-----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, IGLElJKfW0gl9H5c/xKucepxnuBJ/Iwu1PjtwPgLSnjPN0Hbigd6WyjVQXUC2/Jl Mg8x9olGB2oXp9Ifm6fk4g== 0000890566-00-001748.txt : 20001211 0000890566-00-001748.hdr.sgml : 20001211 ACCESSION NUMBER: 0000890566-00-001748 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001028 FILED AS OF DATE: 20001208 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-Q SEC ACT: SEC FILE NUMBER: 001-11443 FILM NUMBER: 785954 BUSINESS ADDRESS: STREET 1: 2707 N LOOP W CITY: HOUSTON STATE: TX ZIP: 77008 BUSINESS PHONE: 7138687700 MAIL ADDRESS: STREET 1: P O BOX 1637 CITY: HOUSTON STATE: TX ZIP: 77251-1637 10-Q 1 0001.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 28, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO _________ COMMISSION FILE NUMBER 0-8493 STEWART & STEVENSON SERVICES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 74-1051605 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2707 NORTH LOOP WEST, HOUSTON, TEXAS 77008 (Address of principal executive offices) (Zip Code) (713) 868-7700 (Registrant's telephone number, including area code) not applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK, WITHOUT PAR VALUE 28,051,916 SHARES (Class) (Outstanding at December 1, 2000) PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. The following information required by Rule 10-01 of Regulation S-X is provided herein for Stewart & Stevenson Services, Inc. and Subsidiaries (the "Company"): Consolidated Condensed Statements of Financial Position - October 28, 2000 and January 31, 2000. Consolidated Condensed Statements of Earnings - Nine Months and Three Months Ended October 28, 2000 and October 30, 1999. Consolidated Condensed Statements of Cash Flows - Nine and Three Months Ended October 28, 2000 and October 30, 1999. Notes to Consolidated Condensed Financial Statements. 2 STEWART & STEVENSON SERVICES, INC. CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT SHARE DATA)
OCTOBER 28, 2000 JANUARY 31, 2000 ---------------- ---------------- (UNAUDITED) ASSETS CURRENT ASSETS Cash and equivalents ..................................... $ 105,057 $ 11,715 Accounts and notes receivable, net ....................... 160,641 242,625 Recoverable costs and accrued profits not yet billed ........................................ 20,907 8,151 Income tax receivable .................................... 18,053 26,255 Deferred tax asset ....................................... 11,067 9,076 Inventories: Power Products ........................................ 167,250 150,844 Petroleum Equipment ................................... 40,857 30,151 Airline Products ...................................... 31,585 26,029 Other Business Activities ............................. -- 33,762 Excess of current cost over LIFO values ............... (50,506) (49,839) --------- --------- 189,186 190,947 --------- --------- TOTAL CURRENT ASSETS .................................. 504,911 488,769 PROPERTY, PLANT AND EQUIPMENT ............................... 284,115 290,355 Allowances for depreciation and amortization ......................................... (171,298) (160,821) --------- --------- 112,817 129,534 DEFERRED INCOME TAX ASSETS .................................. 370 166 INVESTMENTS AND OTHER ASSETS ................................ 22,724 23,881 --------- --------- $ 640,822 $ 642,350 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable ............................................ $ 13,097 $ 25,269 Accounts payable ......................................... 61,324 90,163 Accrued payrolls and incentives .......................... 13,209 18,701 Income tax ............................................... 3,459 3,257 Current portion of long-term debt ........................ 29,384 8,955 Other current liabilities ................................ 91,865 65,455 --------- --------- TOTAL CURRENT LIABILITIES ............................. 212,338 211,800 COMMITMENTS AND CONTINGENCIES (SEE NOTE D) LONG-TERM DEBT .............................................. 57,747 78,281 DEFERRED INCOME TAX ......................................... 182 958 ACCRUED POSTRETIREMENT BENEFITS ............................. 13,549 12,748 DEFERRED COMPENSATION ....................................... 2,160 2,436 OTHER LONG-TERM LIABILITIES ................................. 2,980 1,048 --------- --------- TOTAL LIABILITIES ..................................... 288,956 307,271 --------- --------- SHAREHOLDERS' EQUITY Common Stock, without par value, 100,000,000 shares authorized; 28,059,416 and 27,992,203, shares issued at October 28, 2000 and January 31, 2000, respectively .... 47,780 47,722 Retained earnings ........................................ 304,086 287,357 --------- --------- TOTAL SHAREHOLDERS' EQUITY ............................ 351,866 335,079 --------- --------- $ 640,822 $ 642,350 ========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. 3 STEWART & STEVENSON SERVICES, INC. CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED THREE MONTHS ENDED ----------------- ------------------ OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30, 2000 1999 2000 1999 --------- --------- --------- --------- (UNAUDITED) (UNAUDITED) Sales ............................................. $ 808,499 $ 624,267 $ 284,227 $ 234,716 Cost of sales ..................................... 677,808 527,505 236,441 199,095 --------- --------- --------- --------- Gross profit ...................................... 130,691 96,762 47,786 35,621 Selling and administrative expenses ............... 91,361 76,431 31,878 26,166 Interest expense .................................. 6,739 8,812 2,383 2,102 Interest and investment income .................... (6,230) (854) (1,638) (185) Other income, net ................................. 1,051 (2,924) 1,684 (154) --------- --------- --------- --------- 92,921 81,465 34,307 27,929 --------- --------- --------- --------- Earnings before income taxes ...................... 37,770 15,297 13,479 7,692 Income tax provision .............................. 13,903 5,673 4,889 2,857 --------- --------- --------- --------- Earnings of consolidated companies ................ 23,867 9,624 8,590 4,835 Gain on sale of investment, net of tax ............ -- 2,746 -- 2,746 Equity in net earnings of unconsolidated affiliates -- 142 -- (192) --------- --------- --------- --------- Net earnings ...................................... $ 23,867 $ 12,512 $ 8,590 $ 7,389 ========= ========= ========= ========= Weighted average number of shares of common stock Basic .......................................... 28,018 27,988 28,041 27,992 Diluted ........................................ 28,277 28,036 28,478 28,082 Net earnings per share: Basic ............................................. $ 0.85 $ 0.45 $ 0.31 $ 0.26 Diluted ........................................... 0.84 0.45 0.30 0.26 Cash dividends per share .......................... $ 0.255 $ 0.255 $ 0.085 $ 0.085
