SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO _________
COMMISSION FILE NUMBER 0-8493
STEWART & STEVENSON SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-1051605
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2707 NORTH LOOP WEST, HOUSTON, TEXAS 77008
(Address of principal executive offices) (Zip Code)
(713) 868-7700
(Registrant's telephone number, including area code)
not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK, WITHOUT PAR VALUE 28,012,679 SHARES
(Class) (Outstanding at May 31, 2000)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
-----------------------------
The following information required by Rule 10-01 of Regulation S-X is provided
herein for Stewart & Stevenson Services, Inc. and Subsidiaries (the "Company"):
Consolidated Condensed Statement of Financial Position - April 29, 2000 and
January 31, 2000.
Consolidated Condensed Statement of Earnings - Fiscal Quarters Ended April 29,
2000 and May 1, 1999.
Consolidated Condensed Statement of Cash Flows - Fiscal Quarters Ended April 29,
2000 and May 1, 1999.
Notes to Consolidated Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
(IN THOUSANDS)
APRIL 29, 2000 JANUARY 31, 2000
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 15,444 $ 11,715
Accounts and notes receivable, net 197,661 242,625
Recoverable costs and accrued profits
not yet billed 14,134 8,151
Income tax receivable 22,508 26,255
Deferred tax asset 8,553 9,076
Inventories:
Power Products 158,254 150,844
Petroleum Equipment 31,588 30,151
Airline Products 32,065 26,029
Other Business Activities 31,123 33,762
Excess of current cost over LIFO values (49,769) (49,839)
----------------- -----------------
203,261 190,947
----------------- -----------------
TOTAL CURRENT ASSETS 461,561 488,769
PROPERTY, PLANT AND EQUIPMENT 300,325 290,355
Allowances for depreciation and
amortization (166,167) (160,821)
----------------- -----------------
134,158 129,534
DEFERRED INCOME TAX ASSETS 89 166
INVESTMENTS AND OTHER ASSETS 25,239 23,881
----------------- -----------------
$ 621,047 $ 642,350
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 15,779 $ 25,269
Accounts payable 80,134 90,163
Accrued payrolls and incentives 14,280 18,701
Income tax 3,278 3,257
Current portion of long-term debt 9,097 8,955
Other current liabilities 63,064 65,903
----------------- -----------------
TOTAL CURRENT LIABILITIES 185,632 212,248
COMMITMENTS AND CONTINGENCIES (SEE NOTE B)
LONG-TERM DEBT 78,157 78,281
DEFERRED INCOME TAX 917 958
ACCRUED POSTRETIREMENT BENEFITS 12,996 12,748
DEFERRED COMPENSATION 2,325 2,436
OTHER LONG-TERM LIABILITIES 600 600
SHAREHOLDERS' EQUITY
Common Stock, without par value, 100,000,000
shares authorized; 28,012,203 and 27,992,203, shares issued
at April 29, 2000 and January 31, 2000, respectively 47,944 47,722
Retained earnings 292,476 287,357
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 340,420 335,079
----------------- -----------------
$ 621,047 $ 642,350
================= =================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL QUARTER FISCAL QUARTER
ENDED ENDED
APRIL 29, 2000 MAY 1, 1999
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
Sales $ 259,207 $ 188,911
Cost of sales 213,317 159,050
----------------- -----------------
Gross profit 45,890 29,861
Selling and administrative expenses 36,091 25,491
Interest expense 2,309 3,451
Other income, net (4,434) (2,195)
----------------- -----------------
33,966 26,747
----------------- -----------------
Earnings before income taxes 11,924 3,114
Income tax provision 4,426 1,153
----------------- -----------------
Earnings of consolidated companies 7,498 1,961
Equity in net earnings of unconsolidated affiliates - 159
----------------- -----------------
Net earnings $ 7,498 $ 2,120
================= =================
Weighted average number of shares of Common Stock outstanding -
Basic 27,996 27,984
Diluted 28,075 27,984
Net earnings per share: Basic and Diluted $ .27 $ .08
================= =================
Cash dividends per share $ .085 $ .085
================= =================
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FISCAL QUARTER FISCAL QUARTER
ENDED ENDED
APRIL 29, 2000 MAY 1, 1999
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 7,498 $ 2,120
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Accrued postretirement benefits 248 509
Depreciation and amortization 5,532 5,203
Deferred income taxes, net 36 (37)
Change in operating assets and liabilities
net of the effect of acquisition:
Accounts and notes receivable, net 44,964 (13,482)
Recoverable costs and accrued profits not
yet billed (5,983) 30,009
Inventories (12,314) (6,814)
Accounts payable (10,029) (37,409)
Accrued payrolls and incentives (4,421) (7,844)
Current income taxes 4,291 994
Other current liabilities (2,839) (829)
