8,038
Accrued Postretirement Benefits 15,454 15,252
Deferred Compensation 5,540 5,269
Shareholders' Equity
Common Stock, without par value, 100,000,000 and
50,000,000 shares authorized at January 31, 1996<PAGE>
and January 31, 1995, respectively; 33,061,908 and
33,009,635 shares issued at January 31, 1996 and
1995, respectively, including 11,820 shares held
in treasury 163,409 162,057
Retained earnings 308,539 256,979
____________ ____________
471,948 419,036
Less cost of treasury stock (33) (33)
____________ ____________
Total Shareholders' Equity 471,915 419,003
____________ ____________
$1,040,583 $875,616
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
_______________________________________________________________________________________________________
(Dollars in thousands, except per share data) Fiscal Fiscal Fiscal
1995 1994 1993
_______________________________________________________________________________________________________
<S> <C> <C> <C>
Sales $1,233,981 $1,138,336 $981,892
Cost of sales 1,041,051 955,898 825,914
___________ ___________ _________
Gross profit 192,930 182,438 155,978
___________ ___________ _________
Selling and administrative expenses 91,814 75,249 68,331
Interest expense 13,884 6,865 3,313
Other income, net (4,676) (2,528) (967)
___________ ___________ _________<PAGE>
101,022 79,586 70,677
___________ ___________ _________
Earnings before income taxes 91,908 102,852 85,301
Income taxes 30,665 34,520 27,999
___________ ___________ _________
Earnings of consolidated companies 61,243 68,332 57,302
Equity in net earnings (loss) of unconsolidated affiliates 560 (774) (522)
___________ ___________ _________
Net earnings $ 61,803 $ 67,558 $ 56,780
=========== =========== =========
Weighted average number of shares of Common Stock outstanding 33,035 32,973 32,861
=========== =========== =========
Net earnings per share $ 1.87 $ 2.05 $ 1.73
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of the 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 1992 $156,593 $149,108 $ (33) $305,668
Net earnings 56,780 56,780
Cash dividends (7,563) (7,563)
Exercise of stock options 3,773 3,773
__________ __________ __________ __________
Balance at end of Fiscal 1993 160,366 198,325 (33) 358,658
Net earnings 67,558 67,558
Cash dividends (8,904) (8,904)
Exercise of stock options 1,691 1,691 <PAGE>
__________ __________ __________ __________
Balance at end of Fiscal 1994 162,057 256,979 (33) 419,003
Net earnings 61,803 61,803
Cash dividends (10,243) (10,243)
Exercise of stock options 1,352 1,352
__________ __________ __________ __________
Balance at end of Fiscal 1995 $163,409 $308,539 $ (33) $471,915
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements<PAGE>
Stewart & Stevenson Services, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________________
(Dollars in thousands) Fiscal Fiscal Fiscal
1995 1994 1993
_______________________________________________________________________________________________________________________
<S> <C> <C> <C>
Operating Activities
Net earnings $ 61,803 $ 67,558 $ 56,780
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Accrued postretirement benefits 202 224 (91)
Depreciation and amortization 24,732 23,954 21,175
Deferred income taxes, net (1,244) 2,170 413
Change in operating assets and liabilities:
Accounts and notes receivable, net (9,734) (39,522) (4,126)
Recoverable costs and accrued profits not yet billed (90,388) (111,599) (59,175)
Inventories (64,851) (26,262) (57,099)
Accounts payable (29,912) 32,694 3,010
Billings on uncompleted contracts in excess
of incurred costs 3,133 (19,804) 14,104
Current income taxes 26,410 14,309 14,081
Other current liabilities (3,776) 6,644 7,126
Other--principally long-term assets and liabilities (2,517) (2,972) (4,225)
__________ __________ __________
Net Cash Used in Operating Activities (86,142) (52,606) (8,027)
Investing Activities
Expenditures for property, plant and equipment (23,487) (33,379) (30,646)
Disposal of property, plant and equipment 3,887 4,372 796
__________ __________ __________
Net Cash Used in Investing Activities (19,600) (29,007) (29,850)
Financing Activities
Additions to long-term debt 200,071 85,000 192,918
Payments on long-term debt (106,100) (36,975) (170,402)<PAGE>
Net borrowings and payments on short-term notes payable 23,000 37,000 5,000
Dividends paid (10,243) (8,904) (7,563)
Exercise of stock options 1,352 1,691 3,773
__________ __________ __________
Net Cash Provided by Financing Activities 108,080 77,812 23,726
__________ __________ __________
Increase (decrease) in cash and equivalents 2,338 (3,801) (14,151)
Cash and equivalents, beginning of fiscal year 3,987 7,788 21,939
__________ __________ __________
Cash and equivalents, end of fiscal year $ 6,325 $ 3,987 $ 7,788
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements
</TABLE>
Stewart & Stevenson Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Note 1: Summary of Principal Accounting Policies
Fiscal Year: The Company's fiscal year begins on February 1 of the year
stated and ends on January 31 of the following year. For example, "Fiscal
1995" commenced on February 1, 1995 and ended on January 31, 1996.
Consolidation: The consolidated financial statements include the accounts
of Stewart & Stevenson Services, Inc. and all of its majority-owned
subsidiaries. Investments in other partially-owned companies and joint
ventures in which ownership ranges from 20 to 50 percent are generally
accounted for using the equity method. All significant intercompany
accounts and transactions have been eliminated.
Post Employment Benefits: During the fourth quarter of Fiscal 1994, the
Company adopted, effective February 1, 1994, Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112") (See Note 9).
Long-Lived Assets: The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121"),<PAGE>
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", in March 1995. The Company anticipates adopting
SFAS 121 in the first quarter of Fiscal 1996, and that such implementation
will not have a material effect on the Company's consolidated results of
operations or financial position.
Cash Equivalents: Interest-bearing deposits and other investments with
original maturities of three months or less are considered cash
equivalents.
Inventories: Inventories are stated at the lower of cost (using LIFO) or
market (determined on the basis of estimated realizable values), less
related customer deposits. Inventory costs include material, labor and
overhead. The carrying values of these assets approximate their fair
values.
Contract Revenues and Costs: Revenues relating to contracts or contract
changes that have not been completely priced, negotiated, documented, or
funded are not recognized unless realization is considered probable.
Generally, revenue is recognized when a product is shipped or accepted by
the customer, except for large gas turbine contracts, where revenue is
recognized using the percentage-of-completion method. The revenues of the
Tactical Vehicle Systems segment are generally recognized under the
units-of-production method, whereby sales and estimated average cost of the
units to be produced under the Family of Medium Tactical Vehicle ("FMTV")
contract are recognized as units are substantially completed. Profits
expected to be realized on contracts are based on the Company's estimates
of total sales value and costs at completion. Changes in estimates for
sales, costs, and profits are recognized in the period which they are
determinable using the cumulative catch-up method of accounting. In
certain cases the estimated sales values include amounts expected to be
realized from contract adjustments or claims subject to negotiations or
legal proceedings. Any anticipated losses on contracts are charged in full
to operations in the period in which they are determinable.
Depreciable Property: The Company depreciates property, plant and
equipment over their estimated useful lives, using accelerated and
straight-line methods. Expenditures for property, plant and equipment are
capitalized and carried at cost. When items are retired or otherwise<PAGE>
disposed of, income is charged or credited for the difference between net
book value and proceeds realized thereon. Ordinary maintenance and repairs
are charged to expense and replacements and betterments are capitalized.
Off-Balance Sheet Risk: The Company occasionally enters into forward
exchange contracts only as a hedge against certain economic exposures and
not for speculative or trading purposes. While the forward contracts
affect the Company's results of operations, they do so only in connection
with the underlying transactions. As a result, they do not subject the
Company to risk from exchange rate movements, because gains and losses on
these contracts offset losses and gains on the transactions being hedged.
The Company limits exposure to foreign currency fluctuations in its
operations and maintenance contracts through provisions that generally
require customer payments in U.S. dollars or other currency corresponding
to the currency in which the costs are incurred. The Company's other off-
balance sheet risks are not material.
Fair Value of Financial Instruments: The Company's financial instruments
consist primarily of cash and equivalents, trade receivables, trade
payables and debt instruments. The book values of cash and cash
equivalents, trade receivables and trade payables are considered to be
representative of their respective fair values. Generally, the Company's
notes receivable and payable have interest rates which are tied to current
market rates. The Company estimates that the book value of its financial
instruments approximates market values.
Warranty Costs: Expected warranty and performance guarantee costs are
accrued as revenue is recorded, based on historical experience and contract
terms.
Net Earnings Per Share: Net earnings per share of Common Stock are
computed by dividing net earnings by the weighted average number of shares
outstanding. Common Stock equivalents (outstanding options to purchase
shares of Common Stock) are excluded from the computations as they are
insignificant.
Use of Estimates and Assumptions: The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported<PAGE>
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications: The accompanying consolidated financial statements for
Fiscal 1994 and 1993 contain certain reclassifications to conform with the
presentation used in Fiscal 1995.
Note 2: Industry Segment Data
The Engineered Power Systems segment includes the designing, packaging,
manufacturing and marketing of diesel and gas turbine engine-driven
equipment and the operations and maintenance of large gas turbine projects
and petroleum production and processing facilities. The Distribution
segment includes the marketing of diesel engines, automatic transmissions,
material handling equipment, transport refrigeration units and construction
equipment and the provision of related parts and service. The Tactical
Vehicle Systems segment includes the designing, manufacturing and marketing
of tactical vehicles, primarily 2 1/2-ton and 5-ton trucks under contract
with the United States Army.
The high degree of integration of the Company's operations necessitates the
use of a substantial number of allocations and apportionments in the
determination of business segment information. Sales are shown net of
intersegment eliminations.
Corporate assets consist primarily of cash and equivalents and the assets
of a limited partnership.
The Company markets its products and services throughout the world and is
not dependent upon any single geographic region or single customer. Other
than the U.S. Government, no single group or customer represents greater
than 10% of consolidated sales. Export sales, including sales to domestic
customers for export, for Fiscal 1995, 1994 and 1993 were $382,452,
$301,885 and $237,807 respectively. Export sales to any single geographic
region in both Fiscal 1995 and 1994 were not material to consolidated
sales. Export sales in Fiscal 1993 included $113,597 destined for Asia.<PAGE>
Financial information relating to industry segments is as follows:
<TABLE>
<CAPTION>
___________________________________________________________________________________________________
Operating Identifiable Capital
Sales Profit Assets Expenditures Depreciation
___________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Fiscal 1995
Engineered Power Systems $ 627,702 $ 73,449 $ 601,690 $ 9,495 $ 6,230
Distribution 416,229 30,130 240,390 10,780 6,900
Tactical Vehicle Systems 189,009 9,703 175,174 2,111 10,349
Corporate Services 1,041 292 23,329 1,101 926
___________ __________ ___________ _________ _________
Total $1,233,981 $ 113,574 $1,040,583 $ 23,487 $ 24,405
=========== ========== =========== ========= =========
Fiscal 1994
Engineered Power Systems $ 642,804 $ 82,395 $ 478,354 $ 12,082 $ 6,759
Distribution 346,564 24,015 222,462 17,651 6,113
Tactical Vehicle Systems 147,920 8,782 152,772 2,929 9,943
Corporate Services 1,048 376 22,028 717 805
___________ ___________ __________ _________ _________
Total $1,138,336 $ 115,568 $ 875,616 $ 33,379 $ 23,620
=========== =========== ========== ========= =========
Fiscal 1993
Engineered Power Systems $ 602,853 $ 70,292 $ 396,712 $ 14,502 $ 5,330
Distribution 311,983 20,309 157,696 9,302 5,075
Tactical Vehicle Systems 65,894 2,886 113,917 6,061 9,405
Corporate Services 1,162 552 24,299 781 926
___________ ___________ __________ _________ _________
Total $ 981,892 $ 94,039 $ 692,624 $ 30,646 $ 20,736
=========== =========== ========== ========= =========
</TABLE>
A reconciliation of Operating profit to Earnings before income taxes is as
follows:
TABLE
<PAGE>
<CAPTION>
________________________________________________________________________________________________________
Fiscal Fiscal Fiscal
1995 1994 1993
________________________________________________________________________________________________________
<S> <C> <C> <C>
Operating profit $113,574 $115,568 $94,039
Corporate expenses (7,782) (5,851) (5,425)
Interest expense (13,884) (6,865) (3,313)
__________ __________ _________
Earnings before income taxes $ 91,908 $102,852 $85,301
========== ========== =========
</TABLE>
Note 3: Contracts in Process
Amounts included in the financial statements which relate to recoverable
costs and accrued profits not yet billed on contracts in process are
classified as current assets, billings on uncompleted contracts in excess
of incurred cost and accrued profits are classified as current liabilities.
Summarized below are the components of the amounts:
<TABLE>
<CAPTION>
_________________________________________________________________________________________________
Fiscal Fiscal
1995 1994
_________________________________________________________________________________________________
<S> <C> <C>
Costs incurred on uncompleted contracts $913,108 $581,151
Accrued profits 83,824 47,627
_________ _________
996,932 628,778
Less: Customer progress payments (693,494) (412,595)
_________ _________
$303,438 $216,183
========= =========
Included in the statements of financial position:
Recoverable costs and accrued profits not yet billed $317,855 $227,467<PAGE>
Billings on uncompleted contracts in excess of incurred costs (14,417) (11,284)
_________ _________
$303,438 $216,183
========= =========
</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 sales at the
time revenue is recognized. General and administrative costs remaining in
recoverable costs and accrued profits not yet billed amounted to $26,640
and $22,582 at January 31, 1996 and 1995, respectively. The Company's
total general and administrative expense incurred amounted to $103,999,
$86,292 and $79,290 in Fiscal 1995, 1994 and 1993, respectively.
The United States Government has a security interest in unbilled amounts
associated with contracts that provide for progress payments.
In accordance with industry practice, recoverable costs and accrued profits
not yet billed include amounts relating to programs and contracts with long
production cycles, a portion of which is not expected to be realized within
one year.
Note 4: Inventories
Summarized below are the components of inventories:
<TABLE>
<CAPTION>
_________________________________________________________________________________
Fiscal Fiscal
1995 1994
_________________________________________________________________________________
<S> <C> <C>
Engineered Power Systems $273,200 $229,898
Customer deposits (4,081) (5,169)
Total Engineered Power Systems 269,119 224,729
Distribution 145,179 121,273
Excess of current cost over LIFO values (53,580) (50,135)<PAGE>
_________ _________
Total Inventories $360,718 $295,867
========= =========
</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 at January 31, 1996 and 1995 includes approximately
$19,022 and $14,789, respectively, of costs on a certain U.S. Government
contract in excess of contractual authorization which will be billable upon
either contractual amendment or approval of claims increasing contract
funding. During Fiscal 1995, the Company recognized $3,500 of additional
costs under such contract based upon preliminary settlement discussions.
Management's position, supported by outside legal counsel which specializes
in government procurement law, is that the Company will recover a
substantial portion of the amount claimed which significantly exceeds the
inventory carrying value. The Distribution segment's inventory consists
primarily of industrial equipment, equipment under modification and parts
held in the Company's distribution network for resale.
During Fiscal 1994 certain inventories were reduced. The reduction
resulted in liquidation of LIFO inventory quantities carried at lower costs
prevailing in prior fiscal years as compared with the cost of Fiscal 1994
purchases, the effect of which increased pre-tax earnings in Fiscal 1994 by
approximately $1,741.
Note 5: Commitments and Contingencies
As a custom packager of power systems, the Company issues bid and
performance guarantees in the form of performance bonds or standby letters
of credit. Performance type letters of credit totaled $67,837 at the close
of Fiscal 1995.
On May 3, 1995, an indictment was returned by a federal Grand Jury in
Houston, Texas, accusing the Company, a former consultant and four<PAGE>
employees, including the Company's President, of one count of major fraud
against the United States, four counts of false statements and one count of
conspiracy to commit major fraud, make false statements and interfere with
the administration of a foreign military sale. All of the counts arise
from a 1987 subcontract to supply diesel generator sets for installation at
long-range radar sites in Saudi Arabia (the "Peace Shield"). The
indictment alleges that a former employee of the general contractor for the
Peace Shield program, who later became a consultant to the Company,
conspired with the Company and the other defendants to award the
subcontract to the Company. The indictment also alleges that the
government was defrauded out of approximately $5 million in connection with
cost savings from a change order under the Peace Shield contract and that
the Company made false statements relating to cost estimates in connection
with such change order. The Company and each individual have denied all
charges under the indictment and the case is pending in the United States
District Court, Southern District of Texas, Houston Division. The Company
is not able to make a reasonable estimate of the fines or penalties that
could be imposed under the Federal Sentencing Guidelines in the event of a
conviction under the indictment. Such fines and penalties could be
substantial and adversely affect the Company's financial position and
results of operations. If the Company or any of the individuals are
convicted of any charges under the indictment, the Company could also be
suspended or debarred from entering into new contracts or subcontracts with
agencies of the U.S. Government or receiving the benefit of federal
assistance payments for the duration of such suspension or debarment. Any
such suspension could prevent the Company from receiving a modification to
the FMTV to fund additional vehicles or extend the delivery schedule of
funded vehicles unless the Secretary of the Army finds a compelling need to
enter into such modification. The Company would also be unable to sell
equipment and services to customers that depend on loans or financial
commitments from the Export Import Bank ("EXIM Bank"), Investment
Corporation ("OPIC") and similar government agencies during a suspension or
debarment. The Engineered Power Systems segment frequently sells equipment
to customers that rely on financial commitments from EXIM Bank and/or OPIC.
Any such suspension or debarment could have a material adverse impact on
the Company's financial condition and results of operations.
Also in connection with the Peace Shield contract, the Company has been
advised that the former consultant of the Company referred to above filed a<PAGE>
suit in the United States District Court, Southern District of Texas,
Houston Division, for himself and the United States of America alleging
that the Company supplied false information in violation of the False
Claims Act (the "Act"), engaged in common law fraud and misapplied costs.