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. 4 STEWART & STEVENSON SERVICES, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED THREE MONTHS ENDED ----------------- ------------------ OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30, 2000 1999 2000 1999 --------- --------- --------- --------- (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES Net earnings .......................................................... $ 23,867 $ 12,512 $ 8,590 $ 7,389 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Accrued postretirement benefits ................................... 801 775 183 59 Depreciation and amortization ..................................... 16,135 15,895 5,110 5,069 Deferred income taxes, net ........................................ (980) (225) (226) (54) Gain on sale of business assets ................................... (5,649) -- -- -- Change in operating assets and liabilities net of the effect of acquisition: Accounts and notes receivable, net ............................. 86,284 (33,494) 49,338 (12,946) Recoverable costs and accrued profits not yet billed ........... (12,756) 90,689 (8,020) 26,439 Inventories .................................................... (21,511) 23,900 (37,469) 14,189 Accounts payable ............................................... (28,839) (10,383) 8,993 15,769 Accrued payrolls and incentive ................................. (5,492) (5,065) (1,160) (1,760) Current income taxes, net ...................................... 6,413 15,998 (3,714) 2,066 Other current liabilities ...................................... 26,862 (9,204) 19,643 (5,674) Other--principally long-term assets and liabilities ............ (1,015) (8,479) 3,359 (2,628) --------- --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES ............................. 84,120 92,919 44,627 47,918 --------- --------- --------- --------- INVESTING ACTIVITIES Expenditures for property, plant and equipment ........................ (26,255) (24,690) (5,697) (8,005) Proceeds from sale of business assets ................................. 52,622 -- 8,000 -- Disposal of property, plant and equipment, net ........................ 2,212 14,054 (76) 6,101 --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ................... 28,579 (10,636) 2,227 (1,904) --------- --------- --------- --------- FINANCING ACTIVITIES Additions to long-term borrowings ..................................... 20,417 16,234 370 -- Payments on long-term borrowings ...................................... (20,522) (81,896) (296) (15,295) Net payments on short-term borrowings ................................. (12,172) (2,507) (1,448) (10,585) Dividends paid ........................................................ (7,138) (7,138) (2,377) (2,380) Exercise of stock options ............................................. 58 -- 53 -- --------- --------- --------- --------- NET CASH USED IN FINANCING ACTIVITIES ................................. (19,357) (75,307) (3,698) (28,260) --------- --------- --------- --------- Increase in cash and equivalents ......................................... 93,342 6,976 43,156 17,754 Cash and equivalents, beginning of period ................................ 11,715 12,959 61,901 2,181 --------- --------- --------- --------- Cash and equivalents, end of period ...................................... $ 105,057 $ 19,935 $ 105,057 $ 19,935 ========= ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Net cash paid during the period for: Interest ............................................................ $ 5,171 $ 7,775 $ 429 $ 613 Income tax .......................................................... 16,810 2,609 9,607 1,876 Non-cash investing activities: Issuance of notes receivable in sale of investment .................. -- 4,224 -- 4,224
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. 5 STEWART & STEVENSON SERVICES, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOTE A--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated condensed financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, the information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. The results of operations for the three and nine months ended October 28, 2000 are not necessarily indicative of the results that will be realized for the fiscal year ending January 31, 2001. The Company's fiscal year begins on February 1 of the year stated and ends on January 31 of the following year. For example, the Company's fiscal year 2000 (hereinafter referred to as "2000") commenced on February 1, 2000 and ends on January 31, 2001. In addition, other years are referred to in a similar manner. The Company reports results on the fiscal quarter method; each of the first three fiscal quarters are 13 weeks long, with the fourth fiscal quarter covering the remaining part of the fiscal year. The accounting policies followed by the Company in preparing interim consolidated financial statements are similar to those described in the "Notes to Consolidated Financial Statements" in the Company's January 31, 2000 Form 10-K. An actual valuation of inventory under the last-in-first-out ("LIFO") method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management's estimates of expected year-end inventory levels and costs. Interim results are subject to the final year-end LIFO inventory valuation. The accompanying consolidated condensed financial statements for 1999 and related notes contain certain reclassifications to conform with the presentation used in 2000. NOTE B--SEGMENT INFORMATION Financial information relating to industry segments is as follows (in thousands except percentages):
