-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QSbNg7I1DjqpoJrDEAlu6jjKAwSGeu7Vcy/ParEDNn5sEMBNCiZcVVLhat+q7iqn pwSGIYzU8DtvPy5I/bW0zw== 0000094328-98-000011.txt : 19980507 0000094328-98-000011.hdr.sgml : 19980507 ACCESSION NUMBER: 0000094328-98-000011 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980506 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEWART & STEVENSON SERVICES INC CENTRAL INDEX KEY: 0000094328 STANDARD INDUSTRIAL CLASSIFICATION: ENGINES & TURBINES [3510] IRS NUMBER: 741051605 STATE OF INCORPORATION: TX FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-11443 FILM NUMBER: 98611549 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-K405/A 1 AMENDMENT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended January 31, 1998 ("Fiscal 1997") 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] Aggregate market value of voting securities held by nonaffiliates as of March 3, 1998: $678,403,239 Number of shares outstanding of each of the issuer's classes of common stock, as of March 3, 1998: Common Stock, Without Par Value 31,188,188 Shares DOCUMENTS INCORPORATED BY REFERENCE Document Part of Form 10-K - -------- ----------------- Proxy Statement for the 1998 Annual Meeting of Shareholders Part III PART I Item 1. Business. Stewart & Stevenson Services, Inc. (together with its wholly-owned subsidiaries, the "Company" or "Stewart & Stevenson") was founded in Houston, Texas in 1902 and was incorporated under the laws of the State of Texas in 1947. Since its beginning, the Company has been primarily engaged in the custom fabrication of engine driven products. Stewart & Stevenson consists of three business segments: the Power Products segment (formerly known as the Distribution segment), the Tactical Vehicle Systems segment and the Engineered Power Systems segment. Effective as of January 31, 1998, the Company sold the net assets of its Gas Turbine Operations Division to the General Electric Company ("GE") for $600 million, subject to adjustment and the assumption by GE of certain liabilities. The business of the Gas Turbine Operations Division was conducted within the Engineered Power Systems segment of the Company. Operating results of the Gas Turbine Operations Division have been segregated from continuing operations and reported as a separate line item on the Consolidated Statement of Earnings. The Company has restated its prior financial statements to present the operating results of the Gas Turbine Operations Division as a discontinued operation. The assets and liabilities of such operations at January 31, 1997 have been reflected as a net current asset based substantially on the original classification of such assets and liabilities. The Power Products segment was renamed (formerly known as the Distribution segment) because a significant portion of its sales involves value added engine driven equipment. The Power Products segment markets industrial equipment and related parts manufactured by others and provides in-shop and on-site repair services for such products. This segment began operations in 1938 and currently markets Detroit Diesel engines, General Motors Electro-Motive diesel engines, Allison transmissions, Waukesha natural gas engines, Deutz diesel engines, Hyster material handling equipment, Thermo King transport refrigeration units and John Deere construction, utility and forestry equipment. The Power Products segment markets primarily in the Southern and Western United States, as well as in Mexico, Venezuela, Colombia and Central America. The Tactical Vehicle Systems segment has received contracts with the United States Department of Defense to manufacture the U.S. Army's next generation of medium tactical vehicles (the "Family of Medium Tactical Vehicles" or "FMTV"). The FMTV contracts call for the production of approximately 11,000 newly-designed 2 1/2-ton and 5-ton trucks in several configurations, including troop carriers, wreckers, cargo trucks, vans and dump trucks. All variants of the FMTV incorporate a high level of common parts. Manufacturing of the FMTV is being performed by the Company's Tactical Vehicle Systems segment at a facility located near Houston, Texas. During Fiscal 1997, the Company began negotiations with the U.S. Army for new contracts to produce additional FMTV's under a multi-unit contract on a sole source basis. These negotiations are expected to be completed during Fiscal 1998, and, if the contract is awarded to the Company, it is anticipated that production will begin in Fiscal 1999. The composition of businesses in the Engineered Power Systems segment changed significantly in Fiscal 1997. The Company sold the net assets of its Gas Turbine Operations Division which designed, engineered, serviced and marketed engine-driven equipment utilizing gas turbine engines supplied by independent manufacturers. The Gas Turbine Operations Division was a leading packager of aeroderivative gas turbine engines for electrical power generation. The Gas Turbine Operations Division also offered operation and maintenance contracts for large gas turbine projects and petroleum production facilities. Following the sale of the Gas Turbine Operations Division, the Engineered Power Systems segment consists primarily of manufacturing airline ground support equipment (including tow tractors, air start units, electrical ground power units, and air conditioning units) and oil field well servicing equipment (including fracturing equipment, slurry/chemical blenders, chemical additive systems, acidizing equipment, nitrogen purging systems, cementing equipment, coiled tubing units and capital drilling equipment such as blowout preventers, riser systems, blowout preventer controls, gate valves, chokes and check valves, manifolds and surface test trees). In addition, the Company manufactures gas compression equipment using reciprocating engines and recently entered the business of leasing and servicing gas compression equipment in Wyoming and the surrounding Rocky Mountain area. 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 1997" commenced on February 1, 1997 and ended on January 31, 1998. Identifiable assets at the close of Fiscal 1997, 1996 and 1995 and net sales, operating profit and export sales for such fiscal years for the Company's business segments and sales to customers which exceed 10% of consolidated sales are presented under "Industry Segment Data" in the Notes to the Consolidated Financial Statements in Note 3. POWER PRODUCTS SEGMENT Power Products Segment. Stewart & Stevenson markets industrial equipment, components, replacement parts, accessories and other materials supplied by independent manufacturers and provides in-shop and on-site repair services for diesel-driven equipment. The following table contains the name of each significant manufacturer with whom the Company presently maintains a distribution contract, a description of the products and territories covered thereby and the expiration date thereof.
Expiration Manufacturer Products Territories Date Detroit Diesel Corporation Heavy Duty High Speed Texas, Colorado, Northern 1998 ("Detroit Diesel") Diesel Engines California, New Mexico, Wyoming, Nebraska, Louisiana, Mississippi, Alabama, Venezuela and Colombia Electro-Motive Division of Heavy Duty Medium Speed Texas, Colorado, New 1998 General Motors Corporation Diesel Engines Mexico, Nebraska, ("EMD") Oklahoma, Arkansas, Louisiana, Tennessee, Mississippi, Alabama, Mexico, Central America and most of South America Allison Transmission On- and Off-Highway Texas, Colorado , Northern 1998 Division of General Motors Automatic Transmissions, California, New Mexico, Corporation ("Allison") Power Shift Transmissions Wyoming, Nebraska, and Torque Converters Louisiana, Mississippi, Alabama, Venezuela and Colombia Hyster Company Material Handling Equipment Texas * John Deere Industrial Construction, Utility and Wyoming * Equipment Company Forestry Equipment Thermo King Corporation Transport Refrigeration Southeast Texas and 1999 Equipment Southern Louisiana Waukesha Engine Division of Natural Gas Industrial Colorado, Northern 2000 Dresser Industries, Inc. Engines California, Montana, North Dakota, Oklahoma, Wyoming, New Mexico, Utah, Oregon, Hawaii, Kansas, Arizona, California, Washington, Nevada and Colombia KHD - Deutz Corporation Diesel Engines Colorado, Wyoming, * Arizona, New Mexico, Washington and Alaska - ------------------------
*No expiration date. Agreements may be terminated by written notice of termination. Distribution agreements generally require the Company to purchase and stock the products and repair parts covered thereby for resale to end users, original equipment manufacturers or independent dealers within the franchise area of distribution. Such agreements also require the Company to provide after-sale service within its designated territory and may contain provisions prohibiting the sale of competitive products within the franchise territory. The Power Products segment operations are conducted at branch facilities located in major cities within the Company's franchised area of distribution. New products are marketed primarily under the trademarks and the trade names of the original manufacturer. The Company's principal distribution agreements are subject to early termination by the suppliers for a variety of causes, including a change in control or a change in the principal management of the Company. Although no assurance can be given that such distribution agreements will be renewed beyond their expiration dates, they have been renewed regularly. Manufacturing Operations. The Power Products segment also manufactures and sells generator sets and mechanical drive packages using reciprocating engines fueled with diesel, natural gas, or both. Generator sets range in size from 20 kw to 12,700 kw and are based on engines supplied by companies with whom the Power Products segment has a distributor or packaging agreement. The Company undertakes the selection of the appropriate engine and generator based on the intended application and fabricates the completed package according to a design developed specifically to fit the needs of the customer. Reciprocating engine-driven generator sets are marketed by the Company as both standby power sources for emergency use and as prime power sources to supply electricity at remote locations. In addition to reciprocating engine-driven power systems, the Power Products segment manufactures and sells snow removal equipment and wheel chair lifts. Some products manufactured by the Power Products segment are based upon proprietary designs owned by the Company and others are based upon designs owned by others and licensed to the Company. Operations of the Power Products segment accounted for approximately 53%, 62% and 59%, respectively, of consolidated sales during Fiscal 1997, 1996 and 1995. The Power Products segment's marketing units regularly sell certain products manufactured by the Engineered Power Systems segment and also sell to military and airline users. In both cases, such sales are included in the Power Products segment. TACTICAL VEHICLE SYSTEMS SEGMENT In October 1991, the United States Department of Defense selected Stewart & Stevenson to manufacture the next generation of FMTV trucks for the U.S. Army and awarded the Company contracts for the production of 2 1/2-ton and 5-ton trucks, spare parts and logistical support. The Family of Medium Tactical Vehicles is the U.S. Army's next generation of basic transportation vehicle for personnel and materials. As such, the FMTV is produced in several variants to carry troops and cargo, including cargo beds, vans, troop carriers, wreckers, dump trucks and tractors. In addition, several of the vehicles are specially configured for airdrop operation. Although more than ten configurations of the FMTV are being produced, a high degree of common components is incorporated in the Stewart & Stevenson design. The Company also sells the FMTV to other government contractors as a platform for installation of weapons systems and other equipment which is then resold to the Armed Forces. Stewart & Stevenson believes that there will be opportunities to sell additional vehicles to the U.S. Army, to other branches of the U.S. Armed Forces and to the armed forces of foreign countries. The FMTV contracts allow for such sales, and the Company's facility has the capacity to produce vehicles for those additional sales. Operations of the Tactical Vehicle Systems segment accounted for approximately 36%, 24% and 27%, respectively, of consolidated sales in Fiscal 1997, 1996 and 1995. The United States Government is the predominant customer of the Tactical Vehicle Systems segment, accounting for practically all of the sales of this segment in Fiscal 1997, 1996 and 1995. The loss of this customer would have a material adverse effect on the Company's consolidated future financial condition and results of operation. For additional information on the Tactical Vehicle Systems segment, see Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations - Tactical Vehicle Systems' Contract Status. ENGINEERED POWER SYSTEMS SEGMENT Stewart & Stevenson is a leading manufacturer of coil tubing units, well stimulation equipment and other equipment for the oilfield service industries. Most of the Company's well stimulation equipment is manufactured according to the Company's proprietary designs and incorporates advanced microprocessor-based systems to automatically control the pressures, density and other characteristics of the high pressure fluids used to fracture oil-bearing formations. Other oilfield equipment includes blowout preventors, riser systems and high pressure valves for the drilling and workover industry. Stewart & Stevenson also manufactures a complete line of aircraft ground support equipment, including gate tractors, air-start units, ground power equipment and air conditioning systems. During Fiscal 1997, Stewart & Stevenson's Gas Turbine Operations Division designed, engineered and marketed engine-driven equipment utilizing aeroderivative gas turbine engines manufactured by independent suppliers and provided operation and maintenance services. As previously mentioned, the Company sold its Gas Turbine Operations Division to the General Electric Company. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Discontinued Operations. Operations of the Engineered Power Systems segment related to continuing operations accounted for approximately 11%, 14% and 14%, respectively, of consolidated sales during Fiscal 1997, 1996 and 1995. As a custom packager of engine-driven equipment, the Company designed its products to meet the specific needs of its customers in a variety of applications. Both equipment and services were sold under the "Stewart & Stevenson" name throughout the world. Effective as of March 30, 1998, the Company completed the acquisition of the assets of Compression Specialties, Inc. for approximately $9.45 million. The Company plans to use this acquisition as a strategic entrance into the business of leasing and servicing gas compression equipment in the state of Wyoming and the surrounding Rocky Mountain area. COMPETITION The Company encounters strong competition in all segments of its business. Competition involves pricing, quality, availability, the range of products and services and other factors. Some of the Company's competitors have greater financial resources than Stewart & Stevenson. The Company believes that its reputation for quality engineering and after-sales service, and single-source responsibility, are important to its market position. The Power Products segment competes with distributors for other manufacturers in the sale of original equipment, with the manufacturers and distributors of non-original equipment parts for the sale of spare parts and with independent repair shops for in-shop and on-site repair services. The Tactical Vehicle Systems segment competes with domestic companies for incremental sales to the U.S. Armed Forces. Both domestic and foreign suppliers compete for the sale of vehicles to foreign governments. The Company's foreign competitors include Daimler-Benz, Steyr, and other vehicle manufacturers that have greater international recognition as vehicle manufacturers. The Engineered Power Systems segment is highly diversified with no single competitor participating in all of the markets of the Company. INTERNATIONAL OPERATIONS International sales are subject to the risks of international political and economic changes, such as changes in foreign governmental policies, currency exchange rates and inflation. Generally, the Company accepts payments only in United States Dollars and makes most sales to customers outside the United States against letters of credit drawn on established international banks, thereby limiting the Company's exposure to the effects of exchange rate fluctuations and customer credit risks. In the limited circumstances in which the Company has entered into contracts in foreign currencies, it has hedged its exposure to fluctuations in such currencies. The profit margin on export sales is not materially different from that on domestic sales of the same or similar products with the same or similar delivery requirements. UNFILLED ORDERS Stewart & Stevenson's unfilled orders consist of written purchase orders, letters of intent and oral commitments. These unfilled orders are generally subject to cancellation or modification due to customer relationships or other conditions. Purchase options are not included in unfilled orders until exercised. Unfilled orders relating to continuing operations at the close of Fiscal 1997 and Fiscal 1996 were as follows:
Estimated percentage to be recognized in Fiscal Fiscal Fiscal 1998 1997 1996 (Dollars in millions) Power Products 100% $69.6 $92.2 Tactical Vehicle Systems 95% 487.0 817.3 Engineered Power Systems 100% 57.5 46.1 ============ ============ $ 614.1 $ 955.6 ============ ============
Unfilled orders of the Tactical Vehicle Systems segment consists principally of the contracts awarded in October 1991 by the United States Department of the Army to manufacture medium tactical vehicles, and options under the FMTV contract that have been exercised by the U.S. Army to purchase additional vehicles and services. EMPLOYEES At March 1, 1998, the Company employed approximately 3,665 persons. The Company considers its employee relations to be satisfactory. Item 2. Properties. The Company maintains its corporate executive and administrative offices (which occupy about 64,000 square feet of space leased from a limited partnership in which the Company owns an 80% limited partnership interest) at 2707 North Loop West, Houston, Texas. Activities of the Power Products segment are coordinated from Houston, where the Company owns 320,000 square feet of space at three locations and leases 31,000 square feet in one location devoted to equipment and parts sales and service. To service its distribution territory (See "Item 1. Business -- Power Products Segment"), Stewart & Stevenson maintains Company-operated facilities occupying 570,000 square feet of owned space and 344,000 square feet of leased space in 26 cities in Texas, Louisiana, Colorado, New Mexico, Wyoming, Utah, North Dakota, Kansas, Washington, Georgia and California. The Tactical Vehicle Systems segment is located in a 500,000 square foot Company-owned facility near Houston, Texas. The Tactical Vehicle Systems segment also leases 147,000 square feet of warehousing facilities in Houston, Texas. Stewart & Stevenson's Engineered Power Systems segment is headquartered in Houston, where the Company owns approximately 575,000 square feet and leases approximately 41,000 square feet of space devoted to manufacturing, warehousing and administration. The Company also owns a high pressure valve manufacturing facility in Jennings, Louisiana (89,000 square feet). The Company also has facilities in Aberdeen, Scotland and Abu Dhabi. The Company considers all property owned or leased by it to be well maintained, adequately insured and suitable for its purposes. Item 3. Legal Proceedings. See Note 6 to the Consolidated Financial Statements which is incorporated herein by reference. Item 4. Submission of Matters to a Vote of Security Holders. None. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The Company's Common Stock is traded on the NASDAQ Stock Market under the symbol: SSSS. There were 722 shareholders of record as of March 3, 1998. The following table sets forth the high and low sales prices relating to the Company's Common Stock and the dividends declared by the Company in each quarterly period within the last two fiscal years.