Under the provisions of the Act, the suit has not been served upon the
Company pending an investigation of the case by the U.S. Department of
Justice and a determination as to whether the Department of Justice will
intervene and pursue the matter on behalf of the United States. The suit
alleges treble damages of $21 million plus unspecified penalties.
Proceedings in this case have been stayed pending resolution of the
criminal matter referred to above. The Company cannot predict the outcome
of this action or the likelihood that substantial damages will result.
However, the Company intends to vigorously defend this case if it is served
upon the Company.
On May 16, 1995, C. Daniel Chill filed a purported class action suit in the
United States District Court, Southern District of Texas, Houston Division,
against the Company and three of its officers and directors on behalf of
himself and all persons that purchased shares of Common Stock between May
2, 1994 and May 3, 1995. An amended complaint was filed on June 7, 1995.
The suit alleges that the Company violated various sections of and rules
under the Securities Exchange Act of 1934 and common law by disseminating
material false and misleading information, failing to disclose material
information and failing to correct earlier statements that were no longer
true, all relating to the Peace Shield investigation and indictment. The
suit claims unspecified compensatory and punitive damages. The Company has
reached an agreement in principle to settle this litigation on terms that
would not be material to the Company. The agreement in principle is
subject to the execution of definitive settlement agreements as well as
approval by the court and the Company's board of directors.
The Company is a defendant in a number of other lawsuits relating to
contractual, product liability, personal injury and warranty matters and
otherwise of the type normally incident to the Company's business.
Management is of the opinion that such lawsuits will not result in any
material liability to the Company.
The Company has not established any reserves or accruals for any potential
liability that may be subsequently found in any of the foregoing cases.<PAGE>
The Company leases certain property and equipment under lease arrangements
of varying terms. Annual rentals under terms of noncancelable leases are
less than 1% of consolidated sales.
Note 6: Government Contracts
Major contracts for military systems are performed over extended periods of
time and are subject to changes in scope of work and delivery schedules.
Pricing negotiations on changes and settlement of claims often extend over
prolonged periods of time. The Company's ultimate profitability on such
contracts will depend not only upon the accuracy of the Company's cost
projections, but also the eventual outcome of an equitable settlement of
contractual issues with the U.S. Government.
The FMTV contract is a firm fixed-price multi-year contract whereby the
price paid to the Company is not subject to adjustment to reflect the
Company's actual costs, except costs incurred as a result of actions or
inactions of the government. The Company has completed approximately 3,000
(of approximately 11,000 trucks) trucks at low rate initial production as
of January 31, 1996. Full rate production has been approved and is
expected to commence after completion of retrofit of the trucks produced to
date to current specifications. Stewart & Stevenson has incurred
significant cost overruns and delivery schedule delays on the FMTV contract
which the Company believes are primarily due to the government's decision
to delay the testing of trucks and other government directed changes to the
contract. The Company has and will continue to submit a series of Requests
for Equitable Adjustments (REAs), under the FMTV contract, seeking
increases in the FMTV contract price for those additional costs that relate
to government caused delays and changes. Additionally, the Company has
entered into negotiations with the U.S. Army to modify the existing
contract to provide for steady production at rates lower than originally
anticipated through December 1998. However, the Company is not able to
predict whether such modification will be forthcoming on terms acceptable
to the Company and production of vehicles may be interrupted after February
1997.
Revenues and profits realized on the FMTV contract are based on the
Company's estimates of total contract sales value and costs at completion.
Amounts in excess of agreed upon contract price for government caused<PAGE>
delays, disruptions, unpriced change orders and government caused
additional contract costs are recognized in contract value when the Company
believes it is probable that the claim for such amounts will result in
additional contract revenue and the amount can be reasonably estimated. At
January 31, 1996, the Company's FMTV contract accounting position reflects
the expected recovery of substantial amounts in excess of the contract
price for government caused delays, disruptions, unpriced change orders and
other government caused additional contract costs. These claims are in
varying stages of negotiations. Although management believes that the
contract provides a legal basis for the claims and its estimates are based
on reasonable assumptions and on a reasonable analysis of contract costs,
due to uncertainties inherent in the estimation and claims negotiations
process, no assurances can be given that its estimates will be accurate,
and variances between such estimates and actual results could be material.
In the event that the Company is unable to recover a substantial portion of
the additional costs, the Company may suffer a material adverse effect on
its operations during the accounting period in which such contract issues
are resolved.
The funding of the contract is subject to the inherent uncertainties of
congressional appropriations. As is typical of multi-year defense
contracts, the FMTV contracts must be funded annually by the Department of
the Army and may be terminated at any time for the convenience of the
government. The Company has received full funding for the production of
approximately 7,364 vehicles through February 1997. Approximately 3,524
vehicles, scheduled for production after that date have not been funded due
to reductions in the U.S. Army's budget for acquisitions. In the event
that the FMTV contracts are terminated other than for default, the FMTV
contracts provide for termination charges that will reimburse the Company
for allowable costs, but not necessarily all costs.
Note 7: Debt Arrangements
The Company has informal borrowing arrangements with banks which may be
withdrawn at the banks' option. Borrowings under these credit arrangements
are unsecured, are due within 90 days and bear interest at varying bid and
negotiated rates. On January 31, 1996 and 1995, the amounts outstanding
under these arrangements were $65,000 and $42,000, respectively, with a
weighted average interest rate of 5.95% and 6.30%, respectively.<PAGE>
Long-Term Debt, which is generally unsecured, consists of the following:
<TABLE>
<CAPTION>
______________________________________________________________________________________________
Fiscal Fiscal
1995 1994
______________________________________________________________________________________________
<S> <C> <C>
Notes payable to insurance companies:
-10.20%, principal due $1,000 annually to 1998 $ 3,000 $ 4,000
Debt of consolidated limited partnership:
-note payable to a bank, principal due monthly to 1998 (see note 8,900 9,000
below)
Revolving credit notes payable to banks (see note below) 200,000 105,000
Other 0 244
_________ _________
211,900 118,244
Less current portion (1,100) (1,344)
_________ _________
Long-Term Debt $210,800 $116,900
========= =========
</TABLE>
The Company has commitments of $200,000 from banks under revolving credit
notes (subject to reduction at the Company's election) which mature on
December 31, 2000. Under the terms of the revolving credit facility, the
commitment fee is .125 of 1% on the daily average unused balance.
Borrowings outstanding under the revolving credit notes bear interest at
various options, the maximum rate being the prime rate. In Fiscal 1992,
the Company entered into an interest rate swap agreement, which expired in
Fiscal 1995, that converted $10,000 of floating rate debt into fixed rate
debt with an interest rate of 4.28%. The net interest paid or received is
included in interest expense.
The Company's unsecured long-term debt was issued pursuant to agreements
containing covenants which impose working capital requirements on the<PAGE>
Company and designated subsidiaries and restrict indebtedness, guarantees,
rentals, dividends and other items. At the close of Fiscal 1995,
approximately $160,894 of retained earnings were available for payment of
dividends under the most restrictive covenant.
As a result of the acquisition of a majority interest in a partnership in
which the Company is a limited partner, the Company's Consolidated
Statements of Financial Position include the debt of this partnership,
which owns the building where the Company's corporate office is located.
Such debt is solely the obligation of the partnership and is secured by the
office building and garage. Interest is payable in monthly installments at
various rates, the maximum rate being 9%.
Interest paid on both long-term and short-term debt during Fiscal 1995,
1994 and 1993 was $13,261, $6,679 and $3,425, respectively. The amounts of
long-term debt which will become due during Fiscal 1996 through 1999, are
approximately: 1996--$1,100; 1997--$1,100; 1998--$9,700, 1999--$0 and
beyond--$200,000.
Note 8: Postretirement Medical Plan
The Company has a postretirement medical plan which covers most of its
employees and provides for the payment of medical costs of eligible
employees and dependents upon retirement. The plan is currently not
funded. The Company expects to continue financing postretirement medical
costs as covered claims are incurred.
Postretirement medical benefit costs includes the following components:
<TABLE>
<CAPTION>
__________________________________________________________________________________________________________
Fiscal Fiscal Fiscal
1995 1994 1993
__________________________________________________________________________________________________________
<S> <C> <C> <C>
Service costs - benefits attributed to service during the period $527 $418 $377
Interest cost on accumulated postretirement medical
benefit obligations 620 678 768<PAGE>
Amortization of prior service costs (718) (718) (618)
_____ _____ _____
Net postretirement medical benefit costs $429 $378 $527
===== ===== =====
</TABLE>
The status of the plan is as follows:
<TABLE>
<CAPTION>
_____________________________________________________________________________________________________
January 31 January 31
1996 1995
_____________________________________________________________________________________________________
<S> <C> <C>
Accrued Postretirement Benefits
Retirees $ 4,642 $ 4,454
Employees eligible to retire 2,073 1,978
Employees not eligible to retire 2,020 1,500
_________ _________
8,735 7,932
Unrecognized prior service cost 4,701 5,328
Unrecognized net gain (loss) 2,018 1,992
_________ _________
$ 15,454 $ 15,252
========= =========
</TABLE>
The actuarial assumptions
used are as follows:
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
Fiscal Fiscal
1995 1994
____________________________________________________________________________________________________
S> <C> <C
<PAGE>
Discount Rate 7.25% 8.75%
Health Care Cost Trend 8.50% - 10.00% (a) 9.50% - 11.50% (b)
</TABLE>
(a) Gradually declining to 5.00% by 2004
(b) Gradually declining to 5.50% by 2012
Changing the health care cost trend rates by one percentage point would
change the accumulated postretirement medical benefit obligation at January
31, 1996 by approximately $1,151 and the postretirement medical benefit
costs for Fiscal 1995 by approximately $183.
Note 9: Employee Pension and Other Benefit Plans
The Company has a noncontributory defined benefit pension plan covering
substantially all of its full-time employees. The pension benefits are
based on years of service, limited to 45 years, and the employee's highest
consecutive five-year average compensation out of the last ten years of
employment. The Company funds pension costs in conformity with the funding
requirements of applicable government regulations.
The following table sets forth the plan's funded status and amounts
recognized in the Company's statements of financial position:
<TABLE>
<CAPTION>
_____________________________________________________________________________________________
Fiscal Fiscal
1995 1994
_____________________________________________________________________________________________
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$45,809 in 1995 and $34,096 in 1994 $ 48,720 $ 36,028
========= =========
Projected benefit obligation for service rendered to date $(59,767) $(43,764)
Plan assets at market related value and fair value for<PAGE>
Fiscal 1995 and 1994, respectively; primarily publicly
traded stocks and bonds, including 70,956 shares of the
Company's Common Stock at the end of both Fiscal 1995
and 1994 60,929 60,686
_________ _________
Plan assets in excess of projected benefit obligations 1,162 16,922
Unrecognized net (gain) loss from past experience different from 6,674 (9,114)
that assumed
_________ _________
Prepaid pension cost included in Other Assets $ 7,836 $ 7,808
========= =========
</TABLE>
Net pension credit includes the following components:
<TABLE>
_____________________________________________________________________________________________________
Fiscal Fiscal Fiscal
1995 1994 1993
_____________________________________________________________________________________________________
<S> <C> <C> <C>
Service cost -- benefits earned during the year $ 2,187 $ 1,815 $ 2,012
Interest cost on projected benefit obligation 3,800 3,541 3,108
Actual return on plan assets (2,782) (5,494) (4,883)
Amortization of unrecognized net gain (738) (406) (493)
Net amortization and deferrals (2,494) 200 (540)
_________ _________ ________
Net periodic pension credit $ (27) $ (344) $ (796)
========= ========= ========
</TABLE>
The actuarial assumptions used are as follows:
<TABLE>
<CAPTION>
____________________________________________________________________________________________________
Fiscal Fiscal
1995 1994
____________________________________________________________________________________________________
<S> <C> <C> <PAGE>
Discount Rate 7.25% 8.75%
Long-term rate of return on assets 9.50% 9.50%
Rate of increase in future compensation 4.50 - 5.00% 4.50 - 5.00%
</TABLE>
The expected return on plan assets is determined based on the expected
long-term rate of return on plan assets and the market-related value of
plan assets. The market-related value of plan assets for Fiscal 1995 was
determined using the calculated value and for Fiscal 1994 and 1993 using
the fair value. There was no material impact to operating results as a
result of the change.
The Company has an unfunded defined benefit retirement plan for
non-employee directors which provides for payments upon retirement, death,
or disability. Retirement expense for this plan in Fiscal 1995, 1994 and
1993, respectively, was $141, $68 and $164.
The Company has an unfunded supplemental retirement plan for certain
corporate officers. Retirement expense for the plan in Fiscal 1995, 1994
and 1993 was $459, $216 and $290, respectively. Prior service cost not yet
recognized in periodic pension cost was $1,676, $1,804, and $1,208 at
January 31, 1996, 1995 and 1994, respectively.
In January 1994, the Company adopted an employee savings plan, which
qualifies under Section 401(k) of the Internal Revenue Code. Under the
plan, participating employees may contribute up to 15% of their pre-tax
salary, but not more than statutory limits. The Company contributes twenty
five cents for each dollar contributed by a participant, subject to certain
limitations. The Company's matching contribution to the savings plan was
$788, $399 and $13 in Fiscal 1995, 1994 and 1993, respectively.
Effective February 1, 1994, the Company adopted SFAS 112. The statement
requires the accrual of the estimated costs of benefits provided by the
employer to former or inactive employees after employment but prior to
retirement. Adoption of SFAS 112 did not have a material impact upon the
consolidated financial position or results of operations.
Under a nonqualified deferred compensation plan for certain employees, a
portion of eligible employees' discretionary income can be deferred at the<PAGE>
election of the employee. These deferred funds accrue interest payable to
the employee at the prime rate in effect at the end of the fiscal year.
Note 10: Common Stock
Shareholder Rights Plan: The Company has adopted a shareholders rights
plan to protect shareholders against unsolicited attempts to acquire
control of the Company that do not offer what the Company believes to be an
adequate price to all shareholders. The rights were issued to shareholders
of record on March 20, 1995 and will expire on March 20, 2005.
The plan provides for the issuance of one right for each outstanding share
of the Company's Common Stock. The rights become exercisable only if a
person or group acquires 15% or more of the Company's outstanding voting
stock or announces a tender or exchange offer that would result in
ownership of 15% or more of the Company's stock. Each right entitles the
holder to buy one-third of a share of Common Stock at an exercise price of
$30 per right, subject to antidilution adjustments. The Company's Board of
Directors may, at its option, redeem all rights for $.01 per right at any
time prior to the acquisition of 15% or more of the Company's stock by a
person or group. If a person or group acquires 15% or more of the
Company's outstanding voting stock, each right entitle holders, other than
the acquiring party, to purchase shares of the Company's Common Stock
having a market value of twice the exercise price of the right.
The plan also includes an exchange option. If a person or group acquires
15% or more, but less than 50%, of the outstanding voting stock, the Board
of Directors may at its option exchange the rights in whole or in part for
shares of the Company's stock for each two shares of Common Stock for which
a right is then exercisable. This exchange would not apply to shares held
by the person or group holding 15% or more of the Company's voting stock.
If, after the rights have become exercisable, the Company merges or
otherwise combines with another entity, or sells 50% or more of its assets
or earning power, each right then outstanding entitles its holder to
purchase for $30, subject to antidilution adjustments, a number of the
acquiring party's common shares having a market value of twice that amount.
Stock Options: The Stewart & Stevenson Services, Inc. 1988 Nonstatutory<PAGE>
Stock Option Plan, the Stewart & Stevenson Services, Inc. 1993 Nonofficer
Stock Option Plan and the 1994 Director Stock Option Plan authorize the
grant of options to purchase an aggregate of up to 1,800,000, 514,550 and
150,000 shares of Common Stock, respectively, at not less than fair market
value at the date of grant. The options have a term not exceeding ten
years and vest over periods not exceeding four years. Under the terms of
the 1993 Nonofficer Stock Option Plan, the number of options available for
grant increased from 514,550 to 757,150 shares as of February 1, 1996.
Stock option activity under the plans is as follows:
<TABLE>
<CAPTION>
_____________________________________________________________________________________
Shares Option Price
under Range
Option Per Share
____________________________________________________________________________________
<S> <C> <C>
Outstanding at end of Fiscal 1992 471,200 $4.75 - $27.75
Granted 178,000 $32.625
Exercised (171,100) $4.75 - $27.75
_________
Outstanding at end of Fiscal 1993 478,100 $13.125 - $32.625
Granted 180,050 $50.25
Exercised (60,750) $13.125 - $32.625
Cancelled (12,225) $18.75 - $50.25
________
Outstanding at end of Fiscal 1994 585,175 $18.75 - $50.25
Granted 386,300 $33.75 and $35.125
Exercised (52,750) $18.75 - $32.625
Cancelled (20,650) $32.625 - $50.25
________
Outstanding at end of Fiscal 1995 898,075 $18.75 - $50.25
========
Options exercisable at end of Fiscal 1995 299,421 $18.75 - $50.25
========
Options available for future grants at the end of
Fiscal 1995 523,875
========<PAGE>
</TABLE>
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock Based
Compensation" in October, 1995. SFAS 123 establishes financial accounting
and reporting standards for stock based compensation plans and to
transactions in which an entity issues equity instruments to acquire goods
or services from non-employees. The new accounting standards prescribed by
SFAS 123 are optional and the Company does not expect to adopt the new
accounting standards. Consequently, SFAS 123 will not have a material
impact on the Company's consolidated results of operations or financial
position. Pro Forma disclosures of net earnings and earnings per share
must be made as if SFAS 123 accounting standards had been adopted by the
Company. Such disclosure will be required in Fiscal 1996.