NINE MONTHS ENDED THREE MONTHS ENDED ------------------------ ------------------------ OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30, 2000 1999 2000 1999 --------- --------- --------- --------- Sales Power Products .......... $ 443,751 $ 396,578 $ 162,520 $ 130,381 Tactical Vehicle Systems 203,346 63,588 69,021 51,555 Petroleum Equipment ..... 58,575 64,899 25,517 12,787 Airline Products ........ 83,308 74,863 26,785 29,026 Other Business Activities 19,519 24,339 384 10,967 --------- --------- --------- --------- Total ................. $ 808,499 $ 624,267 $ 284,227 $ 234,716 ========= ========= ========= ========= Operating Profit (Loss) Power Products .......... $ 8,747 $ 15,660 $ 6,330 $ 4,869 Tactical Vehicle Systems 38,980 13,248 10,023 10,105 Petroleum Equipment ..... 1,224 2,222 1,493 (1,427) Airline Products ........ (4,802) (547) (465) 214 Other Business Activities 2,519 (1,076) (113) (1,476) --------- --------- --------- --------- Total ................. $ 46,668 $ 29,507 $ 17,268 $ 12,285 ========= ========= ========= ========= Operating Margin Power Products .......... 2.0% 3.9% 3.9% 3.7% Tactical Vehicle Systems 19.2 20.8 14.5 19.6 Petroleum Equipment ..... 2.1 3.4 5.9 (11.2) Airline Products ........ (5.8) (0.7) (1.7) 0.7 Other Business Activities 12.9 (4.4) N/M (13.5)
N/M - Not Meaningful Total assets of the Company's Other Business Activities segment decreased by approximately $36.4 million during the second quarter of Fiscal 2000 as a result of the sale of certain of the Company's assets associated with its gas compressor leasing business. (See "Sale of Gas Compressor Leasing Business" below in Item 2.) At the beginning of the third quarter, approximately $20 million of the remaining 6 assets and associated operating results of its Other Business Activities segment were reclassified into the Company's Power Products segment. Such reclassification occurred as a result of a change in the nature of certain of Other Business Activities segment's operations. There have been no other material changes in total assets by industry segment since January 31, 2000. A reconciliation of operating profit to earnings before income taxes is as follows (in thousands): NINE MONTHS ENDED THREE MONTHS ENDED ---------------------- ---------------------- OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30, 2000 1999 2000 1999 -------- -------- -------- -------- Operating profit ............ $ 46,668 $ 29,507 $ 17,268 $ 12,285 Corporate expenses, net ..... (8,389) (5,427) (3,044) (2,491) Non-operating interest income 6,230 29 1,638 -- Interest expense ............ (6,739) (8,812) (2,383) (2,102) -------- -------- -------- -------- Earnings before income taxes $ 37,770 $ 15,297 $ 13,479 $ 7,692 ======== ======== ======== ======== NOTE C--ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts and hedging activities. Adoption of SFAS No. 133 was required on or before February 1, 2000. However, in June 1999, the FASB issued SFAS No. 137 which delayed the required implementation of SFAS No. 133 to no later than February 1, 2001. The Company is currently evaluating the implementation effects of SFAS No. 133 but does not expect that implementation will have a material impact on the Company's results of operations or financial position. In December 1999, the Securities and Exchange Commission staff released Staff Accounting Bulleting ("SAB") No. 101, "Revenue Recognition." The bulletin is not intended to change existing authoritative literature, but instead provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. Subsequent to the release of SAB No. 101, SAB No. 101A and SAB No. 101B were issued. These bulletins extended the effective date of SAB No. 101, allowing filers additional time to comply. Now, companies must comply with SAB No. 101 beginning with the fourth quarter of 2000. The Company does not believe the adoption of SAB No. 101 will have a material impact on the Company's financial results. NOTE D--COMMITMENTS AND CONTINGENCIES As a custom packager of power systems, the Company issues bid and performance guarantees in the form of performance bonds or standby letters of credit. Performance type letters of credit totaled approximately $4.7 million at October 28, 2000. The Company's government contract operations are subject to U.S. Government investigations of business practices and cost classifications from which legal or administrative proceedings can result. Based on government procurement regulations, under certain circumstances a contractor can be fined, as well as suspended or debarred from government contracting. In that event, the Company would also be unable to sell equipment or services to customers that depend on loans or financial commitments from the Export Import Bank, Overseas Private Investment Corporation, and similar government agencies during a suspension or debarment. The Company entered into an Administrative Agreement with the United States Air Force that imposes certain requirements on the Company intended to assure the U.S. Air Force that the Company is a responsible government contractor. Under this agreement, the Company has established and maintains a program to ensure compliance with applicable laws and the Administrative Agreement. The program provides employees with education and guidance regarding compliance and ethical issues, operates a means to report questionable practices on a confidential basis, and files periodic reports with the U.S. Air Force regarding the Company's business practices. A default by the Company of the requirements under the Administrative Agreement could result in the suspension or debarment of the Company from receiving any new contracts or subcontracts with agencies of the U.S. Government or the benefit of federal assistance payments. Any such suspension could also prevent the Company from receiving future modifications to the Family of Medium Tactical Vehicles ("FMTV") contract unless the Secretary of the Army finds a compelling need to enter into such modification. 