SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 28, 2001
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 28,239,491 SHARES
(Class) (Outstanding at May 25, 2001)
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 - April 28, 2001 and
January 31, 2001.
Consolidated Condensed Statements of Earnings - Fiscal Quarters Ended April 28,
2001 and April 29, 2000.
Consolidated Condensed Statements of Cash Flows - Fiscal Quarters Ended April
28, 2001 and April 29, 2000.
Consolidated Condensed Statements of Comprehensive Income - Fiscal Quarters
Ended April 28, 2001 and April 29, 2000.
Notes to Consolidated Condensed Financial Statements.
2
STEWART & STEVENSON SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE DATA)
APRIL 28, 2001 JANUARY 31, 2001
--------------- -----------------
ASSETS (Unaudited) (Audited)
CURRENT ASSETS
Cash and equivalents $ 95,821 $ 109,955
Accounts and notes receivable, net 221,529 172,441
Recoverable costs and accrued profits not yet billed 10,875 22,415
Income tax receivable 2,045 8,518
Deferred tax asset 10,799 6,562
Inventories:
Power Products 168,207 170,176
Petroleum Equipment 38,153 26,809
Airline Products 25,660 29,007
Tactical Vehicle Systems 6,640 3,861
Other Business Activities 745 1,863
Excess of current cost over LIFO values (51,277) (51,309)
--------- ---------
188,128 180,407
--------- ---------
TOTAL CURRENT ASSETS 529,197 500,298
PROPERTY, PLANT AND EQUIPMENT, NET 120,617 114,765
DEFERRED INCOME TAX ASSETS 1,531 1,131
INVESTMENTS AND OTHER ASSETS 24,804 22,668
--------- ---------
$ 676,149 $ 638,862
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 11,723 $ 12,611
Accounts payable 60,300 66,437
Accrued payrolls and incentives 21,772 21,395
Income taxes payable 11,620 1,962
Current portion of long-term debt 20,437 20,437
Billings in excess of incurred costs 39,883 30,638
Other current liabilities 40,418 34,723
--------- ---------
TOTAL CURRENT LIABILITIES 206,153 188,203
--------- ---------
COMMITMENTS AND CONTINGENCIES (See Note D)
LONG-TERM DEBT 66,504 66,568
ACCRUED POSTRETIREMENT BENEFITS AND PENSION 19,975 18,879
DEFERRED COMPENSATION 1,944 2,145
OTHER LONG-TERM LIABILITIES 2,635 2,483
--------- ---------
TOTAL LIABILITIES 297,211 278,278
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, without par value, 100,000,000 shares
authorized; 28,067,566 and 28,115,662 shares issued at
January 31, 2001 and April 28, 2001, respectively 48,795 48,325
Currency translation adjustment (993) (929)
Retained earnings 331,136 313,188
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 378,938 360,584
--------- ---------
$ 676,149 $ 638,862
========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
3
STEWART & STEVENSON SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
---------------------------------
APRIL 28, 2001 APRIL 29, 2000
--------------- ---------------
(Unaudited)
Sales $ 341,521 $ 261,113
Cost of sales 292,632 212,527
--------- ---------
Gross profit 48,889 48,586
Recovery of costs incurred, net (20,800) --
Selling and administrative expenses 35,481 38,787
Interest and investment income (1,215) (4,192)
Interest expense 2,065 2,309
Other income, net (20) (242)
--------- ---------
15,511 36,662
--------- ---------
Earnings before income taxes 33,378 11,924
Income tax expense 12,417 4,426
--------- ---------
Net earnings from continuing operations 20,961 7,498
Loss on disposal of discontinued operations, net of tax (628) --
--------- ---------
Net earnings $ 20,333 $ 7,498
========= =========
Weighted average number of shares of common stock:
Basic 28,085 27,996
Diluted 28,704 28,075
Earnings per share:
Basic
Continuing operations $ 0.75 $ 0.27
Loss on disposal of discontinued operations (0.02) --
--------- ---------
NET EARNINGS PER SHARE $ 0.72 $ 0.27
========= =========
Diluted
Continuing operations $ 0.73 $ 0.27
Loss on disposal of discontinued operations (0.02) --
--------- ---------
NET EARNINGS PER SHARE $ 0.71 $ 0.27
========= =========
Cash dividends per share $ 0.085 $ 0.085
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4
STEWART & STEVENSON SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
----------------------------------
APRIL 28, 2001 APRIL 29, 2000
--------------- ----------------
(Unaudited)
OPERATING ACTIVITIES
Net earnings from continuing operations $ 20,961 $ 7,498
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Accrued postretirement benefits and pension 1,096 248