Fiscal Fiscal 1997 1996 --------------------------------------------- --------------------------------------------- High Low Dividend High Low Dividend First Quarter $27 1/2 19 3/8 0.085 $29 3/4 $23 1/4 $0.080 Second Quarter 28 3/8 23 3/8 0.085 30 1/2 19 3/4 0.085 Third Quarter 29 1/4 21 0.085 23 3/4 19 5/8 0.085 Fourth Quarter 26 3/16 20 7/8 0.085 29 1/4 21 0.085 Item 6. Selected Financial Data. The Selected Financial Data set forth below should be read in conjunction with the accompanying Consolidated Financial Statements and notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company has restated its prior financial statements to present the operating results of the Gas Turbine Operating Division as a discontinued operation. Stewart & Stevenson Services, Inc. CONSOLIDATED FINANCIAL REVIEW
- --------------------------------------------------- -------------- --------------- --------------- --------------- --------------- (Dollars in thousands, except per share data) Fiscal Fiscal Fiscal Fiscal Fiscal 1997 1996 1995 1994 1993 - --------------------------------------------------- -------------- --------------- --------------- --------------- --------------- Financial Data: Sales $1,115,034 $ 825,187 $ 702,324 $ 596,003 $ 496,475 Earnings (loss) from continuing operations before income taxes (22,190) 6,651 32,892 27,323 17,546 Net earnings (loss) from continuing operations(1) (14,505) 4,768 20,698 16,215 9,464 Net earnings from discontinued operations 5,424 12,083 41,105 51,343 47,316 Gain on discontinued operations 61,344 - - - - Net Earnings 52,263 16,851 61,803 67,588 56,780 Total assets 1,252,647 1,079,159 948,626 786,520 590,295 Short-Term Debt (including current portion of Long-Term Debt) 261,000 29,100 66,100 43,344 7,219 Long-Term Debt 147,166 319,700 210,800 116,900 68,000 Per Share Data: Earnings (loss) from continuing operations $ (0.44) $0.14 $0.63 $0.49 $0.29 Earnings from discontinued operations 0.16 0.37 1.24 1.56 1.44 Gain on discontinued operations 1.85 - - - - Net earnings per share - Basic and Diluted $1.57 $.51 $1.87 $2.05 $1.73 Cash dividends declared 0.34 0.335 0.31 0.27 0.23 (1) The net earnings (loss) from continuing operations for Fiscal 1997 and Fiscal 1996 includes special items, net of tax, of $39,086 and $12,600, respectively. Refer to Item 7 for detail analysis. - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis, as well as the accompanying Consolidated Financial Statements and related footnotes, will aid in understanding the Company's results of operations as well as its financial position, cash flows, indebtedness and other key financial information. SUMMARY TABLES The following table sets forth for the periods indicated (i) the percentages which certain items reflected in the Company's 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 Consolidated Sales Growth Rate - --------------------------------------------- -------------------------------------------------- --------------------------------- Fiscal Fiscal Fiscal Fiscal 1997 1996 1995 1996-1997 1995-1996 - --------------------------------------------- ---------------- ---------------- ---------------- ---------------- ---------------- Sales 100.0% 100.0% 100.0% 35.1% 17.5% Cost of sales 92.6 87.6 86.5 42.9 19.0 ---------------- ---------------- ---------------- Gross profit 7.4 12.4 13.5 (19.2) 8.1 Selling and administrative expenses 6.8 8.1 8.2 12.6 16.7 Interest expense 1.4 1.5 1.0 23.8 69.9 1.5 Settlement of litigation and special charge 2.1 2.4 - 16.8 N/A Gain on sale of the Houston John Deere franchise (.4) - - N/A N/A Other income, net (.5) (.4) (.4) 36.3 28.3 ---------------- ---------------- ---------------- 9.4 11.6 8.8 9.5 54.7 ---------------- ---------------- ---------------- Earnings (loss) from continuing operations before income taxes (2.0) .8 4.7 Income tax expense (benefit) (.7) .2 1.8 ---------------- ---------------- ---------------- Earnings (loss) from continuing operations of consolidated companies (1.3) .6 2.9 Equity in net earnings of unconsolidated affiliates - - .1 ---------------- ---------------- ---------------- Net earnings (loss) from continuing operations (1.3)% .6% 3.0% ================ ================ ================ N/A: Not applicable or meaningful
The following tables present both the contribution to sales and operational profit from each of the Company's business segments, as well as the growth rate year to year achieved by these segments.
Business Segment Highlights - ------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) - ------------------------------------------------------------------------------------------------------------------------------ Sales Growth Rate ----------------------------------------------------------------------------------------------------- Fiscal Fiscal Fiscal Fiscal 1997 1996 1995 1996-1997 1995-1996 ----------------------------------------------------------------------------------------------------- Power Products $580,490 52% $508,305 62% $416,229 59% 14% 22% Tactical Vehicle Systems 396,734 36 200,916 24 189,009 27 97 6 Engineered Power Systems 124,194 11 114,706 14 96,045 14 8 19 Other 13,616 1 1,260 - 1,041 - N/A 21 ------------------------------------------------------------------------ $1,115,034 100% $825,187 100% $702,324 100% 35 17 ======================================================================== Operating Profit Growth Rate ------------------------------------------------------------------------------------------------ Fiscal Fiscal Fiscal Fiscal 1997 1996 1995 1996-1997 1995-1996 - ---------------------------------------------------------------------------------------------------------------------------- Power Products $36,031 147% $33,017 70% $30,393 64% 9% 9% Tactical Vehicle Systems (9,990) (41) 10,551 22 9,703 20 N/A 9 Engineered Power Systems (879) (3) 2,831 6 7,085 15 N/A (60) Other (685) (3) 716 2 292 1 N/A N/A ======================================================================== $24,477 100% $47,115 100% $47,473 100% (48) (1) ========================================================================
Operating Profit as a Percentage of Sales ------------------------------------------------------------------------ Fiscal Fiscal Fiscal 1997 1996 1995 - ----------------------------- ------------------------ ----------------------- ----------------------- Power Products 6.2% 6.5% 7.3% Tactical Vehicle Systems (2.5) 5.3 5.1 Engineered Power Systems (.7) 2.5 7.4 Other (5.0) 56.8 28.1 Consolidated 2.2 5.7 6.8
DISCONTINUED OPERATIONS Effective as of January 31, 1998, the Company completed the sale of the net assets of its Gas Turbine Operations Division to the General Electric Company ("GE") for $600 million, subject to adjustment, and the assumption by GE of certain liabilities. The Company intends to use these funds to retire $260 million of debt, to repurchase up to $120 million of its outstanding stock and for other general corporate purposes. The Gas Turbine Operations Division was involved in the designing, engineering, manufacturing and marketing of engine-driven equipment (including associated spare parts) utilizing combustion turbine engines supplied by independent manufactures such as GE. It also packaged equipment and associated systems for the generation of electricity or mechanical drive applications incorporating combustion turbine engines, provided spare parts for, and serviced and overhauled, combustion turbine powered equipment, provided operating and maintenance service for power generation and petroleum production facilities (except such services for reciprocating engines), marketed technical and support services for combustion turbine-driven equipment, and provided project consulting and development services that complemented its combustion turbine-driven product lines. SPECIAL ITEMS Special items are infrequent transactions that may affect comparability between years. The special items included in the Fiscal 1997 and 1996 results are detailed below. In Fiscal 1997, $41.2 million of the special items are included in cost of sales. The Company does not expect any of these special items to have an impact on future operating results. For further information, see "Results of Operations" below.
Pretax Charge (Benefit) - -------------------------------------------------------------- ---------------- --- ---------------- (Dollars in thousands) Fiscal Fiscal 1997 1996 - -------------------------------------------------------------- ---------------- --- ---------------- Tactical Vehicle Systems Change in estimate $26,703 $ - Power Products Write down of inventories and other various assets 3,468 - Gain on sale of the Houston John Deere franchise (4,369) - ---------------- ---------------- (901) - Engineered Power Systems Write down of inventories and other various assets 6,743 - Change in estimate 2,317 - ---------------- ---------------- 9,060 - Other Settlement of litigation and special charge 23,352 20,000 Impaired operating assets 2,000 - ---------------- ---------------- 25,352 20,000 Pretax charge 60,214 20,000 Tax Benefit (21,128) (7,400) ----------------- ----------------- Special Items - net of tax $39,086 $12,600 ================ ================
RESULTS OF OPERATIONS Fiscal 1997 vs. Fiscal 1996 Sales for Fiscal 1997 increased 35% to $1,115 million compared to sales of $825 million for Fiscal 1996. The Company's international sales decreased 21% to $66 million in Fiscal 1997 as compared to $83 million in Fiscal 1996, representing 6% and 10% of consolidated sales for Fiscal 1997 and 1996, respectively. The Company's Power Products segment's sales increased 14% to $580 million, which included Sierra Detroit Diesel, acquired April 12, 1997, whose revenues totaled approximately 5% of the segment's sales. The growth in sales reflects the continued healthy economic environment of the regions and markets served by the Company. In addition, the acquisition of Sierra Detroit Diesel Allison Inc. increased sales by approximately $30 million and increased the Company's distribution territory for certain products, including Detroit Diesel and Allison products, to include northern California. The Power Products segment recognized an increase in operating profit of 9% to $36 million including a net profit of $1 million from a combination of both a special gain and charge. Refer to "Special Items" for detailed analysis. Excluding these special items, operating profit would have been $35 million for Fiscal 1997 representing a 6% increase over Fiscal 1996. The Company's Tactical Vehicle Systems segment had sales of $397 million, a 97% increase from the prior year. This increase reflects the achievement of a high rate of truck production during Fiscal 1997. The Tactical Vehicle System segment recorded an operating loss for Fiscal 1997 of $10 million, which included the impact of a change in the estimated profit at completion of its principle contract with the U.S. Army. The cumulative impact of this change was a fourth quarter charge to cost of sales of $27 million. For additional information, see "Tactical Vehicle Systems' Contract Status." Following the sale of the Gas Turbine Operations, the Engineered Power Systems segment consists of petroleum, airline and gas compression products. The Engineered Power Systems segment sales from continuing operations totaled $124 million, an 8% increase over Fiscal 1996. The Petroleum product line sales increased significantly, as its new riser product was well received by the market, however, this increase was greatly offset by a similar decrease in sales of Airline Equipment, reflecting a significant drop in orders from Asia. The operating loss from Engineered Power Systems of $1 million included special charges totaling $9 million, which included both market adjustments to Airline and other inventories and changes in estimated cost of sales for certain contracts. The Other segment of the Company had sales of $12 million which included approximately $13 million associated with owning and operating independent power plants, including Carson Cogeneration which was acquired in September, 1997, and represented 67% of this segment's 1997 sales. Other operations recorded a $1 million loss for Fiscal 1997, including a special charge of $2 million, related to the impairment of certain operating assets. Excluding this special charge, operating profits would have been $1 million. Fiscal 1996 vs. Fiscal 1995 Sales for Fiscal 1996 increased 17% to $825 million compared to sales of $702 million for Fiscal 1995. The Company's international sales increased 55% to $83 million in Fiscal 1996 as compared to $54 million in Fiscal 1995, representing 10% and 8% of consolidated sales for Fiscal 1996 and 1995, respectively. The Power Products segment was the primary growth contributor to the Company's sales with an increase in sales of $92 million, or 22%, in Fiscal 1996 compared to Fiscal 1995. A strengthening oil and gas market served by the Company's Distribution territory contributed to these sales improvements, particularly among the Company's Detroit Diesel, EMD and Waukesha product lines. The Tactical Vehicle Systems (TVS) segment sales increased $12 million, or 6%, during Fiscal 1996 as compared to Fiscal 1995. The increase in TVS sales reflects the increase in truck production under the FMTV contract to 1,764 trucks in Fiscal 1996 as compared to 1,560 trucks in Fiscal 1995. The Engineered Power Systems (EPS) segment sales contributed to the Company's sales growth, increasing $9 million, or 8%, in Fiscal 1996 as compared to Fiscal 1995. Airline and Petroleum Equipment experienced increased sales of $12 million, or 40%, and $6 million, or 11%, respectively, in Fiscal 1996 as compared to Fiscal 1995.
Net Period Expenses - ----------------------------------------------------- ----------------------------------------- ----------------------------------- (Dollars in thousands) Percentage Change Fiscal Fiscal Fiscal Fiscal 1997 1996 1995 1996-1997 1995-1996 - ----------------------------------------------------- ------------- ------------- ------------- ----------------------------------- Selling and administrative expenses $75,619 67,163 $57,546 13% 17% Interest expense 15,440 12,474 7,344 24 70 Settlement of litigation and special charge 23,352 20,000 - 17 N/A Gain on sale of the Houston John Deere franchise (4,369) - - N/A N/A Other income, net (4,867) (3,571) (2,784) 36 28 ------------- ------------- ------------- $105,175 $96,066 $62,106 9 55 ============= ============= ============= ============= ============= ============= Net period expenses as a percentage of sales 9.4% 11.6% 8.8% ============= ============= ============= N/A: Not applicable or meaningful.
Net period expenses increased 9% in Fiscal 1997 from Fiscal 1996, which was substantially less than the 35% increase in sales. Selling and administrative expense growth was modest reflecting the better utilization of existing infrastructure. Interest expense (net of the amount charged to discontinued operations) grew by 24% in Fiscal 1997 as additional borrowings were obtained to fund the growth in continuing operations' working capital needs. Special charges in Fiscal 1997 totaled over $23 million including $10 million in expenses relating to the Company's resolution of the charge, under the "Peace Shield" indictment, whereby the Company pled guilty to one count of making a false statement to the United States Air Force, see "Effect of Certain Litigation" below. Special charges in Fiscal 1997 also included $13 million associated with settling a claim by the Company, for excessive costs incurred on a U.S. Government contract, at less than the carrying value. Net period expenses increased significantly during Fiscal 1996, both in amount and in relation to sales, when compared to Fiscal 1995. Selling and administrative expenses increased primarily in those business lines having sales growth, in addition a one-time charge of approximately $900 thousand related to settling a lawsuit and substantial legal expenses related to the "Peace Shield" litigation are also included. Interest expense grew significantly in both Fiscal 1996 and 1995 reflecting the increased borrowings required to fund the Company's operations; primarily for inventories of vehicles under the FMTV. The decrease in other income during Fiscal 1996 is primarily attributable to both decreased interest income and decreased gains on the disposal of real estate. On July 25, 1996, a jury in Houston, Texas returned a $43 million verdict against the Company in a case filed by Serv-Tech, Inc. for breach of a secrecy agreement. The Company's liability in connection with this matter was limited pursuant to a pretrial agreement between the Company and Serv-Tech. The Company recognized a pre-tax charge against earnings of $20 million ($13 million or $.39 per share after taxes) relating to this case in the second quarter of Fiscal 1996. The judgment based on this verdict was paid by the Company in September 1996. On October 6, 1997, the Company sold its construction equipment franchise for approximately $30 million and recognized a gain on the sale in the approximate amount of $4 million. The construction equipment franchise operated in the gulf coast territory of Texas and primarily distributed, and provided services for, products manufactured by John Deere Construction Equipment Company and other companies engaged in the business of manufacturing earth moving equipment, forestry equipment, skidsteer equipment and utility equipment.
Net Earnings (Loss) from Continuing Operations - -------------------------------------------------------------------------------------------- ---------------------------------- (Dollars in thousands) Percentage Change Fiscal Fiscal Fiscal Fiscal 1997 1996 1995 1996-1997 1995-1996 - -------------------------------------------------- -------------- ------------- ------------- -------------------------------- Net earnings (loss) $(14,505) $4,768 $20,698 N/A (77)% Percentage of sales (1.3)% 0.6% 3.0% ============== ============= ============= N/A: Not applicable or meaningful.
