SVC Merrill Lynch

Fourth Quarter Net Earnings Were $0.19 Per Diluted Share HOUSTON, April 10 /PRNewswire-FirstCall/ -- Stewart & Stevenson Services, Inc. (NYSE:SVC) reported net income of $5.8 million, or $0.19 per diluted share, for its fiscal fourth quarter which ended January 31, 2006, compared to a net loss of $8.4 million, or $0.29 per diluted share, for the fourth quarter of fiscal 2004. Continuing operations, which include the Tactical Vehicle Systems ("TVS") business and certain corporate overhead expenses, generated a net loss of $0.3 million, or $0.01 per diluted share, for the fourth quarter of fiscal 2005, compared to net earnings of $3.4 million, or $0.11 per diluted share, reported in the comparable period in fiscal 2004. Sales in the fourth quarter of fiscal 2005 were $194.8 million, representing a 42% increase from $136.9 million of sales in the prior year's fourth quarter. In the fourth quarter of fiscal 2005, the Company shipped 911 trucks, 553 trailers and 62 Low Signature Armored Cabs ("LSAC"), compared to 627 trucks, 179 trailers and 270 LSACs in the fourth quarter of fiscal 2004. The Company reported an operating loss of $2.9 million for the fourth quarter of fiscal 2005 compared to operating income of $5.6 million in the fourth quarter of fiscal 2004. The decline in profitability was attributable to a number of factors, including an unfavorable product mix, which included a higher proportion of option trucks and trailers under the Family of Medium Tactical Vehicle ("FMTV") contract, which generate a relatively low gross profit margin compared to base FMTV trucks and LSACs. Results were also negatively impacted by a $3.3 million charge to write off previously anticipated cost recoveries under the FMTV contract. For the full year, the Company recorded sales totaling $726.4 million in fiscal 2005, increasing 32% compared to the $549.8 million of sales recorded in fiscal 2004. In fiscal 2005, the Company shipped a record 2,953 trucks, 1,554 trailers and 1,765 LSACs, compared to 2,804 trucks, 730 trailers and 270 LSACs in fiscal 2004. Operating income in fiscal 2005 was $24.5 million, compared to $47.5 million in fiscal 2004. In addition to the unfavorable product mix and write-off mentioned above, fiscal 2005 results were impacted by relatively high steel costs throughout the year and the transition to the current multi-year FMTV production contract, which began in the fourth quarter of fiscal 2004. The Company noted that operating margins can vary significantly from one fiscal quarter to the next, depending on the specific mix of vehicles, parts and services delivered in each quarter and other factors. As previously announced, the Company completed the sales of its Power Products and Engineered Products businesses in January 2006. Primarily as a result of the gains on the sales, the Company reported earnings from discontinued operations totaling $6.0 million, or $0.20 per diluted share, in the fourth quarter of fiscal 2005, compared to a net loss of $11.8 million, or $0.40 per diluted share, in the fourth quarter of fiscal 2004. Max L. Lukens, Stewart & Stevenson's President and Chief Executive Officer, stated, "Having closed the sales of our Power Products and Engineered Products businesses, we have successfully positioned Stewart & Stevenson as a single-focused manufacturer of tactical military vehicles and related products. Further, we believe that we are on track to meet our 2006 production requirements, as our $25 million facility expansion at our Sealy, Texas plant is near its completion." Backlog and Liquidity At January 31, 2006, total backlog from continuing operations was approximately $958 million. In addition, the fourth program year of the FMTV contract was funded in March 2006, extending FMTV production through September 2007 and increasing backlog to approximately $1.2 billion. Total cash and short-term investments at January 31, 2006, were $337 million, compared to $131 million at the end of fiscal 2004. The increase in cash balances is primarily the result of the proceeds from the sales of the Engineered Products and Power Products businesses, which generated cash of approximately $277 million in the fourth quarter of fiscal 2005. Merger Update As previously announced on February 27, 2006, Stewart & Stevenson and Armor Holdings, Inc. (NYSE:AH) entered into a definitive merger agreement, pursuant to which Armor Holdings would acquire all of the outstanding common stock of Stewart & Stevenson for $35.00 per share in cash. The transaction is subject to Company shareholder approval