-----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, PgV+8J9thPM3VfZOSd76TIh/xJVtdKdGmdvDv+/oobtZgzhgJdK4VFt/jN3LZpPY +Ky0r5q8UW59/jvca+Ba4w== 0000094328-94-000048.txt : 19940921 0000094328-94-000048.hdr.sgml : 19940921 ACCESSION NUMBER: 0000094328-94-000048 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940731 FILED AS OF DATE: 19940914 SROS: NONE 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08493 FILM NUMBER: 94549007 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-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1994 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 32,975,440 Shares (Class) (Outstanding at July 31, 1994) 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 -- July 31, 1994 and January 31, 1994. Consolidated Condensed Statement of Earnings -- Six Months and Three Months Ended July 31, 1994 and 1993. Consolidated Condensed Statement of Cash Flows -- Six Months Ended July 31, 1994 and 1993. Notes to Consolidated Condensed Financial Statements. STEWART & STEVENSON SERVICES, INC. CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION (Dollars in thousands)
July 31 January 31 1994 1994 _____________ ______________ (Unaudited) ASSETS CURRENT ASSETS Cash and equivalents $ 6,649 $ 7,788 Accounts and notes receivable 135,061 147,292 Recoverable costs and accrued profits not yet billed 147,358 115,868 Inventories: Engineered Power Systems 202,136 217,180 Distribution 95,927 98,885 Adjustments to a LIFO Basis (48,109) (46,460) _____________ _____________ 249,954 269,605 Other 1,304 224 _____________ _____________ TOTAL CURRENT ASSETS 540,326 540,777 PROPERTY, PLANT AND EQUIPMENT 218,525 208,661 Allowances for depreciation and amortization (91,526) (82,188) _____________ _____________ 126,999 126,473 OTHER ASSETS 28,335 25,374 _____________ _____________ $695,660 $692,624 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 22,000 $ 5,000 Accounts payable 106,857 131,780 Billings on uncompleted contracts in excess of incurred costs 19,549 31,088 Current income taxes 29,843 27,931 Other current liabilities 37,773 45,387 _____________ _____________ TOTAL CURRENT LIABILITIES 216,022 241,186 LONG-TERM DEBT--less current portion 68,000 68,000 DEFERRED INCOME TAXES 4,992 5,868 ACCRUED POSTRETIREMENT BENEFITS 15,028 15,028 DEFERRED COMPENSATION 4,636 3,884 SHAREHOLDERS' EQUITY Common Stock, without par value, 50,000,000 shares authorized; 32,987,260 and 32,948,885 shares issued at July 31, 1994 and January 31, 1994, respectively, including 11,820 shares held in treasury 161,458 160,366 Retained earnings 225,557 198,325 _____________ _____________ 387,015 358,691 Less cost of treasury stock (33) (33) _____________ _____________ TOTAL SHAREHOLDERS' EQUITY 386,982 358,658 _____________ _____________ $695,660 $692,624 ============= ============= See accompanying notes to consolidated condensed financial statements.
STEWART & STEVENSON SERVICES, INC. CONSOLIDATED CONDENSED STATEMENT OF EARNINGS (In thousands, except per share data)
Six Months Ended Three Months Ended ___________________________ ___________________________ 1994 1993 1994 1993 ____________ ____________ ____________ ____________ (Unaudited) (Unaudited) Sales $546,273 $478,089 $287,118 $257,936 Cost of sales 461,512 406,377 242,903 219,912 ____________ ____________ ____________ ____________ Gross profit 84,761 71,712 44,215 38,024 Selling and administrative expenses 35,335 32,674 18,101 17,261 Interest expense 2,299 1,488 1,260 734 Other income (873) (373) (316) (43) ____________ ____________ ____________ ____________ 36,761 33,789 19,045 17,952 ____________ ____________ ____________ ____________ Earnings before income taxes 48,000 37,923 25,170 20,072 Income taxes 16,093 12,054 8,497 6,344 ____________ ____________ ____________ ____________ Earnings of consolidated companies 31,907 25,869 16,673 13,728 Equity in net earnings (loss) of unconsolidated affiliates (390) 12 (185) 61 ____________ ____________ ____________ ____________ Net earnings $ 31,517 $ 25,881 $ 16,488 $ 13,789 ============ ============ ============ ============ Weighted average number of shares of Common Stock outstanding 32,955 32,813 32,968 32,843 ============ ============ ============ ============ Net earnings per share $ .96 $ .79 $ .50 $ .42 ============ ============ ============ ============ Cash dividends per share $ .13 $ .11 $ .07 $ .06 ============ ============ ============ ============ See accompanying notes to consolidated condensed financial statements.