The continuing operations loss was $15 million during Fiscal 1997 versus profit of $5 million in Fiscal 1996 and $21 million in Fiscal 1995. Both Fiscal 1997 and Fiscal 1996 had special charges which significantly impacted performance. Excluding the $60 million in special charges in Fiscal 1997 ($39 million after tax) and $20 million in special charges in Fiscal 1996 ($13 million after tax), this net profit of continuing operations for Fiscal 1997, 1996 and 1995 would have been $25 million, $18 million and $21 million, respectively. FINANCIAL CONDITION
Working Capital - --------------------------------------------------------------------------------------------------------------------------- Percentage Change Fiscal Fiscal Fiscal (Dollars in thousands) 1997 1996 1996 - 1997 - --------------------------------------------------------------------------------------------------------------------------- Current Assets $1,109,805 $942,382 18% Current Liabilities 562,102 254,433 121% -------------- ------------- Working Capital $ 547,703 $687,949 (20)% ============== ============= Current Ratio 1.97:1 3.70:1 ============== ==============
Current assets increased $167 million from Fiscal 1996, due to the receivable of $600 million from the sale of the assets of Gas Turbine Operations, partially offset by the decrease in net assets of $452 million from discontinued operations. Current liabilities increased $308 million from Fiscal 1996, primarily due to $225 million of long-term debt becoming current as the Company retired the outstanding revolving credit facility on February 3, 1998 using proceeds from the sale of the Gas Turbine Operations. There was also an increase in other accrued liabilities, primarily related to the sale of the Gas Turbine Operations. INVESTMENTS The Company's capital expenditures for plant, rental machines and other property were $32 million for Fiscal 1997, an increase of $11 million from Fiscal 1996. The increase reflects the Company's continuing investment in business units capable of rapid growth. Depreciation and amortization totaled $22 million for Fiscal 1997, a slight increase from Fiscal 1996. Additionally, the Company disposed of approximately $4 million of property during Fiscal 1997 versus disposals of $2 million during Fiscal 1996. Investments and other assets were $45 million at the end of Fiscal 1997, a slight decrease from the end of Fiscal 1996.
Company's Capital - ------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) Fiscal 1997 Fiscal 1996 Amount Percentage Amount Percentage - ------------------------------------------------------------------------------------------------------------------------------ Long-Term Debt $147,166 21% $319,700 39% Other Long-Term Liabilities 21,672 3 25,791 3 Shareholders' Equity 521,707 76 479,235 58 ======================================================= $690,545 100% $824,726 100% =======================================================
Shareholders' equity increased $42 million during Fiscal 1997 primarily due to the gain on the sale of the Gas Turbine Operations retained after dividends. Long-term debt was reduced during Fiscal 1997 reflecting the classification, as current maturities of long-term debt, those amounts which the Company intended to retire within one year. Stewart & Stevenson has announced its intention to use up to $120 million of the estimated cash from the sale of the Gas Turbine Operations Division to repurchase shares of its common stock. As of April 15, 1998, the Company had completed the purchase and retirement of 1,650,000 shares of its common stock under an equity forward contract for approximately $41 million. The Company intends to continue making purchases of its common stock in the open market. As of January 31, 1998, the repurchase by the Company of its common stock did not have a material impact of the calculation of earnings per share for Fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's sources of liquidity include cash and equivalents, cash from operations, amounts available under credit facilities and other external sources of funds. The Company believes that these sources are sufficient to fund the current requirements of working capital, capital expenditures, dividends and other financial commitments. During Fiscal 1997, the Company completed a number of transactions intended to strengthen its long-term financial position and enhance earnings. In the third quarter of 1997, the Company completed the sale of its construction equipment division for $30 million, realizing a net gain of $4 million. In the fourth quarter of 1997, the Company completed the sale of its Gas Turbine Operations Division for $600 million, realizing a net gain of $61 million. Also in the fourth quarter of 1997, the Company instituted a program to repurchase up to $120 million of its outstanding common stock. On February 3, 1998, Stewart & Stevenson repaid $225 million of unsecured indebtedness under its revolving credit facility. The following table summarizes the Company's cash flows from operating, investing and financing activities as prescribed by Generally Accepted Accounting Principles (GAAP), and reflected in the Consolidated Statement of Cash Flows.
Summarized Statement of Cash Flows - --------------------------------------------------------------------------------------- ------------- ------------- ------------- (Dollars in thousands) Fiscal Fiscal Fiscal 1997 1996 1995 - --------------------------------------------------------------------------------------- ------------- ------------- ------------- Net cash provided by (used in): Operating activities $(11,916) $(32,600) $(91,666) Investing activities (14,236) (26,966) (14,086) Financing activities 36,033 62,369 108,080 ============= ============= ============= $9,881 $2,803 $2,328 ============= ============= ============= Net Cash Used In Operating Activities - ------------------------------------ --------------------------------------------------- ----------- ------------- ------------- (Dollars in thousands) Fiscal Fiscal Fiscal 1997 1996 1995 - ------------------------------------ --------------------------------------------------- ----------- ------------- ------------- Net earnings (loss) from continuing operations $(14,505) $4,768 $20,698 Depreciation and amortization 22,447 22,376 20,557 Accrued postretirement benefits (1,835) (363) 202 Deferred income taxes, net (3,350) (1,667) (1,244) Gain on sale of John Deere franchise (4,369) - - ------------- ------------- ------------- Funds from (used in) continuing operations (1,612) 25,114 40,213 Change in net operating assets and liabilities 70,639 27,653 (131,737) Funds from discontinued operations (80,943) (85,367) (142) ------------- ------------- ------------- Net cash used in operating activities $(11,916) $(32,600) $(91,666) ============= ============= =============
Funds from continuing operations decreased 106% during Fiscal 1997 versus a 60% decrease during Fiscal 1996, reflecting primarily the relative change in earnings each year. Working capital to support the operations of the Company fluctuates significantly depending on the progress payment streams of contracts in process. Other current liabilities increased during Fiscal 1997, which is primarily attributable to certain liabilities associated with the sale of the Gas Turbine Operations. The Tactical Vehicle Systems segment is primarily funded by progress payments under government regulations which require that contractors retain a significant amount of the contract costs until government acceptance of the product. The Company regularly bids on commercial and government contracts, which if awarded to the Company, could significantly affect both working capital and capital expenditure needs. Net Cash Used In Investing Activities
- --------------------------------------------------------------------------------------- ------------- ------------- ------------ (Dollars in thousands) Fiscal Fiscal Fiscal 1997 1996 1995 - --------------------------------------------------------------------------------------- ------------- ------------- ------------ Expenditures for property, plant and equipment $(31,778) $(21,303) $(16,041) Proceeds from sale of the Houston John Deere franchise 22,773 - - Acquisition of business (8,729) - - Investment (See Note 15) - (8,000) - Disposal of property, plant and equipment 3,498 2,337 1,955 ------------- ------------- ------------ Net cash used in investing activities $(14,236) $(26,966) $(14,086) ============= ============= ============
Net cash used in investing activities decreased 47% during Fiscal 1997 versus a 91% increase during Fiscal 1996. During Fiscal 1996, the Company made an investment in an Argentine independent power producer. During 1997, the Company transferred a gas turbine valued at approximately $5 million from its discontinued operations inventory to property, plant and equipment of the Company's other operations, to support its retained interest and obligations associated with that investment. On April 12, 1997, the Company acquired ownership of Sierra Detroit Diesel Allison, Inc. from Outer Drive Holdings, Inc. The acquisition will broaden the Company's distribution territory for certain products. On September 12, 1997, the Company also acquired Carson Cogeneration LLP, an independent power producer in California. On October 6, 1997, the Company sold its Houston John Deere franchise.
Net Cash Provided By Financing Activities - --------------------------------------------------------------------------------------- ------------- ------------- ------------ (Dollars in thousands) Fiscal Fiscal Fiscal 1997 1996 1995 - --------------------------------------------------------------------------------------- ------------- ------------- ------------ Additions to long-term debt $76,153 $360,000 $200,071 Payments on long-term debt (37,329) (251,100) (106,100) Net borrowings and payments on short-term notes payable 7,000 (37,000) 23,000 Dividends paid (11,286) (11,081) (10,243) Exercise of stock options 1,495 1,550 1,352 ------------- ------------- ------------ Net cash provided by financing activities $36,033 $62,369 $108,080 ============= ============= ============
Net cash provided from financing activities decreased 42% for Fiscal 1997 and Fiscal 1996. During Fiscal 1997 the Company increased long-term debt $76 million while retiring $37 million. In addition to the increased long-term debt, financing cash inflows included the exercise of stock options totaling $2 million. On May 30, 1996, the Company completed a private placement of $135 million senior notes with an average maturity of 5 1/2 years. The notes are unsecured and were issued pursuant to an agreement containing a covenant which imposes a debt to total capitalization requirement. In the event that any acquisition of additional operations, growth in existing operations, changes in inventory levels, accounts receivable or other working capital items create a need for working capital or capital expenditures in excess of existing committed lines of credit, the Company may seek to convert uncommitted borrowing arrangements to committed credit facilities or to borrow under other long-term financing sources. Payment of cash dividends on common stock totaled $11.3 million and $11.1 million during Fiscal 1997 and 1996, respectively, increasing 2% and 8% during these years. Cash dividends represented 22%, 66% and 17% of net earnings for Fiscal 1997, 1996 and 1995, respectively. The Board of Directors of the Company intends to consider the payment of dividends on a quarterly basis, commensurate with the Company's earnings and financial needs. The Company uses both funds from operations, along with borrowings, to pay dividends. YEAR 2000 COMPLIANCE The Company is currently working to resolve the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems. Based on preliminary information, costs of addressing potential problems are not currently expected to have a material adverse impact on the Company's financial position, results of operations or cash flows in future periods. However, if the Company, its customers or vendors are unable to resolve such processing issues in a timely manner, it could result in a material financial risk. Accordingly, the Company plans to devote the necessary resources to resolve all significant year 2000 issues in a timely manner. ACCOUNTING DEVELOPMENTS In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which become effective for years beginning after December 31, 1997. SFAS No. 130 requires disclosure of comprehensive income, which consists of all changes in equity from non-shareholder sources. SFAS No. 131 requires that segment reporting for public reporting purposes be conformed to the segment reporting used by management for internal purposes. The adoption of these statements will not impact the Company's consolidated financial position, results of operations or cash flows, but will be limited to the form and content of the Company's disclosures. Since most of the information required under these statements is currently disclosed, it is not expected that their adoption will materially change the Company's current disclosures. TACTICAL VEHICLE SYSTEMS' CONTRACT STATUS Major contracts for military systems are performed over extended periods of time and are subject to changes in scope of work and delivery schedules. Pricing negotiations on changes and settlement of claims often extend over prolonged periods of time. The Company's ultimate profitability on such contracts will depend not only upon the accuracy of the Company's cost projections, but also the eventual outcome of an equitable settlement of contractual issues with the U.S. Government. The FMTV contract is a firm fixed-price multi-year contract whereby the price paid to the Company is not subject to adjustment to reflect the Company's actual costs, except costs incurred as a result of actions or inactions of the government. Stewart & Stevenson has incurred significant cost overruns and delivery schedule delays on the FMTV contract which the Company believes are primarily due to the government's decision to delay the testing of trucks and other government directed changes to the contract. The Company has and will continue to submit a series of Requests for Equitable Adjustments (REAs), under the FMTV contract, seeking increases in the FMTV contract price for those additional costs that relate to government caused delays and changes. Revenues and profits realized on the FMTV contract are based on the Company's estimates of total contract sales value and costs at completion. Amounts in excess of agreed upon contract price for government caused delays, disruptions, unpriced change orders and government caused additional contract costs are recognized in contract value when the Company believes it is probable that the claim for such amounts will result in additional contract revenue and the amount can be reasonably estimated. At January 31, 1998, the Company's FMTV contract accounting position reflects the expected recovery of substantial amounts in excess of the contract price for government caused delays, disruptions, unpriced change orders and other government caused additional contract costs. These claims are in varying stages of negotiation. Although management believes that the contract provides a legal basis for the claims and its estimates are based on reasonable assumptions and on a reasonable analysis of contract costs, due to uncertainties inherent in the estimation and claims negotiations process, no assurances can be given that its estimates will be accurate, and variances between such estimates and actual results could be material. In the event that the Company is unable to recover a substantial portion of the additional costs, the Company may suffer a material adverse effect on its earnings during the accounting period in which such contract issues are resolved. Under the terms of the FMTV contract, approximately 2,936 vehicles produced before December 1995 were required to be retrofitted with any modifications required by test results or specification changes ordered by the U.S. Government. This retrofit program was commenced during the fourth quarter of Fiscal 1995 and was substantially completed in the second quarter of Fiscal 1996. Full rate production of the FMTV commenced after the retrofit program was substantially completed and, as of January 31, 1998, the Company has completed approximately 7,937 of the 11,197 vehicles covered by the original contract plus options and additional requirements to date. During Fiscal 1996, the Company entered into a contract modification that extended the FMTV delivery schedule through December 1998 and reduced the annual product requirements. The total number of vehicles covered by the FMTV contract did not change. The funding of the contract is subject to the inherent uncertainties of congressional appropriations. As is typical of multi-year defense contracts, the FMTV contracts must be funded annually by the Department of the Army and may be terminated at any time for the convenience of the government. As of January 31, 1998, the Company has received full funding for the current contract. If the FMTV contract is terminated other than for default, the FMTV contract provides for termination charges that will reimburse the Company for allowable costs, but not necessarily all costs. During Fiscal 1997, the Company revised its estimate of the total cost to complete and profit on the existing FMTV contract. This review resulted in a write off of approximately $27 million in profits previously recognized under the FMTV contract and a reduction in the operating profit percentage on the Tactical Vehicle Systems segment to 2.1%. During Fiscal 1997, the Company began negotiations with the U.S. Army to produce additional FMTV's under a new multi-unit contract on a sole source basis. These negotiations are expected to be completed during Fiscal 1998, and, if the contract is awarded to the Company, it is anticipated that production will begin in Fiscal 1999, subject to the multi-year funding requirements described above. EFFECT OF CERTAIN LITIGATION During Fiscal 1997, the Company entered a Plea Agreement and a Settlement Agreement resolving all litigation relating to the 1987 contract to supply diesel generator sets for installation in the Kingdom of Saudi Arabia (the "Peace Shield Litigation"). The Company paid a $2 million criminal fine, a $2 million civil penalty, and $3 million in restitution to the U.S. Air Force. A $10 million provision for fines, penalties, restitution and certain unrecognized legal fees in connection with the Peace Shield Litigation was made in the third quarter of Fiscal 1997. After the end of Fiscal 1997, the Company entered an Administrative Agreement with the United States Air Force that extends the application of the interim Administrative Agreement signed on November 8, 1995 and imposes certain requirements on the Company intended to assure the U.S. Air Force that the Company is a responsible government contractor. A default by the Company of the requirements under the Administrative Agreement could result in the suspension or debarment of the Company from receiving any new contracts or subcontracts with agencies of the U.S. Government or the benefit of federal assistance payments. Any such suspension could also prevent the Company from receiving future modifications to the FMTV contract unless the Secretary of the Army finds a compelling need to enter into such modification. The Company would also be unable to sell equipment and services to customers that depend on loans or financial commitments from the Export Import Bank ("EXIM Bank"), Overseas Private Investment Corporation ("OPIC") and similar government agencies during a suspension or debarment. Any such suspension or debarment could have a material adverse impact on the Company's future financial condition and results of operations. FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this annual report contain forward-looking statements that are based on current expectations, estimates, and projections about the markets and industries in which the Company operates, management's beliefs and assumptions made by management. These forward-looking statements are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("future factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Future factors include adjustments to the sale price of the Gas Turbine Operations Division; risks associated with newly acquired businesses; increasing price and product/service competition by foreign and domestic competitors; rapid technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost effective basis; the mix of products/services; the achievement of lower costs and expenses; reliance on large customers; technological, implementation and cost/financial risks in use of large, multi-year contracts; the cyclical nature of the markets served; the outcome of pending and future litigation and governmental proceedings and continued availability of financing, financial instruments and financial resources in the amount, at the times and on the terms required to support the Company's business; and the risk of cancellation or adjustments of specific orders and termination of significant government programs. These are representative of the future factors that could affect the outcome of forward-looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates, general domestic and international conditions including interest rates, rates of inflation and currency exchange rate fluctuations and other future factors. Item 8. Financial Statements and Supplementary Data. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors and Shareholders Stewart & Stevenson Services, Inc. We have audited the accompanying consolidated statements of financial position of Stewart & Stevenson Services, Inc. and subsidiaries as of January 31, 1998 and 1997, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended January 31, 1998. 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, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 1998 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Houston, Texas April 13, 1998