Other--principally long-term assets and
liabilities (1,469) (819)
----------------- -----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 25,514 (28,399)
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (10,279) (7,821)
Disposal of property, plant and equipment, net 123 1,667
----------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (10,156) (6,154)
FINANCING ACTIVITIES
Additions to long-term borrowings 20,047 16,234
Payments on long-term borrowings (20,029) (333)
Net short-term borrowings (payments) (9,490) 9,724
Dividends paid (2,379) (2,379)
Exercise of stock options 222 -
----------------- -----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (11,629) 23,246
----------------- -----------------
Increase (decrease) in cash and equivalents 3,729 (11,307)
Cash and equivalents, February 1 11,715 12,959
----------------- -----------------
Cash and equivalents, end of period $ 15,444 $ 1,652
================= =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Net cash paid during the
period for:
Interest payments $ 1,134 $ 986
Income tax payments $ 593 $ 419
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
<PAGE>
STEWART & STEVENSON SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------------
The accompanying consolidated condensed financial statements have been prepared
in accordance with Rule 10-01 of Regulation S-X for interim financial statements
required to be filed with the Securities and Exchange Commission and do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. However, the information furnished
reflects all normal recurring adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods. The results of operations for the quarter ended April 29, 2000 are not
necessarily indicative of the results that will be realized for the fiscal year
ending January 31, 2001.
The accounting policies followed by the Company in preparing interim
consolidated financial statements are similar to those described in the "Notes
to Consolidated Financial Statements" in the Company's January 31, 2000 Form
10-K. An actual valuation of inventory under the LIFO method can be made only at
the end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations are based on management's estimates of
expected year-end inventory levels and costs. Interim results are subject to the
final year-end LIFO inventory valuation.
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 2000" commenced on
February 1, 2000 and ends on January 31, 2001. The Company reports results on
the Fiscal Quarter method; each of the first three fiscal quarters are exactly
13 weeks long, with the fourth fiscal quarter covering the remaining part of the
fiscal year.
The accompanying consolidated financial statements for Fiscal 1999 contain
certain reclassifications to conform with the presentation used in Fiscal 2000.
NOTE B--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 approximately $4.8 million at April
29, 2000.
The Company's government contract operations are subject to U.S. Government
investigations of business practices and cost classifications from which legal
or administrative proceedings can result. Based on government procurement
regulations, under certain circumstances a contractor can be fined, as well as
suspended or debarred from government contracting. In that event, the Company
would also be unable to sell equipment or services to customers that depend on
loans or financial commitments from the Export Import Bank, Overseas Private
Investment Corporation, and similar government agencies during a suspension or
debarment.
The Company entered an Administrative Agreement with the United States Air Force
that imposes certain requirements on the Company intended to assure the U.S. Air
Force that the Company is a responsible government contractor. Under this
agreement, the Company has established and maintains a program to ensure
compliance with applicable laws and the Administrative Agreement. The program
provides employees with education and guidance regarding compliance and ethical
issues, operates a means to report questionable practices on a confidential
basis, and files periodic reports with the U.S. Air Force regarding the
Company's business practices. A default by the Company of the requirements under
the Administrative Agreement could result in the suspension or debarment of the
Company from receiving any new contracts or subcontracts with agencies of the
U.S. Government or the benefit of federal assistance payments. Any such
suspension could also prevent the Company from receiving future modifications to
the FMTV contract unless the Secretary of the Army finds a compelling need to
enter into such modification. The Administrative Agreement expires pursuant to
its term on March 19, 2001, but the Company intends to maintain compliance
programs on a continuing basis.