Depreciation and amortization 5,463 5,532
Deferred income taxes, net (4,484) 36
Change in operating assets and liabilities net of the effect
of acquisitions and divestitures:
Accounts and notes receivable, net (51,411) 44,964
Recoverable costs and accrued profits not yet billed 11,540 (5,983)
Inventories (7,721) (12,314)
Accounts payable (6,137) (10,029)
Accrued payrolls and incentive 378 (4,421)
Current income taxes 16,131 4,291
Other current liabilities 14,311 (2,839)
Other--principally long-term assets and liabilities (2,402) (1,469)
--------- ---------
NET CASH PROVIDED BY (USED IN ) OPERATING ACTIVITIES (2,275) 25,514
--------- ---------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (12,162) (10,279)
Proceeds from sale of business assets 2,323 --
Disposal of property, plant and equipment, net 847 123
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (8,992) (10,156)
--------- ---------
FINANCING ACTIVITIES
Additions to long-term borrowings -- 20,047
Payments on long-term borrowings (64) (20,029)
Net payments on short-term borrowings (888) (9,490)
Dividends paid (2,385) (2,379)
Exercise of stock options 470 222
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (2,867) (11,629)
--------- ---------
Increase (decrease) in cash and equivalents (14,134) 3,729
Cash and equivalents, beginning of period 109,955 11,715
--------- ---------
Cash and equivalents, end of period $ 95,821 $ 15,444
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Net cash paid during the period for:
Interest $ 522 $ 1,134
Income Tax 388 593
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5
STEWART & STEVENSON SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
THREE MONTHS ENDED
------------------------------------
(Unaudited)
APRIL 28, 2001 APRIL 29, 2000
--------------- -----------------
Net earnings $ 20,333 $ 7,498
Currency translation loss (64) (89)
-------- --------
Comprehensive income $ 20,269 $ 7,409
======== ========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
6
STEWART & STEVENSON SERVICES, INC. AND SUBSIDIARIES
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
herein 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 months ended April 28, 2001 are
not necessarily indicative of the results that will be realized for the fiscal
year ending January 31, 2002.
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 2001
(hereinafter referred to as "2001") commenced on February 1, 2001 and ends on
January 31, 2002. In addition, other years are referred to in the same manner.
The Company reports results on the fiscal quarter method with each quarter
comprising 13 weeks.
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, 2001 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 2000 and
related notes contain certain reclassifications to conform with the presentation
used in 2001.
NOTE B--SEGMENT INFORMATION
Financial information relating to industry segments is as follows (in thousands
except percentages):
THREE MONTHS ENDED
APRIL 28, 2001 APRIL 29, 2000
---------------- ----------------
(Unaudited)
SALES
Power Products $ 167,672 $ 128,316
Tactical Vehicle Systems 108,494 78,673
Petroleum Equipment 34,738 15,448
Airline Products 24,109 28,310
Other Business Activities 6,508 10,366
--------- ---------
Total $ 341,521 $ 261,113
========= =========
OPERATING PROFIT (LOSS)
Power Products $ 1,826 $ (816)
Tactical Vehicle Systems 38,346 14,636
Petroleum Equipment 1,387 (673)
Airline Products (4,352) 4
Other Business Activities 228 (634)
--------- ---------
Total $ 37,435 $ 12,517
========= =========
OPERATING MARGIN
Power Products 1.1% (0.6)%
Tactical Vehicle Systems 35.3 18.6
Petroleum Equipment 4.0 (4.4)
Airline Products (18.1) 0.0
Other Business Activities 3.5 (6.1)
Consolidated 10.9 4.8
7
A reconciliation of operating profit to earnings before income taxes is as
follows (in thousands):
THREE MONTHS ENDED
-----------------------------------
(Unaudited)
APRIL 28, 2001 APRIL 29, 2000
--------------- ----------------
Operating profit $ 37,435 $ 12,517
Corporate expenses, net (3,207) (2,476)
Non-operating interest and investment income 1,215 4,192
Interest expense (2,065) (2,309)
-------- --------
Earnings before income taxes $ 33,378 $ 11,924
======== ========
NOTE C--ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standard ("SFAS") No. 130,
"Reporting Comprehensive Income," was issued. SFAS No. 130 requires the
presentation of comprehensive income in an entity's financial statements.