STEWART & STEVENSON SERVICES, INC. CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Dollars in thousands)
Six Months Ended July 31 _______________________________ 1994 1993 ____________ ____________ (Unaudited) Operating Activities Net earnings $ 31,517 $ 25,881 Adjustments to reconcile net earnings to net cash provided (used) by operating activities: Depreciation and amortization 11,318 9,983 Deferred income taxes (876) 763 Other--principally long-term assets and liabilities (3,456) (167) Change in operating assets and liabilities: Receivables 12,231 13,427 Recoverable costs and accrued profits not yet billed (31,490) (30,301) Inventories 19,651 (965) Accounts Payable (24,923) (13,383) Billings on uncompleted contracts in excess of incurred costs (11,539) 19,317 Current income taxes and other current liabilities (4,706) 1,856 ____________ ____________ Net Cash Provided (Used) By Operating Activities (2,273) 26,411 Investing Activities Expenditures for property, plant and equipment (12,350) (19,242) Disposal of property, plant and equipment 673 237 ____________ ____________ Net Cash Used By Investing Activities (11,677) (19,005) Financing Activities Additions to long-term borrowings 25,216 106,739 Payments on long-term borrowings (26,212) (129,824) Borrowings and payments on short-term notes payable 17,000 -0- Dividends paid (4,285) (3,612) Exercise of stock options 1,092 1,920 ____________ ____________ Net Cash Provided (Used) By Financing Activities 12,811 (24,777) ____________ ____________ Decrease in cash and equivalents (1,139) (17,371) Cash and equivalents, February 1 7,788 21,939 ____________ ____________ Cash and equivalents, July 31 $ 6,649 $ 4,568 ============ ============ Supplemental disclosure of cash flow information: Net cash paid during the period for: Interest payments $ 2,234 $ 1,624 Income tax payments $ 15,058 $ 8,083 See accompanying notes to consolidated condensed financial statements.
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 six and three months ended July 31, 1994 are not necessarily indicative of the results that will be realized for the fiscal year ending January 31, 1995. 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, 1994 Form 10-K. The Company's fiscal year begins on February 1 of the year indicated and ends on January 31 of the following year. For example, "Fiscal 1994" commenced on February 1, 1994 and ends on January 31, 1995. Net earnings per share of Common Stock were 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. The weighted average number of shares outstanding for the six and three months ended July 31, 1994 includes 38,375 and 30,250 shares, respectively, issued pursuant to exercise of stock options. Note B--Financing Arrangements As of July 31, 1994, the Company has received commitments to amend its loan agreement for revolving credit notes with banks ($55,000,000 subject to reduction at the Company's election) to extend the maturity date to July 31, 1997 and reduce the commitment fee to .15 of 1% on the daily average unused balance during the revolving period. Borrowings outstanding under the revolving credit loan bear interest at various options, the maximum rate being the prime rate. The revolving credit loan was issued pursuant to an agreement containing covenants which impose a minimum net worth on the company and restrict indebtedness and other items. Such covenants are similar to those in effect under the Company's other long-term debt agreements. Note C--Commitments and Contingencies 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the attached condensed consolidated financial statements and notes thereto, and with the Company's audited financial statements and notes thereto for the fiscal year ended January 31, 1994. 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.