7 The Administrative Agreement expires pursuant to its term on March 19, 2001, but the Company intends to maintain compliance programs on a continuing basis. During 1998, the U.S. Customs Service detained a medium tactical vehicle that was being shipped by the Company for display in a European trade show. The Company has been advised that the U.S. Customs Service and the Department of Justice are investigating potential violations by the Company of laws relating to the export of controlled military vehicles, weapons mounting systems, and firearms. Such investigation could result in the filing of criminal, civil, or administrative sanctions against the Company and/or individual employees and could result in a suspension or debarment of the Company from receiving new contracts or subcontracts with agencies of the U.S. Government or the benefit of federal assistance payments. It is presently impossible to determine the actual costs that may be incurred to resolve this matter or whether the resolution will have a material adverse effect on the Company's results of operations. The Company is also a defendant in a number of lawsuits relating to contractual, product liability, personal injury, and warranty matters normally incident to the Company's business. No individual case, or group of cases presenting substantially similar issues of law or fact, involve a claim for damages which are material to the Company's financial statements or are expected to have a material effect on the manner in which the Company conducts its business. Although management has established reserves that it believes to be adequate in each case, an unforeseen outcome in such cases could have a material adverse impact on the results of operations in the period it occurs. The Company has provided certain guarantees in support of its customers' financing of purchases from the Company in the form of both residual value guarantees and debt guarantees. The maximum exposure of the Company related to guarantees at October 28, 2000 is $4.6 million. The Company leases certain additional property and equipment under lease arrangements of varying terms whose annual rentals are less than 1% of consolidated sales. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the attached condensed consolidated financial statements and notes thereto, and with the Company's Form 10-K and notes thereto for the fiscal year ended January 31, 2000. The following discussion contains forward-looking statements which are based on assumptions such as timing, volume, and pricing of customers' orders. In connection therewith, please see the cautionary statements contained therein and the heading labeled "Factors That May Affect Future Results" below, which identify important factors that could cause actual results to differ materially from those in the forward-looking statements. RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentage of sales represented by certain items reflected in the Company's Consolidated Condensed Statements of Earnings.
NINE MONTHS ENDED THREE MONTHS ENDED ----------------------- ----------------------- OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Sales ............................................. 100.0% 100.0% 100.0% 100.0% Cost of sales ..................................... 83.8 84.5 83.2 84.8 ---------- ---------- ---------- ---------- Gross profit ...................................... 16.2 15.5 16.8 15.2 Selling and administrative expenses ............... 11.3 12.2 11.2 11.1 Interest expense .................................. 0.8 1.4 0.8 0.9 Interest and investment income .................... (0.8) (0.1) (0.5) (0.1) Other income, net ................................. 0.1 (0.5) 0.5 (0.1) ---------- ---------- ---------- ---------- 11.5 13.0 12.1 11.9 ---------- ---------- ---------- ---------- Earnings before income taxes ...................... 4.7 2.5 4.7 3.3 Income tax provision .............................. 1.7 0.9 1.7 1.2 ---------- ---------- ---------- ---------- Earnings of consolidated companies ................ 3.0 1.5 3.0 2.1 Gain on sale of investments, net of tax ........... -- 0.4 -- 1.2 Equity in net earnings of unconsolidated affiliates -- -- -- (0.1) ---------- ---------- ---------- ---------- Net earnings ...................................... 3.0% 2.0% 3.0% 3.1% ========== ========== ========== ==========
8 OVERVIEW Sales for the third quarter ended October 28, 2000 grew 21 percent to $284.2 million compared to sales of $234.7 million for the third quarter of 1999. Net earnings for the third quarter of 2000 increased 16 percent to $8.6 million, or $0.30 per diluted share compared to net earnings of $7.4 million, or $0.26 per share, in the third quarter of 1999. Sales for the first nine months of 2000 grew 30 percent to $808.5 million versus $624.3 million for the first nine months of 1999. Net earnings for the first three quarters increased by 91 percent to $23.9 million, or $0.84 per diluted share, compared to $12.5 million, or $0.45 per share, in last year's first three quarters. Excluding a one-time gain on a sale of an investment which occurred in the third quarter of 1999, net earnings increased by 144 percent. In the third quarter of 2000, the Company achieved its seventh consecutive quarter of improved earnings. The Company continues to focus on five key initiatives to: (1) strengthen business leadership, (2) improve cash flow management, (3) enhance supply chain productivity, (4) revitalize business growth, and (5) implement a new enterprise-wide information system. SEGMENT DATA The Company's management analyzes financial results principally in five business segments based on distinct product and customer types: Power Products, Tactical Vehicle Systems, Airline Products, Petroleum Equipment, and Other Business Activities. Such segments are described below along with analyses of their respective results of operations. The Power Products segment recorded third quarter sales of $162.5 million compared to $130.4 million for the third quarter of 1999. Operating profit for the Power Products segment totaled $6.3 million, or 3.9% of sales, the best operating profit margin percentage since the second quarter of 1999. At the beginning of the third quarter of 2000, the Company changed the nature of one of its operating facilities and reassigned it from the Other Business Activities segment to the Power Products segment, which resulted in a modest increase in sales and a $1.4 million reduction in operating profit. Third quarter 2000 results reflected improved parts and service revenues in all five regions versus the same period in 1999. For the third quarter of 1999, the Company realized operating profit of $4.9 million, or 3.7% of sales. The Tactical Vehicle