Comprehensive income represents all changes in equity of an entity during the
reporting period, including net income and charges directly to equity which are
excluded from net income. The Company reports the impact of such other
comprehensive income in its consolidated financial statements included in its
Consolidated Condensed Statements of Comprehensive Income.
In June 1998, the Financial Accounting Standards Board issued 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. Effective February 1, 2001, the Company adopted SFAS No. 133. Such
adoption did not have a material effect on the Company's results of operations
or financial position.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements. The bulletin is not intended to change existing
authoritative literature. The Company is in compliance with all such
authoritative literature described in SAB No. 101.
In September 2000, the Emerging Issues Task Force ("EITF") released abstract No.
00-10, "Accounting for Shipping and Handling Fees and Costs," which was adopted
by the Company effective January 31, 2001. EITF No. 00-10 requires that shipping
and handling costs billed to customers be recorded as sales. Accordingly, the
Company has restated its quarterly sales and cost of sales for 2000. Such
restatement had no impact on gross profit.
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 $4.0 million at April
28, 2001.
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 imposed certain requirements on the Company intended to assure the
U.S. Air Force that the Company was 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
8
practices. The Administrative Agreement expired 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 and
debt guarantees. The maximum exposure of the Company related to guarantees at
April 28, 2001 is $4.9 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.
9
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, 2001. 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.
The Company's fiscal year begins on February 1 of the year stated and ends on
January 31 of the following year and the Company reports its results on a fiscal
quarter basis, with each fiscal quarter being 13 weeks long. For example,
"Fiscal first quarter 2001" commenced on February 1, 2001 and ends on April 28,
2001.
RESULTS OF OPERATIONS
Sales for Fiscal first quarter 2001 grew 31% to $341.5 million compared to sales
of $261.1 million in the same period a year ago. Gross profit percentage for the
same period was 14.3%, slightly lower than the 14.9% recorded during Fiscal
fourth quarter 2000, and four percentage points lower than last year's first
quarter. This year's first quarter includes special non-recurring items that
impacted cost of goods sold by $5.1 million and which impacted gross profit by
1.5 percentage points. These adjustments pertained to accounts receivable,
inventory realization, and higher warranty costs. Other factors impacting the
gross margin comparison with last year include lower margins in the Airline
Products segment and a return to more normal margins in the Tactical Vehicle
Systems segment.
Recovery of costs incurred, net represented recovery pursuant to a certified
claim with the U. S. Government for costs incurred by the Company resulting from
production delays in the first multi-year FMTV contract. A settlement of $22.0
million was reached during Fiscal first quarter 2001 which was reduced by $1.2
million in related expenses for legal and professional services.
Selling and Administrative expenses were $35.5 million, or 10.4%, of sales for
Fiscal first quarter 2001 compared with $38.8 million or 14.9% last year. Fiscal
first quarter 2001 included special non-recurring items of $1.5 million
pertaining to legal expenses and provisions for a doubtful receivable. Last
year's first quarter included a $7.0 million provision for a doubtful
receivable.
Interest and investment income decreased $3.0 million year over year as last
year included $4.0 million in income in connection with tax refunds from the
Internal Revenue Service. Interest expense decreased $0.2 million due to lower
average borrowings.
