-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, RQid3e8GMA7potxWRHAQSqJ57wANwbUbXtAkNaK87rq8Fza0VrZyldpVtidQvVLu f9Cqb4eO+KNh1V0CSUsL6Q== 0000094328-94-000031.txt : 19940511 0000094328-94-000031.hdr.sgml : 19940511 ACCESSION NUMBER: 0000094328-94-000031 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940131 FILED AS OF DATE: 19940506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEWART & STEVENSON SERVICES INC CENTRAL INDEX KEY: 0000094328 STANDARD INDUSTRIAL CLASSIFICATION: 3510 IRS NUMBER: 741051605 STATE OF INCORPORATION: TX FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-08493 FILM NUMBER: 94526425 BUSINESS ADDRESS: STREET 1: 2707 N LOOP W CITY: HOUSTON STATE: TX ZIP: 77008 BUSINESS PHONE: 7138687700 MAIL ADDRESS: STREET 1: P O BOX 1637 CITY: HOUSTON STATE: TX ZIP: 77251-1637 10-K/A 1 AMENDMENT NO. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________ FORM 10-K/A Amendment No. 1 (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended January 31, 1994 ("Fiscal 1993") or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________to __________. Commission file number 0-8493 STEWART & STEVENSON SERVICES, INC (Exact name of registrant as specified in its charter) Texas 74-1051605 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 2707 North Loop West, Houston, Texas 77008 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 868-7700 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Without Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by nonaffiliates of the registrant. $1,289,619,649 (As of February 28, 1994) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, Without Par Value 32,937,065 Shares (Class) (Outstanding at February 28, 1994) DOCUMENTS INCORPORATED BY REFERENCE Document Part of Form 10-K __________ __________________ Proxy Statement for the 1994 Annual Meeting of Shareholders Part III Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The Company's Common Stock is traded in the over-the-counter market and listed in the NASDAQ National Market (Symbol: SSSS). There were 813 shareholders of record as of February 28, 1994. The following table sets forth the high and low sales prices relating to the Company's Common Stock and the dividends paid by the Company in each quarterly period within the last two fiscal years of the Company.
Fiscal Fiscal 1993 1992 ______________________________ ______________________________ High Low Dividend High Low Dividend ______ ______ ________ ______ ______ ________ First Quarter 38 1/2 28 0.05 30 22 5/8 0.04 Second Quarter 46 3/4 35 3/4 0.06 30 1/4 22 0.05 Third Quarter 51 3/4 42 1/2 0.06 32 3/4 26 1/4 0.05 Fourth Quarter 53 3/4 44 1/4 0.06 37 3/4 29 3/4 0.05
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis, as well as the accompanying consolidated financial statements and related footnotes will aid in understanding the Company's results of operations as well as its financial position, cash flows, indebtedness and other key financial information. During Fiscal 1992 the Company adopted both the Statement of Financial Accounting Standards No. 106 "Employers' Accounting For Postretirement Benefits Other Than Pensions" (SFAS 106), and the Statement of Financial Accounting Standards No. 109 "Accounting For Income Taxes" (SFAS 109). SUMMARY The following table sets forth for the periods indicated (i) percentages which certain items reflected in the Company's Consolidated Statements of Earnings bear to consolidated sales of the Company and (ii) the percentage increase (decrease) of such items as compared to the indicated prior period:
Relationship to Period to Period Consolidated Sales Increase (Decrease) Fiscal Year Fiscal Year ____________________________ ______________________ 1993 1992 1991 1992-1993 1991-1992 ________________________________________________________________________________________________________________________ Sales 100.0% 100.0% 100.0% 20.8% 18.4% Cost of sales 84.1 84.4 83.0 20.4 20.4 _______________________________________________________ Gross profit 15.9 15.6 17.0 23.2 8.6 Selling and administrative expenses 7.0 7.5 8.8 11.7 .9 Interest expense .3 .5 1.0 (10.2) (45.6) Other income (.1) (.3) (.4) (62.6) (13.1) _______________________________________________________ 7.2 7.7 9.4 13.5 (3.3) _______________________________________________________ Earnings before income taxes and accounting change 8.7 7.9 7.6 32.5 23.2 Income taxes 2.9 2.5 2.4 35.9 22.8 _______________________________________________________ Earnings of consolidated companies 5.8 5.4 5.2 30.9 23.4 Equity in net earnings (loss) of unconsolidated affiliates .0 .0 .0 N/A (18.3) _______________________________________________________ Earnings before change in accounting 5.8 5.4% 5.2% 29.2% 23.1% =======================================================
RESULTS OF OPERATIONS Business Segment Highlights
__________________________________________________________________________________________________ (Dollars in thousands) Annual Annual Fiscal Percent Fiscal Percent Fiscal 1993 Change 1992 Change 1991 __________________________________________________________________________________________________ Sales: Engineered Power Systems $602,853 +18% $508,898 +27% $400,133 Distribution 311,983 +16% 269,045 -6% 286,230 Tactical Vehicle Systems 65,894 +93% 34,112 N/A -0- Corporate Services 1,162 +147% 471 N/A -0- __________________________________________________________ $981,892 +21% $812,526 +18% $686,363 ========================================================== Operating Profit: Engineered Power Systems $ 70,292 +18% $ 59,578 +20% $ 49,597 Distribution 20,309 +63% 12,478 -21% 15,884 Tactical Vehicle Systems 2,886 +80% 1,602 N/A -0- Corporate Services 552 +183% 195 N/A -0- __________________________________________________________ $ 94,039 +27% $ 73,853 +13% $ 65,481 ==========================================================
Fiscal 1993 vs. Fiscal 1992 Sales increased to $982 million for the twelve months ended January 31, 1994 ("Fiscal 1993") from $813 million for the twelve months ended January 31, 1993 ("Fiscal 1992"). This represents the setting of a new sales record for the sixth consecutive year and is largely attributable to sales volume increases in the Engineered Power Systems segment. The Engineered Power System's gas turbine product lines were the primary source of its growth. The highest rate of growth was experienced in the gas turbine after market, which consists of the servicing of customers' equipment and the long-term contracting for the operation and maintenance of the customers' power plants. The Distribution segment's increased sales reflect both the general improvement in the U. S. economy and in the market penetration of the products distributed. The Tactical Vehicle Systems segment sales, which increased 93% in relation to Fiscal 1992, reflect the commencement of low volume truck production during Fiscal 1993. The Company's export sales declined slightly in Fiscal 1993, representing 24% of consolidated sales in Fiscal 1993 as compared to 32% in Fiscal 1992. Operating profit increased significantly during Fiscal 1993, with the overall rate of growth exceeding the growth in revenue. The Distribution segment's operating profit grew at a rate substantially greater than its sales volume growth, reflecting primarily operating efficiencies achieved through better utilization of existing plants. Both the Engineered Power Systems and the Tactical Vehicle Systems segments' operating profits increased at a rate comparable to sales volume growth. Fiscal 1992 vs. Fiscal 1991 Sales increased to $813 million in Fiscal 1992 from $686 million in Fiscal 1991. The Engineered Power System's gas turbine product line was the primary source of its growth. Export sales continued to represent a significant portion of the Company's revenue, accounting for 32% of total sales in Fiscal 1992 and 38% in Fiscal 1991. The Distribution segment recorded lower sales during Fiscal 1992 in relation to Fiscal 1991. The lower sales volume for the