Systems segment recorded sales of $69.0 million for the three months ended October 28, 2000, compared to $51.6 million for the like period of 1999. Operating profit for the third quarter of 2000 amounted to $10.0 million, compared to $10.1 million a year ago. Operating profit for the third quarter of 2000 included $2.0 million in non-recurring charges, which were principally comprised of provisions for corrosion warranty costs and certain billing adjustments. The Company shipped 339 trucks in the third quarter of 2000 and 232 trucks in the third quarter of 1999. Based on US Army forecasts and other data, the Company expects to ship 533 trucks during the fourth quarter of 2000 and 1,534 trucks for the year. In 2001, the Company expects to ship approximately 2,200 trucks and approximately 700 trailers. Such volume is expected to result in sales of approximately $300 million in 2000 and $400 million in 2001. The Company's Petroleum Equipment segment recorded sales of $25.5 million during the third quarter of 2000, compared to $18.1 million in the second quarter of 2000 and $12.8 million in the third quarter of 1999. Operating profit for Petroleum Equipment was $1.5 million for the third quarter of 2000, or 5.9 percent of sales, compared to a $0.4 million profit in the second quarter of 2000, and a $1.4 million loss in the third quarter of 1999. This improvement in operating profit is a result of the cyclical rebound of the petroleum industry. The Company expects further improvements in operating profit for the fourth quarter of 2000. In addition to improved sales, order backlogs for this segment grew to $65.6 million at quarter end, up $10.0 million over the backlog reported at the end of the second quarter of 2000. The Airline Products segment recorded sales of $26.8 million in the third quarter, compared to last year's third quarter results of $29.0 million. The $0.5 million operating loss for the quarter included new product development expenditures as well as the recognition of a charge for sales volume rebates. A profit of $0.2 million was recorded in last year's third quarter. The new S&S Tug management leadership team, which was assembled earlier this year, continues to take actions to position this business for future profitable growth. Other business activities not identified in a specific segment include predominantly gas compression equipment sales or leases. Sales in the third quarter totaled $0.4 million, compared to $11.0 million in the third quarter of 1999. Operating losses of $0.1 million and $1.5 million were reported in the third quarter of this year and last year, respectively. As previously reported, the gas compression leasing business was sold during the second quarter of 2000, which led to the reduced sales and operating losses. In addition, as described above, the Company changed the nature of one of its operating facilities and reassigned it from Other Business Activities to the Power Products segment. 9 CORPORATE RESULTS For the three months ended October 28, 2000 gross profit margin was 16.8 percent versus 15.2 percent for the comparable period of 1999. Margins increased during the quarter largely as a result of the cyclical improvement reflected in the results of the Company's Petroleum Equipment segment. However, such improvement was partially offset by charges recognized in the third quarter of 2000 in the Tactical Vehicle Systems segment and the Airline Products segment, as described above. Net corporate expenses for the quarter totaled $3.0 million versus $2.5 million for the comparable period of 1999. The increase was largely attributable to expenditures on a new, enterprise-wide information system. The Company has dedicated a team of employees to lead the implementation and is currently utilizing the software for its core and certain of its ancillary financial systems. The first manufacturing management implementation has also been completed and over the coming months the Company will implement the manufacturing management software at other of its locations. To date, the Company has made positive progress on this initiative and believes it will continue to improve the quality of information through the utilization of this technology. During the third quarter the Company generated $1.6 million in interest income, an increase of $1.6 million over the third quarter of 1999, as a result of increased average cash balances in 2000. Interest expense for the first three quarters was $6.7 million or $2.1 million below last year's comparable period, resulting from lower average debt and various asset management initiatives. SALE OF GAS COMPRESSOR LEASING BUSINESS Effective July 1, 2000 the Company completed the sale of its gas compressor leasing business for $57.5 million. The Company will continue to package gas compressor equipment for sale and will continue to service such equipment. To date, the Company has received payment of $52.6 million and an additional $4.9 million will be due and payable on or before April 10, 2001. Such amount is included on the Company's Consolidated Condensed Statements of Financial Position as of October 28, 2000 as a component of Accounts and notes receivable, net. The Company realized a gain of $5.6 million on this sale during the second quarter of 2000, which is included in Other income, net on the Company's Consolidated Condensed Statements of Earnings for the nine months ended October 28, 2000. All such items are associated with its Other Business Activities segment. UNFILLED ORDERS The Company's unfilled orders consist of written purchase orders, letters of intent, and oral commitments. These unfilled orders are generally subject to cancellation or modification due to customer relationships or other conditions. Purchase options are not included in unfilled orders until exercised. Unfilled orders as of the end of the third and second quarters of 2000 and third quarter of 1999 were as follows: OCTOBER 28, 2000 JULY 29, 2000 OCTOBER 30, 1999 ---------------- ---------------- ---------------- (Dollars in millions) Tactical Vehicle Systems $ 742.8 $ 795.7 $ 960.3 Power Products ......... 119.2 116.7 60.8 Petroleum Equipment .... 65.6 55.6 17.3 Airline Products ....... 21.3 21.1 19.4 All Other .............. 