During Fiscal 1998, the U.S. Customs Service detained a medium tactical vehicle
that was being shipped by the Company for display in a European trade show. The
Company has been advised that the U.S. Customs Service and the Department of
Justice are investigating potential violations by the Company of laws relating
to the export of controlled military vehicles, weapons mounting systems, and
firearms. Such investigation could result in the filing of criminal, civil, or
administrative sanctions against the Company and/or individual employees and
could result in a suspension or debarment of the Company from receiving new
contracts or subcontracts with agencies of the U.S. Government or the benefit of
federal assistance payments. It is presently impossible to determine the actual
costs that may be incurred to resolve this matter or whether the resolution will
have a material adverse effect on the Company's results of operations.
<PAGE>
The Company is also a defendant in a number of lawsuits relating to contractual,
product liability, personal injury and warranty matters normally incident to the
Company's business. No individual case, or group of cases presenting
substantially similar issues of law or fact, involve a claim for damages in
excess of $5 million or are expected to have a material effect on the manner in
which the Company conducts its business. Although management has established
reserves that it believes to be adequate in each case, an unforeseen outcome in
such cases could have a material adverse impact on the results of operations in
the period it occurs.
The Company has provided certain guarantees in support of its customers'
financing of purchases from the Company in the form of both residual value
guarantees and debt guarantees. The maximum exposure of the Company related to
guarantees at April 29, 2000 is $6.2 million.
The Company leases certain additional property and equipment under lease
arrangements of varying terms whose annual rentals are less than 1% of
consolidated sales.
NOTE C--SEGMENT INFORMATION
----------------------------
Financial information relating to industry segment is as follows:
OPERATING
SALES PROFIT (LOSS)
----------------- -----------------
Fiscal quarter ended April 29, 2000
Power Products $ 127,091 $ (816)
Tactical Vehicle Systems 78,673 14,636
Airline Products 28,271 4
Petroleum Equipment 14,927 (673)
Other Business Activities 10,245 (634)
----------------- -----------------
Total $ 259,207 $ 12,517
================= =================
Fiscal quarter ended May 1, 1999
Power Products $ 121,288 $ 3,090
Tactical Vehicle Systems 6,215 1,106
Airline Products 22,252 4
Petroleum Equipment 28,464 1,958
Other Business Activities 10,692 832
----------------- -----------------
Total $ 188,911 $ 6,990
================= =================
There have been no material changes in total assets by industry segment since
January 31, 2000.
<PAGE>
A reconciliation of operating profit to earnings before income taxes is as
follows:
FISCAL QUARTER ENDING
-------------------------
APRIL 29, 2000 MAY 1, 1999
-------------- -----------
Operating profit $ 12,517 $ 6,990
Corporate expenses, net (2,476) (452)
Non-operating interest income 4,192 27
Interest expense (2,309) (3,451)
----------------- -----------------
Earnings before income taxes $ 11,924 $ 3,114
================= =================
Item 2. Management's Discussion and Analysis of Financial Condition
----------------------------------------------------------------------
and Results of Operations
-------------------------
This discussion should be read in conjunction with the attached condensed
consolidated financial statements and notes thereto, and with the Company's Form
10-K and notes thereto for the fiscal year ended January 31, 2000. The following
discussion contains forward-looking statements which are based on assumptions
such as timing, volume, and pricing of customers' orders. In connection
therewith, please see the cautionary statements contained therein, which
identify important factors that could cause actual results to differ materially
from those in the forward-looking statements.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of sales
represented by certain items reflected in the Company's Consolidated Condensed
Statement of Earnings.