Note 11: Income Taxes
The components of the income tax provision and the income tax payments are
as follows:
<TABLE>
<CAPTION>
_________________________________________________________________________________________
Fiscal Fiscal Fiscal
1995 1994 1993
_________________________________________________________________________________________
<S> <C> <C> <C>
Current $ 20,430 $ 2,194 $10,454
Deferred 10,235 32,326 17,545
_________ ________ ________
Income tax provision $ 30,665 $34,520 $27,999
========= ======== ========
Income tax payments (excluding refunds) $ 13,337 $17,422 $11,965
========= ======== ========
</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 1995, 1994 and 1993 is as follows:
TABLE
<PAGE>
<CAPTION>
_________________________________________________________________________________________
Fiscal Fiscal Fiscal
1995 1994 1993
_________________________________________________________________________________________
<S> <C> <C> <C>
Provision at statutory rates $32,190 $35,998 $29,856
Other (1,525) (1,478) (1,857)
________ ________ ________
$30,665 $34,520 $27,999
======== ======== ========
</TABLE>
The deferred tax liability is determined under the liability method based
on the difference between the financial statement and tax basis of assets
and liabilities as measured by the enacted statutory tax rates and deferred
tax expense is the result of changes in the net liability for deferred
taxes.
The tax effects of the significant temporary differences which comprise the
deferred tax liability at the end of Fiscal 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
__________________________________________________________________________________________
Fiscal Fiscal
1995 1994
__________________________________________________________________________________________
<S> <C> <C>
Deferred Tax Assets
Postretirement benefit obligation $ 5,407 $ 5,338
Accrued expenses and other reserves 9,282 11,072
Other 33 54
_________ _________
Gross deferred tax assets 14,722 16,464
_________ _________
Deferred Tax Liabilities
Property, plant and equipment 4,259 4,602
Pension accounting 2,233 2,449
Contract accounting 36,730 34,817 <PAGE>
Prepaid expenses and deferred charges 44,485 37,563
Other 9,902 9,685
_________ _________
Gross deferred tax liabilities 97,609 89,116
_________ _________
Net deferred tax liability $ 82,887 $ 72,652
========= =========
Current portion of deferred tax liability $ 76,093 $ 64,614
Non-current portion of deferred tax liability 6,794 8,038
_________ _________
Net deferred tax liability $ 82,887 $ 72,652
========= =========
</TABLE>
Note 12: Supplemental Financial Data
Receivables consist of the following:
<TABLE>
<CAPTION>
________________________________________________________________________________________
Fiscal Fiscal
1995 1994
________________________________________________________________________________________
<S> <C> <C>
Accounts receivable $193,406 $186,024
Notes receivable 4,551 2,458
Allowance for doubtful accounts (1,409) (1,668)
_________ _________
$196,548 $186,814
========= =========
</TABLE>
No single group or customer, other than the U.S. Government, represents
greater than 10% of total accounts receivable. The U.S. Government
accounted for approximately 16.3% and 12.7% of accounts receivable at
January 31, 1996 and 1995, respectively. Due to the large number of
entities and diversity of the Company's customer base, concentration of
credit risk with respect to trade receivables is limited.<PAGE>
Components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
_______________________________________________________________________________________
Fiscal Fiscal
1995 1994
_______________________________________________________________________________________
<S> <C> <C>
Machinery and equipment $126,306 $114,592
Buildings and leasehold improvements 91,298 89,178
Revenue earning assets 12,917 10,556
Accumulated depreciation and amortization (116,436) (98,355)
_________ _________
114,085 115,971
Construction-in-progress 6 1,585
Land 12,964 14,304
_________ _________
$127,055 $131,860
========= =========
</TABLE>
Note 13: Consolidated Quarterly Data (unaudited)
<TABLE>
<CAPTION>
_______________________________________________________________________________________________
Fiscal 1995
_______________________________________________________________________________________________
Fourth Third Second First
Quarter Quarter Quarter Quarter
_______________________________________________________________________________________________
<S> <C> <C> <C> <C>
Sales $301,340 $323,779 $319,840 $289,022
Gross profit 46,482 47,957 49,949 48,542
Net earnings 13,861 15,000 16,927 16,015
Net earnings per share .42 .45 .51 .49
</TABLE>
<TABLE>
<CAPTION> Fiscal 1994<PAGE>
_______________________________________________________________________________________________
Fourth Third Second First
Quarter Quarter Quarter Quarter
_______________________________________________________________________________________________
<S> <C> <C> <C> <C>
Sales $287,815 $304,248 $287,118 $259,155
Gross profit 50,501 47,176 44,215 40,546
Net earnings 18,438 17,603 16,488 15,029
Net earnings per share .56 .53 .50 .46
</TABLE>
Note 14: Vulnerability Due To Certain Concentrations
A majority of the Engineered Power Systems Segment sales is derived from
packaging, operating and servicing gas turbine engines manufactured by
General Electric Company ("GE") and European Gas Turbines ("EGT"). The
Company has no reason to believe that its relationship with GE and EGT will
not continue for the foreseeable future. Any interruption of these
relationships, however, would adversely affect the Company.
The Company's principal distribution agreements are subject to termination
by the suppliers for a variety of causes. Although no assurance can be
given that such distribution agreements will be renewed beyond their
expiration dates, they have been renewed regularly.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
In accordance with General Instruction G(3) to Form 10-K, Items 10 through
13 have been omitted since the Company will file with the Commission a
definitive proxy statement complying with Regulation 14A involving the
election of directors not later than 120 days after the close of its fiscal
year. Such information is incorporated herein by reference.<PAGE>
CROSS REFERENCE
Form 10-K Item Caption in Definitive
Number and Caption Proxy Statement
__________________ _____________________
Item 10. Directors and Executive
Officers of the Registrant . . . . Election of Directors;
Executive Officers;
Compliance with
Securities Laws
Item 11. Executive Compensation . . . . . . Election of Directors;
Performance of Stewart
& Stevenson Common
Stock; Report of the
Compensation and
Management Development
Committee; Executive
Compensation
Item 12. Security Ownership of
Certain Beneficial Owners
and Management . . . . . . . . . . Voting Securities and
Ownership Thereof by
Certain Beneficial Owners
and Management
Item 13. Certain Relationships
and Related Transactions . . . . . Transactions with
Management and Certain
Business Relationships
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)1. The following financial statements for Stewart & Stevenson Services
Inc. are filed as a part of this report:<PAGE>
Consolidated Statements of Financial Position--January 31, 1996 and
1995.
Consolidated Statements of Earnings--Years ended January 31, 1996,
1995 and 1994.
Consolidated Statements of Shareholders' Equity--Years ended January
31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows--Years ended January 31, 1996,
1995 and 1994.
Notes to Consolidated Financial Statements.
2. Schedules are omitted because of the absence of conditions under
which they are required or because the information is included in the
financial statements or notes thereto.
3. The Company has several instruments which define the rights of
holders of long-term debt. Except for the instruments listed as
exhibits 4.1, 4.2, 4.3, 4.4 and 4.5 below, the total amount of
securities authorized under any individual instrument with respect to
long-term debt does not exceed 10% of the total assets of the Company
and its subsidiaries on a consolidated basis. The Company agrees to
furnish upon request by the Securities and Exchange Commission any
instruments not filed herewith relating to its long-term debt.
The Company will furnish to any shareholder of record as of April 25,
1995, a copy of any exhibit to this annual report upon receipt of a
written request addressed to Mr. Lawrence E. Wilson, Vice President
and Secretary, P. O. Box 1637, Houston, Texas 77251-1637 and the
payment of $.20 per page with a minimum charge of $5.00 for
reasonable expenses prior to furnishing such exhibits.
The following exhibits are part of this report pursuant to item 601 of
regulation S-K.
3.1 Third Restated Articles of Incorporation of Stewart & Stevenson
Services, Inc., effective as of September 13, 1995 <PAGE>
(incorporated by reference to Exhibit 3(a) of the Form 10-Q of
Stewart & Stevenson for the quarterly period ended October 31,
1995 under the Commission File No. 001-11443).
3.2 Fourth Restated Bylaws of Stewart & Stevenson Services, Inc.,
effective as of September 13, 1995 (incorporated by reference to
Exhibit 3(b) of the Form 10-Q of Stewart & Stevenson for the
quarterly period ended October 31, 1995 under the Commission
File No. 001-11443).
4.1 Loan Agreement effective September 3, 1993, between Stewart
Stevenson Services, Inc. and Texas Commerce Bank National
Association and ABN AMRO Bank, N.V., Houston Agency and The Bank
of New York, a New York Banking Corporation and NationsBank of
Texas, National Association. (incorporated by reference to
Exhibit 4.1 of the Form 10-K of Stewart & Stevenson for the
fiscal year ended January 31, 1995 under the Commission File
No. 0-8493).
4.2 Agreement and First Amendment to Loan Agreement effective July
31, 1994, between Stewart & Stevenson Services, Inc. and Texas
Commerce Bank National Association and ABN AMRO Bank, N.V.,
Houston Agency and The Bank of New York, a New York Banking
Corporation and NationsBank of Texas, National Association.
(incorporated by reference to Exhibit 4.2 of the Form 10-K of
Stewart & Stevenson for the fiscal year ended January 31, 1995
under the Commission File No. 0-8493).
4.3 Agreement and Second Amendment to Loan Agreement effective
December 23, 1994, between Stewart & Stevenson Services, Inc.
and Texas Commerce Bank National Association and ABN AMRO Bank,
N.V., Houston Agency and The Bank of New York, a New York
Banking Corporation and NationsBank of Texas, National
Association and Bank of America Illinois, an Illinois Banking
Association and PNC Bank, National Association. (incorporated
by reference to Exhibit 4.3 of the Form 10-K of Stewart &
Stevenson for the fiscal year ended January 31, 1995 under the
Commission File No. 0-8493).<PAGE>
4.4 Agreement and Third Amendment to Loan Agreement effective August
1, 1995, between Stewart & Stevenson Services, Inc. and Texas
Commerce Bank National Association, ABN AMRO Bank, N.V., Houston
Agency, The Bank of New York, NationsBank of Texas, National
Association, Bank of America Illinois and PNC Bank, National
Association. (incorporated by reference to Exhibit 4(d) of the
Form 10-Q of Stewart & Stevenson for the quarterly period ended
October 31, 1995 under the Commission File No. 001-11443).
4.5 Agreement and Fourth Amendment to Loan Agreement effective
November 30, 1995, between Stewart & Stevenson Services, Inc.
and Texas Commerce Bank National Association, ABN AMRO Bank,
N.V., Houston Agency, The Bank of New York, NationsBank of
Texas, National Association, Bank of America Illinois and PNC
Bank, National Association. (incorporated by reference to
Exhibit 4(e) of the Form 10-Q of Stewart & Stevenson for the
quarterly period ended October 31, 1995 under the Commission
File No. 001-11443).
4.6 Rights Agreement effective March 13, 1995, between Stewart &
Stevenson Services, Inc. and The Bank of New York (incorporated
by reference to Exhibit 1 of the Form 8-A Registration Statement
of Stewart & Stevenson under the Commission File No. 001-11443).
10.1 Lease Agreement effective January 1, 1988, between Miles McInnes
and Faye Manning Tosch, as Lessors, and the Company, as Lessee
(incorporated by reference to Exhibit 10.3 of the Form 10-K of
Stewart & Stevenson for the fiscal year ended January 31, 1994
under the Commission File No. 0-8493).
*10.2 Distributor Sales and Service Agreement effective January 1,
1996, between the Company and Detroit Diesel Corporation.
10.3 Contract Number DAAE07-92-R001 dated October 11, 1991 between
Stewart & Stevenson Services, Inc. and the United States
Department of Defense, U.S. Army Tank-Automotive Command, as
modified (incorporated by reference to Exhibit 28.1 of the Form
S-3 Registration Statement of Stewart & Stevenson under the
Commission File No. 33-44149).<PAGE>
10.4 Contract Number DAAE07-92-R002 dated October 15, 1991 between
Stewart & Stevenson Services, Inc. and the United States
Department of Defense, U.S. Army Tank-Automotive Command, as
Modified (incorporated by reference to Exhibit 28.2 of the Form
S-3 Registration Statement of Stewart & Stevenson under the
Commission File No. 33-44149).
10.5 Stewart & Stevenson Services, Inc. Deferred Compensation Plan
dated as of December 31, 1979 (incorporated by reference to
Exhibit 10.8 of the Form 10-K of Stewart & Stevenson for the
fiscal year ended January 31, 1994 under the Commission File
No. 0-8493).
10.6 Stewart & Stevenson Services, Inc. 1988 Nonstatutory Stock
Option Plan (incorporated by reference to Exhibit 10.9 of the
Form 10-K of Stewart & Stevenson for the fiscal year ended
January 31, 1994 under the Commission File No. 0-8493).
10.7 Amendment No. 1 to Stewart & Stevenson Services, Inc. 1988
Nonstatutory Stock Option Plan, dated September 11, 1990
(incorporated by reference to Exhibit 10.10 of the Form 10-K of
Stewart & Stevenson for the fiscal year ended January 31, 1994
under the Commission File No. 0-8493).
10.8 Stewart & Stevenson Services, Inc. Supplemental Executive
Retirement Plan (incorporated by reference to Exhibit 10.11 of
the Form 10-K of Stewart Stevenson for the fiscal year ended
January 31, 1994 under the Commission File No. 0-8493).
10.9 Stewart & Stevenson Services, Inc. 1994 Director Stock Option
Plan (incorporated by reference to Exhibit 4.1 of the Form S-8
Registration Statement of Stewart & Stevenson under the
Commission File No. 33-58685).
*21.1 List of Subsidiaries.
*23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
*27.1 Financial Data Schedule.<PAGE>
____________
* Filed with this report.
(b) The following reports on Form 8-K were filed during the three
months ended January 31, 1996.
Form 8-K Reporting Date November 8, 1995.
Items Reported - Item 5. Other Events (Interim Agreement ending
suspension).<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized on the
9th day of April, 1996.
STEWART & STEVENSON SERVICES, INC.
By /s/ Robert L. Hargrave
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 9th day of April, 1996.
/s/ Robert L. Hargrave
Robert L. Hargrave Bob H. O'Neal
Director, Principal Executive Officer Director
and Principal Financial Officer
/s/ C. Jim Stewart II /s/ J. Carsey Manning
C. Jim Stewart II J. Carsey Manning
Director Director
<PAGE>
/s/ Donald E. Stevenson /s/ Robert H. Parsley
Donald E. Stevenson Robert H. Parsley
Director Director
/s/ Jack W. Lander, Jr. /s/ Jack T. Currie
Jack W. Lander, Jr. Jack T. Currie
Director Director
/s/ Robert S. Sullivan /s/ Richard R. Stewart
Robert S. Sullivan Richard R. Stewart
Director Director
/s/ Orson C Clay /s/ Brian H. Rowe
Orson C Clay Brian H. Rowe
Director Director<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Filed with Incorporated by Reference
Exhibit Number and Description this report From Date File Exhibit
______________________________ ___________ ____ ____ ____ _______
<S> <C> <C> <C> <C> <C>
10.2 Distributor Sales and Service Agreement
effective January 1, 1996, between the
Company and Detroit Diesel Corporation. *
21.1 List of subsidiaries. *
23.1 Consent of Arthur Andersen LLP,
Independent Public Accountants. *
27.1 Financial Data Schedule. *
</TABLE>1<PAGE>
DETROIT DIESEL
DISTRIBUTOR AGREEMENT
FORM No. DA 230 (6-16-95)
DETROIT DIESEL CORPORATION
Distributor Agreement
AGREEMENT, effective the 1st day of January 1996 by and between Detroit Diesel
Corporation, hereinafter called Company, and Stewart & Stevenson Services, Inc.
of Houston, Harris, Texas, hereinafter called Distributor.
GENERAL PURPOSE
Company is in the business of manufacturing and marketing power products,
including diesel engines, and parts for these products. Company sells its
products principally to original equipment manufacturers and to Detroit Diesel
Distributors. Company has established a system of independently owned and
managed Detroit Diesel Distributors operating at approved locations to (a) sell
directly the engines identified in the Products Addendum, herein called
Products, and related Parts, (b) actively and effectively promote the purchase
and use of Products and related Parts, (c) render prompt, efficient, and
courteous service to owners and users of such Products and (d) complement
Companys own direct sales activities.
The purpose of this Distributor Agreement, herein called Agreement, is to
appoint Distributor as an authorized Detroit Diesel Distributor to sell and
service Products and Parts, to establish the location(s) from which Distributor
will conduct Distributorship Operations, and to identify the principal
management and principal owners of Distributor upon whom Company relies in
entering into this Agreement. This Agreement sets forth the rights and
responsibilities of Company and Distributor relating to the sale and servicing
of Products and Parts and the circumstances in which the Agreement may be
terminated.
Accordingly, Distributor and Company hereby agree as follows:
FIRST: Rights Granted by Company and Acceptance and Acknowledgments by
Distributor
A. Rights Granted by Company
In reliance on Distributors agreement to fulfill the responsibilities and
perform the functions described in Paragraph SECOND of this Agreement, Company
hereby grants Distributor the non-exclusive rights to:
(1) buy from Company the Products identified in the Products
Addendum to this Agreement and related Parts for resale or use by Distributor in
its Distributorship Operations;
(2) identify itself as an authorized Detroit Diesel Distributor and
to conduct, at the location(s) approved by Company, herein called
Distributorship Locations, all of the Distributorship Operations contemplated by
this Agreement; and
(3) execute dealer agreements with Authorized Dealers approved by
Company.