16.5 10.1 18.8 ----------- ----------- ----------- $ 965.4 $ 999.2 $ 1,076.6 =========== =========== =========== Total backlog decreased $33.8 million during the quarter as a result of additional fulfillment of the multi-year follow-on Tactical Vehicle Systems contract awarded in October 1998 by the United States Army Tank-Automotive and Armament Command ("TACOM") to manufacture medium tactical vehicles. This decrease was partially offset by an option exercised by TACOM for an additional 103 vehicles and various enhancements to vehicles already produced. Such decrease in unfilled orders for this segment was also partially offset by a modest increase in both the Power Products and Airline Products segments. The Company has also experienced continued growth in orders for the Petroleum Equipment segment's products. Over the coming months, the Company expects the backlog in its Tactical Vehicle Systems segment to decrease as existing contractual orders are filled. See "Government Contracting Factors" for additional information regarding Tactical Vehicle Systems contracts. CAPITAL EXPENDITURES AND COMMITMENTS Capital spending for property, plant and equipment of $26.3 million for the nine months ended October 28, 2000 included $8.3 million in 10 revenue earning assets, and increased from $24.7 million for the same period in 1999. LIQUIDITY AND CAPITAL RESOURCES Cash flow provided by operating activities was $44.6 million during the third quarter of 2000, largely due to collections of outstanding balances due from the U.S. Government, as well as performance-based collections from the U.S. Government. During the first nine months of 2000 the Company generated over $84 million in cash flow from operations, slightly less than the comparable nine months of 1999. Cash and equivalents were $105.1 million at October 28, 2000, an increase of over $43 million versus the prior quarter. Borrowings at the end of the quarter amounted to slightly over $100 million, resulting in a net cash over borrowings position of $4.8 million. The Company has outstanding $75 million of privately placed unsecured long-term senior notes (the "Private Placement") at varying rates of interest. Various traunches of the Private Placement mature on May 30 of 2001, 2003, and 2006. Interest is due semiannually on May 30 and November 30 of each year. During the second quarter of 2000, the Company reclassified the amount due on May 30, 2001, or $20 million, from Long-term debt to Current portion of long-term debt on its Consolidated Condensed Statements of Financial Position. The Company has in place an unsecured Revolving Debt Facility that could provide up to approximately $150 million, including a $25 million letter of credit sub facility, of which approximately $112 million was available under the terms of the debt facility at October 28, 2000. This Revolving Debt Facility matures on December 20, 2001, but the Company has plans in place to refinance this facility prior to the end of 2000. The Company has additional banking relationships that provide uncommitted borrowing arrangements. The Company's unsecured long-term notes, which include the Revolving Debt Facility notes and senior notes, were issued pursuant to agreements containing covenants that restrict indebtedness, guarantees, rentals, and other items. Additional covenants in the Revolving Debt Facility require the Company to maintain a minimum tangible net worth and interest coverage. Since these requirements are calculated from earnings and cash flow, dividends could be restricted indirectly. Dividends at the current level are not restricted as of the date of this report, because the Company is currently in compliance with all other such covenants. Further, the Company expects to remain in compliance for the foreseeable future. The Company's sources of cash liquidity include cash and cash equivalents, cash from operations, amounts available under credit facilities and other external sources of funds. The Company believes that these sources are sufficient to fund the current requirements of working capital, capital expenditures, dividends, current maturities of debt, and other financial commitments. From time to time, as business needs warrant, the Company borrows funds under its Revolving Debt Facility. To date during 2000 the Company has borrowed and repaid approximately $20 million under this facility. In the event that any acquisition of additional operations, growth in existing operations, settlements of lawsuits or disputes, changes in inventory levels, accounts receivable, tax payments, or other working capital items create a permanent need for working capital or capital expenditures in excess of the existing cash and cash equivalents and committed lines of credit, the Company may seek to borrow from other long-term financing sources or to curtail certain activities. FACTORS THAT MAY AFFECT FUTURE RESULTS CAUTIONARY STATEMENTS This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this quarterly report contain forward-looking statements that are based on management's current expectations, estimates, and projections. Any such statements set forth herein or otherwise made in writing or orally by the Company with regard to its goals or expectations for revenues, its projected or estimated earnings, its results of operations, or other aspects of its business are not guarantees of future performance and involve a number of risks, uncertainties, and assumptions and are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Many factors, including those discussed more fully elsewhere in this release and in the Company's filings with the Securities and Exchange Commission, particularly its latest annual report on Form 10-K, as well as others, could cause actual results to differ materially from those stated. These factors include, but are not limited to: risks associated with newly acquired businesses or other business combinations; changes in the costs or availability of the Company's raw materials or other factors of production; changes in pricing or product or service offerings by the Company's foreign and domestic competitors; changes in demand for the Company's products and services; technological developments and changes; the Company's or others' ability to continue to introduce competitive new products and services on a timely, cost effective basis; the mix of products and services sold or marketed by the Company; the achievement of