Net earnings from continuing operations in Fiscal first quarter 2001 were $21.0
million or $0.73 per diluted share versus $7.5 million or $0.27 per share in
last year's first quarter. Net loss from discontinued operations in Fiscal first
quarter 2001 was $0.6 million or $0.02 per share, and in the same period for the
prior year there was no impact from discontinued operations. Total net earnings
in Fiscal first quarter 2001 were $20.3 million or $0.71 per diluted share
compared with $7.5 million or $0.27 per share for the comparable period of
Fiscal 2000.
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, Petroleum Equipment, Airline Products, and Other Business
Activities. Such segments are described below along with analyses of their
respective results of operations.
The Power Products segment, which is responsible for marketing and aftermarket
support of a wide range of industrial equipment, recorded Fiscal first quarter
2001 sales of $167.7 million, a 31% increase over sales of $128.3 million in the
same period of last year. The sales growth was paced by a surge in equipment
sales, principally for power generation equipment in the western United States.
and improved volume in Latin America. Operating profit totaled $1.8 million
versus a $0.8 million loss in the comparable period of last year. Operating
profit in Fiscal first quarter 2001 included the impact of special non-recurring
charges of $3.0 million, principally in connection with increased reserves for
accounts and notes receivable and inventory. Last year's first quarter included
a $7.0 million provision for a doubtful receivable. Margin rates were adversely
impacted by the mix of products sold and the ramp up of the power generation
equipment business. Order backlog for this segment increased $39 million during
the first quarter, largely on the strength of power generation orders.
10
The Tactical Vehicle Systems segment, which manufactures tactical vehicles for
the U.S. Army and others, recorded sales of $108.5 million in the Fiscal first
quarter 2001 compared to $78.7 million a year ago. Operating profit for the
quarter totaled $38.3 million, compared with $14.6 million in the Fiscal first
quarter 2000. In fiscal 1998, the Company filed a claim with the U.S. government
seeking recovery of costs incurred resulting from delays from the original
production plan in the first multi-year FMTV contract. The U.S. Army and the
Company participated in a voluntary dispute resolution process which took place
in April 2001 and resulted in a $22.0 million settlement which is included in
Fiscal first quarter 2001 results. Operations in Fiscal first quarter 2001 also
included special non-recurring items of $1.7 million, principally related to
this cost recovery. Margin rates for this segment are anticipated to be somewhat
lower in the coming quarter due to sales mix, principally option sales that
carry lower prices.
The Petroleum Equipment segment manufactures equipment for the oil and gas
exploration, production, and well stimulation industries. Sales in this segment
totaled $34.7 million for Fiscal first quarter 2001 compared to $15.4 million in
the same period of Fiscal 2000. Operating profit for the first quarter was $1.4
million versus an operating loss of $0.7 million in the previous year. The order
backlog at the end of the first quarter totaled $47 million, compared with $55
million at the end of Fiscal 2000. However, demand for this segment's products
remains strong and the Company anticipates improvements in profit margin through
volume leverage and better cost management.
The Airline Products segment, which manufactures airline ground support products
and mobile railcar movers, recorded sales of $24.1 million in Fiscal first
quarter 2001, compared with $28.3 million in the same quarter last year.
Operating loss for the first quarter totaled $4.4 million compared to a
breakeven in the previous year. Operations in Fiscal first quarter 2001 included
the impact of special non-recurring items of $3.1 million related to higher
costs for extended warranties and expenses for inventory realization. The
performance improvement team, established earlier this year, continues to make
progress and improved margins are expected during the second half of Fiscal
2001.
Other business activities not identified in a specific segment include
predominantly gas compression equipment sales. Fiscal first quarter 2001 sales
were $6.5 million, compared to $10.4 million for the comparable period last
year. The decline in sales year over year was due to the sale of the gas
compression leasing business during the Fiscal second quarter 2000. First
quarter operating profit was $0.2 million compared to a $0.6 million loss in
last year's first quarter.