Distribution segment can be attributed to the continued recession in the markets serviced, which resulted in reduced demand for new equipment during Fiscal 1992. The Tactical Vehicle Systems segment, which contributed only slightly to consolidated revenue for Fiscal 1992, nevertheless had a significant impact on Fiscal 1992 growth. Operating profits increased at a double digit rate during Fiscal 1992, due to the significant increase in sales volume. Operating profit growth in the Engineered Power Systems segment was principally the result of the continued expansion of the gas sales turbine product lines in Fiscal 1992. The Engineered Power Systems segment's operating profit growth was restrained during Fiscal 1992 due to lower operating profits in the diesel product lines. The transit products group's operating losses moderated only slightly in Fiscal 1992. The Company has ceased the marketing of its transit products and will direct its resources to other product lines offering better economic opportunities. Operating profits of the Distribution segment fell sharply during Fiscal 1992, after experiencing an increase during Fiscal 1991. This decrease in operating profits was primarily the result of the decline in total volume, a change in product mix towards lower value added products and the incurrence of market introduction expense associated with the Company's alternative fuels products. The Tactical Vehicle Systems segment began to contribute to earnings during Fiscal 1992 as it recognized its initial revenue under its contract with the United States Department of the Army. Net Period Expense
__________________________________________________________________________________________________ (Dollars in thousands) Annual Annual Fiscal Percent Fiscal Percent Fiscal 1993 Change 1992 Change 1991 __________________________________________________________________________________________________ Selling and administrative expenses $ 68,331 +12% $ 61,168 +1% $ 60,603 Interest expense 3,313 -10% 3,689 -46% 6,780 Other income (967) -63% (2,586) -13% (2,974) __________________________________________________________ $ 70,677 +13% $ 62,271 -3% $ 64,409 ========================================================== Net period expense as a percentage of sales 7.2% N/A 7.7% N/A 9.4% ==========================================================
Net period expense continued to grow at a much slower rate than revenue. Operating efficiencies as a result of spreading certain fixed administrative costs over higher sales has facilitated the control of selling and administrative expenses. The reduction of interest expense in Fiscal 1992 reflects primarily the use of the net proceeds of $58 million, from the sale of 2,300,000 shares of Common Stock in December 1991, to pay down debt. Earnings Before Change In Accounting
__________________________________________________________________________________________________ (Dollars in thousands) Annual Annual Fiscal Percent Fiscal Percent Fiscal 1993 Change 1992 Change 1991 __________________________________________________________________________________________________ Amount $ 56,780 +29% $ 43,958 +23% $ 35,703 Percent of sales 5.8% N/A 5.4% N/A 5.2% ==================================================================================================
Earnings before the change in accounting for SFAS 106 in Fiscal 1992 continued to increase period to period in both amount and as a percentage of sales in Fiscal 1993 and 1992. These increases reflect the growth in operating profits each period and the reduction in interest expense during Fiscal 1992. The effective income tax rate increased one percent in Fiscal 1993, principally as a result of the retroactively imposed increase in the United States corporate tax rate by the Omnibus Budget Reconciliation Act of 1993. ACCOUNTING DEVELOPMENTS The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.112 (SFAS 112), "Employer's Accounting for Postemployment Benefits", in November 1992. SFAS 112 requires that the liability for certain postemployment benefits, including salary continuation, be recognized over the employees' service lives when certain conditions are met. The Company currently plans to adopt SFAS 112 in Fiscal 1994 and does not anticipate the impact will be material to the Company's financial statements. The Fiscal 1992 change in accounting represents the Company's adoption of Statement of Financial Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for Postretirement Benefits other than Pensions" (see Note 7 in the notes to consolidated financial statements). This standard requires that the cost of retiree medical and other non-pension benefits be recognized on the accrual method of accounting instead of expensing those costs when paid, as had been the generally accepted practice. The Company elected to expense previously unrecognized prior service costs immediately. This resulted in a one-time charge to Fiscal 1992 earnings of $9.3 million, or $0.29 per share, after a deferred tax benefit of $4.8 million. The Company also adopted the Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes", effective February 1, 1992. SFAS 109 changed the criteria for recognition and measurement of deferred tax assets and reduces the complexity of accounting for income taxes established by Statement of Financial Accounting Standards No.96 (SFAS 96), "Accounting for Income Taxes". Since the Company previously followed SFAS 96, adoption of SFAS 109 did not have a material impact on the Company's financial statements. GOVERNMENT CONTRACTING The Company's government contract operations are subject to U.S. Government investigations of business practices and cost classifications from which legal or administrative proceedings can result. Based on government procurement regulations, under certain circumstances a contractor can be fined, as well as suspended or barred from government contracts. On November 5, 1993, the Company was advised that a former consultant had filed a suit on his own behalf and on behalf of the United States of America alleging that the Company supplied false information, engaged in fraud and misapplied costs in connection with a change order under a 1987 government subcontract. The suit claims total damages of $21 million and unspecified penalties. Management of the Company has denied any wrongdoing and believes the case will be resolved with no material adverse effect on the Company's business, its financial condition or its operating results. UNFILLED ORDERS The Company's unfilled orders consist of written purchase orders, letters of intent, and oral commitments. These unfilled orders are generally subject to cancellation or modification due to customer relationships or other conditions. Purchase options are not included in unfilled orders until exercised. Unfilled orders at the close of Fiscal 1993 and 1992 were as follows:
Estimated percentage to be recognized in Fiscal Fiscal Fiscal 1994 1993 1992 ____________________ ________ ________ (Dollars in millions) Engineered Power Systems Equipment 60.0% $ 491.5 $ 489.4 Operations and Maintenance 16.3% 269.7 189.6 ________ ________ 761.2 679.0 Distribution 100.0% 32.6 24.3 Tactical Vehicle Systems 21.4% 1,119.5 1,185.2 ________ ________ Total 31.9% $1,913.3 $1,888.5 ======== ========
Although no assurance can be given, the Company expects sales of the Engineered Power Systems segment to continue to be weighted in favor of turbine-driven equipment because of the large number of unfilled orders for these units, the number of proposals that are presently outstanding and the current need for additional electrical generating capacity in the United States and in many foreign countries. Unfilled orders of the Tactical Vehicle Systems segment consists principally of the contracts awarded in October 1991, by the United States Department of the Army, to manufactured medium tactical vehicles (the "Family of Medium Tactical Vehicles" or "FMTV"). CAPITAL EXPENDITURES AND COMMITMENTS Capital Expenditures By Industry Segment