<TABLE>
<CAPTION>
FISCAL QUARTER FISCAL QUARTER
ENDED ENDED
APRIL 29, 2000 MAY 1, 1999
----------------- -----------------
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 82.3 84.2
----------------- -----------------
Gross profit 17.7 15.8
Selling and administrative expenses 13.9 13.5
Interest expense 0.9 1.8
Other income, net (1.7) (1.1)
----------------- -----------------
13.1 14.2
----------------- -----------------
Earnings before income taxes 4.6 1.6
Income tax provision 1.7 0.6
----------------- -----------------
Earnings of consolidated companies 2.9 1.0
Equity in net earnings of unconsolidated affiliates - 0.1
----------------- -----------------
2.9% 1.1%
================= =================
</TABLE>
Sales for the Fiscal Quarter ending April 29, 2000, totaled $259 million
compared to sales of $189 million for the same period a year ago, an increase of
37%. Net income from operations for the First Quarter totaled $7 million or
$0.27 per share compared to net earnings of $2 million and $0.08 per share a
year ago.
The Power Products segment, which is responsible for marketing and aftermarket
support of a wide range of industrial equipment, recorded First Quarter sales of
$127 million compared to $121 million for the same period in 1999. The Power
Products segment reported a $1 million loss for the quarter as the rebound in
profitability was overshadowed by special items netting to a charge of $6
million, principally in connection with a potentially uncollectible account and
note receivable. Excluding the special items, the segment would have reported an
operating profit of $5 million or 4.4% of sales. A year ago the segment reported
a $3 million operating profit or 2.6% of sales. Power Products is beginning to
experience improved sales in domestic land-based oil and gas markets, and the
rebound in profitability is expected to continue in subsequent quarters.
The Tactical Vehicle Systems segment, which manufactures tactical vehicles for
the U.S. Army and others, recorded sales of $79 million in the First Quarter
compared to $6 million a year ago. Operating profit for the quarter totaled $15
million, compared with a $1 million profit in the First Quarter of Fiscal 1999.
The segment continues to realize improved operating margins resulting from an
effective cost reduction program. In addition, the current plan is to complete
the driveline upgrade program by the end of May, three months ahead of schedule.
The Army's latest shipment schedule has shifted some truck deliveries from the
second quarter to the second half, but the expected total year volume remains
intact.
The Airline Products segment, known as S&S Tug, which manufactures airline
ground support products and mobile railcar movers, recorded sales of $28 million
in the First Quarter of Fiscal 2000, compared with $22 million in the same
quarter last year. Operating results were breakeven in both years. First Quarter
2000 operations were impacted by higher costs associated with the startup of
additional airport based service facilities and new products.
The Petroleum Equipment segment manufactures equipment for oil and gas
exploration, production, and well stimulation industries. Sales for this segment
totaled $15 million for the First Quarter compared to $28 million last year. The
operating loss for the First Quarter totaled $1 million compared to an operating
profit of $2 million in the previous year. The decrease in sales and operating
profit resulted from a depleted order backlog in the oil and gas markets.
Other business activities not identified in a specific segment include
predominantly the fabrication and leasing of gas compression equipment. Sales
totaled $10 million for the First Quarter, compared to $11 million for the
comparable period last year. A First Quarter operating loss of $1 million
included $1 million in incentive bonus payments associated with the 1998
acquisition of Compression Specialties, Inc. An operating profit of $1 million
was recorded during the First Quarter of 1999.
The gross profit margin rate of 17.7% for the first quarter of 2000 was higher
than the 15.8% gross profit margin rate for the same quarter of the previous
year. The margin improvement is substantially related to the improvement in the
operations of the Tactical Vehicle Systems segment.
Corporate general and administrative expenses for the quarter totaled $3
million, versus $1 million for the comparable period of 1999. Last year's
quarter was favorably impacted by harbor tax refunds and duty drawback
recoveries, and the current year's quarterly expenses included technology and
process improvement initiatives.
Interest expense decreased from $3 million in the First Quarter of Fiscal 1999
to $2 million in the First Quarter of Fiscal 2000 as a direct result of asset
management initiatives.
The Company recorded $4 million in interest income in connection with tax
refunds from the Internal Revenue Service for the years ended January 31, 1990,
through January 31, 1993.
Cash flow provided by operating activities during the First Quarter of Fiscal
2000 totaled $26 million or $0.91 per share, which compared favorably with usage
of $28 million during the corresponding quarter of Fiscal 1999.
UNFILLED ORDERS
The Company's unfilled orders consist of written purchase orders, letters of
intent, and oral commitments. These unfilled orders are generally subject to
cancellation or modification due to customer relationships or other conditions.