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 April 28, 2001 and at the close of Fiscal 2000 were as follows:
-----------------------------
April 28, January 31,
2001 2001
-----------------------------
( In millions)
Tactical Vehicle Systems $ 596.3 $ 658.2
Power Products 177.2 137.8
Petroleum Equipment 47.4 55.3
Airline Products 17.2 16.2
All Other 7.1 11.3
-------------------------
$ 845.2 $ 878.8
=========================
Total unfilled orders decreased $33.6 million during the quarter principally as
a result of deliveries under the multi-year 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 a $39.4 million increase in orders in the Power Products
segment driven by power generation orders received during the quarter. The
Petroleum Equipment segment's unfilled orders decreased $7.9 million during the
quarter due to strong shipments during the quarter.
Over the coming months, the Company expects the backlog in its Tactical Vehicle
Systems segment to decrease as existing contractual orders are filled.
11
LIQUIDITY AND CAPITAL RESOURCES
During Fiscal first quarter 2001, cash of $2.3 million was consumed by
operations principally due to increased receivables and timing of collections
associated with higher sales. The Company invested $12.2 million in property,
plant and equipment to expand its existing businesses and for the purchase
and implementation of its new enterprise information system. Payments of cash
dividends on common stock totaled $2.4 million during the quarter. Cash and
equivalents were $95.8 million at April 28, 2001, a decrease of $14.1 million
versus the prior quarter. Borrowings at the end of the Fiscal first quarter
were $98.7 million, a decrease of $1 million versus the previous quarter.
The Company's sources of cash liquidity included cash and equivalents, cash from
operations, amounts available under credit facilities, and other external
sources of funds. The Company believes that these sources are sufficient to fund
the current requirements of working capital, capital expenditures, dividends,
and other financial commitments. The Company has in place an unsecured revolving
debt facility that could provide up to approximately $135 million, net of $5
million outstanding under a $25 million letter of credit sub facility. This
revolving facility matures during Fiscal 2004. In addition, the Company has $75
million in senior notes outstanding.
The Company's unsecured long-term notes, which include the revolving credit
notes and senior notes, were issued pursuant to agreements containing covenants
that restrict indebtedness, guarantees, rentals, and other items. Additional
covenants in the revolving credit notes 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.
The Company has additional banking relationships which provide uncommitted
borrowing arrangements. In the event that any acquisition of additional
operations, growth in existing operations, settlements of 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 equivalents and committed lines
of credit, the Company may seek to borrow under other long-term financing
instruments or seek additional equity capital.
FACTORS THAT MAY AFFECT FUTURE RESULTS
FORWARD-LOOKING STATEMENTS
This filing contains forward-looking statements that are based on management's
current expectations, estimates, and projections. These statements 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 results to differ materially from
those stated. Specific important factors that could cause actual results,
performance, or achievements to differ materially from such forward-looking
statements include risk of competition, risks relating to technology, risks of
general economic conditions, risks relating to personnel, risks of dependence on
government, inherent risks of government contracts, risks of claims and
litigation, risks as to global trade matters, risks as to cost controls, risks
as to acquisitions, risks as to currency fluctuations, risks as to environmental
and safety matters, and risks as to distributorships, all as more specifically
outlined in the Company's latest annual report on Form 10-K. 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.
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.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
None
(b) Form 8-K Report Date - February 1, 2001 (Mercury Mercruiser Partnership
Announcement)
Items reported - Item 5. Other Events
Item 7. Exhibits
Form 8-K Report Date - March 14, 2001 (Fourth Quarter Conference Call and
Earnings Release Schedule)
Items reported - Item 5. Other Events
Item 7. Exhibits
Form 8-K Report Date - March 22, 2001 (Fiscal Fourth Quarter and Year End
Results)
Items reported - Item 5. Other Events
Item 7. Exhibits
Form 8-K Report Date - April 10, 2001 (Stewart & Stevenson Announces
Dividend)
Items reported - Item 5. Other Events
Item 7. Exhibits
Form 8-K/A Report Date - April 12, 2001 (Stewart & Stevenson Announces
Dividend)
Items reported - Item 5. Other Events
Item 7. Exhibits
14
EXHIBIT INDEX
EXHIBIT NUMBER AND DESCRIPTION
None
15
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 7th day of June 2001.
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/ JOHN B. SIMMONS
--------------------------
John B. Simmons
Controller and Chief Accounting Officer
(Chief Accounting Officer)
16