B. Acceptance and Acknowledgments by Distributor
Distributor hereby accepts from Company the rights specified in this Paragraph
FIRST. In doing so, Distributor acknowledges that:
(1) Company has reserved to itself the rights to select and
authorize other businesses to conduct distributorship operations in connection
with Products and Parts and to sell Products and Parts directly to any customer;
(2) as an independently owned and managed business, Distributor's
success and enjoyment of profitable operations will be determined substantially
by how effectively its Distributorship Operations are conducted and managed;
(3) Distributor has not paid any fee or other consideration for
this Agreement. Neither this Agreement nor any right granted by this Agreement
is a property right; and
(4) neither this Agreement nor any right or responsibility under
this Agreement may be transferred, assigned, delegated or sold by Distributor
without the prior written approval of Company.
SECOND: Assumption of Responsibilities by Distributor
Distributor will establish, maintain and effectively conduct the complete
Distributorship Operations contemplated by this Agreement in connection with
each of the Products described in the Products Addendum. Distributor hereby
assumes and will fulfill the functions and responsibilities reflected in this
Agreement, including:
(1) sales and sales promotion responsibilities;
(2) service responsibilities on all Products that may at any time
be located in the Area of Responsibility; and
(3) performance of all of Distributor's other obligations under
this Agreement.
THIRD: Management and Ownership
Company has selected Distributor and has entered into this Agreement in
substantial reliance upon:
(1) Distributor's representation to Company relating to its
business organization and financial structure and to its ability to fulfill the
functions and responsibilities assumed by Distributor under Paragraph SECOND of
this Agreement;
(2) the personal qualifications and business abilities of
Distributor's Principal Manager(s) and Principal Owner(s) who are so designated
by Distributor in the Management and Ownership Addendum furnished by Distributor
to Company and accepted by Company by its endorsement thereon and whom
Distributor represents will have and actively exercise full managerial authority
for the operating management of Distributor; and
(3) the agreement of Distributor and Company that the person(s)
named in the Management and Ownership Addendum as Principal Owner(s) will
continue to own both of record and beneficially the percentage of ownership
interests in Distributor shown therein.
Distributor shall provide, at the request of Company, a plan for the
continuation of Distributor in the event of death, incapacity or withdrawal from
the business of any person named as a Principal Manager(s) or Principal
Owner(s).
Distributor acknowledges that this Agreement is to be construed as a personal
service agreement. Accordingly, Distributor agrees that continuation of the
business relationship between Distributor and Company established by this
Agreement is conditioned upon Distributor continuing to have principal
management and principal owners acceptable to Company. If Distributor desires to
make a change in its Principal Manager(s) or sell its principal assets or change
its ownership, Distributor will give Company prior written notice of the
proposed change or sale. Company will base its approval decision on whether the
proposed change is likely to result in a successful distributorship operation
with acceptable management and ownership which will provide satisfactory sales,
service and facilities for users of Products at the approved location.
FOURTH: Additional Provisions
The additional provisions set forth in the Additional Provisions Applicable to
Distributor Agreement, bearing Form No. DA230-A, are hereby incorporated as a
part of this Agreement.
FIFTH: Term
This Agreement will expire without any action by either Distributor or Company
on December 31, 1998.
SIXTH: Execution on Behalf of Company and Distributor
Neither this Agreement nor any related agreement shall be valid unless it bears
the signature of a Vice-President, or alternatively the facsimile signature of a
Vice President along with, if space is provided, the signature of another duly
authorized representative of Company, and it is signed on behalf of Distributor
by the duly authorized officer(s) of Distributor.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate as of the day and year first above written.
Stewart & Stevenson Services, Inc. DETROIT DIESEL CORPORATION
Distributor Firm Name
By /s/ Garth C. Bates, Jr. By /s/ T. R. Terrell
Vice President Vice President
WITNESS:_________________________ By_________________________
DA 232 (6-95)
MANAGEMENT AND OWNERSHIP ADDENDUM TO
DISTRIBUTOR AGREEMENT
This Management and Ownership Addendum is executed pursuant to Paragraph THIRD
of the Distributor Agreement between Company and the undersigned Distributor.
Stewart & Stevenson Services, Inc. a corporation incorporated on 1/31/47 in the
State/Province of Texas hereby represents to Company that the following
information pertaining to the management and the record and beneficial ownership
status of the undersigned Distributor is true, accurate and complete as of
January 1, 1993 and understands that any misrepresentation in connection
therewith constitutes cause for termination under Article 7.1.2 (b) of the
Distributor Agreement.
<TABLE>
<CAPTION>
Names of persons having
Management positions and/or
Record or Beneficial
Ownership interests in
Distributor (Must show
names of Officers, and Active in Signature of
Principal Manager(s) Distributor- Principal Principal Owners
regardless of any financial Title ship (Yes or Manager Principal Owner and Principal
interest) if Any No) (Yes or No) (Yes or No) Managers
<S> <C> <C> <C> <C> <C>
C. Jim Stewart II Chman No No No
Bob H. O'Neal Pr/CEO Yes Yes No
Robert L. Hargrave VP/Tre. Yes No No
Keith T. Stevenson V. Pres Yes Yes No
Garth C. Bates, Jr. V. Pres Yes Yes No
PUBLICLY TRADED
Total
(Table continued)
</TABLE>
<TABLE>
<CAPTION>
If a Corporation, show number of shares, class
and percentage of ownership
______________________________________________________
If a partnership, show Number of
% of Ownership Interest Number of % of non-voting % of
of each person listed voting shares Total shares Total
<S> <C> <C> <C> <C> <C>
N/A * * N/A N/A
N/A * * N/A N/A
N/A * * N/A N/A
N/A * * N/A N/A
N/A * * N/A N/A
N/A 4,587,336 100% None N/A
</TABLE>
Ownership of record is the ownership reflected on Distributor's books of record
(e.g., in the case of a corporation, the name of the trust or person entitled to
receive dividends from Distributor). Beneficial owners are those persons that
benefit from such an ownership situation (e.g., the beneficiary of a trust). Any
beneficial ownership arrangement at Distributor must be explained on a separate
sheet and attached to this Distributor Management and Ownership Addendum.
APPROVED AS REPRESENTED BY
DISTRIBUTOR
Stewart & Stevenson Services,Inc. Detroit Diesel Corporation Company
Distributor Firm Name
By /s/ Garth C. Bates, Jr. By /s/ J.R. Terrell
Signature and Title
ADDITIONAL INFORMATION CONCERNING OWNER(S)
List below any person named on the reverse side whose ownership interest in
Distributor is encumbered.
Nature and Amount
Name Lender Name and Address of Encumbrance
List below any person named on the reverse side that is now employed by Company,
or Affiliated Companies.
Name Name of Employer
List below any person named on the reverse side that is related to a present
employee of Company, or Affiliated Companies.
Name of Employee
Name and Relationship Name of Employer
List below any person named on the reverse side that has any ownership in, or is
active in the management of, any other entity that merchandises Products.
Firm Name, Address and
Name Position
List below any person named on the reverse side that has any ownership in, or is
active in the management of, any other entity that merchandises diesel engines
or parts therefor other than those marketed by Company.
Firm Name, Address
Name Position and Product Line
REMARKS:
* Stewart & Stevenson Services, Inc., common stock is publicly traded over-the-
counter. No individual is currently considered as Principal Owner. However,
Detroit Diesel Corporation (DDC) will view any acquisition of 10% or more of the
voting stock of Stewart & Stevenson Services, Inc., by any individual, or group
of individuals acting in unison, as a change in Principal Ownership and as such
subject to DDC approval as set forth in Article 7.12(d) of the DDC Distributor
Agreement.
DA 233 (10-1-95)
PRODUCTS ADDENDUM
TO
DISTRIBUTOR AGREEMENT
(Distributor Agreement)
With
Stewart & Stevenson Services, Inc.
Distributor Firm Name
Houston, Texas
City, State
Effective January 1, 1996, Distributor has a non-exclusive right to buy the
following new Products and Parts for use in connection with such Products.
A. Detroit Diesel engines of the Series and Models/Markets identified:
Engine Series Models/Markets
Marine All Others
Series 53 (X) (X)
Series 71 (X) (X)
Series 92 (X) (X)
Series 149 (X) (X)
Series 50/60 (X) (X)
Series 55 (X) (X)
8.2 Liter (X) (X)
For service purposes, Products shall include similar products formerly
marketed by Company or its predecessor, Detroit Diesel Allison Division of
General Motors Corporation, of the same types or series for which Distributor
has been approved above.
B. Perkins Engines supplied to Company by Perkins International Limited.
C. Detroit Diesel Series 30 / 30G and Series 40 Engines
This right to buy Series 30, 30G and 40 Engines shall be effective
only to the extent that Distributors sales of such Products are for applications
into which Company has been authorized to market and promote.
D. Volvo Penta Engines marketed by Company of the following series:
Compact Collection
Series 31 - 42
Series 61 - 163
For service purposes, Products shall include similar products
currently or formerly marketed by A.B. Volvo Penta, of the same or similar types
or series for which Distributor has been approved above.
E. Mercedes-Benz Industrial Engines
This right to buy Mercedes-Benz Industrial Engines shall be
effective only to the extent that Distributor's sales of such Products are for
applications into which Company has been authorized to market and promote.
Further, this right to buy Mercedes-Benz Industrial Engines applies to exchange
engines for direct replacement purposes only. Distributor does not acquire any
rights to engage in the sale of such new Products for any other purpose.
F. MTU diesel engines of the Series identified:
Series 183
Series 396
This right to buy MTU engines shall be effective only to the
extent that Distributor's sales of such Products are for applications into which
Company has been authorized to market and promote.
If Company's authorization to market any of the Products shown in Paragraphs B
through F of this Products Addendum is terminated, such Products may be deleted
from this Products Addendum by the issuance of a new Products Addendum. In the
event of such deletion, the provisions of Article 8.2 regarding repurchase of
such Products, Parts and related signs shall apply.
This Products Addendum shall remain in effect unless and until superseded by a
new Products Addendum furnished Distributor by Company.
DETROIT DIESEL CORPORATION
Company
By /s/ T.R. Terrell
Vice President
By_________________________
Regional Vice President
(Distributor should file this Products Addendum with current Distributor
Agreement)
DA 234 (6-95)
AREA OF RESPONSIBILITY ADDENDUM
TO
DISTRIBUTOR AGREEMENT
WITH
Stewart & Stevenson Services, Inc.
Distributor Firm Name
Houston, Texas
City, State/Province
Effective January 1, 1996, the area described below shall be the Area of
Responsibility.
The counties east of and including the counties of Hardeman, Foard, Knox,
Haskell, Throckmorton, Stephens, Eastland, Comanche, Jills, San Saba, McCulloch,
Concho, Menard, Kimble, Edwards and Val Verde in the State of Texas; the
parishes south of and including the parishes of Beauregard, Allen, Evangeline,
Saint Landry, Pointe Coupee, West Feliciana, East Feliciana, Saint Helena,
Tangipahoa and Washington in the State of Louisiana; the counties of Hancock,
Harrison and Jackson in the State of Mississippi; the counties of Mobile and
Baldwin in the State of Alabama; all in the United States of America.
Such Area of Responsibility will be used by Company in making evaluations of the
effectiveness of Distributor's performance of its responsibilities under the
Distributor Agreement.
The Area of Responsibility will also be used in the development of sales guides
and other matters relating to Distributorship Operations.
The Area of Responsibility described herein will continue to be used for the
foregoing purposes until it is changed in accordance with the Distributor
Agreement.
Detroit Diesel Corporation
Company
By /s/ J.R. Terrell
Vice President
By__________________________
Regional Vice President
(Distributor should file this Products Addendum with current Distributor
Agreement)
DA 235 (6-95)
DISTRIBUTOR LOCATIONS
AND PREMISES ADDENDUM
TO
DISTRIBUTOR AGREEMENT
This Distributorship Locations and Premises Addendum is executed pursuant to
Article 6.1 of the Distributor Agreement between Company and the undersigned
Distributor. Distributor and Company hereby agree that as of the date specified,
Page 2 hereof, entitled Description of Distributorship Premises, identifies
the Distributorship Locations and describes the Distributorship Premises at
which Distributor is authorized to conduct Distributorship Operations under the
Distributor Agreement. Distributor also represents that Page 2 accurately
reflects the terms under which it occupies the premises and the portion used for
Distributorship Operations and other uses, if any.Changes in the Distributorship
Premises may be effected during the term of the Distributor Agreement in
accordance with the provisions of Article 2.3 or Article 6.1.4 and shall be
reflected in a new Distributorship Locations and Premises Addendum executed by
Distributor and Company.
Stewart & Stevenson Services, Inc. Detroit Diesel Corporation
Distributor Firm Name Company
By /s/ Garth C. Bates, Jr., Group Vice President By /s/ J.R. Terrell
Signature and Title Vice President
January 31, 1996 2/28/96
Date Date
The information set forth herein has been
verified for Company by:
__________________________________
Name Title
as of_________________________, 19__
(Distributor should file this Addendum with current Distributor Agreement)
DESCRIPTION OF DISTRIBUTORSHIP
PREMISES
Stewart & Stevenson Services, Inc. Houston, Texas January 1, 1996
Distributor Firm Name City, State/Province As of Date
A. LOCATION AND OWNERSHIP OF PREMISES
<TABLE>
<CAPTION>
Indicate by (X)
Distributorship
Asset
Location Address Leased If Leased, Name and Address of Lessor
<S> <C> <C> <C>
Main 2707 North Loop West X Mischer Development
Houston, TX Houston, TX
2 8631 East Freeway X Stewart & Stevenson Realty
Houston, TX Houston, TX
3 3919 Irving Blvd. X Stewart & Stevenson Realty
Dallas, TX Houston, TX
5 6530 Agnes X Stewart & Stevenson Realty
Corpus Christi, TX Houston, TX
5 69 Highway South X Miles McInnis & Group
Beaumont, TX Dallas, TX
6 5717 I-10 East X Stewart & Stevenson Realty
San Antonio, TX Houston, TX
7 2301 Central Freeway East X Bowles Children Trust
Wichita Falls, TX Wichita Falls, TX
8 12955 Emmett Road X Stewart & Stevenson Realty
Houston, TX Houston, TX
9 1400 Destrehan Avenue X Detroit Diesel Realty
Harvey, Louisiana Detroit, MI
</TABLE>
B. DESCRIPTION OF PREMISES LISTED IN "A" ABOVE AND PURPOSE
FOR WHICH EACH IS TO BE USED BY DISTRIBUTOR
<TABLE>
<CAPTION>
Describe Use of Premises Area in Square Feet Distance
for Distributorship Operations No. Building Lot From
Specify: New Products Sales, of ________________________ ________________________ Main
Location Service, etc. Floors *D.O. Use **Other Use *D.O. Use **Other Use Location
<S> <C> <C> <C> <C> <C> <C> <C>
Main Corporate Offices 4 25,000 53,000 25,000 25,000 XXXX
2 New Product Sales, Retail Parts, Service 2 140,000 0 435,600 0 20
3 New Product Sales, Retail Parts, Service 1 100,000 0 235,000 0 250
5 New Product Sales, Retail Parts, Service 1 33,000 0 261,000 0 210
5 New Product Sales, Retail Parts, Service 1 46,000 0 75,000 0 90
6 New Product Sales, Retail Parts, Service 1 37,000 0 190,575 0 200
7 New Product Sales, Retail Parts, Service 1 11,500 0 42,500 0 380
8 Training Center & Warehouse 1 117,500 0 300,000 0 15
9 New Product Sales, Retail Parts, Service 2 77,000 0 25,000 0 375
</TABLE>
C. LEASED PREMISES - PROVIDE INFORMATION ON EACH LOCATION
DESIGNATED AS LEASED IN "A" ABOVE
<TABLE>
<CAPTION>
Term of Lease Annual Renewal Options
Location From To Rental Term and Date Lessor to be Notified Annual Rent
<S> <C> <C> <C> <C> <C>
1/1/89 2/28/05 $ 1,000,000 $
5/1/90 4/30/95 $ 600,000 None $
2/1/87 1/31/97 $ 152,964 None $
5/1/90 4/30/00 $ 88,100 None $
5 4/15/82 4/14/97 $ 37,000 Currently in 5 Year Option $
6 2/1/87 1/31/97 $ 174,000 None $
7 4/1/94 3/31/96 $ 60,000 $
8 10/1/90 9/30/00 $ 69,600 None $
9 4/1/88 12/31/98 $ 380,000 2-3 Year Options $
</TABLE>
*D.O. Use means the portion of premises listed in "A" above used for
Distributorship Operations.
**Show the portion of the distributorship premises used for any purpose other
than performance of Distributor's obligation under the Distributor Agreement,
and briefly describe such other use or uses.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
DA 236 (REV 12-95)
DETROIT DIESEL CORPORATION*
(Hereinafter referred to as Company)
Product and Parts
Terms of Sale Bulletin No. 1
Issued Under
Detroit Diesel Distributor Agreement
Effective As Of January 1, 1996
This Terms of Sale Bulletin is furnished Distributor in accordance with the
current Detroit Diesel Distributor Agreement. The prices, charges, discounts,
terms of sale and other provisions referred to or contained herein shall apply
to Products and Parts sold by Company or Detroit Diesel Remanufacturing Centers
("DDR") to Distributor under the provisions of the Distributor Agreement. Such
prices, charges, terms of sale and other provisions referred to or contained
herein shall apply to all new Products and Parts sold and shipped to Distributor
on or after January 1, 1996 and shall remain in effect unless and until
suspended by action of Company.
I. Product Terms of Sale
A. Prices
The list and/or net prices and discounts applicable to new Products shall be
those at time of shipment and are furnished to Distributor in pricing
publications announcing new prices, as published from time to time by Company or
DDR. These prices do not include taxes.
B. Discounts on Products
The discount to Distributor from list prices of new Products will be in
accordance with and subject to the provisions of pricing publications issued by
Company or DDR. Additional discounts and or allowances may be granted
Distributor in accordance with and subject to the provisions of pricing
publications issued by Company or DDR.
C. Optional and Extra Equipment
All optional and extra equipment, whether installed on or shipped with Products
as part of the Product shipment or shipped separately, will be invoiced to
Distributor at the prices at time of shipment shown in pricing publications
issued by Company or DDR.