and other customary conditions. The Company has scheduled a special meeting of shareholders for May 9, 2006 to consider and vote upon the proposed merger. Shareholders of record as of the close of business on April 5, 2006 will be entitled to vote at the special meeting. On April 7, 2006, the Company commenced mailing to shareholders and filed with the Securities and Exchange Commission definitive proxy materials in connection with the merger agreement. Shareholders are encouraged to read the Company's definitive proxy materials in their entirety as they provide, among other things, a detailed discussion of the process that led to the proposed merger and the reasons behind the Board of Directors' unanimous recommendation that shareholders vote FOR the approval and adoption of the merger agreement and the merger. In light of the pending merger, the Company will not conduct a conference call to discuss fourth quarter results. About Stewart & Stevenson Stewart & Stevenson Services, Inc., founded in 1902, is primarily engaged in the design, manufacture and service of medium and light tactical vehicles for the U.S. Army and others worldwide. Stewart & Stevenson Services, Inc. is not affiliated with Stewart & Stevenson LLC. For more information on Stewart & Stevenson Services, Inc., visit http://www.ssss.com/ . Forward Looking Statements Certain matters discussed in this press release constitute forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These statements may be identified through the use of words such as "anticipates," "believes," "plans," "potentially," "expects," "intends," "future," and similar expressions. These risks and uncertainties are described in Stewart & Stevenson Services, Inc.'s filings with the SEC, including Stewart & Stevenson Services, Inc.'s Annual Report on Form 10-K for the fiscal year ended January 31, 2005, which are available at the SEC's web site at http://www.sec.gov/ . Additional Information and Where to Find It In connection with the proposed transaction, Stewart & Stevenson has filed a definitive proxy statement with the SEC to be used to solicit shareholder approval of the proposed transaction, as well as other relevant documents concerning the proposed transaction. Stewart & Stevenson shareholders are urged to read the definitive proxy statement regarding the proposed transaction and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information about Stewart & Stevenson, the proposed transaction and related matters. The definitive proxy statement will be mailed to the shareholders of Stewart & Stevenson. You will be able to obtain a free copy of the definitive proxy statement, as well as other filings containing information about Stewart & Stevenson with the SEC at the SEC's website at http://www.sec.gov/ . Copies of the definitive proxy statement and the SEC filings that will be incorporated by reference in the definitive proxy statement can also be obtained, when available, without charge, by directing a request to Stewart & Stevenson Services, Inc., Investor Relations, P.O. Box 1637, Houston, Texas 77251 or at Stewart & Stevenson Services, Inc.'s Investor Relations page on its corporate website at http://www.ssss.com/ . Stewart & Stevenson and its directors and executive officers may be deemed to be participants in the solicitation of proxies in respect of the transactions contemplated by the merger agreement. Information regarding Stewart & Stevenson's directors and executive officers is contained in Stewart & Stevenson's proxy statement for its 2005 annual meeting, as filed with the SEC on May 4, 2005. Additional information regarding the interests of those participants may be obtained by reading the proxy statement regarding the proposed merger and our annual report on Form 10-K for the fiscal year ended January 31, 2006, to be filed with the SEC. STEWART & STEVENSON SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share data) Three Months Ended Twelve Months Ended January 31, January 31, January 31, January 31, 2006 2005 2006 2005 (Unaudited) (Unaudited) (Unaudited) Sales $194,839 $136,852 $726,352 $549,803 Cost of sales 193,243 124,253 682,592 476,005 Gross profit 1,596 12,599 43,760 73,798 Selling and administrative expenses 4,389 6,657 19,258 25,938 Other expense (income), net 94 378 (44) 407 Operating profit (loss) (2,887) 5,564 24,546 47,453 Interest expense 261 542 1,897 2,029 Interest income (852) (391) (2,934) (1,388) Earnings (loss) from continuing operations before income taxes (2,296) 5,413 25,583 46,812 Income tax expense (benefit) (2,044) 2,047 