__________________________________________________________________________________________________ (Dollars in thousands) Annual Annual Fiscal Percent Fiscal Percent Fiscal 1993 Change 1992 Change 1991 __________________________________________________________________________________________________ Engineered Power Systems $ 14,502 -22% $ 18,646 +269% $ 5,058 Distribution 9,302 +67% 5,582 - 21% 7,041 Tactical Vehicle Systems 6,061 -84% 36,852 +166% 13,859 Corporate Services 781 -94% 13,985 +6,435% 214 __________________________________________________________ $ 30,646 -59% $ 75,065 +187% $ 26,172 ==========================================================
Capital expenditures returned to historical levels during Fiscal 1993 after having increased significantly during Fiscal 1992. The capital expenditures program at the Tactical Vehicle Systems segment and the program to upgrade the Engineered Power Systems existing facilities were both substantially completed during Fiscal 1993. The Corporate Services capital expenditures in Fiscal 1992 consisted primarily of the consolidation of a limited partnership, in which the Company became a majority limited partner. This limited partnership owns the building where the Company's corporate office is located. The Company expects that the level of capital expenditures will moderate during Fiscal 1994. Cash Dividends
__________________________________________________________________________________________________ (In thousands, except per share data) Annual Annual Fiscal Percent Fiscal Percent Fiscal 1993 Change 1992 Change 1991 __________________________________________________________________________________________________ Amount of Cash Dividends $ 7,563 +22% $ 6,193 +35% $ 4,601 Annual Rate of Cash Dividends per share $ 0.23 +21% $ 0.19 +27% $ 0.15 __________________________________________________________________________________________________
The amount of cash dividends increased 22% and 35% during Fiscal 1993 and 1992, respectively. The amount of cash dividends represented 13%, 14% and 13% of earnings before change in accounting for Fiscal 1993, 1992 and 1991, respectively. Even though substantial dividends were paid, the Company retained sufficient earnings to invest in new plant and equipment for a wide variety of capital expenditure projects, particularly those which increase productivity, and to provide adequate financial resources for internal and external growth opportunities. The Board of Directors of the Company intends to consider the payment of dividends on a quarterly basis, commensurate with the Company's earnings and financial needs. LIQUIDITY AND SOURCES OF CAPITAL Cash Provided From Operations
________________________________________________________________________________________________________________ (Dollars in thousands) Annual Annual Fiscal Percent Fiscal Percent Fiscal 1993 Change 1992 Change 1991 ________________________________________________________________________________________________________________ Net earnings and accrued postretirement benefits $ 56,689 +14% $ 49,777 +39% $ 35,703 Depreciation and amortization 21,175 +72% 12,305 +49% 8,273 Deferred income taxes 413 N/A (2,935) N/A 3,304 _________________________________________________________ Funds from operations 78,277 +32% 59,147 +25% 47,280 Change in net operating assets and liabilities (86,304) N/A 17,249 N/A (9,462) _________________________________________________________ Net cash provided by (used in) operating activities $ (8,027) N/A $ 76,396 +102% $ 37,818 =========================================================
Funds from operations increased 32% during Fiscal 1993 versus a 25% increase during 1992, reflecting primarily the growth in earnings each year, excluding the adoption of SFAS 106 during Fiscal 1992. The Company's investment in net operating assets and liabilities increased by an amount greater than that provided from operations during Fiscal 1993. The growth in both inventories (see Note 4 to the consolidated financial statements) and contract costs in excess of customer funding (see Note 3 to the consolidated financial statements) were the primary areas of increase in operating assets. The growth in inventories during Fiscal 1993 is comparable to the sales growth rate for Fiscal 1993. Fiscal 1993's increase occurred primarily within the gas turbine product lines and reflects the restoration of inventory to pre-1992 levels. The Fiscal 1993 growth in contract cost in excess of customer funding resulted from the commencement of materials procurement required for higher levels of production at the Tactical Vehicle Systems segment. The Company anticipates that the working capital needs of the Tactical Vehicle Systems segment will increase significantly during Fiscal 1994 as this segment moves from low level production to high level production. Working capital to support the operations of the Company fluctuates significantly depending on the progress payment streams of the contracts in process. The Company regularly bids on commercial and government contracts, which if awarded to the Company, could significantly affect both working capital and capital expenditures needs. The Company's liquidity was comparable at the end of both Fiscal 1993 and 1992 using several measures of liquidity and leverage. The Company's current ratio (current assets divided by current liabilities) remained somewhat constant at 2.2:1 at the end of both Fiscal 1993 and Fiscal 1992. The long-term debt to equity ratio (long-term debt including the current portion divided by total shareholders' equity) was a modest 20% at the end of Fiscal 1993 and 16% at the end of Fiscal 1992. The Company's interest coverage (earnings before income taxes and interest expense divided by interest expense) was 26.7 times interest for Fiscal 1993 and 17.8 times interest for Fiscal 1992. The Company had $5 million in short-term borrowings at the end of Fiscal 1993 and no short-term borrowings at the end of Fiscal 1992. Long-term debt increased modestly during Fiscal 1993 and Fiscal 1992 principally due to the timing of customer progress payments for contracts in process and the acquisition of a majority interest in a limited partnership, respectively (see Note 6 to the consolidated financial statements). The Company may expand its Distribution and Engineered Power Systems segments by selective acquisition of additional distribution territories and product lines. In the event that such activities or growth in existing operations create a need for working capital or capital expenditures in excess of existing committed lines of credit, the Company may seek to convert uncommitted borrowing arrangements to committed credit facilities, to borrow under other long-term financing sources or to issue additional equity securities. The Company's current credit facilities appear adequate to meet its foreseeable cash requirements. Item 8. Financial Statements and Supplemental Data. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors and Shareholders Stewart & Stevenson Services, Inc. We have audited the accompanying consolidated statements of financial position of Stewart & Stevenson Services, Inc. and subsidiaries as of January 31, 1994 and 1993, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended January 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stewart & Stevenson Services, Inc. and subsidiaries as of January 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 7 and Note 10 to the consolidated financial statements, in Fiscal 1992 the Company changed its method of accounting for postretirement medical benefit costs to conform with Statement of Financial Accounting Standards No. 106 and its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109. Houston, Texas Arthur Andersen & Co. April 21, 1994 Stewart & Stevenson Services, Inc. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