D. Transportation
Shipments of Products to Distributor will be made F.O.B. shipping point with
transportation charges thereon to be paid by Distributor to the carrier. If,
for the convenience of Distributor, Company or DDR prepays such transportation
charges, they shall be prepaid on Distributor's behalf and for Distributor's
account.
E. Terms of Payment
Payment of the amount at which each Product sold by Company or DDR to
Distributor is invoiced to Distributor shall be made as follows:
1. through the use of Electronic Funds Transfer to Company's or DDR's bank
account, or such other medium of payment as Company or DDR may agree to accept,
with such payment to be made on or prior to the 10th of the month following the
month of shipment of such Product, or
2. in accordance with wholesale financing arrangements, at the time of
shipment of such Product, which are in effect between Company or DDR,
Distributor and a financing institution, with such payment to be made on or
prior to the 10th of the month following the shipment of such Product.
In addition, Company or DDR, reserves the right to assess, at its discretion, a
late payment charge equal to the prevailing prime interest rate plus 3.0%
(calculated on an annualized basis) on the past due balances owing Company or
DDR upon failure of Distributor to meet the agreed-upon terms; provided,
however, that in the event that applicable federal or state law sets a maximum
rate for late payment fees which is less than prime interest rate plus 3.0%
(calculated on an annualized basis), the late payment charge assessed hereunder
shall be set at the maximum rate for such late payment charges permitted by law.
II. Parts Terms of Sale
A. Prices
The prices applicable to new Parts shall be those at time of shipment and are
furnished to Distributor in parts price schedules or supplements thereto
published from time to time by Company or DDR.
B. Prepaid Transportation
Normal transportation charges from shipping point to Distributor's facilities
will be prepaid by Company or DDR on all individual orders to Company for Parts
as outlined in applicable parts bulletins published by Company. Company or DDR
reserves the right to select the carrier and method of transporting shipments
referred to in this paragraph.
C. Terms of Payments
The account of Distributor is due and payable, as per statement rendered, less
adjustments authorized by Company or DDR, on or before the thirtieth (30th) day
of the month (28th) for February) following the date of billing. Payment
submission via an Electronic Funds Transfer method approved by Company or DDR or
such other medium of payment as Company or DDR may agree to accept is required.
If such account is not paid as specified above, further shipments of Parts to
Distributor will be made on a Cash in Advance basis only.
In addition, Company or DDR reserves the right to assess, at its discretion, a
late payment charge equal to the prevailing prime interest rate plus 3.0%
(calculated on an annualized basis) on the past due balances owing Commune or
DDR upon failure of Distributor to meet the agreed-upon terms; provided,
however, that in the event that applicable federal or state law sets a maximum
rate for late payment fees which is less than prime interest rate plus 3.0%,
(calculated on an annualized basis) the late payment charge assessed hereunder
shall be set at the maximum rate for such late payment charges permitted by law.
D. Parts Inventory Plans
Distributor may elect to return Parts to Company, or may be granted other
allowances, subject to the terms and provisions of applicable parts bulletins
published by Company and furnished to Distributor.
E. Parts Compensation Plans
Company shall compensate Distributor as provided in appropriate parts bulletins
and letters published by Company and furnished to Distributor for sale of new
Parts purchased from Company and sold by Distributor from its Distributorship
Premises.
DETROIT DIESEL CORPORATION*
By /s/ Thomas R. Terrell
*(In Canada: Detroit Diesel of Canada, Ltd.)
(Distributor should file this Terms of Sale Bulletin with current Distributor
Agreement)
DA 238-V (6-95)
SALES ACTIVITY ADDENDUM
In accordance with Article 3.1, effective 1 January 1996,
it is hereby agreed that Distributor shall maintain minimum levels, as follows:
1 Qualified, full-time sales and application specialist(s) for
Products
$ 400,000 Minimum Product Inventory
$ 50,000 Minimum Parts Inventory
It is further agreed that, if at any time Distributor's personnel or inventory
levels fall below the above minimums, Distributor will take immediate steps to
hire qualified personnel or purchase sufficient inventory to meet such minimum
levels, as the case may be, and that, without specific approval of Company,
Distributor will not remain out-of-compliance for more than 30 days in any
instance or 90 days total in any year.
This Addendum is subject to review by Company and may be amended by Company
based on a reasonable evaluation of the potential sales for Products and Parts
and the needs of users of Products in the Area of Responsibility.
Stewart & Stevenson Services, Inc. Detroit Diesel Corporation
Distributor Firm Name Company
By /s/ Garth C. Bates, Jr. By /s/ T.R. Terrell
Vice President
Date Date 2/28/96
DA 239 (6-95)
QUALIFIED PRODUCTS AND OEM'S ADDENDUM
TO
DISTRIBUTOR AGREEMENT
Effective January 1, 1996, the below listed qualified Products and OEMs are
considered as Excluded Sales under the provisions of Article 3.6, and payment of
a service commission by Distributor will not be required for sales of these
qualified Products or to these qualified OEM's.
I. Qualified Products
A. Products installed by Distributor in Generator Sets
fabricated by Distributor
B. Products upon which substantial modification has been
done by Distributor prior to sale (Modification is
considered substantial when cost of modification,
including tooling cost pro-rated over reasonable
volume, exceeds 40% of Distributor's net price for
Products as purchased from Company.)
C. Other: None
II. Qualified OEM's
A. OEM's whose sole manufacturing and purchasing
locations are within the Area of Responsibility.
B. OEM's who have at least one manufacturing location
within the Area of Responsibility.
C. Other:
Sea Ray Boats Inc.: Knoxville,TN; Sykes Creek, FL;
Palm Coast, FL
This Addendum will remain in effect until superseded by a new Qualified Products
and OEM's Addendum issued by Company, which may become effective upon 90-day
notice.
Receipt Acknowledged:
Stewart & Stevenson Services, Inc. Detroit Diesel Corporation
Distributor Firm Name Company
By /s/ Garth C. Bates, Jr. By /s/ T.R. Terrell
Group Vice President Vice President
ADDITIONAL PROVISIONS
APPLICABLE TO
DISTRIBUTOR AGREEMENT
Article 1. Glossary of Terms
Affiliated Company
Any company in which Penske Corporation or Detroit Diesel Corporation has a
direct or indirect ownership interest.
Agreement
The Distributor Agreement that is executed by Distributor and Company, the
Additional Provisions, and all related Addenda.
Area of Responsibility
The area described in the Area of Responsibility Addendum to this Agreement as
established by Company from time to time.
Authorized Dealer
A business entity with whom Distributor or Company has executed a form of dealer
agreement provided or approved by Company, pursuant to Article 5 of this
Agreement.
Detroit Diesel Distributor
A business entity which is a party to a Distributor Agreement with Company or an
Affiliated Company for any or all of the Products described in the Products
Addendum.
Detroit Diesel Remanufacturing Center ("DDR")
A company or facility which has been authorized by Company to remanufacture and
market reliabilt Parts.
Distributorship Location(s)
The location(s) approved by Company for the conduct
of Distributorship Operations as identified on the Distributorship Locations and
Premises Addendum.
Distributorship Operations
The functions, responsibilities, operations, and activities that are
contemplated by this Agreement, including any optional activities undertaken by
Distributor in connection with Products and Parts.
Distributorship Premises
The facilities approved by Company at the Distributorship Location(s) for the
conduct of the Distributorship Operations as identified on the Distributorship
Locations and Premises Addendum.
Marks
The various trademarks, service marks, names and designs owned by or licensed to
Company, or an Affiliated Company, and used in connection with Products and
Parts.
Parts
New parts or reliabilt remanufactured parts which are marketed by or for Company
for use in connection with Products and which are listed in current parts
catalogs, price schedules and supplements thereto furnished by Company.
Products
The new engines that are described in the Products Addendum, plus reliabilt
Products and all past products marketed under the same trade name.
Principal Manager(s)
The individual manager(s) of Distributor identified in the Management and
Ownership Addendum approved by Company upon whose personal service Company
relies in entering into this Agreement.
Principal Owner(s)
Owner(s) of Distributor upon whose stated record and beneficial ownership
interests in Distributor, as set forth in the Management and Ownership Addendum,
Company relies in entering into this Agreement.
reliabilt Products and reliabilt Parts
Used Products and Parts which have been remanufactured under license agreements
executed by Company and which are marketed by Company, DDR or Detroit Diesel
Distributors under the reliabilt trademark.
Service Policy Manual
The manual of that name furnished by Company to Distributor, as modified by
change notices, letters or revision sheets.
Terms of Sale Bulletins
Bulletins furnished by Company to Distributor setting forth the terms of sale
and other provisions that apply to sales of Products and Parts by Company to
Distributors as issued from time to time or as modified by any change notices,
letters or revision sheets.
Article 2. Company Rights and Responsibilities
2.1 General
Company is responsible for determining which products it will market and the
methods it will use to sell those products to Detroit Diesel Distributors or
other customers.
2.2 Products and Parts
Company shall determine the Products and Parts it will sell to Distributor and
other customers. Company will furnish Distributor with a Products Addendum
identifying Products and Parts available for purchase by Distributor. The
Products Addendum may be changed by Company by furnishing Distributor with a new
Products Addendum. Company is under no obligation to include all products sold
by Company in Distributor's Products Addendum.
Certain Products applicable to the marine market, may require particular tools,
analytical and engineering equipment, personnel with expertise and training in
such Products, and/or complementary components. If Distributor fails to provide
or have available any of these requirements, as determined by Company in its
sole discretion, so that Company has reasonable cause to believe Distributor is
unable or unwilling to adequately serve this market, Company may delete Products
related to this market from Distributors Products Addendum and may assume the
responsibility for this market and the ability to sell to purchasers of such
deleted Products within the Area of Responsibility, or Company may assign the
responsibility to another Detroit Diesel Distributor.
2.3 Distributors, Branches and Authorized Dealers
2.3.1 Number and Location
Company is responsible for determining the number and location of Detroit Diesel
Distributors, branches and Authorized Dealers. Distributor will not establish a
branch or other location for the conduct of Distributorship Operations or
appoint an Authorized Dealer without the prior written approval of Company.
2.3.2 Character of Changes
Company reserves the right to (a) reassign a portion of the Area of
Responsibility to another Detroit Diesel Distributor; and/or (b) establish an
additional Detroit Diesel Distributor in the Area of Responsibility.
If Company believes any such changes are appropriate, Company and Distributor
shall endeavor to reach agreement reflecting the changes to be effected, the
manner in which they will be accomplished, and the time period for completing
such changes.
If Company determines in its sole discretion that agreement satisfactory to
Company cannot be reached with Distributor, Company shall notify Distributor in
writing of the changes that it will put into effect and the timing of such
changes.
As a result of any such changes effected by Company, Company shall furnish to
Distributor a new Area of Responsibility Addendum, as required.
2.4 Sales to Distributor
2.4.1 Orders
Distributor shall submit orders for Products and Parts in accordance with
ordering procedures furnished Distributor by Company. Distributor's orders are
not binding until accepted by Company and may be cancelled by Distributor until
that time. After Company's acceptance of an order, Distributor may not modify or
cancel such order without the written consent of Company, except in the case of
a price increase as provided in this Article 2.4. Company may establish a
reasonable cancellation charge to be paid by Distributor.
If the productive capacity of Company manufacturing sources are insufficient at
any time to meet the demand for Products or Parts, Company will endeavor to
distribute Products and Parts in a fair and equitable manner.
Company will not be liable for any delay or failure to deliver Products and
Parts where caused, in whole or in part, by:
(a) any strike or labor trouble affecting operations of
Company, Affiliated Companies or their suppliers;
(b) any shortage or curtailment of utilities, materials,
transportation or labor or any shortage or damage
to the facilities of Company, Affiliated Companies or
their suppliers;
(c) any act of government, including the enactment of
laws or regulations or issuance of judicial or admin-
istrative injunctions or orders;
(d) any curtailment or discontinuance of production by
Company, Affiliated Companies or their suppliers;
(e) any cause beyond the control of Company, Affiliated
Companies or their suppliers.
2.4.2 Prices and Terms of Sale
Prices, charges, discounts, allowances and other terms of sale applicable to
purchases of Products and Parts will be those established by Company in pricing
publications and the Terms of Sale Bulletins in effect at the time of shipment
to Distributor. Company has the right to change the prices, charges, discounts,
allowances and other terms of sale for Products and Parts at any time.
Company will give written notice to Distributor of any price increase before
shipping any Products to which such increase applies. Distributor may cancel or
modify the affected orders for Products by delivering a written notice of
cancellation to Company within 20 days of receipt of Companys announcement of
such price increase.
2.4.3 Shipments
Unless otherwise agreed, Company shall arrange for shipment services on
Distributor's behalf and account. Products and Parts will be shipped to
Distributorship Locations or other locations authorized by Company. Company
shall not be liable for any delays, losses or damages in shipment.
If any Products or Parts ordered by Distributor are diverted or returned because
of Distributor's delay or failure to accept delivery, Distributor will pay any
additional costs incurred by Company as a result of such diversion or return.
2.4.4 Warranties on Products or Parts
Company warrants new Products and Parts as set forth in documents containing
those warranties that Company provides with such Products and as set forth in
the Service Policy Manual.
EXCEPT AS OTHERWISE PROVIDED BY LAW, THE WRITTEN COMPANY WARRANTIES ARE THE ONLY
WARRANTIES APPLICABLE TO NEW PRODUCTS AND PARTS. WITH RESPECT TO DISTRIBUTOR,
SUCH WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES OR LIABILITIES, EXPRESS OR
IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR ANY LIABILITY FOR COMMERCIAL LOSSES BASED UPON NEGLIGENCE
OR MANUFACTURER'S STRICT LIABILITY. EXCEPT AS MAY BE PROVIDED UNDER AN
ESTABLISHED COMPANY PROGRAM OR PROCEDURE, COMPANY NEITHER ASSUMES NOR AUTHORIZES
ANYONE TO ASSUME FOR IT ANY OTHER OBLIGATION OR LIABILITY IN CONNECTION WITH
PRODUCTS AND PARTS, AND COMPANY'S MAXIMUM LIABILITY IS TO REPAIR OR REPLACE THE
PRODUCT OR PART.
2.4.5 Change in or Discontinuance of Products or Parts
Company may discontinue any Products or Parts or lines of Products or Parts or
change the design or specifications of any Products or Parts at any time without
notice and without incurring any obligation to Distributor.
Company may install any equipment or accessories or incorporate any design
features required by law on any Products or Parts ordered by Distributor,
whether or not such items or features are included in Distributor's order.
2.5 Assistance to Distributors
2.5.1 Counseling
Company shall counsel Distributor on sales, service and other related matters.
2.5.2 Manuals, Bulletins and Materials
Company shall provide Distributor with manuals, bulletins and other materials
considered appropriate by Company and will inform Distributor of any applicable
charges.
2.5.3 Advertising and Sales Promotion
Company shall make advertising and sales promotion programs and materials
available to Distributor as considered appropriate by Company and will inform
Distributor of any applicable charges.
2.5.4 Training
Company shall provide training programs and materials considered appropriate by
Company to assist Distributor in fulfilling its responsibilities to train
personnel of Distributor, Authorized Dealer(s) and Product users. Company shall
inform Distributor of any applicable charges. Company shall not be responsible
for any compensation payable to personnel of Distributor, Authorized Dealer(s)
or Product users while attending such courses or for related travel and living
expenses.
2.5.5 Engineering
Company may provide Product application guidelines and/or consulting engineering
service to Distributor. Distributor's responsibility for proper installation and
application shall remain the same as provided in Article 3.3.
Company acknowledges that some third parties who acquire Products or Parts from
Distributor may install or apply such Products or Parts independent of
Distributor and that, in such instances, Distributor shall have no application
or installation responsibility to such third parties or the owner/user of such
Products and Parts.
2.6 Payment and Compensation for Performance of Specified Responsibilities
2.6.1 Payment for Performance of Service Responsibilities
Company will pay Distributor for the replacement of Parts or will provide
Distributor with the Parts required and pay for labor in accordance with the
applicable provisions of the Service Policy Manual for all warranty repairs,
special policy adjustments and campaign inspections or corrections performed
directly by Distributor in its conduct of service operations.
Company will pay Distributor in accordance with the Service Policy Manual for
approved claims submitted by Distributor on behalf of Authorized Dealers in
connection with their performance of warranty repairs, special policy
adjustments and campaign inspections and corrections for Products and Parts for
which such Authorized Dealers have service responsibilities.
2.6.2 Compensation for Performance of Specified Responsibilities
Company will compensate Distributor, as provided in appropriate manuals,
bulletins and letters furnished Distributor by Company, for the performance of
specified service, sales, sales promotion and distribution functions.
Article 3. Distributor Sales Responsibilities
3.1 Retail Sales, Wholesale Sales and Sales Promotion Activities
Distributor shall aggressively and effectively perform the following sales
activities in the Area of Responsibility:
(a) retail sales of Products and Parts to users and
prospective users.
(b) wholesale sales of Products and Parts to original
equipment manufacturers (OEM), and Authorized
Dealers.
(c) promote purchases by dealers, users and potential
users of OEM products equipped with Products.
Such purchases will significantly benefit Distributor
and Authorized Dealers because all such expanded
use of Products creates opportunities for the sale of
additional Products, Parts and services. The ability of
Company to sell to OEMs is substantially dependent
upon such Distributor promotional activities.
To clarify minimum levels of certain sales and sales promotion responsibilities,
at the sole discretion of Company, Distributor and Company may periodically
execute a Sales Activity Addendum applicable to selected Products which will
establish the number of sales personnel assigned to such Products and the
minimum inventories of such Products and Parts.
Distributor acknowledges that Company has reserved the right to sell Products
and Parts directly to any customers, including but not limited to, OEM's.