8,367 16,085 Net earnings (loss) from continuing operations (252) 3,366 17,216 30,727 Earnings (loss) from discontinued operations, net of tax expense (benefit) of $1,669, ($8,689), $6,325, and ($18,143) (384) (14,060) 9,272 (28,019) Gain (loss) on sale of discontinued operations, net of tax expense (benefit) of $3,023, $1,311, ($246) and $1,311 6,420 2,270 (360) 2,270 Net earnings (loss) $5,784 $(8,424) $26,128 $4,978 Weighted average shares outstanding: Basic 29,285 28,809 29,117 28,749 Diluted 29,695 29,190 29,593 28,984 Earnings (loss) per share: Basic: Continuing operations $(0.01) $0.12 $0.59 $1.07 Discontinued operations 0.21 (0.41) 0.31 (0.90) Net earnings (loss) per share $0.20 $(0.29) $0.90 $0.17 Diluted: Continuing operations $(0.01) $0.11 $0.58 $1.06 Discontinued operations 0.20 (0.40) 0.30 (0.89) Net earnings (loss) per share $0.19 $(0.29) $0.88 $0.17 Cash dividends per share $0.085 $0.085 $0.340 $0.340 STEWART & STEVENSON SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands, except share data) January 31, 2006 January 31, 2005 (Unaudited) Assets Current Assets: Cash and cash equivalents $333,171 $128,515 Short-term investments 3,800 2,480 Accounts receivable, net 66,244 62,136 Inventories 22,140 17,803 Deferred income tax asset 7,165 5,872 Income tax receivable 189 7,223 Other current assets 3,967 1,655 Total assets of discontinued operations 33,681 318,753 Total Current Assets 470,357 544,437 Property, Plant and Equipment, net 49,179 37,856 Deferred Income Tax Asset 10,940 26,438 Intangibles and Other Assets, net 47,235 4,611 Total Assets $577,711 $613,342 Liabilities and Shareholders' Equity Current Liabilities: Notes payable and current portion of long-term debt $25,158 $--- Accounts payable 64,165 43,441 Accrued payrolls and incentives 8,947 13,178 Unearned revenue 53,146 63,335 Other current liabilities 26,258 22,713 Total liabilities of discontinued operations 25,943 99,193 Total Current Liabilities 203,617 241,860 Long-Term Debt, net of current portion 65 25,000 Accrued Postretirement Benefits and Pension 53,543 57,621 Other Long-Term Liabilities 4,700 4,141 Total Liabilities 261,925 328,622 Shareholders' Equity: Common stock, without par value, 100,000,000 shares authorized; 29,303,260 and 28,865,070 shares issued, respectively 70,588 59,616 Accumulated other comprehensive loss (32,155) (36,048) Retained earnings 277,353 261,152 Total Shareholders' Equity 315,786 284,720 Total Liabilities and Shareholders' Equity $577,711 $613,342 STEWART & STEVENSON SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) Year Ended January 31, 2006 2005 (Unaudited) Operating Activities Net earnings $26,128 $4,978 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Net (earnings) loss from discontinued operations (8,912) 25,749 Deferred tax provision (benefit) 10,190 (6,371) Depreciation and amortization 9,708 9,844 Unrealized foreign exchange losses 1,502 --- (Gain) loss on sale of business assets (147) 685 Change in operating assets and liabilities net of the effect of discontinued operations: Accounts and notes receivable, net (11,529) (36,598) Inventories 2,390 (2,115) Income tax receivable 7,033 25,813 Accounts payable 17,559 11,778 Accrued payrolls and incentives (6,291) 4,244 Unearned revenue (9,592) (5,008) Other current liabilities (5,418) 1,246 Accrued postretirement benefits and pension 529 (9,809) Other, net 4,724 (314) Net Cash Provided by Continuing Operations 37,874 24,122 Net Cash Provided by (Used in) Discontinued Operations (67,883) 11,716 Net Cash Provided by (Used in) Operating Activities (30,009) 35,838 Investing Activities Capital expenditures (17,370) (9,344) Proceeds from sale of businesses 301,727 51,559 Acquisition of businesses, net of cash acquired (44,559) --- Disposal of property, plant and equipment, net 313 904 Change in short-term investments (1,320) 5,265 Net investing activities of discontinued operations 66 150 Net Cash Provided by Investing Activities 238,857 48,534 Financing Activities Loan acquisition costs (76) (412) Dividends paid (9,927) (9,787) Proceeds from exercise of stock options 6,337 2,156 Net Cash Used in Financing Activities (3,666) (8,043) Effect of exchange rate changes on cash (526) --- Increase in cash and cash equivalents 204,656 76,329 Cash and cash equivalents, beginning of fiscal year 128,515 52,186 Cash and cash equivalents, end of fiscal year $333,171 $128,515 DATASOURCE: Stewart & Stevenson Services, Inc. CONTACT: L. Scott Biar, CFO and Treasurer of Stewart & Stevenson Services, Inc., +1-713-868-7700 Web site: http://www.ssss.com/

Copyright