reduced costs and expenses; the gain or loss of significant customers; technological, implementation, and cost or financial risks in use of large, multi-year contracts; the cyclical nature of markets served by the Company; the outcome of pending and future litigation, governmental proceedings, or other actions against the Company; the continued availability of financing, financial instruments 11 and financial resources in the amount, at the times, and on the terms required to support the Company's business; the assessment of unanticipated taxes or imposition of eminent domain by foreign or domestic governmental authorities; the risk of cancellation or adjustment of specific orders and termination of significant government programs; disruptions in production and/or increased costs due to labor disputes and enactment of adverse state, federal or foreign legislation or changes in government policy or regulation. In addition, such forward-looking statements could be affected by general industry and market conditions and growth rates, general domestic and international conditions including interest rates, inflation and currency exchange rates and other future factors. Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. GOVERNMENT CONTRACTING FACTORS Major contracts for military systems are performed over extended periods of time and are subject to changes in scope of work and delivery schedules. Pricing negotiations on changes and settlement of claims, including claims for additional taxes, often extend over prolonged periods of time. The Company's ultimate profitability on such contracts will depend on the eventual outcome of an equitable settlement of contractual issues with the U.S. Government. Due to uncertainties inherent in the estimation and claim negotiation process, no assurances can be given that management's estimates will be accurate, and variances between such estimates and actual results could be material. The Company's existing multi-year contract with the U.S. Army will extend production of the Family of Medium Tactical Vehicles ("FMTV") into 2002 (or 2003 if the government exercises its option to purchase additional vehicles). 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. As of October 28, 2000, funding in the amount of $365 million for the FMTV contract had been authorized and appropriated by the U.S. Congress. 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. The Company's government contract operations are subject to U.S. Government investigations of business practices and cost classifications from which legal or administrative proceedings can result. Based on government procurement regulations, under certain circumstances a contractor can be fined, as well as suspended or debarred from government contracting. In this event, the Company would also be unable to sell equipment or services to customers that depend on loans or financial commitments from the Export Import Bank, Overseas Private Investment Corporation, and similar government agencies, or otherwise receive the benefits of federal assistance payments during a suspension or debarment. The Company entered an Administrative Agreement with the United States Air Force that imposes certain requirements on the Company intended to assure the U.S. Air Force that the Company is a responsible government contractor. Under this agreement, the Company has established and maintains an effective program to ensure compliance with applicable laws and the Administrative Agreement. The program provides employees with education and guidance regarding compliance and ethical issues, operates a means to report questionable practices on a confidential basis, and files periodic reports with the U.S. Air Force regarding the Company's business practices. A default by the Company of the requirements under the Administrative Agreement could result in the suspension or debarment of the Company from receiving any new contracts or subcontracts with agencies of the U.S. Government or the benefit of federal assistance payments. Any such suspension could also prevent the Company from receiving future modifications to the FMTV contract unless the Secretary of the Army finds a compelling need to enter into such modification. The Administrative Agreement expires pursuant to its term on March 19, 2001, but the Company intends to maintain compliance programs on a continuing basis. 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. During 1998, the U.S. Customs Service detained a medium tactical vehicle that was being shipped by the Company for display in a European trade show. The Company has been advised that the U.S. Customs Service and the Department of Justice are investigating potential violations by the Company of laws relating to the export of controlled military vehicles, weapons mounting systems, and firearms. Such investigation could result in the filing of criminal, civil, or administrative sanctions against the Company and/or individual employees and could result in a suspension or debarment of the Company from receiving new contracts or subcontracts with agencies of the U.S. Government or the benefit of federal assistance payments. The Company is also a defendant in a number of lawsuits relating to contractual, product liability, personal injury, and warranty matters normally incident to the Company's business. No individual case, or group of cases presenting substantially similar issues of law or fact, involve a claim for damages which are material to the Company's financial statements or are expected to have a material effect on the manner in which the Company conducts its business. Although management has established reserves that it believes to be adequate in each case, an unforeseen outcome in such cases could have a material adverse impact on the results of operations in the period it occurs. 