Stewart & Stevenson Services, Inc. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION - ----------------------------------------------------------------------------------------------------------- (Dollars in thousands, except share data) Fiscal Fiscal 1997 1996 - ----------------------------------------------------------------------------------------------------------- Assets Current Assets Cash and equivalents $18,987 $9,106 Accounts and notes receivable, net 185,033 160,407 Recoverable costs and accrued profits not yet billed 138,208 156,375 Inventories 167,577 164,205 Receivable from sale of assets of Gas Turbine Operations 600,000 - Net assets of discontinued operations (See Note 2) - 452,289 ---------------------- ------------------- Total Current Assets 1,109,805 942,382 Property, Plant and Equipment, net 97,744 91,578 Investments and Other Assets 45,098 45,199 ====================== =================== $1,252,647 $1,079,159 ====================== =================== Liabilities and Shareholders' Equity Current Liabilities Notes payable $35,000 $28,000 Accounts payable 92,728 122,116 Accrued payrolls and incentives 18,693 15,376 Current income taxes 88,862 65,881 Current portion of long-term debt 226,000 1,100 Other accrued liabilities 100,819 21,960 ---------------------- ------------------- Total Current Liabilities 562,102 254,433 Commitments and Contingencies (See Note 6) Long-Term Debt 147,166 319,700 Deferred Income Taxes 2,899 5,127 Accrued Postretirement Benefits 13,256 15,091 Deferred Compensation 5,517 5,573 Shareholders' Equity Common Stock, without par value, 100,000,000 shares authorized at January 31, 1998 and January 31, 1997, respectively; 33,205,688 and 33,132,280 shares issued at January 31, 1998 and 1997, respectively, including 11,820 shares held in treasury 166,454 164,959 Retained earnings 355,286 314,309 ---------------------- ------------------- 521,740 479,268 Less cost of treasury stock (33) (33) ---------------------- ------------------- Total Shareholders' Equity 521,707 479,235 ====================== =================== $1,252,647 $1,079,159 ====================== =================== The accompanying notes are an integral part of the consolidated financial statements
Stewart & Stevenson Services, Inc. CONSOLIDATED STATEMENTS OF EARNINGS ------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands, except per share data) Fiscal Fiscal Fiscal 1997 1996 1995 ------------------------------------------------------------------------------------------------------------------------ Sales $1,115,034 $ 825,187 $ 702,324 Cost of sales 1,032,049 722,470 607,326 --------------- --------------- --------------- Gross profit 82,985 102,717 94,998 --------------- --------------- --------------- Selling and administrative expenses 75,619 67,163 57,546 Interest expense 15,440 12,474 7,344 Special charge - Quiet Program 13,352 - - Settlement of litigation (See Note 3) 10,000 20,000 - Gain on sale of the John Deere franchise (4,369) - - Other income, net (4,867) (3,571) (2,784) --------------- --------------- --------------- 105,175 96,066 62,106 --------------- --------------- --------------- Earnings (loss) from continuing operations before income taxes (22,190) 6,651 32,892 Income tax expense (benefit) (8,075) 1,776 12,754 --------------- --------------- --------------- Earnings (loss) from continuing operations of consolidated companies (14,115) 4,875 20,138 Equity in net earnings (loss) of unconsolidated affiliates (390) (107) 560 --------------- --------------- --------------- Net earnings (loss) from continuing operations (14,505) 4,768 20,698 Net earnings from discontinued operations net of tax of $1,920, $6,744 and $17,911 (See Note 2) 5,424 12,083 41,105 Gain on disposal of discontinued operations, net of tax of $35,297 (See Note 2) 61,344 - - --------------- --------------- --------------- Net earnings $52,263 $16,851 $61,803 =============== =============== =============== Weighted average number of shares of Common Stock outstanding - Basic 33,184 33,068 33,035 Diluted 33,250 33,090 33,101 Net earnings (loss) per share: Basic and Diluted Continuing operations $ (.44) $.14 $.63 Discontinued operations .16 .37 1.24 Gain on disposal 1.85 - - =============== =============== =============== Net earnings per share $1.57 $.51 $1.87 =============== =============== =============== The accompanying notes are an integral part of the 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 1994 $162,057 $256,979 $(33) $419,003 Net earnings - 61,803 - 61,803 Cash dividends - (10,243) - (10,243) Exercise of stock options 1,352 - - 1,352 ------------- ------------- ------------- ----------- Balance at end of Fiscal 1995 163,409 308,539 (33) 471,915 Net earnings - 16,851 - 16,851 Cash dividends - (11,081) - (11,081) Exercise of stock options 1,550 - - 1,550 ------------- ------------- ------------- ----------- Balance at end of Fiscal 1996 164,959 314,309 (33) 479,235 Net earnings - 52,263 - 52,263 Cash dividends - (11,286) - (11,286) Exercise of stock options 1,495 - - 1,495 ============= ============= ============= =========== Balance at end of Fiscal 1997 $166,454 $355,286 $(33) $521,707 ============= ============= ============= =========== The accompanying notes are an integral part of the consolidated financial statements
Stewart & Stevenson Services, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS - ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Fiscal Fiscal Fiscal 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Activities Net earnings (loss) from continuing operations $(14,505) $4,768 $20,698 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Accrued postretirement benefits (1,835) (363) 202 Depreciation and amortization 22,447 22,376 20,557 Deferred income taxes, net (3,350) (1,667) (1,244) Gain on sale of the John Deere franchise (4,369) - - Change in operating assets and liabilities net of the effect of acquisition, divestiture and discontinued operations: Accounts and notes receivable, net (13,699) (37,495) (5,745) Recoverable costs and accrued profits not yet billed 18,167 (30,335) (34,050) Inventories (17,596) 53,203 (82,514) Accounts payable (32,700) 49,196 (29,706) Current income taxes 23,043 (2,769) 26,410 Other current liabilities 79,947 6,885 (3,710) Other--principally long-term assets and liabilities 13,477 (11,032) (2,422) ------------- ------------- ------------ Net Cash Provided by (Used in) Continuing Operations 69,027 52,767 (91,524) Net Cash Used in Discontinued Operations (80,943) (85,367) (142) ------------- ------------- ------------ Net Cash Used in Operating Activities (11,916) (32,600) (91,666) Investing Activities Expenditures for property, plant and equipment (31,778) (21,303) (16,041) Proceeds from sale of John Deere franchise (See Note 15) 22,773 - - Acquisition of business (See Note 15) (8,729) - - Investment - (8,000) - Disposal of property, plant and equipment 3,498 2,337 1,955 ------------- ------------- ------------- Net Cash Used in Investing Activities (14,236) (26,966) (14,086) Financing Activities Additions to long-term debt 76,153 360,000 200,071 Payments on long-term debt (37,329) (251,100) (106,100) Net borrowings and payments on short-term notes payable 7,000 (37,000) 23,000 Dividends paid (11,286) (11,081) (10,243) Exercise of stock options 1,495 1,550 1,352 ------------- ------------- ------------- Net Cash Provided by Financing Activities 36,033 62,369 108,080 ------------- ------------- ------------- Increase in cash and equivalents 9,881 2,803 2,328 Cash and equivalents, beginning of fiscal year 9,106 6,303 3,975 ============= ============= ============= Cash and equivalents, end of fiscal year $18,987 $9,106 $6,303 ============= ============= ============= Non-Cash Activities: Transfer of inventory to fixed assets - Continuing operations $(4,712) $ - $ - - Discontinued operations $(4,015) $ - $ - The accompanying notes are an integral part of the 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 1997" commenced on February 1, 1997 and ended on January 31, 1998. 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. Stock-Based Compensation: The Company will continue to apply the existing accounting rules contained in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. Pro forma disclosure of the compensation expense determined under the fair-value provision of Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation" has been provided. (See Note 11) Cash Equivalents: Interest-bearing deposits and other investments with original maturities of three months or less are considered cash equivalents. Included in this balance at January 31, 1998 is approximately $3.1 million, which is subject to the terms of a fiscal agency agreement related to an operating lease of a cogeneration facility acquired in September 1997. Inventories: Inventories are generally 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 inventories are not in excess of their fair values. Capitalized Interest: Interest costs associated with certain constructed assets are capitalized during the construction period. There was no capitalized interest in 1997, 1996 or 1995. Interest capitalized on assets developed for the Company's use are amortized over the depreciable life of the related assets. Contract Revenues and Costs: Revenues relating to contracts or contract changes that have not been completely priced, negotiated, documented, or funded are not recognized unless realization is considered probable. Generally, revenue is recognized when a product is shipped or accepted by the customer, except for certain Engineered Power Systems' products, where revenue is recognized using the percentage-of-completion method. The revenues of the Tactical Vehicle Systems segment are generally recognized under the units-of-production method, whereby sales and estimated average cost of the units to be produced under the Family of Medium Tactical Vehicle ("FMTV") contract are recognized as units are substantially completed. Profits expected to be realized on contracts are based on the Company's estimates of total sales value and costs at completion. Changes in estimates for sales, costs, and profits are recognized in the period which they are determinable using the cumulative catch-up method of accounting. In certain cases, the estimated sales values include amounts expected to be realized from contract adjustments or claims when recovery of such amounts are probable, subject to negotiations or legal proceedings. Any anticipated losses on contracts are charged in full to operations in the period in which they are determinable. Depreciable Property: The Company depreciates property, plant and equipment over their estimated useful lives, using accelerated and straight-line methods. Expenditures for property, plant and equipment are capitalized and carried at cost. When items are retired or otherwise 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 as incurred and replacements and betterments are capitalized. Foreign Exchange Contracts: The Company occasionally enters into forward exchange contracts only as a hedge against certain economic exposures and not for speculative or trading purposes. While the forward contracts affect the Company's results of operations, they do so only in connection with the underlying transactions. As a result, they do not subject the Company to risk from exchange rate movements, because gains and losses on these contracts offset losses and gains on the transactions being hedged. Other Off-Balance Sheet Risks: The Company has entered into certain contracts whereby it has guaranteed the repayment of a customer's debt to third party lenders. (See Note 6) Fair Value of Financial Instruments: The Company's financial instruments consist primarily of cash and equivalents, trade receivables, trade payables and debt instruments. The book values of cash and 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 fair market value of the senior notes is $139.3 million at January 31, 1998, which are recorded at a book value of $135.0 million. The Company estimates that the book value of all other of its financial instruments approximates market values. Warranty Costs: Expected warranty and performance guarantee costs are accrued as revenue is recorded, based on historical experience and contract terms. Net Earnings Per Share: In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128 Earnings per Share ("SFAS 128"), which specifies the computation, presentation, and disclosure requirements for earnings per share ("EPS"). It replaces the presentation of primary and fully diluted EPS with basic and diluted EPS. Basic EPS excludes all dilution. It is based upon the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would occur if all securities or other contracts to issue common stock were exercised or converted into common stock. During Fiscal 1997, 1996 and 1995, there were 66,000, 22,000 and 66,000 stock options, respectively, were deemed to be dilutive. The Company has adopted SFAS 128 as of January 31, 1998, as is required by FASB. Accordingly, all periods presented have been restated as basic and diluted EPS. There is no material difference between SFAS 128 presentation of EPS and the EPS presented in prior reporting periods. Use of Estimates and Assumptions: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications: The accompanying consolidated financial statements for prior Fiscal years contain certain reclassifications to conform with the presentation used in Fiscal 1997. The consolidated financial statements have been restated to reflect the Company's Gas Turbine Operations as a discontinued operation. Note 2: Discontinued Operations Effective as of January 31, 1998, the Company completed the sale of the net assets of the Gas Turbine Operations Division to the General Electric Company for $600.0 million plus assumed liabilities, subject to adjustment. The Gas Turbine Operations Division manufactures and services gas turbine driven equipment including associated spare parts, provides contract operation and maintenance services for power generation and petrochemical processing facilities, and engages in the development and turnkey contraction of power generation projects. The results of the Gas Turbine Operations Division have been classified as discontinued operations in the accompanying financial statements. The amounts classified as "Net assets of discontinued operations" in the Fiscal 1996 consolidated balance sheet consist primarily of inventories and receivables. Net earnings from discontinued operations for the eight months ended September 30, 1997 (the pre-measurement period) includes interest expense of approximately $9.9 million, which was allocated based on the ratio of net assets to be discontinued to the sum of the total net assets of the consolidated entity. The gain on disposal of discontinued operations includes interest expense of approximately $3.9 million, allocated using the same method. Summarized operating results of discontinued operations are as follows:
Twelve Months Ended January 31 -------------------------------------------------------- 1998 1997 1996 ------------------ ----------------- ----------------- (Unaudited) Sales $404,172 $361,974 $531,657 Gross profit 35,643 63,852 97,932 Income tax expense 37,217 6,744 17,911 Net earnings from discontinued operations net of tax 5,424 12,083 41,105 Gain on disposal of discontinued operations, net of tax 61,344 - -
Note 3: Industry Segment Data The Power Products 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 Engineered Power Systems segment primarily consists of the manufacturing of airline ground support equipment and oil field well servicing equipment. 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, consisting primarily of cash and equivalents and investments, are included in "Other Operations". The Company markets its products and services throughout the world and is not dependent upon any single geographic region or single customer. Other than the U.S. Government, no single group or customer represents greater than 10% of consolidated sales. Export sales, including sales to domestic customers for export, for Fiscal 1997, 1996 and 1995 were $65.7 million, $83.2 million and $53.8 million, respectively. Export sales to any single geographic region in Fiscal 1997, 1996 and 1995 were not material to consolidated sales. During Fiscal 1997 the Company incurred a $10.0 million litigation charge in association with a 1987 contract to supply diesel generator sets for installation at long range radar sites in Saudi Arabia (See Note 6: Commitments and Contingencies). Also, during Fiscal 1997 the Company recorded a special charge of $13.4 million relative to the settlement of a claim and a special gain of $4.4 million related to the sale of the Company's John Deere franchise in Houston, Texas (See Note 15). During Fiscal 1996, a jury in Houston, Texas returned a $43.0 million verdict against the Company in a case filed by Serv-Tech, Inc. for breach of a secrecy agreement. The Company's liability in connection with this matter was limited pursuant to a pretrial agreement between the Company and Serv-Tech. The Company recognized a pre-tax charge against earnings of $20.0 million relating to this case in the second quarter of Fiscal 1996. The judgment based on this verdict was paid by the Company in September 1996.
Financial information relating to industry segments is as follows: -------------------------------------------------------------------------------------------------------------------------- Operating Identifiable Capital Sales Profit Assets Expenditures Depreciation -------------------------------------------------------------------------------------------------------------------------- Fiscal 1997 Power Products (1) $580,490 $36,031 $327,030 $17,915 $9,698 Tactical Vehicle Systems 396,734 (9,990) 179,090 1,510 8,313 Engineered Power Systems 124,194 (879) 107,294 6,999 2,734 Other 13,616 (685) 39,233 5,354 908 Discontinued Operations - - 600,000 - - --------------- -------------- ---------------- --------------- --------------- Total $1,115,034 $24,477 $1,252,647 $31,778 $21,653 =============== ============== ================ =============== =============== Fiscal 1996 Power Products $508,305 $33,017 $290,011 $13,119 $7,699 Tactical Vehicle Systems 200,916 10,551 185,211 1,422 10,746 Engineered Power Systems 114,706 2,831 133,353 6,142 3,045 Other 1,260 716 18,295 620 536 Discontinued Operations - - 452,289 - - --------------- -------------- ---------------- --------------- --------------- Total $825,187 $47,115 $1,079,159 $21,303 $22,026 =============== ============== ================ =============== =============== Fiscal 1995 Power Products $416,229 $30,393 $240,390 $10,780 $6,900 Tactical Vehicle Systems 189,009 9,703 175,174 2,111 10,349 Engineered Power Systems 96,045 7,085 154,893 2,049 2,023 Other 1,041 292 23,329 1,101 958 Discontinued Operations - - 354,840 - - --------------- -------------- ---------------- --------------- --------------- Total $702,324 $47,473 $948,626 $16,041 $20,230 =============== ============== ================ =============== =============== (1) Operating profit of Power Products for Fiscal 1997 includes the $4,369 gain on the sale of the Houston John Deere franchise.