Purchase options are not included in unfilled orders until exercised. Unfilled
orders at April 29, 2000 and at the close of Fiscal 1999 were as follows:
April 29, 2000 January 31, 2000
----------------- -----------------
(DOLLARS IN MILLIONS)
Tactical Vehicle Systems $ 839.5 $ 914.5
Power Products 89.9 77.6
Airline 22.2 29.7
Petroleum Equipment 26.5 17.2
All Other 14.7 24.0
-------------- --------------
$ 992.8 $ 1,063.0
============== ==============
Unfilled orders of the Tactical Vehicle Systems segment at April 29, 2000
consisted principally of the follow-on contract awarded in October 1998 by the
United States Army Tank-Automotive and Armanent Command (TACOM) to manufacture
medium tactical vehicles.
CAPITAL EXPENDITURES AND COMMITMENTS
Capital spending for property, plant and equipment of $10 million for the period
ended April 29, 2000 included $2 million in revenue earning assets, and
increased from $8 million for the same period in Fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of cash liquidity included cash and cash equivalents, cash
from operations, amounts available under credit facilities, and other external
sources of funds. The Company believes that these sources are sufficient to fund
the current requirements of working capital, capital expenditures, dividends,
and other financial commitments. The Company has in place an unsecured revolving
debt facility that could provide up to approximately $150 million, including a
$25 million letter of credit sub facility, of which approximately $82 million
was available at April 29, 2000, due to certain limitations as a result of
modifications made effective January 31, 1999. This revolving facility matures
during Fiscal 2001.
The Company has additional banking relationships which provide uncommitted
borrowing arrangements. In the event that any acquisition of additional
operations, growth in existing operations, settlements of other lawsuits or
disputes, changes in inventory levels, accounts receivable, tax payments or
other working capital items create a permanent need for working capital or
capital expenditures in excess of the existing cash and cash equivalents and
committed lines of credit, the Company may seek to borrow from other long-term
financing sources or to curtail certain activities.
FACTORS THAT MAY AFFECT FUTURE RESULTS
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this quarterly report contain forward-looking
statements that are based on current expectations, estimates, and projections
about the markets and industries in which the Company operates, management's
beliefs, and assumptions made by management. These forward-looking statements
are made pursuant to the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions ("future
factors") which are difficult to predict. Therefore, actual outcomes and results
may differ materially from what is expressed or forecasted in such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
Future factors include risks associated with newly acquired businesses;
increasing price and product/service competition by foreign and domestic
competitors; rapid technological developments and changes; the ability to
continue to introduce competitive new products and services on a timely, cost
effective basis; the mix of products/services; the achievement of lower costs
and expenses; reliance on large customers; technological, implementation and
cost/financial risks in use of large, multi-year contracts; the cyclical nature
of the markets served; the outcome of pending and future litigation and
governmental proceedings and continued availability of financing, financial
instruments, and financial resources in the amount, at the times and on the
terms required to support the Company's business; the assessment of
unanticipated taxes by foreign or domestic governmental authorities; and the
risk of cancellation or adjustments of specific orders and termination of
significant government programs. These are representative of the future factors
that could affect the outcome of forward-looking statements. In addition, such
statements could be affected by general industry and market conditions and
growth rates, general domestic and international conditions including interest
rates, rates of inflation, and currency exchange rate fluctuations and other
future factors.
GOVERNMENT CONTRACTING FACTORS
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, including claims for
additional taxes, often extend over prolonged periods of time. The Company's
ultimate profitability on such contracts will depend on the eventual outcome of
an equitable settlement of contractual issues with the U.S. Government. Due to
uncertainties inherent in the estimation and claim negotiation process, no
assurances can be given that management's estimates will be accurate, and
variances between such estimates and actual results could be material.
During Fiscal 1998, the Company was awarded a new multi-year contract that will
extend production of the FMTV into 2002 (or 2003 if the government exercises its
option to purchase additional vehicles). The funding of the new FMTV contract is
subject to the inherent uncertainties of congressional appropriations. As is
typical of multi-year defense contracts, the FMTV contract must be funded
annually by the Department of the Army and may be terminated at any time for the
convenience of the government. As of January 31, 2000, funding in the amount of
$342 million for the new FMTV contract had been authorized and appropriated by
the U.S. Congress. If the new FMTV contract is 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.