However, nothing in this Agreement shall be construed to restrict the right of
Distributor to sell any Product or Part to any customers within the Area of
Responsibility, including OEM's.
3.2 Sales Efforts
In furtherance of its responsibilities, Distributor shall:
(a) employ a force of trained management and sales
personnel considered adequate by Company;
(b) build and maintain customer confidence and satis-
faction;
(c) establish and maintain regular contacts with prospec-
tive purchasers of Products and Parts and equip-
ment using Products and with others who influence
purchases;
(d) employ effective ethical sales, advertising and pro-
motion programs and activities; and
(e) actively participate in industry and trade associations
and support programs for exhibiting and demonstrat-
ing Products.
3.3 Application and Installation
Distributor shall be responsible for proper application and installation, and
for supervision of proper application and installation by a third party where
appropriate, of all Products sold by Distributor.
Company acknowledges that some third parties who acquire Products or Parts from
Distributor may install or apply such Products or Parts independent of
Distributor and that, in such instances, Distributor shall have no application
or installation responsibility to such third parties or the owner/user of such
Products and Parts.
However, Company assumes no responsibility for the proper application or
installation of any Products or Parts sold by Distributor.
Distributor shall provide Company all information including End Product
Questionnaires (EPQ) and Pilot Installation Descriptions (PID) requested
concerning applications, modifications and installations of Products. Failures
resulting from improper application, modification or installation are not the
responsibility of Company. Distributor will reimburse Company for any expenses
or other liabilities incurred by Company as a result of Distributors improper
application, modification or installation of Products.
3.4 Sales Performance Evaluation
Distributor's sales performance will be evaluated by Company based upon
Distributor's sales achievement as compared to sales objectives established by
Company for Distributor and to the sales achievement of other Detroit Diesel
Distributors.
In addition, Company will consider other relevant factors including, but not
limited to:
(a) the trend of Distributor's sales performance;
(b) the manner in which Distributor has conducted sales
operations, including advertising, sales promotion
and treatment of customers;
(c) sales resulting from Distributor's efforts to support
Company sales to OEM's;
(d) the manner in which Distributor has submitted orders
for Products to Company;
(e) availability of Products to Distributor; and
(f) significant local conditions that may have affected
Distributor's performance.
3.5 Distribution and Sale of Products and Parts
In the distribution or sale of new, rebuilt or remanufactured engines, or new,
rebuilt or remanufactured components or new service parts for engines or in the
servicing of engines, Distributor and/or its Principal Owner(s) or Principal
Manager(s) shall exclusively promote, sell, use and service Products and Parts,
either in Distributorship Premises or in other locations owned, operated or
managed by Distributor, Principal Owner(s), or Principal Manager(s) of
Distributor, unless otherwise agreed by Company.
Distributor may sell or promote products and parts which do not compete with
Products and/or Parts marketed by Company if Distributor provides notice to
Company of its intention to do so reasonably in advance of the commencement of
such activity and if Distributor is otherwise in compliance with its
responsibilities under this Agreement.
3.6 Sales Outside Area of Responsibility
3.6.1 Service Commission for Sales Outside Area of Responsibility
Distributor agrees that on sales of any Products by Distributor, directly to
customers outside the Area of Responsibility, or directly or indirectly to
customers whose initial substantial use of the Products will be outside the Area
of Responsibility including, but not limited to, sales outside the United States
of America, it will pay or cause to be paid to the Detroit Diesel Distributor in
whose area of responsibility the Products are sold, or where their initial
substantial use occurs, a service commission as defined by and in accordance
with applicable provisions of the Service Policy Manual.
Distributor agrees to accept charges against its accounts with Company and other
Detroit Diesel Distributors in implementing this Article 3.6. Distributor
acknowledges that in actions taken by Company in implementing this Article 3.6
and remitting a service commission to the Detroit Diesel Distributor in whose
area of responsibility a sale of a Product by a Detroit Diesel Distributor has
taken place, or where the initial substantial use of the Product sold by Detroit
Diesel Distributor occurs, Company shall act in the sole capacity of an
accommodation transferor, but without liability to either party, except for its
gross negligence, or assurance that such service commission, disputed or
undisputed, shall be paid.
Company shall effect such payment on behalf of Distributor by charging
Distributor's account with Company with the amount of the service commission and
crediting the other Detroit Diesel Distributor's account with Company with the
amount so charged.
3.6.2 Excluded Sales
In view of the active and effective efforts required of a Detroit Diesel
Distributor to continuously promote and sell Products, and such sale, or the
initial substantial use, of a Product may occur outside the selling Detroit
Diesel Distributor's area of responsibility, a service commission on the sale of
the Product shall not be paid if (i) the purchaser has a bona fide purchasing
office, as solely determined by Company, in the selling Detroit Diesel
Distributor's area of responsibility or (ii) if the Product is installed in a
vehicle or end-product owned or operated by the customer and located in the
selling Detroit Diesel Distributor's area of responsibility at time of
installation, or (iii) the Product is a qualified product as listed on the
selling Detroit Diesel Distributor's Qualified Products and OEM's Addendum, or
(iv) the customer is a qualified OEM as listed on the selling Detroit Diesel
Distributor's Qualified Products and OEM's Addendum or Company has specifically
exempted a sales transaction from this provision prior to the execution of the
sale.
In addition, a service commission shall not be paid (i) on sales of Products to
the governments or certain agencies of the United States of America or the
Dominion of Canada or to certain governmental units thereof, as Company, from
time to time, will delineate, for use by such government or agencies, or (ii) if
the sale is to a customer who is an authorized Detroit Diesel Distributor and
the selling Detroit Diesel Distributor is not in default under the distributor
agreement.
3.6.3 Resolution of Disputes
Distributor agrees to accept and abide by Company's decision in disputes arising
with respect to service commissions payable pursuant to this section.
Article 4. Distributor Service Responsibilities
4.1 General Responsibility
Distributor agrees to perform directly and through Authorized Dealers, the
service obligations of Company, Distributor and Authorized Dealers on all
Products in the Area of Responsibility, regardless of origin of purchase. This
work will be performed promptly, in a good and workmanlike manner and in
accordance with the Service Policy Manual and other publications provided by
Company.
Except as authorized by Company, neither Distributor nor any Authorized Dealer
shall charge a customer for parts or service for which Distributor or Authorized
Dealer will be paid by Company or another Detroit Diesel Distributor.
In furtherance of its service responsibilities, Distributor shall, at each
Distributorship Location
(a) employ a force of trained management and service
technicians who are accredited and trained on all
current Products for which Distributor is authorized
by this Agreement to service;
(b) establish and maintain service facilities satisfactory
in appearance and size for the conduct of service
operations;
(c) maintain current applicable service information;
(d) provide and maintain tools and equipment consid-
ered necessary by Company, including at least those
listed in the Special Service Tool and Equipment
Lists, Distributor Training Standards Manual and
other applicable bulletins for all Products for which
Distributor is authorized by this Agreement to ser-
vice; and
(e) provide and maintain properly equipped service
vehicles or other means of providing satisfactory
customer service.
4.2 Warranties
Distributor shall deliver, and shall require Authorized Dealers to deliver, a
copy of the warranty applicable to Products or Parts to each customer purchasing
a Product or Part and shall explain the provisions to any customer requesting
such explanation. Such warranty shall be delivered at the time of sale, but not
later than the time of delivery, of the Product or Part to the customer.
Distributor shall use its best efforts to have other OEM dealers provide a copy
of the warranty applicable to Products and Parts installed in OEM equipment
purchased by OEM dealer's customer.
Distributor shall explain and cause its Authorized Dealers to explain to
customers the proper operation instructions and requirements for Products.
4.3 Warranty, Special Policy and Campaign Repairs
Distributor shall perform and shall cause its Authorized Dealers to perform, in
accordance with the Service Policy Manual, (a) warranty repairs on all Products
and Parts qualifying for such repairs; (b) special policy adjustments approved
by Company; and (c) campaign inspections and corrections that are directed by
Company on Products and Parts.
In performing the above work, Distributor will, unless otherwise authorized in
writing by Company, use only Parts. Distributor shall provide and shall cause
its Authorized Dealers to provide to each customer a copy of the repair order
for the above work.
4.4 Representations as to Parts
Distributor shall not, and shall assure that Authorized Dealers shall not,
represent parts not marketed by Company as Parts marketed by Company.
4.5 Start-Up Inspections
Distributor shall perform, or shall designate an Authorized Dealer to perform,
start-up inspections on new Products qualifying for such services in accordance
with provisions of the Service Policy Manual. Distributor will send to Company
the required forms showing completion of such start-up inspections.
4.6 Service Performance Evaluation
Distributor's service performance will be evaluated by Company based upon, but
not limited to, the following factors:
(a) customer confidence and satisfaction;
(b) the manner and efficiency in which Distributor con-
ducts service operations;
(c) the adequacy of facilities, tools and equipment, and
personnel;
(d) the effectiveness of its Authorized Dealers;
(e) accuracy of claims and processing of Applications for
Adjustment ("AFA") or other payments to dealers and
customers; and
(f) availability of Parts for service operations.
Article 5. Authorized Dealers
5.1 Appointments
Distributor and Company recognize that for Distributor to properly fulfill its
service, sales and promotional responsibilities relating to Products and Parts,
it will be necessary for Distributor to appoint qualified dealers at locations
selected by Company or proposed by Distributor in the Area of Responsibility.
Each such dealer will be owned and operated independently of Distributor and its
employees and owners and subject to approval by Company.
When each such dealer has executed with Distributor a form of dealer agreement
provided or approved by Company, Company will confirm its approval in writing to
Distributor.
5.2 Failure to Appoint
If Distributor fails to appoint a qualified dealer approved by Company or at a
location requested by Company within ninety (90) days after receipt of such
written request, Company may appoint a dealer directly.
5.3 Administration of Authorized Dealers
Distributor shall provide an adequate number of capable employees to administer
and advise Authorized Dealers in all phases of their operations.
Distributor shall assure that the qualifications of each Authorized Dealer are
maintained to adequately support customer needs for Products designated in the
dealer agreement and for Parts.
Distributor is responsible for training Authorized Dealer personnel in
procedures and techniques applicable to the sales and service of such designated
Products and Parts.
Company personnel have the right to contact Authorized Dealers directly to
determine the manner in which they perform their responsibilities and to provide
assistance as appropriate.
Article 6. Distributor Requirements
6.1 Distributorship Locations and Premises
6.1.1 Establishment of Distributorship Locations and Premises
Distributor will establish and maintain Distributorship Premises at the
Distributorship Location(s) approved by Company. Such Distributor Premises
shall be acceptable to Company, in appearance, functionality, trademarks,
cleanliness, and neatness, and adequate in size and properly equipped for the
conduct of Distributorship Operations.
Further, Distributor shall not, without prior written approval of Company,
conduct, or allow any other person or entity to conduct, any activities in
conflict with Distributor Operations at any Distributorship Location or within
any building located on the property leased or owned by Distributor, Principal
Owners or Principal Managers or any building contiguous to the Distributorship
Premises.
6.1.2 Establishment of Distributor Branches
Distributor will, upon written request by Company, establish Distributorship
Premises at a branch location(s) selected by Company for the conduct of
Distributorship Operations. Each such branch shall be owned and operated by
Distributor. The appointment by Distributor of an Authorized Dealer will not
fulfill Distributor's responsibility to establish a branch location requested by
Company.
If Distributor fails to establish a branch within six (6) months after receipt
of a written request from Company, Company may change the Area of
Responsibility, establish an additional Detroit Diesel Distributor or directly
appoint a dealer at such location.
6.1.3 Execution of Distributorship Locations and Premises Addendum
The Distributorship Locations and Distributorship Premises, including branch
locations established by Distributor at the request of Company, and the purposes
for which such Premises will be used, will be reflected in a Distributorship
Locations and Premises Addendum executed by Distributor and Company.
Distributor, or any of its owners, will not conduct any of the Distributorship
Operations at any location that is not reflected in such Addendum.
6.1.4 Changes Proposed
If Distributor desires to establish, change or eliminate any Distributorship
Premises or change the use of any Distributorship Premises, it shall advise
Company in writing and obtain prior written approval of any such change. Any
such change approved by Company shall be reflected, when implemented, in a new
and superseding Distributorship Locations and Premises Addendum.
If Distributor does not obtain such prior written approval, Company may
terminate this Agreement. In any event, Company may exercise its right under
Article 2.3.2 to modify the Area of Responsibility or appoint an additional
Distributor.
6.1.5 Business Hours
Distributor shall maintain its Distributorship Premises open to serve customers
during all days and hours which are customary in the trade and lawful and
necessary to properly serve customers in the Area of Responsibility. Distributor
shall provide emergency service in the Area of Responsibility on a seven (7) day
per week, twenty-four (24) hour per day basis.
6.1.6 Signs
Distributor shall install and maintain, at its own expense, only signs approved
by Company at the Distributorship Premises and assure that the Authorized
Dealers utilize signs approved by Company.
6.1.7 Distributor Name
Distributor's business name must be approved in writing by Company.
6.2 Capital
Distributor shall provide working and equity capital as mutually agreed upon by
Company and Distributor to adequately fulfill Distributor's responsibilities
under this Agreement.
6.3 Personnel
Distributor shall provide competent management and a sufficient staff of
personnel who are adequately trained to perform the Distributor's
responsibilities under this Agreement.
6.4 Inventory
Distributor shall maintain an inventory of Products and Parts adequate to meet
the needs of Authorized Dealers and other customers located in the Area of
Responsibility.
Distributor will assure that Authorized Dealers maintain an inventory of Parts
considered adequate by Distributor to meet the needs of Dealers' customers.
6.5 Government Regulations
Distributor and Company will provide each other with such information and
assistance as reasonably requested to facilitate compliance with government
laws, regulations and orders relating to Products and Parts. Distributor shall
be responsible for complying with applicable laws, regulations and orders.
Company and its suppliers shall not be required to change their materials,
designs, or production processes in any way to meet such regulations, but shall
endeavor to achieve Product and Part conformance where, in their sole judgment,
such conformance is practical and is economically justified.
6.6 Training
In order to maintain and develop qualified personnel, Distributor shall send
appropriate personnel, at its own expense, to conferences and training programs
provided by Company.
Distributor shall establish and maintain training programs recommended by
Company devoted to training personnel of Distributor, Authorized Dealer(s) and
Product users.
6.7 Accounting System, Records, Reports and Audits
Distributor agrees to maintain accounting systems in a manner approved by
Company. Distributor further agrees to furnish to Company complete and accurate
financial statements on a periodic basis as required by Company in a form
satisfactory to Company, including upon request, an annual audited financial
statement for Distributorship, and if applicable, subsidiary or parent
companies.
Distributor shall maintain complete and accurate sales, service, parts, training
and other appropriate records designated by Company in a form satisfactory to
Company and shall cause its Authorized Dealers to maintain similar records.
Distributor agrees to maintain such records and to cause its Authorized Dealers
to maintain similar records for a minimum period of two (2) years in a form
satisfactory to Company.
Distributor authorizes, and will cause each Authorized Dealer to permit, any
designated representative of Company to examine, audit, reproduce and take
copies of any Distributor or Authorized Dealer accounts and records required
under this Agreement or under the authorized dealer agreement provided or
approved by Company.
Company will not furnish any data submitted by Distributor to any third party
unless authorized by Distributor or required by law, or pertinent to judicial or
government administrative proceedings.
Distributor agrees to furnish, upon reasonable notice during regular business
hours, when requested by Company, accurate information covering Distributor's
sales of Products and Parts and reliable forecasts of Distributor's requirements
for Products and Parts.
6.8 Distributor Business Plans
Using the outline furnished by Company, Distributor shall submit to Company a
distributor business plan covering the items specified in such outline. A
distributor business plan shall be prepared and submitted for each calendar year
or for such other period as may be specified by Company. Company will advise
Distributor in writing of any recommended changes in such plan.
Distributor's performance will be evaluated by Company on the basis of how
effectively it has met the goals and objectives set forth in the distributor
business plan, including any recommendations made thereon in writing by Company.
Additionally, consideration will be given to the manner in which Distributor has
fulfilled its sales, service and premises responsibilities. Such evaluation will
also consider performance of Authorized Dealers.
6.9 Trademarks and Service Marks
6.9.1 Ownership
Distributor acknowledges and will cause each Authorized Dealer to acknowledge
that Company, or an Affiliated Company is the exclusive owner or the authorized
licensee of the various trademarks, service marks, names and designs used in
connection with Products and Parts (herein called Marks).
6.9.2 Display and Use of Marks
Distributor is granted and Distributor will grant each Authorized Dealer the
non-exclusive right to display such Marks in the conduct of Distributorship
Operations by Distributor and sales and service operations relating to Products
and Parts by Authorized Dealers. Distributor will discontinue and will cause an
Authorized Dealer to discontinue the display or use of any such Mark or change
the manner in which any such Mark is displayed or used when requested to do so
by Company. Distributor will not use or permit Authorized Dealers to use any
Mark as part of the name under which the business of Distributor or an
Authorized Dealer, or any company affiliated with Distributor or an Authorized
Dealer, is conducted without the prior written approval of Company. Any such
approval by Company shall be automatically rescinded upon the expiration or
termination of this Agreement.
During the term of this Agreement, Distributor will not use and will not permit
an Authorized Dealer to use any mark or name so resembling such Marks as to be
likely to confuse or deceive.
Distributor shall not remove or alter Marks or other identifications used on or
in connection with any Product or add any Marks or other identification without
Company's prior approval.
6.9.3 Discontinuance of Use Upon Termination
Upon the expiration or termination of this Agreement, Distributor will
immediately discontinue and cause each Authorized Dealer to discontinue, at
Distributor's and each Authorized Dealer's expense, all use and display of
Marks. Thereafter, Distributor will not use, either directly or indirectly, any
Marks or any other marks so resembling such Marks as to be likely to confuse or
deceive. Failure of Company and Distributor to complete the purchase and sale of
signs under the provisions of Article 8.2.1 of this Agreement shall not relieve
Distributor of its obligation to discontinue the use of such Marks on such
signs.