A reconciliation of Operating Profit to Earnings (Loss) from Continuing Operations before Income Taxes is as follows: --------------------------------------------------------------------------------------------------------------------------------- Fiscal Fiscal Fiscal 1997 1996 1995 --------------------------------------------------------------------------------------------------------------------------------- Operating profit $ 24,477 $47,115 $47,473 Corporate expenses, net (7,875) (7,990) (7,237) Interest expense (15,440) (12,474) (7,344) Settlement of litigation and special charge (23,352) (20,000) - -------------- ---------------- ------------- Earnings (loss) from continuing operations before income taxes $(22,190) $6,651 $32,892 ============== ================ ==============
Note 4: Contracts in Process Amounts included in the financial statements which relate to recoverable costs and accrued profits not yet billed on contracts in process are classified as current assets, billings on uncompleted contracts in excess of incurred cost and accrued profits are classified as current liabilities. Summarized below are the components of the amounts:
- ----------------------------------------------------------------------------------------------------------------------------------- Fiscal Fiscal 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Costs incurred on uncompleted contracts $1,137,220 $800,923 Accrued profits 19,440 31,571 --------------- --------------- $1,156,660 $832,494 Less: Customer progress payments (1,018,892) (676,119) --------------- --------------- $137,768 $156,375 =============== =============== Included in the statements of financial position: Recoverable costs and accrued profits not yet billed $138,208 $156,375 Billings on uncompleted contracts in excess of incurred costs (440) - =============== =============== $137,768 $156,375 =============== ===============
Recoverable costs and accrued profits related to the Tactical Vehicle Systems segment include direct costs of manufacturing and engineering and allocable overhead costs. Generally, overhead costs include general and administrative expenses allowable in accordance with the United States Government contract cost principles and are charged to cost of sales at the time revenue is recognized. General and administrative costs remaining in recoverable costs and accrued profits not yet billed amounted to $13,992 and $25,420 at January 31, 1998 and 1997, respectively. The Company's total general and administrative expenses incurred amounted to $88,235, $83,092 and $69,730 in Fiscal 1997, 1996 and 1995, respectively. The United States Government has a security interest in unbilled amounts associated with contracts that provide for progress payments. In accordance with industry practice, recoverable costs and accrued profits not yet billed include amounts relating to programs and contracts with long production cycles, a portion of which is not expected to be realized within one year.
Note 5: Inventories Summarized below are the components of inventories: - ------------------------------------------------------------------------------------------------------------------------------------ Fiscal Fiscal 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Engineered Power Systems $47,017 $55,338 Customer deposits (466) (1,081) --------------- --------------- Total Engineered Power Systems 46,551 54,257 Power Products 166,918 149,166 Excess of current cost over LIFO values (45,892) (39,218) --------------- --------------- Total Inventories $167,577 $164,205 =============== ===============
The Company's inventory classifications correspond to its industry segments. As a custom packager of power systems to customer specifications, the Engineered Power Systems segment's inventory consists primarily of work-in-process which includes purchased and manufactured components in various stages of assembly. The Engineered Power Systems segment's inventory at January 31, 1997 includes approximately $19.1 million of costs on a certain U.S. Government contract in excess of contractual authorization for which the Company ultimately received approximately $5.8 million, resulting in a Fiscal 1997 fourth quarter charge of approximately $13.4 million. The Power Products segment's inventory consists primarily of industrial equipment, equipment under modification and parts held in the Company's distribution network for resale. During Fiscal 1996, certain inventories were reduced. After adjusting for the sale of the Gas Turbine Operations Division, the reductions resulted in liquidation of LIFO inventory quantities carried at lower costs prevailing in prior fiscal years as compared with the cost of Fiscal 1996 purchases, the effect of which increased pre-tax earnings in Fiscal 1996 by approximately $1,446. In Fiscal 1997, the effect of the liquidation of LIFO inventory was immaterial. Note 6: Commitments and Contingencies As a custom packager of power systems, the Company issues bid and performance guarantees in the form of performance bonds or standby letters of credit. Performance type letters of credit totaled approximately $29.3 million at the close of Fiscal 1997. Additionally, the Company has outstanding, at January 31, 1998, letters of credit totaling approximately $7.1 million related to potential future liabilities of a wholly owned cogeneration plant. During Fiscal 1997, the Company entered a Plea Agreement and a Settlement Agreement resolving all litigation relating to the 1987 contract to supply diesel generator sets for installation in the Kingdom of Saudi Arabia (the "Peace Shield Litigation"). This litigation was pending in the United States District Court, Houston Division. The Company paid a $2.0 million criminal fine, a $2.0 million civil penalty, and $3.0 million in restitution to the U.S. Air Force. A $10.0 million provision for fines, penalties, restitution and certain unrecognized legal fees in connection with the Peace Shield Litigation was made in the third quarter of Fiscal 1997. After the end of Fiscal 1997, the Company entered an Administrative Agreement with the U.S. Air Force that imposes certain requirements on the Company intended to assure the U.S. Air Force that the Company is a responsible government contractor. A default by the Company of the requirements under the Administrative Agreement could result in the suspension or debarment of the Company from receiving new contracts or subcontracts with agencies of the U.S. Government or the benefit of federal assistance payments. Any such suspension could prevent the Company from receiving future modifications to the Family of Medium Tactical Vehicles ("FMTV") contract unless the Secretary of the Army finds a compelling need to enter into such modification. The Company would also be unable to sell equipment and services to customers that depend on loans or financial commitments from the Export Import Bank ("EXIM Bank"), Overseas Private Investment Corporation ("OPIC") and similar government agencies during a suspension or debarment. Any such suspension or debarment could have a material adverse impact on the Company's financial condition and results of operations. The Company is a party to an arbitration proceeding before the American Arbitration Association in Houston, Texas in which Engineering Design Group, Inc. ("EDG") has asserted approximately $17 million in claims against the Company, and the Company has asserted approximately $18 million in offsets, back-charges and claims against EDG relating to a turnkey contract for the construction and installation of a turbine power plant in Argentina by EDG. The Company is not able to make a reasonable estimate of the possible outcome of this matter. It is vigorously defending the claims that have been asserted against it and is pursuing the claims it has made against EDG. If EDG is successful on its claims against the Company and the damages are not offset in whole or in part by the Company's claims against EDG, the Company's results of operations for the reporting period in which these claims are resolved, could be materially adversely affected. The Company is also a party to an arbitration proceeding before the American Arbitration Association in San Francisco, California in which Noell, Inc. ("Noell") has asserted approximately $6 million in damages arising from the sale of turbine-driven equipment for installation in power plants located in Ceres, California and Lodi, California. The liability, if any, relating to these claims was assumed by GE as part of the Gas Turbine Operations Division. The Company is a defendant in a number of other lawsuits relating to contractual, product liability, personal injury and warranty matters and otherwise of the type normally incident to the Company's business. Management is of the opinion that such lawsuits will not result in any material liability to the Company. The Company has not established any reserves or accruals for any potential liability that may be subsequently found in any of the foregoing cases, except as indicated above. The Company has provided certain guarantees in support of its customer's financing of purchases from the Company in the form of both residual value guarantees and debt guarantees. The maximum exposure of the Company related to guarantees at January 31, 1998 is $160 million. In conjunction with the acquisition of a cogeneration facility, the Company acquired an operating lease whose payments will become due during Fiscal years 1998 through 2002. These payments are approximately: 1998 and 1999 - $5,850; 2000 - $6,192; 2001 and 2002 - $6,534; and beyond - $48,295. The Company has recorded a liability at January 31, 1998 of approximately $2,468 based on a straight line expense recognition of the required lease step rental payments. The Company leases certain additional property and equipment under lease arrangements of varying terms whose annual rentals are less than 1% of consolidated sales. Note 7: Government Contracts Major contracts for military systems are performed over extended periods of time and are subject to changes in scope of work and delivery schedules. Pricing negotiations on changes and settlement of claims often extend over prolonged periods of time. The Company's ultimate profitability on such contracts will depend not only upon the accuracy of the Company's cost projections, but also the eventual outcome of an equitable settlement of contractual issues with the U.S. Government. Revenues and profits realized on the FMTV contract are based on the Company's estimates of total contract sales value and costs at completion. Stewart & Stevenson has incurred significant cost overruns and delivery schedule delays on the FMTV contract which the Company believes are primarily due to the government's decision to delay the testing of trucks and other government directed changes to the contract. The Company has and will continue to submit a series of Requests for Equitable Adjustments or claims, under the FMTV contract, seeking increases in the FMTV contract price for those additional costs that relate to government caused delays and changes. Amounts in excess of agreed upon contract price for government caused delays, disruptions, unpriced change orders and government caused additional contract costs are recognized in contract value when the Company believes it is probable that the claim for such amounts will result in additional contract revenue and the amount can be reasonably estimated. The Company's FMTV contract accounting position reflects the expected recovery of substantial amounts in excess of the contract price for government caused delays, disruptions, unpriced change orders and other government caused additional contract costs. These claims are in varying stages of negotiations. Although management believes that the FMTV contract provides a legal basis for the claims and that its estimates are based on reasonable assumptions and on a reasonable analysis of the contract costs, the ultimate profitability of the FMTV contract will depend not only on the accuracy of the Company's cost projections but also on the outcome of these claims and other contractual issues. Due to uncertainties inherent in the estimation and claim negotiation process, no assurances can be given that management's estimates will be accurate, and variances between such estimates and actual results could be material. If the Company is unable to recover a substantial portion of the additional costs, previously recognized earnings may be overstated and the Company may suffer a material adverse effect on its operations during the accounting period in which such FMTV contract issues are resolved and future earnings may be recognized at reduced rates. The funding of the FMTV contract is subject to the inherent uncertainties of congressional appropriations. As is typical of multi-year defense contracts, the FMTV contract must be funded annually by the Department of the Army and may be terminated at any time for the convenience of the government. The Company has received full funding for the FMTV contract. If the FMTV contract is terminated other than for default, the FMTV contract provides for termination charges that will reimburse the Company for allowable costs, but not necessarily all costs. Note 8: 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, 1998 and 1997, the amounts outstanding under these arrangements were $35,000 and $28,000, respectively, with a weighted average interest rate of 6.11% for both periods. The amounts outstanding at January 31, 1998 were paid on February 2, 1998 from the proceeds of the sale of discontinued operations (See Note 2.)
Long-Term Debt, which is generally unsecured, consists of the following: - ---------------------------------------------------------------------------------------------------------------------------- Fiscal Fiscal 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- Notes payable to insurance company: -10.20%, principal due $1,000 annually to 1998 $1,000 $2,000 Debt of consolidated limited partnership: -note payable to a bank, principal due monthly to 1998 (see note below) 8,700 8,800 Revolving credit notes payable to banks (see note below) 225,000 175,000 Senior Notes 6.72% principal due 1999 60,000 60,000 7.03% principal due 2001 20,000 20,000 7.29% principal due 2003 30,000 30,000 7.38% principal due 2006 25,000 25,000 Other 3,466 - ---------------- --------------- 373,166 320,800 Less current portion (see note below) (226,000) (1,100) ================ =============== Long-Term Debt $147,166 $319,700 ================ ===============
The Company has commitments of $250,000 from banks under revolving credit notes (subject to reduction at the Company's election) which mature on December 31, 2001. Under the terms of the revolving credit facility, the commitment fee on the daily average unused balance is based on the Company's debt to capitalization ratio with a maximum of 20 basis points per annum. Borrowings outstanding under the revolving credit notes bear interest at various options, the maximum rate being the prime rate. On February 3, 1998, the Company retired $225,000 outstanding under the revolving credit notes from the proceeds of the sale of the discontinued operations (See note 2). Simultaneously, the Company reduced the banks' commitments to $150,000. The Company's unsecured long-term debt, which includes the revolving credit notes and senior notes, was issued pursuant to agreements containing covenants that impose working capital requirements and debt to total capitalization requirements on the Company and designated subsidiaries. These agreements also include covenants that restrict indebtedness, guarantees, rentals and other items. 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%. The amounts of long-term debt which will become due during Fiscal 1998 through 2002, are approximately: 1998--$226,000; 1999--$68,700; 2000--$0; 2001--$20,000; 2002--$743 and beyond--$57,723. Note 9: Postretirement Medical Plan The Company has a postretirement medical plan which covers most of its employees and provides for the payment of medical costs of eligible employees and dependents upon retirement. The plan is currently not funded. The Company expects to continue financing postretirement medical costs as covered claims are incurred.
Postretirement medical benefit costs includes the following components: - ----------------------------------------------------------------------------------------------------------------------------------- Fiscal Fiscal Fiscal 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Service costs - benefits attributed to service during the period $422 $457 $527 Interest cost on accumulated postretirement medical benefit obligation 500 528 620 Amortization of prior service costs (708) (874) (718) ============== ============== =============== Net postretirement medical benefit costs $214 $111 $429 ============== ============== =============== Net postretirement medical benefit costs Continuing operations $214 $81 $371 Discontinued operations - 30 58 -------------- -------------- --------------- $214 $111 $429 ============== ============== ===============
The status of the plan is as follows: - ----------------------------------------------------------------------------------------------------------------------------------- January 31, January 31, January 31, 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Accrued Postretirement Benefits: Retirees $3,819 $3,692 $4,642 Employees eligible to retire 1,505 1,696 2,073 Employees not eligible to retire 1,734 1,799 2,020 -------------- -------------- ------------- 7,058 7,187 8,735 Unrecognized prior service cost 2,655 4,074 4,701 Unrecognized net gain 3,543 3,830 2,018 -------------- -------------- ------------- $13,256 $15,091 $15,454 ============== ============== =============
The actuarial assumptions used are as follows: - -------------------------------------------------------------------------------------------------------------------------------- Fiscal Fiscal 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- Discount Rate 7.25% 7.50% Health Care Cost Trend 7.98% - 8.94% (a) 8.40% - 9.50% (b) (a) Gradually declining to 5.00% by 2004 (b) Gradually declining to 5.00% by 2005
Changing the health care cost trend rates by one percentage point would change the accumulated postretirement medical benefit obligation at January 31, 1998 by approximately $1,170 and the postretirement medical benefit costs for Fiscal 1997 by approximately $186. The sale of the Gas Turbine Operations resulted in a curtailment gain of $824 as of January 31, 1998. The Company has retained all liabilities and obligations of its Gas Turbine Operations' plan participants up to the date of the sale. Note 10: Employee Pension and Other Benefit Plans The Company has a noncontributory defined benefit pension plan covering substantially all of its full-time employees. The pension benefits are based on years of service, limited to 45 years, and the employee's highest consecutive five-year average compensation out of the last ten years of employment. The Company funds pension costs in conformity with the funding requirements of applicable government regulations.