Six Months Ended Three Months Ended July 31 July 31 1994 1993 1994 1993 _________ _________ _________ _________ Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 84.5 85.0 84.6 85.3 _________ _________ _________ _________ Gross profit 15.5 15.0 15.4 14.7 Selling and administrative expenses 6.5 6.9 6.3 6.7 Interest expense .4 .3 .4 .3 Other income (.2) (.1) (.1) .0 _________ _________ _________ _________ 6.7 7.1 6.6 7.0 _________ _________ _________ _________ Earnings before income taxes 8.8 7.9 8.8 7.7 Income taxes 2.9 2.5 3.0 2.4 _________ _________ _________ _________ Earnings of consolidated companies 5.9 5.4 5.8 5.3 Equity in net earnings (loss) (.1) .0 (.1) .0 _________ _________ _________ _________ Earnings before change in accounting 5.8% 5.4% 5.7% 5.3% ========= ========= ========= =========
Sales for the first half of the year ending January 31, 1995 ("Fiscal 1994") increased 14.3% to $546,273,000 compared to sales of $478,089,000 for the same period in the year ended January 31, 1994 ("Fiscal 1993"). Sales for the second quarter of Fiscal 1994 increased 11.3% to $287,118,000 compared to sales of $257,936,000 during the second quarter of Fiscal 1993. The Company's Tactical Vehicle Systems (TVS) segment was the primary contributor to these increases, as it increased sales $60,756,000 (243%) and $42,946,000 (256%) for the first half and second quarter of Fiscal 1994, respectively, compared to the same periods in Fiscal 1993. Truck production under the "Family of Medium Tactical Vehicles" (FMTV) contract continues to increase steadily, with 478 trucks produced in the second quarter of Fiscal 1994, up from 237 in the first quarter. However, discussions are now taking place with the U. S. Army which could stretch out the FMTV contract. Because of this potential change and two other contract modifications, expected Fiscal 1994 FMTV production has been reduced from 2,400 trucks to 1,750 trucks. The Engineered Power Systems (EPS) segment sales increased $6,325,000 (2.1%) for the first half of Fiscal 1994 compared to Fiscal 1993, but decreased $12,209,000 (7.6%) for the second quarter of Fiscal 1994 compared to Fiscal 1993. Year-to-date sales of turbine- driven generators were flat compared to prior year levels, while second quarter sales decreased. The gas turbine operations and maintenance group continued its strong performance with a 36% increase over both the first half and second quarter levels of Fiscal 1993. Within the diesel group, airline product sales were outstanding for the first half of Fiscal 1994, reflecting the successful integration of two additional product lines which were acquired a year ago. Petroleum equipment sales decreased significantly in the second quarter of Fiscal 1994 compared to Fiscal 1993. Gross profit margins for the first half and second quarter of Fiscal 1994 strengthened over the same periods in Fiscal 1993 as the EPS, TVS and Distribution segments all registered operating margins improvements. Gross profit margins for the TVS segment are now being recorded at 4.4%, up from 4.0%. Selling and administrative expenses incurred by the Company during the first half and second quarter of Fiscal 1994 increased 8.1% and 4.9%, respectively, when compared to the same periods in Fiscal 1993, primarily due to increases in spending levels associated with the increased sales volume. However, selling and administrative expenses for the first half and second quarter of Fiscal 1994 have declined as a percentage of sales to 6.5% and 6.3% respectively, as compared to 6.7% for the same periods in Fiscal 1993. Interest expense as a percentage of sales remained comparable for both Fiscal 1994 and Fiscal 1993. The dollar increase in interest expense in Fiscal 1994 is the result of an increase in both outstanding debt and interest rates. Net earnings of $31,517,000 ($.96 per share) and $16,488,000 ($.50 per share) for the first half and second quarter of Fiscal 1994, respectively, represent 21.8% and 19.6% increases over the same periods in Fiscal 1993. This growth in earnings is primarily the result of the increases in sales and operating margins discussed above. GOVERNMENT CONTRACTING As discussed previously, the U. S. Army is discussing with the Company the possibility of stretching out the FMTV contract by twenty-one months. Such discussions involve modifying the production schedules for Fiscals 1994, 1995 and 1996 to move production into Fiscals 1997 and 1998. Should such a change be negotiated, the U. S. Army would be expected to absorb any cost impact caused by a revised production schedule. 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 July 31, 1994, and at the close of Fiscal 1993 were as follows: ______________________________________________________________________________________________