6.9.4 Not to be Registered by Distributor
Distributor will not take any action, directly or indirectly, to register or
cause to be registered any Marks in its favor or in the favor of any third
party.
6.9.5 Liability for Failure to Discontinue Use
Distributor shall reimburse Company, or Affiliated Companies, for all costs,
legal fees and other expenses incurred by any of them in connection with legal
action to require Distributor to comply with this Article 6.9.
Article 7. Termination
7.1 Termination of Agreement
7.1.1 Termination by Distributor
Distributor may terminate this Agreement by written notice to Company.
Termination will be effective ninety (90) days after Company's receipt of such
notice unless another date is agreed upon in writing.
7.1.2 Termination Due to Certain Acts or Events
Each of the following represents an act or event that is within the control of
Distributor or its management or owners and which is so contrary to the spirit
and objectives of this Agreement as to warrant its termination:
(a) the removal, resignation, withdrawal or elimination
from Distributor, for any reason, of any Principal
Manager or Principal Owner without the prior written
approval of Company;
(b) any misrepresentation to Company by Distributor or
by any Principal Manager or Principal Owner in
applying for this Agreement or as to the record or
beneficial ownership or management of Distributor or
other related business interest;
(c) any attempted or actual sale, transfer or assignment
by Distributor of this Agreement or any of the rights
granted Distributor hereunder, or any attempted or
actual transfer, assignment or delegation by
Distributor of any of the responsibilities assumed by
it under this Agreement, without the prior written
approval of Company;
(d) any change, whether voluntary or involuntary, in the
record or beneficial ownership of Distributor held by
the Principal Owners as set forth in the current
Management and Ownership Addendum, or any
acquisition, of record or beneficially, of ten percent
(10%) or more of the ownership interest in Distributor
by any person or persons, without the prior written
approval of Company;
(e) any undertaking by Distributor or any of its Principal
Owners or Principal Managers to conduct, either
directly or indirectly, any of the Distributorship
Operations at any unapproved location;
(f) any sale or other transfer, by operation of law or
otherwise, or any relinquishment or discontinuance
of use by Distributor, of any of the Distributorship
Premises or other principal assets required or used
in the conduct of the Distributorship Operations,
without the prior written approval of Company;
(g) any dispute or disagreement between or among the
owners or management personnel of Distributor
which, in the opinion of Company, may adversely
affect the Distributorship Operations or the interests
of Distributor or Company;
(h) failure to pay accounts due to Company in accor-
dance with provisions of the Terms of Sale Bulletin, if
such failure occurs repetitively or if an undisputed
balance is not paid within 90 days of the due date
and/or failure to maintain lines of credit adequate to
fulfill Distributor's responsibilities under this
Agreement;
(i) insolvency of Distributor; filing of a voluntary petition
in bankruptcy by Distributor; filing of an involuntary
petition to have Distributor declared bankrupt provided
that it is not vacated within thirty (30) days from
date of filing; or the appointment of a receiver or
trustee for Distributor provided that it is not vacated
within thirty (30) days from date of filing; or execution
by Distributor of an assignment for the benefit of
creditors of any foreclosure or other due process of
law whereby a third party acquires rights to the oper-
ation, ownership or assets of Distributor; or execu-
tion by Distributor of an assignment for the benefit of
creditors;
(j) failure of Distributor to conduct its customary
Distributorship Operations during its customary busi-
ness hours for seven (7) consecutive business days;
(k) conviction in a court of original jurisdiction of
Distributor or any Principal Manager, Principal
Owner or principal officer of Distributor of any crime
which is punishable by imprisonment; or any finding
by a government agency or court of original jurisdic-
tion that Distributor had committed any unfair busi-
ness practices which, in the opinion of Company,
may adversely affect the reputation or interest of
Distributor or Company;
(l) any submission by Distributor to Company of false
applications or claims for any payment, credit, dis-
count or allowance whether or not Distributor offers
or makes restitution;
(m) the distribution or sale of new engines, new engine
components or new service parts for engines or the
servicing of engines, other than Products and Parts,
except as permitted by Article 3.5 of this Agreement.
(n) refusal by Distributor to furnish timely sales or finan-
cial information and related supporting data, or to
permit Company to make an examination or audit of
Distributor's accounts and records, provided such
failure or refusal continues after receipt by Distributor
from Company of a written request for such informa-
tion or permission;
(o) willful failure of Distributor to comply with the provi-
sions of any laws or regulations relating to the sale
or service of Products and Parts.
When Company learns that any of the foregoing acts or events has occurred,
Company will endeavor to discuss it with Distributor. Thereafter, Company may
terminate this Agreement by giving Distributor written notice of termination,
such termination to be effective upon receipt by Distributor of such notice or
at such later date as may be specified in the notice.
7.1.3 Termination for Failure of Performance
If Company determines that Distributor has failed to perform any of its
responsibilities under the Agreement, Company will review such failure with
Distributor. As soon as practicable thereafter, Company will notify Distributor
in writing of the nature of Distributor's failure of performance and of the
period of time during which Distributor will be expected to remedy such failure,
which shall be a minimum of three (3) months, or longer at the sole
determination of Company, based on the facts. Distributor shall submit a plan to
remedy the failure within 30 days of notice. If such plan has not been received
in 30 days or the plan is found to be unacceptable to Company, Company may
prepare a plan for Distributor setting forth the minimum remedial actions which
must be implemented within a reasonable period established by Company, which
shall be a least 30 days duration.
In the event Distributor fails to remedy the failure of performance or to comply
with the above, Company may terminate this Agreement by giving Distributor
Thirty (30) days advance written notice.
7.1.4 Termination Due to Death or Incapacity
Because this is a personal service contract, Company may terminate this
Agreement by written notice to Distributor in the event of the death of a
Principal Manager or Principal Owner or in the event Company determines that any
Principal Manager is physically or mentally incapacitated so as to be unable to
actively exercise full managerial authority for Distributor. The effective date
of termination will be stated in such written notice and will be not less than
ninety (90) days after receipt of such notice. Company shall waive its right to
terminate under this provision if a plan for continuation of the Distributorship
Operations has been submitted to, and approved by, Company pursuant to Article 9
of this Agreement and no substantial changes in circumstances have occurred
subsequent to the approval of such plan.
7.1.5 Termination for Failure to be Licensed
If Company or Distributor fails to secure or maintain any license required for
the performance of its obligations under this Agreement, or such license is
suspended or revoked, irrespective of the cause, either party may immediately
terminate this Agreement by giving the other party written notice.
7.1.6 Termination by Agreement
This Agreement may be terminated at any time by written agreement between
Company and Distributor.
The provisions of Article 8, relating to termination assistance, will be
applicable only to the extent set forth in the written termination agreement.
7.1.7 Reliance on Any Applicable Termination Provision
The terminating party may select the termination provision under which it elects
to terminate without reference in its notice of termination to any other
provision that may also be applicable. The terminating party may also
subsequently assert other grounds for termination.
7.2 Transactions After Termination
7.2.1 Effect of Termination on Orders
If Company and Distributor do not enter into a new Distributor Agreement when
this Agreement expires or is terminated, all orders of Distributor shall be
automatically cancelled, except as provided in this Article 7.2. Termination or
expiration of this Agreement will not release Distributor or Company from the
obligation to pay any amounts owing the other, or which may become due.
7.2.2 Termination Deliveries
If this Agreement is terminated by Distributor, or is terminated because of the
death of a Principal Manager or Principal Owner or incapacity of a Principal
Manager without a termination deferral date, or if this Agreement expires and
Company or an Affiliated Company or a successor company does not offer a new
agreement to Distributor or to any replacement distributor that has
substantially the same ownership (including total family ownership), Company
will exert its best efforts to furnish Distributor with current Products to fill
Distributor's bona fide customer orders on hand on the effective date of
termination or expiration, not to exceed the total number of Products delivered
to Distributor by Company during the ninety (90) days immediately preceding the
effective date of termination or expiration, subject to the following conditions
and limitations:
(a) Within ten (10) days following the effective date of
termination or expiration, Distributor shall deliver to
Company a written schedule of Distributor's bona
fide customer orders on hand on the effective date of
termination or expiration. Such schedule shall show
the name and address of each customer and the
details with respect to each Product ordered and
shall specify each bona fide order against which
Distributor desires Company to make delivery up to
the total number of Products required to be delivered
by Company as above described. Those orders for
which delivery is thus specified by Distributor, and
which are approved by Company, shall constitute
Distributor's schedule of termination deliveries. No
change or substitution may be made by Distributor in
such schedule of termination deliveries, and
Company will not be obligated to make delivery of
any Product to Distributor except as specified there
in. In the event of Distributor's failure to deliver to
Company the detailed schedule above required,
Distributor shall have no further right to receive ter-
mination deliveries.
(b) Company may impose terms of payment different
from those published in Terms of Sale Bulletins for
such deliveries, based upon the business conditions
at the time, and to require partial or complete pre-
payment or other financial coverage by Distributor,
prior to acceptance of the orders by Company.
(c) Distributor shall accept any Product required to be
delivered by Company under this subsection. In the
event of its failure to do so, Distributor shall have no
further right to receive such Product or any other
Product in lieu of it.
(d) Products shall be delivered by Company hereunder in
substantial accordance with the schedules and basis
of delivery in effect with respect to other Detroit
Diesel Distributors as of the effective date of termi-
nation.
(e) Distributor shall give Company notice immediately of
cancellation, for any reason, of any order set forth in
Distributor's schedule of termination deliveries.
(f) In the event of the cancellation, for any reason, of
any order set forth in Distributor's schedule of termi-
nation deliveries before delivery by Company of
Product to apply against such order, Company shall
be released from any obligation to make delivery of
such Product.
7.2.3 Effect of Transactions After Termination
Neither Company's sale of Products or Parts to Distributor nor any other act by
Company or Distributor after termination of this Agreement will be construed as
a waiver of the termination.
Article 8. Termination Assistance
8.1 Deferral of Effective Date of Termination
If this Agreement is scheduled to terminate because of the death of a Principal
Manager or Principal Owner or incapacity of a Principal Manager and Distributor
requests an extension of the effective date of termination thirty (30) days
prior to such date, Company may defer the effective date for up to 18 months
after such death or incapacity occurs in order to assist Distributor in
concluding its Distributorship Operations.
8.2 Purchase of Personal Property
8.2.1 Company's Obligations
If this Agreement expires or is terminated by either party, and Company or an
Affiliated Company or a successor company does not offer a new agreement to
Distributor or any replacement distributor that has substantially the same
ownership (including total family ownership), Company will purchase the
following items of personal property (herein called "Eligible items") from
Distributor at the prices indicated:
(a) New model Products which are unused, undam-
aged, unmodified and not deteriorated and that are
owned by Distributor on the effective date of termi-
nation or expiration and purchased from Company
or from another source approved by Company dur-
ing the twelve (12) month period immediately pre-
ceding the effective date of termination and were not
purchased from Company under any special non-
returnable sales conditions, at Company's net price
to Detroit Diesel, Distributors in effect when
Distributor purchased such Products, including
transportation charges which Distributor paid for
shipment of such Products to its place of business,
plus reimbursement for transportation charges to the
destination specified by Company, less charges for
any component originally furnished on or with any
such product but not included when received by
Company. If requested by Company, prior to the
expiration or termination date of this Agreement,
Distributor shall supply Company with a complete
listing of and supporting documents for products
covered in this subparagraph (a), including purchase
price plus the cost of inbound transportation, the
nature of purchase and purchase source.
(b) Unused and undamaged Parts that:
(i) are still in the original, resalable merchandising
packages and in unbroken lots;
(ii) are listed for sale in Company's current parts
price schedules (except Parts listed as obsolete
or superseded); and
(iii) were purchased by Distributor either directly
from Company, or from a predecessor distributor
as part of a stock or asset purchase approved by
Company.
(iv) are within reasonable stocking quantities, based
on Company's ability to sell. The total amount of
any specific Part number subject to such repur-
chase will not exceed the amount of such Part
number purchased by Distributor from Company
during the 18-month period immediately prior to
the date of termination or expiration of the
Agreement. Distributor may be required to sup-
port such purchase quantities from business records.
The prices for such Parts will be Company's distributor prices as listed in the
current parts price schedules in effect on the date of termination or
expiration, less any applicable allowances, whether or not any such allowances
were made to Distributor, when the Parts were purchased by Distributor, plus
reimbursement for transportation charges to the destination specified by
Company.
(c) Distributor's core account with all DDR centers shall
be settled prior to any purchases of reliabilt Products
or reliabilt Parts, unless otherwise approved by
Company. After such settlement, following policies
for purchase will apply:
Unused, undamaged, non-obsolete and non-super
seded reliabilt Products and reliabilt Parts, which are
owned by Distributor on the effective date of termi-
nation or expiration at a price equal to current net
price to Distributor as published by Company or
DDR exclusive of refundable core charge, plus a
core value equal to the fair market value of such a
core as determined by DDR. If Distributor has paid a
refundable core charge of a reliabilt Part or Product
and had the right to return an acceptable core at the
time of termination to Company for refund of the core
deposit, then the core value portion of the price will
be replaced with the core deposit and Distributor's
right to secure such core will cease.
In no event shall the price (excluding core charges)
set for any reliabilt Product or reliabilt Part exceed
fifty (50) percent of the distributor price as listed in
Company's current price schedules for a compar-
able new Product or Part on the effective date of
termination.
(d) Any signs owned by Distributor of a type currently
recommended in writing by Company and bearing
Marks, at a price based on fair market value agreed
upon by Company and Distributor. If Company and
Distributor cannot agree on a price, they will select a
third party, who will set the price.
8.2.2 Responsibilities of Distributor
Company's obligation to purchase Eligible Items is subject to Distributor
fulfilling its responsibility under this Article 8.2.2.
Within fifteen (15) days following the effective date of termination or
expiration of this Agreement, Distributor will furnish Company with a list of
unit or identification numbers of Products and such other information as Company
may request pertaining to eligible Products to be purchased by Company.
Distributor will deliver all such eligible Products to a destination determined
by Company.
Within thirty (30) days following the effective date of termination or
expiration of this Agreement, Distributor will mail or deliver to Company, a
complete and separate list of each of the Eligible Items, other than Products.
Company will provide written shipping instructions thirty (30) days after
receipt of such lists.
Within thirty (30) days after receipt of instructions, Distributor will ship
such Eligible Items, transportation charges prepaid, to the destination
specified in the instructions.
Distributor will take such action and execute and deliver such instruments as
may be necessary to (1) convey to Company good and marketable title to all
Eligible Items to be purchased; (2) comply with the requirements of any
applicable law relating to bulk sales or transfer; and (3) satisfy and discharge
any liens or encumbrances on Eligible Items prior to their delivery to Company.
If Company provides termination assistance under both Articles 8.2 and 8.3,
within thirty (30) days following the effective date of termination or
expiration of this Agreement, Distributor or Distributor representatives will be
responsible for the removal of all parts, products or other material not
purchased by Company from the affected Distributorship Premises, subject to
reasonable conditions as Company or assignee shall impose regarding access to
the facilities.
8.2.3 Payment by Company
Company will pay Distributor for the Eligible Items purchased by it as soon as
practicable following delivery to the destination specified by Company. Company
may make any payment for such Eligible Items directly to anyone claiming a
security or ownership interest in such Eligible Items.
If Company has not paid Distributor the purchase price of the Eligible Items
within sixty (60) days after delivery Company will, at Distributor's written
request, estimate the purchase price of the unpaid Eligible Items and all other
amounts owed Distributor by Company. After deducting the amounts estimated to be
owing Company by Distributor, Company will advance Distributor seventy-five
percent (75%) of the net amount owed Distributor and will pay the balance, if
any, as soon as practicable thereafter. Company may withhold payment or final
payment until Distributor fulfills its obligations relating to discontinuance of
use of Company Marks upon termination as set forth in Article 6.9.3. Company
shall be relieved of any obligation to purchase Eligible Items pursuant
to this Article 8.2 if Company is prohibited for any reason from exercising its
rights under Article 10.8.
8.2.4 Assignment of Rights
If Company decides to appoint a replacement distributor at Distributor's
location, Distributor may sell its Eligible Items and, if approved in writing by
Company, assign its rights under this Article 8.2 to Company's designated
replacement distributor, provided the replacement distributor assumes
Distributor's obligations under this Article 8.2.
8.3 Assistance on Distributorship Premises
8.3.1 Company's Obligation
Company agrees to give Distributor the assistance provided by this Article 8.3
with regard to Distributorship Premises if (a) this Agreement is terminated by
Company for failure of performance of Distributor or because of the death of a
Principal Manager or Principal Owner or incapacity of a Principal Manager
without a termination deferral date, or if this Agreement expires; and (b)
Company or an Affiliated Company or a successor company does not offer a new
distributor agreement to Distributor or to any replacement distributor that has
substantially the same ownership (including total family ownership). Such
assistance shall be given only on Distributorship Premises that are described in
the Distributorship Locations and Premises Addendum and to the extent that such
Premises are used solely for Distributorship Operations.
Company shall be relieved of any obligation to provide the assistance pursuant
to this Article 8.3 if Company is prohibited for any reason from exercising its
rights under Article 10.8.
Any request by Distributor for such assistance must be in writing and received
by Company within thirty (30) days of the expiration or termination of this
Agreement.
Distributorship Premises that consist of more than one parcel of property or
more than one building, each of which is separately usable, distinct and apart
from the whole or any other part with appropriate ingress or egress, shall be
considered separately under this Article 8.3.
8.3.2 Owned Distributorship Premises
Company will provide assistance on owned Distributorship Premises by either: (a)
locating a purchaser who will offer to purchase at a reasonable price that
portion of the Distributorship Premises used in the promotion or sale and
servicing of Products and Parts; or (b) locating a lessee who will offer to
lease the premises for a reasonable term at a reasonable rent.