______________________________________________________________________________________ (Dollars in thousands) Fiscal Fiscal 1993 1992 ______________________________________________________________________________________ ASSETS Current Assets Cash and equivalents $ 7,788 $ 21,939 Accounts and notes receivable, net 147,292 143,166 Recoverable costs and accrued profits not yet billed 115,868 56,693 Inventories 269,605 212,506 Other 224 1,234 ________ ________ Total Current Assets 540,777 435,538 Property, Plant and Equipment, net 126,473 117,359 Other Assets 25,374 20,451 ________ ________ $692,624 $573,348 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable $ 5,000 $ -0- Accounts payable 131,780 128,770 Accrued payrolls and incentives 18,629 16,322 Billings on uncompleted contracts in excess of incurred costs 31,088 16,984 Current income taxes 27,931 13,850 Current portion of long-term debt 2,219 3,252 Other accrued liabilities 24,539 19,720 ________ ________ Total Current Liabilities 241,186 198,898 Long-Term Debt--less current portion 68,000 44,451 Deferred Income Taxes 5,868 5,455 Accrued Postretirement Benefits 15,028 15,119 Deferred Compensation 3,884 3,757 Shareholders' Equity Common Stock, without par value, 50,000,000 shares authorized; 32,948,885 and 32,785,458 shares issued at January 31, 1994 and 1993, respectively, including 11,820 shares held in treasury 160,366 156,593 Retained earnings 198,325 149,108 ________ ________ 358,691 305,701 Less cost of treasury stock (33) (33) ________ ________ Total Shareholders' Equity 358,658 305,668 ________ ________ $692,624 $573,348 ======== ========
See notes to consolidated financial statements Stewart & Stevenson Services, Inc. CONSOLIDATED STATEMENTS OF EARNINGS
____________________________________________________________________________________________________ (In thousands, except per share data) Fiscal Fiscal Fiscal 1993 1992 1991 ____________________________________________________________________________________________________ Sales $981,892 $812,526 $686,363 Cost of sales 825,914 685,879 569,695 ________ ________ ________ Gross profit 155,978 126,647 116,668 Selling and administrative expenses 68,331 61,168 60,603 Interest expense 3,313 3,689 6,780 Other income, net (967) (2,586) (2,974) ________ ________ ________ 70,677 62,271 64,409 ________ ________ ________ Earnings before income taxes and accounting change 85,301 64,376 52,259 Income taxes 27,999 20,597 16,775 ________ ________ ________ Earnings of consolidated companies 57,302 43,779 35,484 Equity in net earnings (loss) of unconsolidated affiliates (522) 179 219 ________ ________ ________ Earnings before change in accounting 56,780 43,958 35,703 Cumulative effect of change in accounting for postretirement medical benefits, net -0- (9,300) -0- ________ ________ ________ Net earnings $ 56,780 $ 34,658 $ 35,703 ======== ======== ======== Weighted average number of shares of Common Stock outstanding 32,861 32,560 30,224 ======== ======== ======== Earnings per share before change in accounting $ 1.73 $ 1.35 $ 1.18 Cumulative effect of change in accounting for postretirement medical benefits, per share -0- (.29) -0- ________ ________ ________ Net earnings per share $ 1.73 $ 1.06 $ 1.18 ======== ======== ========
See notes to consolidated financial statements Stewart & Stevenson Services, Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
________________________________________________________________________________________________________ (Dollars in thousands) Common Retained Treasury Stock Earnings Stock Total ________________________________________________________________________________________________________ Balance at end of Fiscal 1990 $ 92,308 $ 89,703 $ (33) $181,978 Net earnings 35,703 35,703 Cash dividends (4,601) (4,601) Issuance of Common Stock (net of issuance cost) 58,323 58,323 Exercise of stock options 1,073 1,073 ________ ________ ________ ________ Balance at end of Fiscal 1991 151,704 120,805 (33) 272,476 Net earnings 34,658 34,658 Stock dividends 162 (162) -0- Cash dividends (6,193) (6,193) Exercise of stock options 4,727 4,727 ________ ________ ________ ________ Balance at end of Fiscal 1992 156,593 149,108 (33) 305,668 Net earnings 56,780 56,780 Cash dividends (7,563) (7,563) Exercise of stock options 3,773 3,773 ________ ________ ________ ________ Balance at end of Fiscal 1993 $160,366 $198,325 $ (33) $358,658 ======== ======== ======== ========
See notes to consolidated financial statements Stewart & Stevenson Services, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS
________________________________________________________________________________________________________ (Dollars in thousands) Fiscal Fiscal Fiscal 1993 1992 1991 ________________________________________________________________________________________________________ Operating Activities Net earnings $ 56,780 $ 34,658 $ 35,703 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Accrued postretirement benefits (91) 15,119 -0- Depreciation and amortization 21,175 12,305 8,273 Deferred income taxes, net 413 (2,935) 3,304 Change in operating assets and liabilities: Accounts and notes receivable (4,126) (22,136) (20,042) Recoverable costs and accrued profits not yet billed (59,175) (5,664) 26,557 Inventories (57,099) 21,050 (72,287) Accounts payable and accrued expenses 10,136 41,114 35,982 Billings on uncompleted contracts in excess of incurred costs 14,104 (8,680) 18,086 Current income taxes 14,081 2,083 69 Other--principally long-term assets and liabilities (4,225) (10,518) 2,173 ________ ________ ________ Net Cash Provided by (Used in) Operating Activities (8,027) 76,396 37,818 Investing Activities Expenditures for property, plant and equipment (30,646) (75,065) (26,172) Disposal of property, plant and equipment 796 377 873 ________ ________ ________ Net Cash Used in Investing Activities (29,850) (74,688) (25,299) Financing Activities Additions to long-term borrowings 192,918 190,000 131,200 Payments on long-term borrowings (170,402) (174,818) (142,264) Net borrowings and payments on short-term notes payable 5,000 -0- (53,013) Dividends paid (7,563) (6,193) (4,601) Proceeds from issuance of Common Stock -0- -0- 58,323 Exercise of stock options 3,773 4,727 1,073 ________ ________ ________ Net Cash Provided by (Used in) Financing Activities 23,726 13,716 (9,282) ________ ________ ________ Increase (decrease) in cash and equivalents (14,151) 15,424 3,237 Cash and equivalents, beginning of fiscal year 21,939 6,515 3,278 ________ ________ ________ Cash and equivalents, end of fiscal year $ 7,788 $ 21,939 $ 6,515 ======== ======== ========
See notes to consolidated financial statements Stewart & Stevenson Services, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) Note 1: Summary of Principal Accounting Policies Fiscal Year: The Company's fiscal year begins on February 1 of the year stated and ends on January 31 of the following year. For example, "Fiscal 1993" commenced on February 1, 1993 and ended on January 31, 1994. Consolidation: The consolidated financial statements include the accounts of Stewart & Stevenson Services, Inc. and all of its majority-owned subsidiaries. Investments in other partially-owned companies and joint ventures in which ownership ranges from 20 to 50 percent are generally accounted for using the equity method. All significant intercompany accounts and transactions have been eliminated. Change in Accounting: During Fiscal 1992, the Company adopted, effective February 1, 1992, Statement of Financial Accounting Standards No. 106, "Employers' Accounting For Postretirement Benefits Other Than Pensions" (SFAS 106)(see Note 7), and No. 109, "Accounting For Income Taxes" (SFAS 109)(see Note 10). In November 1992, the Financial Accounting Standards Board issued SFAS 112, "Employers' Accounting for Postemployment Benefits." The Company plans to adopt SFAS 112 in Fiscal 1994 and does not anticipate the impact will be material to the Company's financial statements. Cash Equivalents: Interest-bearing deposits and other investments with