July 31 January 31 1994 1994 ______________________________________________________________________________________________ (Dollars in millions) Engineered Power Systems Equipment $ 503.1 $ 491.5 Operations and Maintenance 270.0 269.7 ________ ________ 773.1 761.2 Distribution 37.6 32.6 Tactical Vehicle Systems 1,032.8 1,119.5 ________ ________ Total $1,843.5 $1,913.3 ======== ========
Although no assurance can be given, the Company expects sales of the Engineered Power Systems segment to continue to be weighted in favor of turbine-driven equipment 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 manufacture medium tactical vehicles. CAPITAL EXPENDITURES AND COMMITMENTS Capital spending for property, plant and equipment totalled $12,350,000 in the first half of Fiscal 1994 compared to $19,242,000 in the first half of Fiscal 1993. This decrease in the first half of 1994 reflects the return to historical capital expenditure levels after expansion programs at the EPS and TVS segment locations during the two previous fiscal years. LIQUIDITY AND SOURCES OF CAPITAL Long-term borrowings at July 31, 1994 were unchanged from the end of Fiscal 1993. The Company has $55,000,000 in committed credit facilities, which were fully utilized as of July 31, 1994. The Company also has additional banking relationships which provide uncommitted borrowing arrangements. These short- term borrowings increased to $22,000,000 at July 31, 1994 as compared to $5,000,000 at the end of Fiscal 1993. The increase in overall borrowing levels is primarily attributable to increased working capital needs of the gas turbine operations of the EPS segment and the TVS segment, which fluctuate significantly depending on the progress payment streams of the contracts-in- process. The Company regularly bids on large commercial and military contracts which, if awarded to the Company, could significantly affect both working capital and capital expenditure needs. 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 create a need for working capital or capital expenditures in excess of existing committed lines of credit, the Company may seek to convert its 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. ACCOUNTING DEVELOPMENTS In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits" (FASB 112), which is effective for fiscal years beginning after December 15, 1993. The effect of initially applying this statement is to be reported as the effect of a change in accounting principle. This new statement will require accrual of postemployment benefits during the years an employee provides services. The Company anticipates adoption of the new standard in the fourth quarter of Fiscal 1994, and management's initial estimates indicate that FASB 112 will not have a material impact on the Company's financial position or results of operations. PART II. OTHER INFORMATION Item 2. Changes in Securities. (a) Inapplicable. (b) Note B to the consolidated condensed financial statements in Part I of this report is incorporated herein by reference. Item 4. Submission of Matters to a Vote of Security Holders. The Annual Meeting of Shareholders of the Company was held on June 14, 1994. Set forth below is a brief description of each matter acted upon at the meeting and the number of votes cast for, against or withheld, and abstaining or not voting as to each matter. Election of Directors
AGAINST OR FOR WITHHELD ___ __________ C. Jim Stewart II 27,217,137 535,788 J. W. Lander, Jr. 27,233,820 519,105 Bob H. O'Neal 27,286,624 466,301 Jack T. Currie 27,249,080 503,845
Ratification of Accountants
AGAINST OR ABSTAINED OR FOR WITHHELD NOT VOTED ___ __________ ____________ 27,659,393 13,872 79,660
Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed as a part of this report pursuant to Item 601 of Regulation S-K. 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the three months ended July 31, 1994. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STEWART & STEVENSON SERVICES, INC. Date: Sept 13, 1994 By: /s/ Robert L. Hargrave _____________ _________________________ Robert L. Hargrave Group Vice President, Chief Financial Officer & Treasurer (Principal Financial Officer) EXHIBIT INDEX Exhibit Number and Description (27) Financial data schedule EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS QTR-2 JAN-31-1995 JAN-31-1995 JUL-31-1994 JUL-31-1994 6,649 6,649 0 0 135,061 135,061 0 0 397,312 397,312 540,326 540,326 218,525 218,525 (91,526) (91,526) 695,660 695,660 216,022 216,022 68,000 68,000 161,458 161,458 0 0 0 0 225,524 225,524 695,660 695,660 546,273 287,118 546,273 287,118 461,512 242,903 461,512 242,903 36,761 19,045 0 0 2,299 1,260 48,000 25,170 16,093 8,497 31,517 16,488 0 0 0 0 0 0 31,517 16,488 .96 .50 0 0
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