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 3.2 Sixth Restated Bylaws of Stewart & Stevenson Services, Inc., effective September 12, 2000 27.1 Financial Data Schedule (b) Form 8-K Report Date - August 24, 2000 (Second Quarter Results) Items reported - Item 5. Other Events Item 7. Exhibits Form 8-K Report Date - August 31, 2000 (Receipt for $23.6 Million in Oilfield Equipment) Items reported - Item 5. Other Events Item 7. Exhibits Form 8-K Report Date - September 13, 2000 (Dividend Announcement) Items reported - Item 5. Other Events Item 7. Exhibits Form 8-K Report Date - September 20, 2000 (Max Lukens Joins as New Director) Items reported - Item 5. Other Events Item 7. Exhibits Form 8-K Report Date - September 28, 2000 (Receipt of US Army Contracts for $25 Million) Items reported - Item 5. Other Events Item 7. Exhibits 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 8th day of December 2000. STEWART & STEVENSON SERVICES, INC. By: /s/ MICHAEL L. GRIMES Michael L. Grimes President and Chief Executive Officer (principal executive officer) By: /s/ JOHN H. DOSTER John H. Doster Senior Vice President and Chief Financial Officer (principal financial officer) By: /s/ PATRICK G. O'ROURKE Patrick G. O'Rourke Controller and Chief Accounting Officer (chief accounting officer) 15 EXHIBIT INDEX EXHIBIT NUMBER AND DESCRIPTION 3.2 Sixth Restated Bylaws of Stewart & Stevenson Services, Inc., effective September 12, 2000 27.1 Financial data schedule 16 EX-3.2 2 0002.txt EXHIBIT 3.2 SIXTH RESTATED BYLAWS OF STEWART & STEVENSON SERVICES, INC. EFFECTIVE APRIL 11, 2000 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 2 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, electronic 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 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. Notice shall be delivered personally, by mail or, subject to receipt by the Corporation of written authorization, electronic transmission. If delivered personally, such notice shall be deemed delivered when actually received by the shareholder. If delivered by mail, such notice shall be deemed delivered when deposited in the United Sates mail addressed to 3 the shareholder at his address as it appears on the stock certificate register of the Corporation, with postage thereon prepaid. If delivered by electronic transmission, such notice shall be deemed delivered when the notice or the location from which the notice can be retrieved or otherwise viewed is sent to the electronic mail address specified by each shareholder that authorized electronic transmission. 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. 4 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 5 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 6 Board of Directors shall consist of eleven (11) 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. Directors shall retire as of the date of the annual meeting of shareholders first occurring following the Director's 73rd birthday; provided, that any Director who was originally elected on or before June 19, 1981 shall not be required to retire until the date of the annual meeting of shareholders first occurring following such Director's 75th birthday. No person shall be qualified for election or re-election as a director of the Corporation if 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 7 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 personally delivering or, subject to receipt of written authorization, electronically transmitting 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. 8 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 9 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, telephoned or, subject to receipt of written authorization, electronically transmitted 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. 10 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 11 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 12 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. 13 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 14 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. 15 FIRST AMENDMENT TO THE SIXTH RESTATED BYLAWS OF STEWART & STEVENSON SERVICES, INC. Effective as of April 28, 2000, Section 4.1 and 4.7 of the Bylaws of Stewart & Stevenson Services, Inc. was amended to read as follows: 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 twelve (12) 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. Directors shall retire as of the date of the annual meeting of shareholders first occurring following the Director's 73rd birthday; provided, that any Director who was originally elected on or before June 19, 1981 shall not be required to retire until the date of the annual meeting of shareholders first occurring following such Director's 75th birthday. No person shall be qualified for election or re-election as a director of the Corporation if 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 4.7. QUORUM. Eight 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. 16 SECOND AMENDMENT TO THE SIXTH RESTATED BYLAWS OF STEWART & STEVENSON SERVICES, INC. Effective as of June 13, 2000, the first sentence in the third paragraph of Section 4.12 Standing Committees of the Sixth Restated Bylaws of the Company was amended to read as follows: "The Audit Committee shall consist of five (5) 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." 17 THIRD AMENDMENT TO THE SIXTH RESTATED BYLAWS OF STEWART & STEVENSON SERVICES, INC. Effective as of September 12, 2000, Section 4.1 of the Sixth Restated Bylaws of the Company is amended to read as follows in its entirety: 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 thirteen (13) members, PROVIDED, HOWEVER, that such number shall be automatically reduced to twelve (12) upon the retirement, resignation, death or removal of a director on or after September 12, 2000. 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. Directors shall retire as of the date of the annual meeting of shareholders first occurring following the Director's 73rd birthday; PROVIDED, that any Director who was originally elected on or before June 19, 1981 shall not be required to retire until the date of the annual meeting of shareholders first occurring following such Director's 75th birthday. No person shall be qualified for election or re-election as a director of the Corporation if he is an incumbent director and has attended fewer than fifty percent (50%) 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. 18 EX-27.1 3 0003.txt
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-31-2001 OCT-28-2000 105,057 0 172,381 (11,740) 189,186 504,911 284,115 (171,298) 640,822 212,338 57,747 0 0 47,780 304,086 640,822 808,499 808,499 677,808 677,808 86,182 0 6,739 37,770 13,903 23,867 0 0 0 23,867 0.85 0.84
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