original maturities of three months or less are considered cash equivalents. Inventories: Inventories are stated at the lower of cost (using LIFO) or market (determined on the basis of estimated realizable values), less related customer deposits. Inventory costs include material, labor and overhead. The carrying values of these assets approximate their fair values. Contract Revenues and Costs: Revenue is recognized when a product is shipped or accepted by the customer, except for large gas turbine contracts, where revenue is recognized using the percentage-of-completion method. Substantially all of the revenues of the Tactical Vehicle Systems segment are recognized under the units-of-delivery method, whereby sales and estimated average cost of the units to be produced under the Family of Medium Tactical Vehicle (FMTV) contract are recognized as units are substantialy completed. Profits expected to be realized on contracts are based on the Company's estimates of total sales value and costs at completion. These estimates are reviewed and revised periodically throughout the lives of the contracts, and adjustments to profits resulting from such revisions are recorded in the accounting period in which the revisions are made. Depreciable Property: The Company depreciates property, plant and equipment over their estimated useful lives, using accelerated and straight-line methods. Expenditures for property, plant and equipment are capitalized and carried at cost. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value and proceeds realized thereon. Ordinary maintenance and repairs are charged to expense and replacements and betterments are capitalized. Off-Balance Sheet Risk: The Company enters into forward exchange contracts to hedge certain foreign currency transactions for periods consistent with the terms of the underlying transactions. The Company does not engage in speculation, nor does the Company typically hedge nontransaction-related balance sheet exposure. While the forward contracts affect the Company's results of operations, they do so only in connection with the underlying transactions. As a result, they do not subject the Company to risk from exchange rate movements, because gains and losses on these contracts offset losses and gains on the transactions being hedged. The Company's other off-balance sheet risks are not material. Fair Value of Financial Instruments: The Company's financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables and debt instruments. The book values of cash and cash equivalents, trade receivables and trade payables are considered to be representative of their respective fair values. Generally, the Company's notes receivable and payable have interest rates which are tied to current market rates. The Company estimates that the book value of its financial instruments are in the aggregate of market values. Interest Costs: Interest costs incurred during the construction of major assets for the Company's own use are capitalized, and totalled $228 in Fiscal 1991. No interest was capitalized in Fiscal 1993 or 1992. Warranty Costs: Expected warranty and performance guarantee costs are accrued as revenue is recorded, based on historical experience and contract terms. Net Earnings Per Share: Net earnings per share of Common Stock are computed by dividing net earnings by the weighted average number of shares outstanding. Common Stock equivalents (outstanding options to purchase shares of Common Stock) were excluded from the computations as they were insignificant. Common Stock: On December 18, 1991, the Company completed the public sale of 2,300,000 shares of Common Stock. The gross proceeds and total costs of the issue were $58,512 and $189, respectively. Issuance costs are shown as a reduction of Common Stock. The net proceeds of $58,323 from the issue were used to retire debt until the anticipated expenditures related to the Company's Tactical Vehicle Systems segment were incurred. Reclassifications: The accompanying consolidated financial statements for Fiscal 1992 and 1991 contain certain reclassifications to conform with the presentation used in Fiscal 1993. Note 2: Industry Segment Data The Engineered Power Systems segment includes the designing, packaging, manufacturing and marketing of diesel and gas turbine engine-driven equipment. The Distribution segment includes the marketing of diesel engines, automatic transmissions, material handling equipment, transport refrigeration units and construction equipment and the provision of related parts and service. The Tactical Vehicle Systems segment includes the designing, manufacturing and marketing of tactical vehicles, primarily 2 1/2-ton and 5-ton trucks under contract with the United States Army. The high degree of integration of the Company's operations necessitates the use of a substantial number of allocations and apportionments in the determination of business segment information. Sales are shown net of intersegment eliminations. Corporate assets consist primarily of cash equivalents and the assets of a limited partnership, in which the Company is the majority partner, which owns the building where the corporate office is located. Corporate expenses include the litigation expense associated with the Serv-Tech, Inc. lawsuit (see Note 5). The Company markets its engineered power systems throughout the world and is not dependent upon any single geographic region or single customer. Export sales, including sales to domestic customers for export, for Fiscal 1993, 1992 and 1991 were $237,807, $256,269 and $258,272, respectively. Export sales in Fiscal 1993 included $113,597 destined for Asia, in Fiscal 1992 included $87,271 destined for South America, and in Fiscal 1991 included $152,217 destined for the Far East. Financial information relating to industry segments follows:
___________________________________________________________________________________________________________ Operating Identifiable Capital Sales Profit Assets Expenditures Depreciation ___________________________________________________________________________________________________________ Fiscal 1993 Engineered Power Systems $602,853 $ 70,292 $396,712 $ 14,502 $ 5,330 Distribution 311,983 20,309 157,696 9,302 5,075 Tactical Vehicle Systems 65,894 2,886 113,917 6,061 9,405 Corporate Services 1,162 552 24,299 781 926 ________ ________ ________ ________ ________ Total $981,892 $ 94,039 $692,624 $ 30,646 $ 20,736 ======== ======== ======== ======== ======== Fiscal 1992 Engineered Power Systems $508,898 $ 59,578 $311,075 $ 18,646 $ 3,267 Distribution 269,045 12,478 138,359 5,582 5,041 Tactical Vehicle Systems 34,112 1,602 86,351 36,852 3,303 Corporate Services 471 195 37,563 13,985 468 ________ ________ ________ ________ ________ Total $812,526 $ 73,853 $573,348 $ 75,065 $ 12,079 ======== ======== ======== ======== ======== Fiscal 1991 Engineered Power Systems $400,133 $ 49,597 $312,463 $ 5,058 $ 3,300 Distribution 286,230 15,884 130,272 7,041 4,528 Tactical Vehicle Systems -0- -0- 26,865 13,859 202 Corporate Services -0- -0- 8,258 214 121 ________ ________ ________ ________ ________ Total $686,363 $ 65,481 $477,858 $ 26,172 $ 8,151 ========= ======== ======== ======== ========
Reconciliation of Operating profit to Earnings before income taxes and accounting change follows:
_____________________________________________________________________________________________ Fiscal Fiscal Fiscal 1993 1992 1991 _____________________________________________________________________________________________ Operating profit $ 94,039 $ 73,853 $ 65,481 Corporate expenses (5,425) (5,819) (6,501) Interest expense, net (3,313) (3,658) (6,721) ________ ________ ________ Earnings before income taxes and accounting change $ 85,301 $ 64,376 $ 52,259 ======== ======== ========
Note 3: Recoverable Costs and Accrued Profits Not Yet Billed Amounts included in the financial statements which relate to recoverable costs and accrued profits not yet billed on contracts in process are as follows:
_______________________________________________________________________________________________ Fiscal Fiscal 1993 1992 _______________________________________________________________________________________________ Costs incurred on uncompleted contracts $355,184 $190,670 Accrued profits 33,300 13,117 ________ ________ 388,484 203,787 Less: Customer progress payments (303,704) (164,078) ________ ________ $ 84,780 $ 39,709 ======== ======== Included in the statements of financial position: Recoverable costs and accrued profits not yet billed $115,868 $ 56,693 Billings on uncompleted contracts in excess of incurred costs (31,088) (16,984) ________ ________ $ 84,780 $ 39,709 ======== ========
Recoverable costs and accrued profits related to the Tactical Vehicle Systems segment include direct costs of manufacturing and engineering, and allocable overhead costs. Generally, overhead costs include general and administrative expenses allowable in accordance with the United States Government contract cost principles and are charged to cost of goods sold at the time revenue is recognized. General and administrative costs remaining in recoverable costs and accrued profits not yet billed amounted to $17,852 and $9,585 at January 31, 1994 and 1993, respectively. The Company's total general and administrative expense incurred amounted to $79,290, $70,075 and $62,915 in Fiscal 1993, 1992 and 1991, respectively. The United States Government has a security interest in unbilled amounts associated with contracts that provide for progress payments. In accordance with industry practice, recoverable costs and accrued profits include amounts relating to programs and contracts with long production cycles, a portion of which is not expected to be realized within one year. Note 4: Inventories Summarized below are the components of inventories:
______________________________________________________________________ Fiscal Fiscal 1993 1992 ______________________________________________________________________ Engineered Power Systems $218,358 $185,338 Customer deposits (1,178) (6,827) ________ ________ Total Engineered Power Systems 217,180 178,511 Distribution 98,885 76,463 Excess of current cost over LIFO values (46,460) (42,468) ________ ________ Total Inventories $269,605 $212,506 ======== ========
The Company's inventory classifications correspond to its industry segments. As a custom packager of power systems to customer specifications, the Engineered Power Systems segment's inventory consists primarily of work-in-process which includes purchased and manufactured components in various stages of assembly. The Engineered Power Systems segment's inventory includes approximately $14,271 of costs on a certain U. S. Government contract in excess of contractual authorization which will be billable upon either contractual amendment or approval of claims increasing contract funding. Management's position, supported by outside legal counsel which specializes in government procurement law, is that the Company will recover a substantial portion of the amount claimed, which significantly exceeds the inventory carrying value. The Distribution segment's inventory consists primarily of industrial equipment, equipment under modification and parts held in the Company's distribution network for resale. The Tactical Vehicle Systems segment's inventory is purchased solely for the production of the FMTV and, accordingly, is recorded as recoverable costs and accrued profits not yet billed. During Fiscal 1992, certain inventories were reduced. These reductions resulted in liquidations of LIFO inventory quantities carried at lower costs prevailing in prior fiscal years as compared with the cost of Fiscal 1992 purchases, the effect of which increased pre-tax earnings in Fiscal 1992 by approximately $204. Note 5: Commitments and Contingencies As a custom packager of power systems, the Company issues bid and performance guarantees in the form of performance bonds or standby letters of credit. Performance type letters of credit totaled $73,189 at the close of Fiscal 1993. On April 21, 1994, the Fourteenth Court of Appeals of the State of Texas reversed a $17.5 million judgment against the Company in a case filed by Serv- Tech, Inc. of Houston, Texas. In the opinion of management, any future action in connection with this lawsuit will not have a material impact on the Company's financial position or results of operations. The Company has been advised that on January 5, 1993, a former consultant of the Company filed a suit for himself and the United States of America alleging that the Company supplied false information in violation of the False Claims Act (the "Act"), engaged in common law fraud and misapplied costs incurred in connection with a change order under a 1987 government subcontract. Under the provisions of the Act, the suit has not been served upon the Company pending an investigation of the case by the U. S. Department of Justice and a determination as to whether the Department of Justice will intervene and pursue the matter on behalf of the United States. The suit alleges damages of $21 million plus unspecified penalties. The Company has denied any wrongdoing in connection with the pricing of the change order and believes that the case will be resolved, if served on the Company, without any material effect on the financial position, net worth or results of operations of the Company. The Company is a defendant in a number of other lawsuits of the type normally associated with the Company's business and involving claims for damages. Management is of the opinion that such lawsuits will not result in any material liability to the Company. In connection with the sale of gas turbine engine-driven equipment and the execution of an operating and maintenance contract, the Company has entered into an agreement with a bank under which the Company will repurchase a power plant in the event that the owner defaults in the repayment of the loan secured by the power plant. The repurchase obligation runs for eight years from the date of commercial operation of the power plant and specifies a repurchase price not to exceed $29 million. The Company leases certain property and equipment under lease arrangements of varying terms. Annual rentals under terms of noncancelable leases are less than 1% of consolidated revenue. Note 6: Debt Arrangements The Company has informal borrowing arrangements with banks which may be withdrawn at the banks' option. Borrowings under these credit arrangements are unsecured, are due within 90 days and bear interest at varying bid and negotiated rates. On January 31, 1994, the amount outstanding under these arrangements was $5,000, with an interest rate of 3.39%. Long-Term Debt, which is generally unsecured, consisted of the following:
_______________________________________________________________________________________ Fiscal Fiscal 1993 1992 _______________________________________________________________________________________ Notes payable to insurance companies: -10.20%, principal due $1,000 annually to 1998 $ 5,000 $ 6,000 -10.25%, principal retired in 1993 -0- 1,417 -Installment note, 10.20%, due monthly to 1994 451 1,286 Debt of consolidated limited partnership: -note payable to a bank, principal due monthly commencing January 1, 1995 with a final maturity date of January 1, 1998 (see note below) 9,000 9,000 Revolving credit notes payable to banks (see note below) 55,000 30,000 Other 768 -0- ________ ________ 70,219 47,703 Less current portion (2,219) (3,252) ________ ________ Long-term Debt -- less current portion $ 68,000 $ 44,451 ======== ========
The Company has commitments of $55,000 from banks under revolving credit notes (subject to reduction at the Company's election) which mature on July 31, 1995, all of which was used at the end of Fiscal 1993. A commitment fee at the rate of 1/4 of 1% is paid on the daily average unused balance during the revolving period. Borrowings outstanding under the revolving credit notes bear interest at various options, the maximum rate being the prime rate. In Fiscal 1992, the Company entered into an interest rate swap agreement, which expires in Fiscal 1995, that presently converts $20,000 of floating rate debt into fixed rate debt with an interest rate of 4.28%. The net interest paid or received is included in interest expense. The Company's unsecured long-term debt was issued pursuant to agreements containing covenants which impose working capital requirements on the Company and designated subsidiaries and restrict indebtedness, guarantees, rentals, dividends and other items. At the close of Fiscal 1993, approximately $94,715 of retained earnings were available for payment of dividends under the most restrictive covenant. As a result of the acquisition of a majority interest in a partnership in which the Company is a limited partner, the Company's Consolidated Statements of Financial Position include the debt of this partnership, which owns the building where the Company's corporate office is located. Such debt is solely the obligation of the partnership and is secured by the office building and garage. Interest is payable in monthly installments at various rates, the maximum rate being 9%. Interest paid on both long-term and short-term debt during Fiscal 1993, 1992 and 1991 was $3,425, $3,707 and $6,921, respectively. The Company anticipates long- term revolving lines of credit will be available when the current revolving credit notes become due in 1995. The amounts of long-term debt which will become due during Fiscal 1994 through 1998, are approximately: 1994--$2,219; 1995--$56,108; 1996--$1,100; 1997--$9,792 and 1998--$1,000. Note 7: Postretirement Medical Plan The Company has a postretirement medical plan which covers most of its employees and provides for the payment of medical costs of eligible employees and dependents upon retirement. Effective February 1, 1992, the Company adopted SFAS 106 and changed its method of accounting for such costs to the accrual basis of accounting instead of expensing these costs when paid as had been the generally accepted method. The Company elected to record the previously unrecognized prior service cost of such benefits on the immediate recognition basis resulting in a cumulative charge to Fiscal 1992 earnings of $9,300, or $0.29 per share, after a deferred tax benefit of $4,790. Postretirement medical benefit costs for Fiscal 1993 and Fiscal 1992 consisted of the following:
____________________________________________________________________________________________________ Fiscal Fiscal 1993 1992 ____________________________________________________________________________________________________ Service costs - benefits attributed to service during the period $ 377 $ 466 Interest cost on accumulated postretirement medical benefit obligation 768 1,105 Amortization of prior service costs (618) -0- ________ ________ Net postretirement medical benefit costs $ 527 $ 1,571 ======== ========
The amount paid in Fiscal 1991 for postretirement medical benefit costs was $332. The Company's postretirement medical plan currently is not funded. The Company expects to continue financing postretirement medical costs as covered claims are incurred. The status of the plan at January 31, 1994 and 1993 was as follows:
_________________________________________________________________________________________ January 31, January 31, 1994 1993 _________________________________________________________________________________________ Accumulated postretirement medical benefit obligation Retirees $ 6,201 $ 5,561 Employees eligible to retire 2,561 5,436 Employees not eligible to retire 1,419 4,122 ________ ________ 10,181 15,119 Unrecognized prior service cost 5,954 -0- Unrecognized net losses (1,107) -0- ________ ________ $ 15,028 $ 15,119 ======== ========
Postretirement medical benefit amounts were determined by applying health care costs trend rates of 10.5 to 13.0 percent for Fiscal 1993 and 11.0 to 14.0 percent for Fiscal 1992, gradually decreasing to 6.0 percent by 2010 to gross eligible medical claims, and using a discount rate of 7.75 percent for Fiscal 1993 and 8 percent for Fiscal 1992. Changing the health care cost trend rates by one percentage point would change the accumulated postretirement medical benefit obligation at January 31, 1994 by approximately $863 and would change postretirement medical benefit costs by approximately $102. The Company made plan modifications during the fourth quarter of Fiscal 1992. The plan was amended for employees that retire on or after February 1, 1993, to modify the attribution period and the cost sharing provisions of the plan. Note 8: Employee Pension and Other Benefit Plans The Company has a noncontributory, defined benefit pension plan covering substantially all of its full-time employees. The benefits are based on years of service, limited to 45 years, and the employee's highest consecutive five- year average compensation out of the last ten years of employment. The Company funds pension costs in conformity with the funding requirements of applicable government regulations. The following table sets forth the plan's funded status and amounts recognized in the Company's statements of financial position:
_________________________________________________________________________________________ Fiscal Fiscal 1993 1992 _________________________________________________________________________________________ Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $33,051 in 1993 and $26,124 in 1992 $ 34,714 $ 27,284 ======== ======== Projected benefit obligation for service rendered to date $(44,421) $(38,785) Plan assets at fair value, primarily publicly traded stocks and bonds,including 120,956 shares of the Company's Common Stock at the end of Fiscal 1993 and 1992 56,099 52,759 ________ ________ Plan assets in excess of projected benefit obligations 11,678 13,974 Unrecognized net gain from past experience different from that assumed (4,020) (6,462) Unrecognized net asset at February 1, 1985 being amortized over the average remaining service period (194) (844) ________ ________ Prepaid pension cost included in Other Assets $ 7,464 $ 6,668 ======== ========
Net pension credit for Fiscal 1993, 1992 and 1991 included the following components:
___________________________________________________________________________________________ Fiscal Fiscal Fiscal 1993 1992 1991 ___________________________________________________________________________________________ Service cost -- benefits earned during the year $ 2,012 $ 1,735 $ 1,645 Interest cost on projected benefit obligation 3,108 3,126 2,837 Actual return on plan assets (4,883) (4,550) (8,405) Amortization of unrecognized net gain (493) (810) (324) Net amortization and deferrals (540) (847) 3,840 ________ ________ ________ Net periodic pension credit $ (796) $ (1,346) $ (407) ======== ======== ========
The assumptions used in Fiscal 1993 and 1992 were as follows:
_____________________________________________________________________________ Fiscal Fiscal 1993 1992 _____________________________________________________________________________ Discount Rate 7.75% 9.00% Long-term rate of return on assets 9.50% 10.00% Rate of increase in graduated salary 4.50 - 5.00% 6.00 - 12.00%
On April 10, 1990, the Company adopted an unfunded defined benefit retirement plan for non-employee directors which provides for payments upon retirement, death, or disability. Retirement expense for this plan in Fiscal 1993, 1992 and 1991, respectively, was $164, $71, and $66. During Fiscal 1993, the Company adopted an unfunded supplemental retirement plan for certain corporate officers. Retirement expense for the plan in Fiscal 1993 was $290. Prior service cost not yet recognized in periodic pension cost at January 31, 1994 was $1,208. In January 1994, the Company adopted an employee savings plan, which qualifies under Section 401(k) of the Internal Revenue Code. Under the plan, participating employees may contribute up to 15% of their pre-tax salary, but not more than statutory limits. The Company contributes twenty five cents for each dollar contributed by a participant, subject to certain limitations. The Company's matching contribution to the savings plan was $13 in Fiscal 1993. Under a nonqualified deferred compensation plan for certain employees, a portion of eligible employees' discretionary income can be deferred at the election of the employee. These deferred funds accrue interest payable to the employee at the prime rate in effect at the end of the year. Note 9: Stock Options The Stewart & Stevenson Services, Inc. 1988 and 1993 Nonstatutory Stock Option Plans authorize the grant of options to purchase an aggregate of up to 1,800,000 and 300,000 shares of Common Stock respectively, at not less than fair market value at the date of grant. The options expire five to ten years from the date of grant and become exercisable in four 25% cumulative annual increments commencing one year from date of grant. Under the terms of the 1993 Nonstatutory Stock Option Plan, the number of options authorized for grant increased from 300,000 to 415,000 shares of Common Stock on February 1, 1994. Stock option activity under the plan was as follows:
___________________________________________________________________________ Shares Option Price under Range Option Per Share ___________________________________________________________________________ Outstanding at end of Fiscal 1990 627,988 $ 4.75 - $ 13.125 Granted 354,000 $ 18.75 Exercised (234,588) $ 4.75 - $ 13.125 ________ Outstanding at end of Fiscal 1991 747,400 $ 4.75 - $ 18.75 Granted 58,800 $ 27.75 Exercised (335,000) $ 4.75 - $ 18.75 ________ Outstanding at end of Fiscal 1992 471,200 $ 4.75 - $ 27.75 Granted 178,000 $ 32.625 Exercised (171,100) $ 4.75 - $ 27.75 ________ Outstanding at end of Fiscal 1993 478,100 $ 13.125 - $ 32.625 ======== Options exercisable at end of Fiscal 1993 79,000 $ 13.125 - $ 27.75 ======== Options available for future grants 692,800 ========
Note 10: Income Taxes Effective February 1, 1992, the Company adopted the method of accounting for income taxes promulgated by SFAS 109. The Company had previously accounted for income taxes under the method promulgated by Statement of Financial Accounting Standards No. 96 (SFAS 96). Under both SFAS 109 and SFAS 96, the deferred tax liability is determined under the liability method based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted statutory tax rates and deferred tax expense is the result of changes in the net liability for deferred taxes. The principal types of differences between assets and liabilities for financial statement and tax return purposes are accumulated depreciation, pension accounting, contract accounting, and nondeductible accruals. Adoption of SFAS 109 did not have a material effect on Fiscal 1992 earnings before the change in accounting for SFAS 106. The components of the income tax provision and the income tax payments were:
___________________________________________________________________________________ Fiscal Fiscal Fiscal 1993 1992 1991 ___________________________________________________________________________________ Current $ 10,454 $ 17,917 $ 16,215 Deferred 17,545 2,680 560 ________ ________ ________ Income tax provision $ 27,999 $ 20,597 $ 16,775 ======== ======== ======== Income tax payments (excluding refunds) $ 11,965 $ 13,667 $ 15,761 ======== ======== ========
A reconciliation between the provision for income taxes and income taxes computed by applying the statutory U. S. Federal income tax rates of 35% in Fiscal 1993 and 34% in Fiscal 1992 and 1991 follows:
________________________________________________________________________ Fiscal Fiscal Fiscal 1993 1992 1991 ________________________________________________________________________ Provision at statutory rates $ 29,856 $ 21,888 $ 17,712 Other (1,857) (1,291) (937) ________ ________ ________ $ 27,999 $ 20,597 $ 16,775 ======== ======== ========
The tax effects of the significant temporary differences which comprise the deferred tax liability at the end of Fiscal 1993 and Fiscal 1992 are as follows:
____________________________________________________________________________ Fiscal Fiscal 1993 1992 ____________________________________________________________________________ Deferred Tax Assets Postretirement benefit obligation $ 5,260 $ 5,140 Accrued expenses and other reserves 11,426 8,650 Other 1,316 148 ________ ________ Gross deferred tax assets 18,002 13,938 ________ ________ Deferred Tax Liabilities Property, plant and equipment 4,027 2,458 Pension accounting 2,412 2,161 Contract accounting 27,533 22,313 Prepaid expenses and deferred charges 16,997 6,144 Other 7,359 3,642 ________ ________ Gross deferred tax liabilities 58,328 36,718 ________ ________ Net deferred tax liability $ 40,326 $ 22,780 ======== ======== Current portion of deferred tax liability $ 34,458 $ 17,325 Non-current portion of deferred tax liability 5,868 5,455 ________ ________ Net deferred tax liability $ 40,326 $ 22,780 ======== ========
Note 11: Supplemental Financial Data Receivables consist of the following:
______________________________________________________________ Fiscal Fiscal 1993 1992 ______________________________________________________________ Accounts receivable $145,433 $141,484 Notes receivable 3,576 3,430 Allowance for doubtful accounts (1,717) (1,748) ________ ________ $147,292 $143,166 ======== ========
At January 31, 1994, the Company does not have significant credit risk concentrations. No single group or customer represents greater than 10% of total accounts receivable. Components of property, plant and equipment follow:
____________________________________________________________________________________ Fiscal Fiscal 1993 1992 ____________________________________________________________________________________ Machinery and equipment $107,405 $ 91,359 Buildings and leasehold improvements 76,533 69,564 Revenue earning assets 10,154 9,145 Accumulated depreciation and amortization (82,188) (63,338) ________ ________ 111,904 106,730 Construction-in-progress 2,050 974 Land 12,519 9,655 ________ ________ $126,473 $117,359 ======== ========
Note 12: Consolidated Quarterly Data (unaudited)
_____________________________________________________________________________________________________ (Dollars in thousands, except per share data) Fiscal 1993 _____________________________________________________________________________________________________ Fourth Third Second First Quarter Quarter Quarter Quarter _____________________________________________________________________________________________________ Sales $244,662 $259,141 $257,936 $220,153 Gross profit 43,399 40,867 38,024 33,688 Net earnings 16,831 14,068 13,789 12,092 Net earnings per share .51 .43 .42 .37
Fiscal 1992 _____________________________________________________________________________________________________ Fourth Third Second First Quarter Quarter Quarter Quarter _____________________________________________________________________________________________________ Sales $222,732 $208,260 $199,977 $181,917 Gross profit 33,569 33,899 31,459 27,720 Earnings before change in accounting 13,096 11,503 10,456 8,903 Net earnings (loss) 13,096 11,503 10,456 (397) Earnings per share before change in accounting .40 .35 .32 .28 Net earnings (loss) per share .40 .35 .32 (.01) The net loss reported during the first quarter of Fiscal 1992 is after the change in accounting for postretirement medical benefits. The effect of the change in accounting was to decrease net earnings and net earnings per share by $9,470 and $.29, $170 and $.01, and $183 and $.01 for the first, second and third quarters of Fiscal 1992, respectively.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 5th day of May, 1994. STEWART & STEVENSON SERVICES, INC. By: /s/ Bob H. O'Neal Bob H. O'Neal President -----END PRIVACY-ENHANCED MESSAGE-----