The Company's government contract operations are subject to U.S. Government
investigations of business practices and cost classifications from which legal
or administrative proceedings can result. Based on government procurement
regulations, under certain circumstances a contractor can be fined, as well as
suspended or debarred from government contracting. In this event, the Company
would also be unable to sell equipment or services to customers that depend on
loans or financial commitments from the Export Import Bank, Overseas Private
Investment Corporation, and similar government agencies, or otherwise receive
the benefits of federal assistance payments during a suspension or debarment.
The Company entered an Administrative Agreement with the United States Air Force
that imposes certain requirements on the Company intended to assure the U.S. Air
Force that the Company is a responsible government contractor. Under this
agreement, the Company has established and maintains an effective program to
ensure compliance with applicable laws and the Administrative Agreement. The
program provides employees with education and guidance regarding compliance and
ethical issues, operates a means to report questionable practices on a
confidential basis, and files periodic reports with the U.S. Air Force regarding
the Company's business practices. A default by the Company of the requirements
under the Administrative Agreement could result in the suspension or debarment
of the Company from receiving any new contracts or subcontracts with agencies of
the U.S. Government or the benefit of federal assistance payments. Any such
suspension could also prevent the Company from receiving future modifications to
the FMTV contract unless the Secretary of the Army finds a compelling need to
enter into such modification. The Administrative Agreement expires pursuant to
its term on March 19, 2001, but the Company intends to maintain compliance
programs on a continuing basis.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
--------------------------
During Fiscal 1998, the U.S. Customs Service detained a medium tactical vehicle
that was being shipped by the Company for display in a European trade show. The
Company has been advised that the U.S. Customs Service and the Department of
Justice are investigating potential violations by the Company of laws relating
to the export of controlled military vehicles, weapons mounting systems, and
firearms. Such investigation could result in the filing of criminal, civil, or
administrative sanctions against the Company and/or individual employees and
could result in a suspension or debarment of the Company from receiving new
contracts or subcontracts with agencies of the U.S. Government or the benefit of
federal assistance payments.
The Company is also a defendant in a number of lawsuits relating to contractual,
product liability, personal injury, and warranty matters normally incident to
the Company's business. No individual case, or group of cases presenting
substantially similar issues of law or fact, involve a claim for damages in
excess of $5 million or are expected to have a material effect on the manner in
which the Company conducts its business. Although management has established
reserves that it believes to be adequate in each case, an unforeseen outcome in
such cases could have a material adverse impact on the results of operations in
the period it occurs.
Item 6. Exhibits and Reports on Form 8-K.
-----------------------------------------
(a) Exhibits:
None
(b) Form 8-K Report Date - March 23, 2000 (Fourth Quarter and Fiscal 1999
Year-End Results)
Items reported - Item 5. Other Events
Item 7. Exhibits
Form 8-K Report Date - April 12, 2000 (Dividend Announcement)
Items reported - Item 5. Other Events
Item 7. Exhibits
Form 8-K Report Date - April 19, 2000 (National Guard Contract to Build
Five-Ton Tractors)
Items reported - Item 5. Other Events
Item 7. Exhibits
Form 8-K Report Date - April 25, 2000 (New Vice President of Strategic
Operations Announced)
Items reported - Item 5. Other Events
Item 7. Exhibits
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 9th day of June, 2000.
STEWART & STEVENSON SERVICES, INC.
By: /s/ MICHAEL L. GRIMES
Michael L. Grimes
President and Chief Executive Officer
(principal executive officer)
By: /s/ JOHN H. DOSTER
John H. Doster
Senior Vice President and Chief Financial Officer
(principal financial officer)
By: /s/ PATRICK G. O'ROURKE
Patrick G. O'Rourke
Controller and Chief Accounting Officer
(chief accounting officer)
<PAGE>
EXHIBIT INDEX
Exhibit Number and Description
------------------------------
None.