The following table sets forth the plan's funded status and amounts recognized in the Company's statements of financial position: - ------------------------------------------------------------------------------------------------------------------------------------ Fiscal Fiscal 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $57,586 in 1997 and $48,193 in 1996 $60,853 $52,478 ============= ============= Projected benefit obligation for service rendered to date $(69,610) $(66,129) Plan assets at fair value for Fiscal 1997 and 1996; primarily publicly traded stocks and bonds, including 70,956 shares of the Company's Common Stock at the end of both Fiscal 1997 and 1996 76,323 68,196 ------------- -------------- Plan assets in excess of projected benefit obligations 6,713 2,067 Unrecognized net (loss) gain from past experience different from that assumed (1,312) 3,297 ------------- ------------- Prepaid pension cost included in Investments and Other Assets $5,401 $5,364 ============= =============
Net pension (income)/expense includes the following components: - ------------------------------------------------------------------------------------------------------------------------------------ Fiscal Fiscal Fiscal 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Service cost -- benefits earned during the year $3,861 $3,674 $2,187 Interest cost on projected benefit obligation 4,734 4,360 3,800 Actual return on plan assets (10,445) (8,197) (2,782) Amortization of unrecognized net gain - - (738) Net amortization and deferrals 4,535 2,635 (2,494) ------------- ------------- ------------- Net periodic pension (income) expense $2,685 $2,472 $(27) Net periodic pension (income) expense Continuing operations $1,684 $1,483 $(303) Discontinued operations 1,001 989 276 ------------ ----------- ------------ $2,685 $2,472 $(27) ============ =========== ============
The actuarial assumptions used are as follows: - ----------------------------------------------------------------------------------------------------------------------------------- Fiscal Fiscal 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Discount Rate 7.25% 7.50% Long-term rate of return on assets 9.50% 9.50% Rate of increase in future compensation 4.75% 4.50% - 5.00%
The expected return on plan assets is determined based on the expected long-term rate of return and the market-related value of plan assets. The market-related value of plan assets for Fiscal 1997, Fiscal 1996, and Fiscal 1995 was determined using the calculated value. The sale of the Gas Turbine Operations resulted in a curtailment as defined by SFAS No. 88, "Employer's Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits". The impact of the curtailment was a net gain of $2,722, which includes a decrease in the projected benefit obligation of $2,931 as of January 31, 1998. The Company has retained all liabilities and obligations of the Gas Turbine Operations' plan participants up to the date of sale. Effective June 1997, the Company terminated its unfunded defined benefit retirement plan for non-employee directors which had provided for payments upon retirement, death, or disability. Retirement expense for this plan in Fiscal 1997, 1996 and 1995, respectively, was $47, $59 and $141. The Company has an unfunded supplemental retirement plan for certain corporate officers. Retirement expense for the plan in Fiscal 1997, 1996 and 1995 was $486, $406 and $459, respectively. Prior service cost not yet recognized in periodic pension cost was $1,418, $1,547, and $1,676, at January 31, 1998, 1997 and 1996, respectively. The Company has 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 for continuing operations was $817, $670 and $507 in Fiscal 1997, 1996 and 1995, respectively. 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 on specified dates. Note 11: Common Stock Stock Repurchase Program: On October 31, 1997 the Company's Board of Directors authorized the repurchase of up to $120 million in its common stock. In December 1997, the Company entered into an equity forward contract to acquire up to 1,650,000 shares at a determinable price. Subsequent to January 31, 1998, the Company completed the repurchase of 1,650,000 shares for $40.5 million under this contract. This contract did not have a material impact on the calculation of earnings per share for Fiscal 1997. Shareholder Rights Plan: In 1995, the Company adopted a shareholders rights plan. The rights may be exercised by their holders to purchase one-third (1/3) of a share at $30.00 for each share owned by a shareholder upon the acquisition, or announcement of intended acquisition, of 15% or more of the Company's stock by a person or group. The rights are subject to antidilution adjustments and will expire on March 20, 2005, unless the plan is further extended or the rights are earlier redeemed. Stock Option Plans: The Stewart & Stevenson Services, Inc. 1988 Nonstatutory Stock Option Plan, the Stewart & Stevenson Services, Inc. 1993 Nonofficer Stock Option Plan, the 1994 Director Stock Option Plan and the 1996 Director Stock Plan authorize the grant of options to purchase an aggregate of up to 3,300,000, 984,950, 150,000 and 150,000 shares of Common Stock, respectively, at not less than fair market value at the date of grant. The options have a term not exceeding ten years and vest over periods not exceeding four years. Under the amended terms of the 1988 Nonstatutory Stock Option Plan, the number of options available for grant increased from 1,800,000 to 3,300,000 shares as of June 10, 1997. Pursuant to an amendment adopted in Fiscal 1996, no future grants of options may be made pursuant to the 1994 Director Stock Option Plan.
A summary of the status of the Company's stock option plans during Fiscal years 1995, 1996 and 1997 is presented in the tables below: - ----------------------------------------------------------------------------------------------------------------------------------- Option Price Shares under Range Option Per Share - ----------------------------------------------------------------------------------------------------------------------------------- Outstanding at end of Fiscal 1994 585,175 $18.75 - $50.25 Granted 386,300 $33.75 and $35.125 Exercised (52,750) $18.75 - $32.625 Canceled (20,650) $32.625 - $50.25 ---------- Outstanding at end of Fiscal 1995 898,075 $18.75 - $50.25 Granted 343,800 $24.25 and $24.375 Exercised (71,500) $18.75 Canceled (35,375) $24.25 - $50.25 ----------- Outstanding at end of Fiscal 1996 1,135,000 $18.75 - $50.25 Granted 375,900 $20.00 - $28.125 Exercised (70,000) $18.75 Canceled (73,175) $18.75 - $50.25 ----------- Outstanding at end of Fiscal 1997 1,367,725 $20.00 - $50.25 Options available for future grants at the end of Fiscal 1997 2,035,625 ===========
- ---------------------------------------------------------------------------------------------------------------------------------- Fiscal Fiscal 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Options exercisable at end of year 552,050 414,917 Weighted average exercise price of options exercisable $ 35.61 $ 33.58 Weighted average fair value of options granted $ 12.23 $ 9.59
------------------------- ------------------------ ------------------------ -- ------------------------ ------------------------ Weighted Average Remaining Contractual Exercise Price Exercise Price Options Outstanding Options Exercisable Life (Years) ------------------------- ------------------------ ------------------------ -- ------------------------ ------------------------ $20.00 - $35.125 $31.66 1,211,125 434,600 5 - 10 $50.25 $50.25 156,600 117,450 7 ======================== ======================== 1,367,725 552,050 ======================== ========================
The Company accounts for these plans under APB Opinion No. 25 under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with FASB Statement No. 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts:
----------------------------------------------------------------------------------- ---------------------- ---------------------- Fiscal Fiscal 1997 1996 ----------------------------------------------------------------------------------- ---------------------- ---------------------- Net earnings As Reported $52,263 $16,851 Pro Forma $49,869 $15,498 Net earnings per share As Reported $1.57 $.51 Pro Forma $1.50 $.47
Because the Statement 123 method of accounting is not required to be applied to options granted prior to February 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in Fiscal 1997 and 1996:
----------------------------------------------------------------------------------- ---------------------- ---------------------- Fiscal Fiscal 1997 1996 ----------------------------------------------------------------------------------- ---------------------- ---------------------- 1988 Nonstatutory Stock Option Plan and 1993 Nonofficer Stock Option Plan Risk free interest rates 6.61% 6.13% Expected dividend yields 0.34% 1.30% Expected volatility 39.21% 34.42% Expected life (years) 10 6 1994 Director Stock Option Plan Risk free interest rates 6.79% 6.79% Expected dividend yields 1.30% 1.30% Expected volatility 35.24% 35.24% Expected life (years) 6 6 1996 Director Stock Option Plan Risk free interest rates 6.93% N/A Expected dividend yields 0.50% N/A Expected volatility 39.28% N/A Expected life (years) 10 N/A
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's options, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Note 12: Income Taxes
The components of the income tax provision and the income tax payments are as follows: --------------------------------------------------------------------------------------------------------------------------------- Fiscal Fiscal Fiscal 1997 1996 1995 --------------------------------------------------------------------------------------------------------------------------------- Current $4,990 $(6,083) $2,337 Deferred (13,065) 7,859 10,417 ------------- ------------- ------------- Income tax provision $(8,075) $1,776 $12,754 ============= ============= ============= Income tax payments (excluding refunds) $15,378 $15,320 $13,337 ============= ============= =============
A reconciliation between the provision for income taxes and income taxes computed by applying the statutory U.S. Federal income tax rate of 35% in Fiscal 1997, 1996 and 1995 is as follows:
- ----------------------------------------------------------------------------------------------------------------------------------- Fiscal Fiscal Fiscal 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Provision at statutory rates $(7,767) $ 2,328 $11,512 Other (308) (552) 1,242 ------------- ------------- -------------- $(8,075) $ 1,776 $12,754 ============= ============= ==============
The deferred tax liability is determined under the liability method based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted statutory tax rates and deferred tax expense is the result of changes in the net liability for deferred taxes. The tax effects of the significant temporary differences which comprise the deferred tax liability at the end of Fiscal 1997 and 1996 are as follows:
--------------------------------------------------------------------------------------------------------------------------------- Fiscal Fiscal 1997 1996 --------------------------------------------------------------------------------------------------------------------------------- Deferred Tax Assets Postretirement benefit obligation $ 4,640 $ 5,282 Accrued expenses and other reserves 3,113 5,257 Other 33 33 ------------- ------------- Gross deferred tax assets 7,786 10,572 ------------- ------------- Deferred Tax Liabilities Property, plant and equipment 2,544 3,253 Pension accounting 1,273 1,114 Contract accounting 6,334 32,880 Prepaid expenses and deferred charges 96,938 50,918 Other 11,842 9,927 ------------- ------------- Gross deferred tax liabilities 118,931 98,092 ------------- ------------- Net deferred tax liability $111,145 $87,520 ============= ============= Current portion of deferred tax liability $108,246 $82,393 Non-current portion of deferred tax liability 2,899 5,127 ------------- ------------- Net deferred tax liability $111,145 $ 87,520 ============= =============
Note 13: Supplemental Financial Data Accounts and notes receivables, net consist of the following:
- ----------------------------------------------------------------------------------------------------------------------------------- Fiscal Fiscal 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Accounts receivable $180,388 $157,073 Notes receivable 26,119 16,695 Allowance for doubtful accounts (2,236) (1,086) Less non-current portion of notes receivable (19,238) (12,275) -------------- ------------- $185,033 $160,407 ============== =============
The U.S. Government accounted for approximately 22.5% and 10.9% of accounts receivable, exclusive of the receivable due from GE, at January 31, 1998 and 1997, respectively. Due to the large number of entities and diversity of the Company's customer base, concentration of credit risk with respect to trade receivables is limited. At the end of Fiscal 1997, accounts receivable and notes receivable included immaterial amounts due from certain investees of the Company. Components of property, plant and equipment, net are as follows:
- ----------------------------------------------------------------------------------------------------------------------------------- Fiscal Fiscal 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Machinery and equipment $111,931 $106,990 Buildings and leasehold improvements 80,511 74,315 Revenue earning assets 17,118 14,075 Accumulated depreciation and amortization (129,408) (118,922) -------------- ------------- 80,152 76,458 Construction-in-progress 3,607 2,373 Land 13,985 12,747 -------------- ------------- $97,744 $91,578 ============== =============
Note 14: Consolidated Quarterly Data (unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Fiscal 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Fourth Third Second First Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ Sales $334,297 $298,998 $248,778 $232,961 Gross profit (8,723) 33,693 30,238 27,777 Net earnings (loss) - Continuing (29,689) 3,524 6,390 5,270 Net earnings (loss) - Discontinued 356 (1,382) 1,838 4,612 Gain on disposal of discontinued operations, net of tax 61,344 - - - Net earnings (loss) per share: Basic and Diluted Continuing operations (.90) .11 .19 .16 Discontinued operations .01 (.04) .06 .14 Gain on disposal 1.85 - - - ---------- ----------- ----------- --------- Net earnings per share $ .96 .07 .25 30 ========== =========== =========== ============
Fiscal 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------ Sales $284,951 $231,632 $159,982 $148,622 Gross profit 32,465 25,430 24,120 20,702 Net earnings (loss) - Continuing 6,253 4,182 (7,474) 1,807 Net earnings (loss) - Discontinued 4,383 3,007 (213) 4,906 Net earnings (loss) per share: - Basic and Diluted Continuing operations .19 .13 (.23) .05 Discontinued operations .13 .09 - .15 ---------- ---------- ---------- ----------- Net earnings (loss) per share $ .32 $ .22 $(.23) $ .20 ========== =========== =========== ============
Note 15: Acquisitions and Divestiture On April 12, 1997, the Company acquired Sierra Detroit Diesel Allison, Inc., a Detroit Diesel distributor whose franchise covers northern California. The purchase price totaled approximately $5.0 million. The assets and operations of the franchise prior to the acquisition are not material to the Company's consolidated assets or earnings. On September 12, 1997, the Company acquired ownership of Carson Cogeneration, LLP, a California independent power producer. The purchase price totaled approximately $3.7 million. The assets and operating results of the plant prior to the acquisition are not material to the Company's consolidated assets or earnings. On October 6, 1997, the Company sold its construction equipment franchise for $30.2 million. The construction equipment franchise operated in the gulf coast territory of Texas and primarily distributed, and provided services for, products manufactured by John Deere Construction Equipment Company and other companies engaged in the business of manufacturing earth moving equipment, forestry equipment, skidsteer equipment, and utility equipment. An estimated gain of $4.4 million was recognized on the sale. On March 30, 1998, the Company acquired the assets of Compression Specialties, Inc., a compression equipment distributor in the business of leasing and servicing compression equipment in the State of Wyoming and the surrounding Rocky Mountain area. The purchase price totaled approximately $9.45 million. The assets and operations of this business prior to the acquisition would not have been material to the Company's consolidated assets or earnings. Note 16: Vulnerability Due To Certain Concentrations The Company's principal distribution agreements are subject to termination by the suppliers for a variety of causes. Although no assurance can be given that such distribution agreements will be renewed beyond their expiration dates, they have been renewed regularly. The Company's Tactical Vehicle Systems segment's products are generally sold to the U.S. Government. (See Note 7: Government Contracts). Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. PART III In accordance with General Instruction G(3) to Form 10-K, Items 10 through 13 have been omitted since the Company will file with the Commission a definitive proxy statement complying with Regulation 14A involving the election of directors not later than 120 days after the close of its fiscal year. Such information is incorporated herein by reference. CROSS REFERENCE Form 10-K Item Caption in Definitive Number and Caption Proxy Statement Item 10. Directors and Executive Election of Directors; Executive Officers of the Registrant........ Officers; Section 16(a) Beneficial Ownership Reporting Compliance Item 11. Executive Compensation........... Election of Directors; Performance of Stewart & Stevenson Common Stock; Report of the Compensation and Management Development Committee; Executive Compensation Item 12. Security Ownership of Voting Securities and Ownership Certain Beneficial Owners Thereof by Certain Beneficial and Management................. Owners and Management Item 13. Certain Relationships Transactions with Management and Related Transactions....... and Certain Business Relationships PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. The following financial statements for Stewart & Stevenson Services, Inc. are filed as a part of this report: Consolidated Statements of Financial Position--January 31, 1998 and 1997. Consolidated Statements of Earnings--Years ended January 31, 1998, 1997 and 1996. Consolidated Statements of Shareholders' Equity--Years ended January 31, 1998, 1997 and 1996. Consolidated Statements of Cash Flows--Years ended January 31, 1998, 1997 and 1996. Notes to Consolidated Financial Statements. 2. Schedules are omitted because of the absence of conditions under which they are required or because the information is included in the financial statements or notes thereto. 3. The Company has several instruments which define the rights of holders of long-term debt. Except for the instruments listed as exhibits 4.1 and 4.2 below, the total amount of securities authorized under any individual instrument with respect to long-term debt does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish upon request by the Securities and Exchange Commission any instruments not filed herewith relating to its long-term debt. The Company will furnish to any shareholder of record as of April 22, 1998, a copy of any exhibit to this annual report upon receipt of a written request addressed to Mr. Lawrence E. Wilson, Vice President and Secretary, P. O. Box 1637, Houston, Texas 77251-1637 and the payment of $.20 per page with a minimum charge of $5.00 for reasonable expenses prior to furnishing such exhibits. The following exhibits are part of this report pursuant to item 601 of regulation S-K. *2.1 Transaction Agreement dated September 21, 1997 between General Electric Company and Stewart & Stevenson Services, Inc. (Exhibit 2.1 to 9/97 8-K). *3.1 Third Restated Articles of Incorporation of Stewart & Stevenson Services, Inc., effective as of September 13, 1995 (Exhibit 3(a) to 10/95 10-Q). 3.2 Fifth Restated Bylaws of Stewart & Stevenson Services, Inc., effective as of April 14, 1998. *4.1 Note Purchase Agreement effective May 30, 1996, between Stewart & Stevenson Services, Inc. and the Purchasers named therein (Exhibit 4 to 7/96 10-Q). *4.2 Rights Agreement effective March 13, 1995, between Stewart & Stevenson Services, Inc. and The Bank of New York (Exhibit 1 to Form 8-A Registration Statement under the Commission File No. 001-11443). *10.1 Lease Agreement effective April 15, 1997, between Miles McInnes and Faye Manning Tosch, as Lessors, and the Company, as Lessee (Exhibit 10.1 to 1/97 10-Q). *10.2 Distributor Sales and Service Agreement effective January 1, 1996, between the Company and Detroit Diesel Corporation (Exhibit 10.2 to 1/96 10-K). *10.3 Contract Number DAAE07-92-R001 dated October 11, 1991 between Stewart & Stevenson Services, Inc. and the United States Department of Defense, U.S. Army Tank-Automotive Command, as modified (Exhibit 28.1 of the Form S-3 Registration Statement under the Commission File No. 33-44149). *10.4 Contract Number DAAE07-92-R002 dated October 15, 1991 between Stewart & Stevenson Services, Inc. and the United States Department of Defense, U.S. Army Tank-Automotive Command, as modified (Exhibit 28.2 of the Form S-3 Registration Statement under the Commission File No. 33-44149). *10.5 Stewart & Stevenson Services, Inc. Deferred Compensation Plan dated as of December 31, 1979 (Exhibit 10.8 to 1/94 10-K). *10.6 Stewart & Stevenson Services, Inc. 1988 Nonstatutory Stock Option Plan (as amended and restated effective as of June 10, 1997) (Exhibit B to 5/9/97 Proxy Statement). *10.7 Stewart & Stevenson Services, Inc. Supplemental Executive Retirement Plan (Exhibit 10.11 to 1/94 10-K). *10.8 Stewart & Stevenson Services, Inc. 1996 Director Stock Option Plan (Exhibit A to 5/9/97 Proxy Statement). 