If Company does not locate a purchaser or lessee within a reasonable time,
Company will itself either purchase for a reasonable price or, at its option,
lease, at a reasonable rent, for a reasonable term equal to the lesser of the
remaining term of the current lease or the remaining term of the current
Agreement, but in no case less than 12 months, that portion of the
Distributorship premises used solely in the promotion, sale or servicing of
Products and Parts.
Rather than purchase or lease, at its election, Company may pay a Distributor a
sum equal to the amount which would be due under this Article 8.3.2 (as
determined by the above paragraph) immediately following the effective date of
termination of this Agreement on that portion of the Distributorship Premises
used solely for Distributorship Operations.
8.3.3 Leased Distributorship Premises
Company will provide assistance on leased Distributor-
ship Premises by either:
(a) locating a tenant(s) satisfactory to the lessor, who
will sublet for the balance of the lease or assume the
lease; or
(b) arranging with the lessor for the cancellation of the
lease without penalty to Distributor; or
(c) reimbursing Distributor for the rent specified in the
lease or settlement agreement for the lesser of the
remaining term of the current lease or the remaining
term of the current Agreement, but in no case less
than 12 months.
Upon request, Distributor will use its best efforts to effect a settlement of
the lease with the lessor, subject to Company's prior approval of the terms of
such settlement. Company is not obligated to reimburse Distributor for rent for
any month during which the Distributorship Premises are occupied by Distributor
or anyone else after the first (1st) month following the effective date of
termination or expiration.
8.3.4 Reasonable Rent and Reasonable Price
Company and Distributor will fix the amount of a reasonable rent and a
reasonable price for the Distributorship Premises by agreement at the time
Distributor requests assistance.
The factors to be considered in fixing those amounts are:
(a) the adequacy and desirability of the Distributorship
Premises for an authorized power products distribu-
torship operation; and
(b) the fair market value of the Distributorship Premises.
If Company and Distributor cannot agree, the fair market value shall be that
determined by the median appraisal of three qualified real estate appraisers, of
whom Distributor and Company shall each select one, and the two selected shall
select a third. The cost of required appraisals shall be shared equally by
Distributor and Company.
8.3.5 Limitations on Obligation to Provide Assistance
Prior to any assistance under Articles 8.3.2 and/or 8.3.3 related to the real
property of a specific Distributorship Location, Distributorship will provide a
recent phase I environmental report, or other customary report, acceptable to
Company, which indicates compliance with all applicable environmental
laws and regulations. Company shall not provide assistance under either Article
8.3.2 or 8.3.3 unless Distributor shall, prior to Company or its assignees
taking possession of the facility, have remedied to Company's satisfaction, any
violations of such laws and regulations, whether determined under such prior
assessments or assessments conducted by Company prior to execution of
termination assistance under this Article.
In addition, Company shall not be olbigated to provide assistance on
Distibutorship Premises if Distributor:
(a) fails to accept a bona fide offer from a prospective
purchaser, sublessee or assignee;
(b) refuses to execute a settlement agreement with the
lessor if such agreement would be without cost to
Distributor;
(c) refuses to use its best efforts to effect a settlement
when requested by Company;
(d) refuses to permit Company to examine Distributor's
books and records, if necessary, to verify claims of
Distributor under this Article 8.3.
Any amount payable by Company as rental reimbursement or reasonable rent shall
be proportionately reduced if the Distributorship Premises are leased or sold to
another party during the period for which such amount is payable. Payment of any
such rental reimbursement or reasonable rent shall be waived by Distributor if
it does not file its claim therefor within sixty (60) days after the expiration
of the period covered by the payment. Upon request, Distributor will support its
claim with satisfactory evidence of its accuracy and reasonableness.
8.4 Company's Right of First Refusal
At any time that Distributor has received a bona fide written buy/sell agreement
for the sale or other disposition of any portion or all of any of its
Distributorship Operations, it shall give written notice to Company, setting
forth the price, terms and conditions thereof. As soon as possible, but no later
than forty-five (45) days after receipt of such notice, Company may elect to
purchase the Distributorship Operations at the same terms and conditions as set
forth in the written buy/sell agreement. Upon written notice to Distributor of
its election hereunder, Company shall assume the buyer's rights and obligations
under such agreement. After being exercised, Company's rights may be assigned to
any party and Company hereby agrees to guarantee the full payment of the
purchase price by such assignee.
Article 9. Successor and Replacement Distributor
9.1 Rights of Company
9.1.1 Selection of Distributors
Company has the right to select each successor and replacement distributor and
to approve its principal manager(s) and principal owner(s) and the location of
its distributorship facilities. Company shall endeavor to select the most
suitable candidate in each circumstance.
9.1.2 Review of Applications
In selecting replacement distributors, Company may process applications for a
replacement distributor agreement, and may consult with applicants on any aspect
of the proposal or Company requirements, at any time after a notice of
termination or expiration has been served or Distributor has proposed a sale of
assets or change of ownership or management. Any such replacement distributor
agreement shall not become effective prior to the effective date of termination
or expiration of this Agreement.
9.2 Succession Rights Upon Death or Incapacity
9.2.1 Rights Under Successor Addendum
Upon request, Company will execute with Distributor a Successor Addendum
designating proposed principal manager(s) and/or principal owner(s) of a
successor distributorship to be established if this Agreement expires or is
terminated because of death or incapacity. The Successor Addendum must be
executed by all owners and Principal Managers.
To be named in the Successor Addendum, a proposed principal manager must be, and
must continue to be, employed on a full-time basis by Distributor or a
comparable distributorship and be already qualified or be in training to qualify
as Principal Manager. All proposed owners must be acceptable to Company. Company
will, upon request, execute a new Successor Addendum upon the expiration of this
Agreement provided a new and superseding distributor agreement is executed with
Distributor, and the proposed principal manager complies with the current
requirements to be considered as a successor.
9.2.2 Rights of Remaining Distributor Principal Managers and Owners
If this Agreement expires or is terminated because of death or incapacity and
Distributor and Company have not executed a Successor Addendum, the remaining
Principal Manager(s) or if there is no remaining Principal Manager, the
remaining owners may propose a successor distributor entity to continue the
Distributorship Operations at the Distributorship Location. The proposal must be
made at least sixty (60) days prior to the expiration or termination of this
Agreement by submitting a written proposal to Company.
The proposal shall be accepted by Company if it complies with the requirements
of Article 9.2.3 and Distributor has not been previously notified by Company
that it may discontinue Distributorship Operations at the Distributorship
Location.
9.2.3 Successor Distributor Requirements
Company will give first consideration to, and will not
arbitrarily refuse to accept, a proposal to establish a
successor distributor submitted under this Article 9.2, provided:
(a) the proposed successor owner and the proposed
principal manager are ready, willing and able to com-
ply with the requirements of a new distributor agree-
ment at an approved location;
(b) Company approves the proposed principal manager
and all proposed owners not previously approved in
connection with the existing Distributorship
Operations; and
(c) the proposed principal manager will own an unen-
cumbered ownership interest of at least ten percent
(10%) (or less if approved by Company) in the pro-
posed distributor.
9.2.4 New Successor Addendum
Distributor may cancel an executed Successor Addendum at any time prior to the
death of any party named as Principal Manager. Company may cancel an executed
Successor Addendum only if the proposed principal manager no longer complies
with the requirements of Article 9.2.1. The parties may execute a new and
superseding Successor Addendum by mutual agreement.
9.3 Other Changes in Management and Ownership or Sale of Assets
Distributor shall give Company prior written notice of any proposed change in
its Principal Manager(s) or Principal Owner(s) or any proposed disposition of
its principal assets. In turn, Company agrees to consider Distributor's proposal
under the standards identified in this Agreement and not to arbitrarily refuse
to agree to such proposal. In determining whether the proposal is acceptable to
it, Company will take into account factors such as the personal, business and
financial qualifications of the proposed principal manager and principal owner,
as well as Company's interest in promoting and preserving competition.
Distributor shall be notified in writing of Company's agreement or disagreement
to Distributor's proposal within sixty (60) days after Distributor has furnished
all applications and information reasonably requested by Company to evaluate
such proposal. Any proposed change in management and/or ownership that is
acceptable to Company will be reflected by the execution of a new and
superseding Management and Ownership Addendum or a new Distributor Agreement.
Distributor acknowledges that the occurrence of any such change or disposition
without prior written agreement by Company is cause for termination of this
Agreement.
Any material change in Distributor's proposal shall be treated as a new proposal
for purposes of this Article 9.
Prior written approval is not required where the transfer of ownership to an
individual is not more than ten (10) percent in a calendar year and (a) pursuant
to a Company approved agreement; or (b) between existing owners of Distributor
previously approved by Company where there is no resulting change in majority
ownership or voting control, and provided the Principal Manager's ownership
interest will not be reduced below ten (10) percent (unless approved otherwise
by Company). Distributor agrees to notify Company within thirty (30) days of the
date of the change and to execute a new Management and Ownership Addendum.
Article 10. General Provisions
10.1 No Agent or Legal Representative
This Agreement does not make either party the agent or legal representative of
the other for any purpose whatsoever, nor does it grant either party any
authority to assume or to create any obligation on behalf of or in the name of
the other. Neither party owes the other any fiduciary obligation.
10.2 Distributor's Responsibility for Its Operations
Except as provided otherwise in this Agreement, Company has no liability in
connection with the establishment or conduct of the Distributorship operations,
and Distributor will be solely responsible for all expenditures, liabilities and
obligations incurred or assumed by Distributor in connection with Distributor's
responsibilities under this Agreement.
10.3 Taxes
Distributor will pay all local, state, federal or other applicable taxes and
file required tax returns related to its Distributorship operations and will
hold Company harmless from any claims or demands made by any taxing authority
with respect thereto.
10.4 Indemnification by Company
Upon prior written request, Company will assume the defense of Distributor and
indemnify Distributor against any judgment for monetary damages, less any offset
recovered by Distributor, in any lawsuit naming Distributor as a defendant and
relating to any Product or Part that has not been altered when the lawsuit
concerns:
(a) breach of the Company warranty related to the
Product or Part, bodily injury or property damage
claimed to have been caused solely by a defect in
the design, manufacture or assembly of a Product or
Part by Company (other than a defect which should
have been detected by Distributor in a reasonable
inspection of the Product or Part);
(b) failure of the Product or Part to conform to the
description set forth in advertisements or product
brochures distributed by Company because of
changes in standard equipment or material compo-
nent parts unless Distributor received notice of the
changes prior to retail delivery of the affected
Product or Part by Distributor; or
(c) any substantial damage to a Product or Part pur-
chased by Distributor from Company which has been
repaired by Company unless Distributor has been
notified of the repair in writing prior to retail delivery
of the affected Product.
If Company reasonably concludes that allegations other than those set forth in
Article 10.4(a) through 10.4(c) above are being pursued in the lawsuit, Company
shall have the right to decline to accept the defense or indemnify Distributor
or, after accepting the defense, to transfer the defense back to Distributor and
withdraw its agreement to indemnify Distributor.
Procedures for requesting indemnification, administrative details, and
limitations are contained in the Service Policy Manual. The obligations assumed
by Company are limited to those specifically described in this Article 10.4 and
in the Service Policy Manual and are conditioned upon compliance by Distributor
with the procedures described in the Service Policy Manual.
This Article 10.4 shall not affect any right either party may have to seek
indemnification or contribution under any other contract or by law and such
rights are hereby expressly preserved.
10.5 Notices
Any notice required to be given by either party to the other in connection with
this Agreement will be in writing and delivered personally or by mail. Except as
otherwise specifically set forth in Article 10.4, notices to Distributor will be
directed to Distributor or its representatives at Distributor's principal place
of business and notices by Distributor will be directed to the Company at its
headquarters address.
Notices in respect of matters other than termination or modification of this
Agreement may instead be transmitted by means of cable, telex, or facsimile
transmission.
10.6 No Implied Waivers
The failure of either party to require performance by the other party of any
provision hereof will in no way affect the right to require such performance at
any time thereafter. The waiver by either party of a breach of any provision
hereof shall not constitute a waiver of any succeeding breach of the same or any
other provision nor constitute a waiver of the provision itself.
10.7 Assignment of Rights
Except as provided in this Agreement, neither this Agreement nor the rights or
obligations of the Distributor hereunder may be sold, assigned, delegated or
otherwise transferred without the written approval of Company. Company may
assign this Agreement, assign any rights or obligations under this Agreement, or
delegate any performance obligations under this Agreement to any Affiliated
Company or successor company and will provide written notice of any such
assignment or delegation to Distributor.
10.8 Accounts Payable
In addition to any right of set off provided by law, all monies or accounts due
Distributor shall be considered net of indebtedness of Distributor to Company
(including indebtedness arising from the chargeback to Distributor of any claims
previously credited to Distributor and subsequently found to have been not
properly payable) and Company may deduct any amounts due or to become due from
Distributor to Company or any amounts held by Company from any sums or accounts
due or to become due from Company to Distributor.
10.9 Applicable Law
This Agreement is governed by the laws of the State of Michigan. However, if
performance under this Agreement is illegal under a valid law of any
jurisdiction where such performance is to take place, the performance will be
modified to the minimum extent necessary to comply with such law if it was
effective on the date of execution of this Agreement.
10.10 Sole Agreement of Parties
Except as otherwise provided or referred to herein, Company has made no promises
to Distributor or any Principal Manager or Principal owner and there are no
other agreements or understandings, either oral or in writing, between the
parties affecting this Agreement or relating to any of the subject matters
covered by this Agreement.
Except as otherwise provided herein, this Agreement cancels and supersedes all
previous agreements between the parties that relate to any matters covered
herein.
No agreement between Company and Distributor which relates to matters covered
herein, and no change in, addition to (except the filling in of blank lines) or
erasure of any printed portion of this Agreement, will be binding unless it is
approved in writing in accordance with Paragraph SIXTH of this Agreement.
10.11 New and Superseding Agreements
In the event a new and superseding form of distributor agreement is offered by
Company to Detroit Diesel Distributors generally at any time prior to the
expiration of the term of this Agreement, Company may terminate this Agreement
by prior written notice to Distributor, provided Company offers Distributor a
new agreement in the new and superseding form for a term of not less than the
then unexpired term of this Agreement.
Unless otherwise agreed in writing, the rights and obligations of Distributor
that may become applicable upon any termination or expiration of the term of
this Agreement shall not be applicable in the event of the execution by Company
and Distributor of any new and superseding agreement. The matured rights and
obligations of the parties hereunder shall continue under the new agreement.
Distributor's performance under any prior agreements may be considered in an
evaluation of Distributor's performance under this, or any succeeding,
agreement.
10.12 Captions
The captions in this Agreement are for convenience of reference only and will
not otherwise affect the meaning hereof.
10.13 Severability
The provisions of this Agreement shall be severable, and the invalidity or the
unenforceability of any provisions hereof shall not affect the validity or
enforceability of the remaining provisions.
10.14 Language
The parties hereto acknowledge that they have requested that this Agreement and
any and all documents in any way related thereto or in any way evidencing
contractual relationships between the parties hereto be drawn up in the English
language only. Les parties aux presentes reconnaissent avoir demande que cette
entente ainsi que tous les documents de quelque nature que ce soit s'y
rapportant ou constatant les relations contractuelles entre les parties aux
presentes, ne soient rediges qu'en anglais seulement.
EXHIBIT 21.1
SUBSIDIARIES OF STEWART & STEVENSON SERVICES, INC.
The following list sets forth the name of each subsidiary of the Company,
which is also the name under which such subsidiary does business:
<TABLE>
Jurisdiction of Names under which
Incorporation business is
Or Organization conducted
__________________ _______________
<S> <C> <C>
C. Jim Stewart & Stevenson, Inc. Delaware Stewart & Stevenson
CPS International, Inc. Panama None
Creole Stewart & Stevenson, Inc. Delaware None
Machinery Acceptance Corporation Texas None
S&S International Sales, Inc. Barbados None
Stewart & Stevenson International, Inc. Delaware Stewart & Stevenson
Stewart & Stevenson Operations, Inc. Delaware Stewart & Stevenson
Stewart & Stevenson Overseas, Inc. Texas None
Stewart & Stevenson Power, Inc. Delaware Pamco-Stewart & Stevenson
Stewart & Stevenson Realty Corporation Texas None
Stewart & Stevenson Technical Services, Inc. Delaware Stewart & Stevenson
Stewart & Stevenson Transportation, Inc. Texas None
Stewart & Stevenson (U.K.) Limited Scotland None
Tokumei Kumiai Holdings, Inc. Delaware None
The Company has additional subsidiaries which, if considered in the aggregate as
a single subsidiary, would not constitute a significant subsidiary.
/TABLE
<PAGE>
EXHIBIT 23-1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in Registration Statement No. 33-21515 on Form S-8 dated April 28,
1988, Registration Statement No. 33-22463 on Form S-8 dated June 13, 1988,
Registration Statement No. 33-65404 on Form S-8 dated July 1, 1993,
Registration Statement No. 33-52881 on Form S-8 dated March 30, 1994,
Registration Statement No. 33-52903 on Form S-8 dated March 30, 1994,
Registration Statement No. 33-54389 on Form S-4 dated June 30, 1994,
Registration Statement No. 33-58679 on Form S-8 dated April 18, 1995 and
Registration Statement No. 33-58685 on Form S-8 dated April 18, 1995 of our
report dated March 14, 1996 included in Stewart & Stevenson Services, Inc.'s
Form 10-K for the fiscal year ended January 31, 1996.
/s/ Arthur Andersen LLP
Houston, Texas
April 25, 1996 <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SEC FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 6,325
<SECURITIES> 0
<RECEIVABLES> 197,957
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0
0
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<INCOME-TAX> 30,665
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<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.87
</TABLE>