21.1 List of Subsidiaries. 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants. 27.1 Financial Data Schedule. ---------- * Incorporated by reference. (b) Form 8-K Report Date - February 16, 1998 (GE Transaction completed) Items reported - Item 2. Disposition of Assets Item 7. Financial Statements 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, 1998. STEWART & STEVENSON SERVICES, INC. By /s/ Robert L. Hargrave Robert L. Hargrave Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 30th day of April, 1998. /s/ Robert L. Hargrave - ----------------------------------------- --------------------------------- Robert L. Hargrave Orson C Clay Director, Principal Executive Officer, Director Principal Financial Officer and Principal Accounting Officer /s/ C. Jim Stewart II /s/ J. Carsey Manning - ----------------------------------------- --------------------------------- C. Jim Stewart II J. Carsey Manning Director Director /s/ Donald E. Stevenson /s/ Robert H. Parsley - ----------------------------------------- --------------------------------- Donald E. Stevenson Robert H. Parsley Director Director /s/ Jack W. Lander, Jr. - ----------------------------------------- --------------------------------- Jack W. Lander, Jr. Jack T. Currie Director Director /s/ Robert S. Sullivan - ----------------------------------------- --------------------------------- Robert S. Sullivan Brian H. Rowe Director Director EXHIBIT INDEX Exhibit Number and Description 3.2 Fifth Restated Bylaws. 21.1 List of subsidiaries. 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants. 27.1 Financial Data Schedule. EX-3.(II) 2 BYLAWS FIFTH RESTATED BYLAWS OF STEWART & STEVENSON SERVICES, INC. Effective April 14, 1998 ARTICLE I Offices Section 1.1. Offices. The principal business office of the Corporation shall be at Houston, Texas or at such other location within the State of Texas as the Board of Directors may, from time to time, establish by resolution. The Corporation may have such other business offices within or without the State of Texas as the Board of Directors may from time to time establish or the business of the Corporation may require. ARTICLE II Capital Stock Section 2.1. Certificates Representing Shares. Certificates representing shares of stock of the Corporation shall be consecutively numbered and in such form or forms as comply with the requirements of law and the Restated Articles of Incorporation and as the Board of Directors shall approve. Such certificates shall be signed by the President or a Vice President, and the Secretary or an Assistant Secretary of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the President or Vice President and the Secretary or Assistant Secretary may be facsimiles, engraved or printed, if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. In case any officer or officers who have signed or whose facsimile signature or signatures have been placed upon such certificate shall have ceased to be such officer or officers before such certificate is issued, it may be adopted and issued by the Corporation with the same effect as if he or they had not ceased to be such officer or officers as of the date of its issuance, and the issuance and delivery thereof by the Corporation shall constitute adoption thereof by the Corporation. Section 2.2. Stock Certificate Register and Shareholders of Record. The Secretary of the Corporation shall keep at the registered office of the Corporation, or cause a duly appointed transfer agent or registrar to keep at its principal office, a share register showing the names of the shareholders and their addresses, the number of shares held by each, the number and date of issue of all certificates representing shares of the Corporation, the number and date of cancellation of every certificate surrendered for cancellation and whether such certificates originated from original issue or transfer. Such information may be kept in any medium capable of reproducing the information in clearly legible form and shall be the official list of shareholders of record of the Corporation for all purposes. The Corporation shall be entitled to treat the holder of record of any shares of the Corporation as the owner thereof for all purposes, and shall not be bound to recognize any equitable or other claim to, or interest in, such shares or any rights deriving from such shares on the part of any other person, including (but without limitation) a purchaser, assignee, or transferee, unless and until such other person becomes the holder of record of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such other person. Section 2.3. Transfer of Stock. The shares represented by any share certificates of the Corporation are transferable only on the stock certificate register of the Corporation by the holder of record thereof in person or by a duly authorized attorney or legal representative upon surrender of the certificate for such shares properly endorsed or assigned. Section 2.4. Transfer Agent and Registrar. The Board of Directors may appoint one or more transfer agents or registrars of the shares, or both, and may require all share certificates to bear the signature of a transfer agent or registrar or both. Section 2.5. Lost, Stolen or Destroyed Certificates. The Corporation may issue a new certificate for shares of stock in the place of any certificate theretofore issued and alleged to have been lost, stolen or destroyed, but the Board of Directors may require the owner of such lost, stolen or destroyed certificate, or his legal representative, to furnish an affidavit as to such loss, theft, or destruction and to give a bond in such form and substance, and with such surety or sureties, with fixed or open penalty, as it may direct, to indemnify the Corporation, and the transfer agents and registrars, if any, against any claim that may be made on account of the alleged loss, theft or destruction of such certificate. Any such new certificate shall be plainly marked "Duplicate" on its face. ARTICLE III The Shareholders Section 3.1. Annual Meetings. An annual meeting of the shareholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, within or without the State of Texas, as may be designated by the Board of Directors or officer calling the meeting at 10:00 in the morning of the second Tuesday in June, or on such other date and time as the Board of Directors or officer calling such meeting shall fix and set forth in the notice of the meeting. At the annual meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the annual meeting. To be properly brought before the annual meeting of shareholders, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by a shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Section 3.1, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 3.1. For business to be properly brought before an annual meeting by a shareholder, the shareholder, in addition to any other applicable requirements, must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of shareholders of the Corporation. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (c) the class and number of shares of voting stock of the Corporation which are beneficially owned by the shareholder, (d) a representation that the shareholder intends to appear in person or by proxy at the meeting to bring the proposed business before the annual meeting, and (e) a description of any material interest of the shareholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 3.1. The presiding officer of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 3.1, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 3.1, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 3.1. Section 3.2. Special Meetings. Except as otherwise provided by law or by the Restated Articles of Incorporation, special meetings of the shareholders may be called by the Chairman of the Board, the President, the Board of Directors, or the holders of not less than one-tenth of all the shares having voting power at such meeting, and shall be held at the principal office of the Corporation, at such time as is stated in the notice calling such meeting, or at such other place as the person or body calling such meeting may determine and state in such notice. Section 3.3. Notice of Meetings - Waiver. Written or printed notice, stating the place, day and hour of any meeting and, in case of a special shareholders' meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than fifty (50) days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, the President, or the officer, body or person calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock certificate register of the Corporation, with postage thereon prepaid. Such further or earlier notice shall be given as may be required by law. Waiver by a shareholder of notice in writing of a shareholders' meeting, signed by him, whether before or after the time stated therein, shall be equivalent to the giving of such notice. No notice shall be necessary for any adjourned meeting. Section 3.4. Closing of Stock Certificate Register and Fixing Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the Corporation may provide that the stock certificate register shall be closed for a stated period but not to exceed, in any case, fifty (50) days. If the stock certificate register shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such registers shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock certificate register, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than fifty (50) days and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock certificate register is not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made, as provided in this Section, such determination shall apply to any adjournment thereof except where the determination has been made through the closing of the stock certificate register and the stated period of closing has expired. Section 3.5. Voting List. The officer or agent having charge of the stock certificate register for shares of the Corporation shall make, at least ten (10) days before such meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder at any time during the usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. Failure to comply with this Section shall not effect the validity of any action taken at such meeting. Section 3.6. Quorum and Officers. Except as otherwise provided by law, by the Restated Articles of Incorporation or by these Bylaws, the holders of a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders, but the shareholders present at any meeting, although less than a quorum, may from time to time adjourn the meeting to some other day and hour, without notice other than announcement at the meeting. The vote of the holders of a majority of the shares entitled to vote and thus represented at a meeting at which a quorum is present shall be the act of the shareholders' meeting, unless the vote of a greater number is required by law, the Restated Articles of Incorporation or these Bylaws. The Chairman of the Board, or in his absence, the President, shall preside at and the Secretary, or in his absence, any Assistant Secretary shall keep the records of each meeting of shareholders, and in the absence of all such officers, their respective duties shall be performed by persons appointed by the meeting. Section 3.7. Proxies. A shareholder may vote either in person or by proxy executed in writing by the shareholder, or by his duly authorized attorney-in-fact. Proxies shall be dated but need not be sealed, witnessed or acknowledged. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy. Each proxy shall be revocable unless provided expressly therein to be irrevocable, and unless otherwise made irrevocable by law. Proxies shall be filed with the Secretary of the Corporation before or at the time of the meeting. Section 3.8. Balloting. Upon the demand of any shareholder, the vote upon any question before the meeting shall be by ballot. At each meeting inspectors of election may be appointed by the presiding officer of the meeting, and at any meeting for the election of directors, inspectors shall be so appointed on the demand of any shareholder present or represented by proxy and entitled to vote at the election of directors. No director or candidate for the office of directors shall be appointed as such inspector. Section 3.9. Voting Rights; Voting for Directors. Each outstanding share of common stock shall be entitled to one (1) vote upon each matter submitted to a vote at a meeting of shareholders. No shareholder shall have the right to cumulate his votes for the election of directors, but each share shall be entitled to one vote in the election of each director. Section 3.10 Nominations for Election as a Director. Only persons who are nominated in accordance with the procedures set forth in these Bylaws and qualify for nomination pursuant to Section 4.1 shall be eligible for election by shareholders as, and to serve as, directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders (a) by or at the direction of the Board of Directors or a duly constituted committee thereof or (b) by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Section 3.10, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 3.10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation (i) with respect to an election to be held at the annual meeting of the shareholders of the Corporation, not less than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of shareholders of the Corporation, and (ii) with respect to an election to be held at a special meeting of shareholders of the Corporation for the election of directors not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed to shareholders of the Corporation as provided in Section 3.3 or public disclosure of the date of the special meeting was made, whichever first occurs. Such shareholder's notice to the Secretary shall set forth (x) as to each person whom the shareholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serve as a director if elected), and (y) as to the shareholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such shareholder and (ii) the class and number of shares of voting stock of the Corporation which are beneficially owned by such shareholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a shareholder's notice of nomination which pertains to the nominee. In the event that a person is validly designated as a nominee to the Board of Directors in accordance with the procedures set forth in this Section 3.10 and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the shareholder who proposed such nominee, as the case may be, may designate a substitute nominee. Other than directors chosen pursuant to the provisions of Section 4.3, no person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3.10. The presiding officer of the meeting of shareholders shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 3.10, a shareholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 3.10. ARTICLE IV The Board of Directors Section 4.1. Number and Qualifications. The business and affairs of the Corporation shall be managed and controlled by the Board of Directors, and subject to any restrictions imposed by law, by the Restated Articles of Incorporation, or by these Bylaws, the Board of Directors may exercise all the powers of the Corporation. The Board of Directors shall consist of ten (10) members. The number thereof may be increased or decreased from time to time by amendment to these Bylaws, but no decrease shall have the effect of shortening the term of any incumbent director. Directors need not be residents of Texas and need not be shareholders. No person shall be qualified for election or re-election as a director of the Corporation if: (i) he was originally elected as a director of the Corporation on or before June 19, 1981 and has attained the age of 75 years prior to the date that such qualification is determined; or (ii) he was originally elected or nominated for election as a director for the Corporation after June 19, 1981, and has attained the age of 73 prior to the date that such qualification is determined; or (iii) he is an incumbent director and has attended fewer than fifty (50%) percent of the meetings of the Board of Directors held during any fiscal year commencing after January 31, 1981, which such incumbent was entitled to attend as a director. Section 4.2. Classification and Term. The Board of Directors shall be divided into three classes, each class consisting as nearly as possible of one-third (1/3) of the number of directors that make up the full Board of Directors. At each annual meeting of shareholders, the number of directors equal to the number of the class whose term expires at the time of such meeting shall be elected to hold office until the third succeeding annual meeting of shareholders. Section 4.3. Vacancies. Any vacancy on the Board of Directors may be filled by the vote of a majority of the remaining directors though less than a quorum of the Board of Directors; provided, that the Board of Directors may not fill more than two (2) vacancies caused by an increase in the number of directors during any period between two (2) successive annual meetings of shareholders. A director elected to fill a vacancy shall hold office for the unexpired portion of his predecessor's term if such vacancy was created by the death, resignation, disqualification or removal of a director or until the next annual meeting of shareholders if such vacancy was created by an increase in the size of the Board of Directors. Section 4.4. Place of Meeting. Meetings of the Board of Directors may be held either within or without the State of Texas, at whatsoever place is specified by the officer or director calling the meeting. In the absence of other designation, the meeting shall be held at the principal business office of the Corporation. Section 4.5. Regular Meetings. The Board of Directors shall hold no fewer than four (4) regular meetings in each fiscal year. One such regular meeting (the "Annual Meeting of Directors") shall be held immediately following the annual meeting of shareholders, at the place of such shareholder meeting, and the other regular meetings shall be held at such times and places as the Board of Directors shall establish by resolution at the regular meeting following the annual meeting of shareholders. No notice of any kind of such regular meetings shall be necessary to either old or new members of the Board of Directors. Section 4.6. Special Meetings. Special meetings of the Board of Directors shall be held at any time by call of the Chairman of the Board, the President (if a director) or by a majority of the directors. The Secretary or officer performing his duties shall give notice of special meetings to each director at his usual business or residence address by mailing such notice at least five (5) days or one hundred twenty (120) hours before the meeting or by delivering the same at least one (1) day or twenty-four (24) hours before the meeting. No notice shall be necessary for any adjourned meeting. A waiver of notice of any special meeting, in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice. Such notice or waiver thereof need not specify the business to be transacted at, or the purpose of, such meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express and announced purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 4.7. Quorum. Seven directors shall constitute a quorum for the transaction of business. The act of a majority of the directors present at a meeting at which a quorum is in attendance shall be the act of the Board of Directors unless a larger number is required by applicable law, the Restated Articles of Incorporation or these Bylaws, but any one or more directors, although less than a quorum, may adjourn the meeting to some other day or hour. Section 4.8. Chairman of the Board. At each Annual Meeting of Directors, the Board of Directors shall elect from its membership a Chairman of the Board who shall serve in such capacity until the next Annual Meeting of Directors or until his death, resignation, disqualification or removal if sooner. The Chairman of the Board shall preside at all meetings of the Board of Directors and at all meetings of the shareholders of the Company. Section 4.9. Procedure at Meetings. The Chairman of the Board shall preside at meetings of the Board of Directors. In his absence at any meeting, the President (if a director) shall preside, and in the absence of both the Chairman of the Board and the President, a member of the Board of Directors selected by the members present shall preside. The Secretary of the Corporation shall act as secretary at all meetings of the Board, or in his absence the presiding officer of the meeting may designate any person to act as secretary. At meetings of the Board of Directors, business shall be transacted in such order as from time to time the Board of Directors may determine. Section 4.10. Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 4.11. Compensation. Directors as such shall not receive any stated salary for their service, but by resolution of the Board of Directors (a) an annual directors fee and (b) a fixed sum and expenses for attendance, if any, may be allowed to each director who is not an officer or employee of the Corporation for attendance at each regular or special meeting of the Board of Directors or of any Committee thereof; but nothing herein shall preclude any director from serving the Corporation in any other capacity or receiving compensation therefor. Section 4.12. Standing Committees. The Board of Directors by resolution adopted by a majority of the number of directors fixed by the Bylaws shall designate from their number an Executive Committee and an Audit Committee. The Executive Committee shall consist of five (5) persons. Each member shall serve until the next annual meeting of shareholders or until such director's retirement, removal, disqualification, or death. The Executive Committee shall meet upon the call of the chairman of such committee or any two (2) members thereof and shall have and may exercise all of the authority of the Board of Directors in the business and affairs of the Corporation except (a) the power to authorize or approve the sale or other transfer of any real property now owned or hereafter acquired by the Corporation; (b) the power to vote, direct the vote or grant proxies relating to any stock owned by the Corporation; (c) the power to authorize or approve purchases or commitments for goods or services with an aggregate market value in any single transaction or group of related transactions exceeding $5,000,000 except for goods and services purchased in the ordinary course of business for inventory or pursuant to capital expenditure budgets approved by the Board of Directors; (d) the power to authorize or approve the incurrence or guaranty of indebtedness with an original principal amount in excess of $1,000,000 and a maturity of longer than one (1) year; (e) the power to make loans, guaranties, investments, or other commitments outside the ordinary course of business in excess of $5,000,000 at any time outstanding to any one person or group of persons; and (f) where action of the Board of Directors is specified by the Texas Business Corporation Act or by other applicable law. The Audit Committee shall consist of four (4) persons, all of whom shall be independent of management and free of any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment as a committee member. Each member shall serve until the next annual meeting of shareholders or until such director's retirement, removal, disqualification, or death. The Audit Committee shall meet no fewer than two (2) times in each fiscal year of the Corporation upon the call of the chairman of such committee or any two (2) members thereof and shall have and may exercise such responsibilities, authority and power as the Board of Directors specifies. The designation of Standing Committees and delegation of authority thereto shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law. Section 4.13. Other Committees of the Board of Directors. The Board of Directors, by resolution adopted by a majority of the number of directors fixed by the Bylaws, may designate from their number such compensation, nominating and other committees as they shall, from time to time, deem necessary and proper. Such committees shall be composed of not less than three members and shall have and exercise such of the Board of Directors' authority as shall by resolution, be delegated to it. The designation of such other committees and the delegation of authority thereto shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law. Section 4.14. Meetings and Reports of the Committees. The Committees shall meet from time to time as set forth in the Bylaws and on call of the Chairman or any two or more members thereof. Notice of each such meeting, stating the place, day and hour thereof, shall be served personally on each member of such Committee, or shall be mailed, delivered or telephoned to his address on the books of the Corporation, at least twenty-four (24) hours before the meeting. No such notice need state the business proposed to be transacted at the meeting. No notice of the time or place of any meeting of such Committee need be given to any member thereof who attends in person or who, in writing executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. No notice need be given of an adjourned meeting of any Committee. Meetings of the Committees may be held at such place or places, either within or outside of the State of Texas, as such Committee shall determine, or as may be specified or fixed in the respective notices or waivers thereof. Each Committee may fix its own rules of procedure. They shall keep record of their proceedings and shall report these proceedings to the Board of Directors at the regular meetings thereof held next after they have been taken. Section 4.15. Advisory Directors. The Board of Directors, by resolution adopted by a majority of the number of directors fixed by the Bylaws, may appoint from those persons who have previously served as a director of the Corporation, such advisory directors as the Board of Directors may, from time to time, determine to be desirable. Such advisory directors shall be ex-officio members of the Board of Directors, shall hold office from the date elected until the next following annual meeting of the Board of Directors unless sooner removed in the manner provided for the removal of Directors, shall be entitled to receive notice of and to attend all meetings of the Board of Directors and shall be reimbursed for all out-of-pocket expenses incurred to attend meetings of the Board of Directors. Advisory directors shall not be a member of any committee of the Board of Directors, vote on any matter brought before the Board of Directors for action or be counted for the purposes of determining whether a quorum exists. Failure to notify the advisory directors of any meeting shall not render any meeting or any action taken at such meeting void. ARTICLE V Officers Section 5.1. Number. The officers of the Corporation shall consist of the President, Secretary, Treasurer and Controller; and, in addition, such Vice Presidents, other officers and assistant officers and agents as may be deemed necessary and elected or appointed by the Board of Directors. The Board of Directors may by resolution designate any officer as the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, or other title. Any two or more offices may be held by the same person. Section 5.2. Election; Term; Qualification. Officers shall be chosen by the Board of Directors at the Annual Meeting of the Directors and may be chosen at any other meeting of the Board of Directors. Each officer shall hold office until the next following Annual Meeting of Directors, or until his death, resignation, retirement or removal. Section 5.3. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors at its pleasure, but such removal shall be without prejudice to other contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create any contract rights. Section 5.4. Retirement. No person may serve as an officer of the Corporation after the last day of the fiscal year in which such officer celebrates his sixty-fifth birthday or such later date as is necessary to comply with applicable laws. Section 5.5. Vacancies. Any vacancy in any office for any cause may be filled by the Board of Directors at any meeting. Section 5.6. Duties. The officers of the Corporation shall have such powers and duties, except as modified by the Board of Directors, as generally pertain to their offices, respectively, as well as such powers and duties as from time to time shall be conferred by the Board of Directors and by these Bylaws. Section 5.7. The President. The President shall, subject to the control of the Board of Directors, have general supervision and control over all of the business, assets and affairs of the Corporation. All other officers shall report as directed by the President. In the absence of the Chairman of the Board, the President shall perform all of the duties of the Chairman of the Board, and when so acting shall have all of the powers of, and be subject to all restrictions upon, the Chairman of the Board. Section 5.8. Secretary. The Secretary shall: (a) keep the minutes of all meetings of the shareholders, of the Board of Directors, and of all committees of the Board of Directors, in one or more books provided for that purpose and shall distribute a copy of all such minutes to the members of the Board of Directors immediately on receipt thereof, (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law, (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized, (d) have general charge of the stock certificate register, transfer books and stock ledgers, and such other books and papers as the Board of Directors may direct, of the Corporation, all of which shall, at all reasonable times, be open to the examination of any director, upon application at the office of the Corporation during business hours, and (e) in general perform all duties and exercise all powers incident to the office of the Secretary and such other duties and powers as the Board of Directors or the President from time to time may assign to or confer on him. Section 5.9. Treasurer. The Treasurer shall be legal custodian of all monies, notes, securities, and other valuables which may from time to time come into the possession of the Corporation and shall perform such other duties as the Bylaws may require or the Board of Directors may prescribe. The Treasurer shall have the power and authority to incur or guaranty indebtedness on behalf of the Corporation without the prior approval of the Board of Directors provided that the original principal amount thereof is less than $1,000,000 and the original maturity is less than one year. Section 5.10. Controller. The Controller shall keep complete and accurate books and records of account showing accurately at all times the financial condition of the Corporation. He shall furnish at meetings of the Board of Directors, or whenever requested, a statement of the financial condition of the Corporation, and shall perform such other duties as the Bylaws may require or the Board of Directors may prescribe. Section 5.11. The Vice Presidents. The Board of Directors may from time to time elect such Vice Presidents as the Board of Directors deems appropriate and assign thereto such general or specific powers, authority and responsibility as the Board of Directors deems appropriate. The Board of Directors may specify the order in which the Vice Presidents may act in the absence of the President. Any action taken by a Vice President in the performance of the duties of President shall be conclusive evidence of the absence of the President. The Vice Presidents shall perform such other duties as may, from time to time, be assigned to them by the Board of Directors or the President. A Vice President may also sign with the Secretary or an Assistant Secretary certificates of stock of the Corporation. Section 5.12. Assistant Officers. Any Assistant Secretary, Assistant Treasurer or Assistant Controller appointed by the Board of Directors shall have power to perform, and shall perform, all duties incumbent upon the Secretary, the Treasurer or the Controller of the Corporation, respectively, subject to the general direction of such officers, and shall perform such other duties as the Bylaws may require or the Board of Directors may prescribe. Section 5.13. Salaries. The salaries or other compensation of the officers shall be fixed from time to time by the Board of Directors. No officer shall be prevented from receiving such salary or other compensation by reason of the fact that he is also a director of the Corporation. Section 5.14. Bonds of Officers. The Board of Directors may secure the fidelity of any or all of such officers by bond or otherwise, in such terms and with such surety or sureties, conditions, penalties or securities as shall be required by the Board of Directors. Section 5.15. Delegation. The Board of Directors may delegate temporarily the powers and duties of any officer of the Corporation, in case of his absence or for any other reason, to any other officer, and may authorize the delegation by any officer of the Corporation of any of his powers and duties to any agent or employee subject to the general supervision of such officer. ARTICLE VI Miscellaneous Section 6.1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, of the Corporation to enter into any contract or execute and deliver any instrument in the name of or on behalf of the Corporation, and such authority may be general or confined to specific instances; and, unless so authorized by the Board of Directors or by these Bylaws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement, or to pledge its credit or to render it liable pecuniarily for any purpose or to any amount. Section 6.2. Checks, Drafts, etc. All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officers or employees of the Corporation as shall from time to time be authorized pursuant to these Bylaws or by resolution of the Board of Directors. Section 6.3. Depositories. All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such banks, trust companies, or other depositories as the Board of Directors may from time to time designate, upon such terms and conditions as shall be fixed by the Board of Directors. The Board of Directors may from time to time authorize the opening and keeping with any such depository as it may designate of general and special bank accounts, and may make such special rules and regulations with respect thereto, not inconsistent with the provisions of these Bylaws, as it may deem expedient. Section 6.4. Endorsement of Stock Certificates. Subject to the specific directions of the Board of Directors, any share or shares of stock issued by any corporation and owned by the Corporation (including reacquired shares of the Corporation) may, for sale or transfer, be endorsed in the name of the Corporation by the President or any Vice President, and attested or witnessed by the Secretary or any Assistant Secretary either with or without affixing the corporate seal. Section 6.5. Voting of Shares Owned by the Corporation. Subject to the direction of the Board of Directors, the President, the Secretary and the Treasurer, or any of them, shall have the power and authority on behalf of the Corporation to attend and to vote and to grant proxies to be used at any meeting of shareholders of any corporation in which the Corporation may hold stock. The Board of Directors may confer like powers upon any other person or persons. Section 6.6. Corporate Seal. The corporate seal shall be in the form of a five pointed star surrounded by the words "Stewart & Stevenson Services, Inc.," and such seal, or a facsimile thereof, may be impressed on, affixed to, or in any manner reproduced upon, instruments of any nature required to be executed by officers of the Corporation. Section 6.7. Fiscal Year. The fiscal year of the Corporation shall begin on February 1 and end on January 31 of the next following year, or on such other dates as the Board of Directors at any time shall determine. Section 6.8. Resignations. Any director or officer may resign at any time. Such resignations shall be made in writing and shall take effect at the time specified therein, or, if no time be specified, at the time of its receipt by the Chairman of the Board, President or Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. Section 6.9. Indemnification of Officers and Directors. The Corporation shall indemnify any person against any judgment, penalty, fine, settlement and reasonable expenses incurred by him in connection with any threatened, pending or completed action, suit or proceeding in which such person is or is threatened to be made a party because he is or was serving as an officer or director of the Corporation or at the request of the Corporation as an officer, director, partner, venturer, proprietor, trustee, employee, agent or other functionary of another entity and (i) such person is wholly successful in the defense thereof, or (ii) it is determined in the manner required by law that such person conducted himself in good faith, reasonably believed that his conduct was in the best interest of the Corporation and had no reasonable cause to believe that his conduct was unlawful; provided, however, that no person shall be indemnified if such indemnity is prohibited by applicable law. Any such indemnification shall be reported in writing to the shareholders of the Corporation on or before the notice or waiver of notice of the next shareholders' meeting and in any event within twelve (12) months of the indemnification. The right of indemnification under this Section 6.9 shall be in addition to any other rights to which such persons may be entitled and is intended to provide the broadest benefits permitted by law. Section 6.10. Loans to and Guaranties for Officers and Directors. The Corporation shall not lend money to or guaranty the indebtedness of any of its officers or directors unless such loan or guaranty is approved by the number of directors equal to a majority of the full Board of Directors none of whom are then or will become as a result of such action indebted to the Corporation and on the express finding by such directors that such loan or guaranty is reasonably expected to directly or indirectly benefit the Corporation. ARTICLE VII Amendments Section 7.1. Amendments. The Board of Directors, by the affirmative vote of seven directors may alter, amend or repeal these Bylaws or adopt new Bylaws. The shareholders by affirmative vote of two-thirds (2/3) of the issued and outstanding shares entitled to vote may alter, amend or repeal these Bylaws or adopt new Bylaws, without notice at any regular meeting, or if notice of the proposed amendment be contained in the notice of any special meeting. EX-21 3 SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES OF STEWART & STEVENSON SERVICES, INC.
The following list sets forth the name of each subsidiary of the Company, which is also the name under which such subsidiary does business: Jurisdiction of Names under which Incorporation business is Or Organization conducted C. Jim Stewart & Stevenson, Inc. Delaware Stewart & Stevenson CPS International, Inc. Panama None Creole Stewart & Stevenson, Inc. Delaware None S&S Cogen Inc. Delaware Stewart & Stevenson Sierra Detroit Diesel Allison, Inc. Nevada Stewart & Stevenson Stewart & Stevenson Capital Corporation Texas Stewart & Stevenson Stewart & Stevenson Carson, Inc. Texas Stewart & Stevenson Stewart & Stevenson Development Services, Inc. Delaware Stewart & Stevenson Stewart & Stevenson International, Inc. Delaware Stewart & Stevenson Stewart & Stevenson International Sales, Inc. Barbados None Stewart & Stevenson Operations, Inc. Delaware Stewart & Stevenson Stewart & Stevenson Overseas, Inc. Texas None Stewart & Stevenson Petroleum Services, Inc. Delaware Stewart & Stevenson Stewart & Stevenson Power, Inc. Delaware Pamco-Stewart & Stevenson Stewart & Stevenson Project Services, Inc. Delaware Stewart & Stevenson Stewart & Stevenson Realty Corporation Delaware None Stewart & Stevenson Technical Services, Inc. Delaware Stewart & Stevenson Stewart & Stevenson Transportation, Inc. Texas None Stewart & Stevenson (U.K.) Limited Scotland None Stewart & Stevenson Vehicle Services, Inc. Delaware Stewart & Stevenson Tokumei Kumiai Holdings, Inc. Delaware None
The Company has additional subsidiaries which, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. EX-23 4 CONSENT CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby conent to the incorporation by reference in Registration Statement No. 33-21515 on Form S-8 dated April 28, 1988, Registration Statement No. 33-22463 on Form S-8 dated June 13, 1988, Registration Statement No. 33-65404 on Form S-8 dated July 1, 1993, Registration Statement No. 33-52881 on Form S-8 dated March 30, 1994 Registration Statement No. 33-52903 on Form S-8 dated March 30, 1994, Registration Statement No. 33-54389 on Form S-4 dated June 30, 1994, Registration Statement No. 33-58679 on Form S-8 dated April 18, 1995, Registration Statement No. 33-58685 on Form S-8 dated April 18, 1995, Registration Statement No. 333-02817 on Form S-8 dated April 25, 1996, Registration Statement No. 333-15271 on Form S-8 dated April 29, 1997, and Registration Statement No. 333-35617 dated September 15, 1997 of our report dated April 13, 1998 inlcuded in Stewart & Stevenson Services, Inc.'s Form 10-K for the fiscal year ended January 31, 1998. /s/ Arthur Andersen LLP Houston, Texas April 30, 1998 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1000 YEAR JAN-31-1998 JAN-31-1998 18,987 0 787,268 (2,235) 167,577 1,109,805 227,152 (129,408) 1,252,647 562,102 147,166 166,454 0 0 355,286 1,252,647 1,115,034 1,115,034 1,032,049 1,032,049 105,175 0 15,440 (22,190) (8,075) (14,505) 66,768 0 0 52,263 1.57 1.57
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