United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

R	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~May~~August 54, 2012

o	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 001-33836

Stewart & Stevenson LLC

(Exact name of registrant as specified in its charter)

Delaware		20-3974034
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification Number)
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
organization)
1000 Louisiana St., Suite 5900, Houston, TX		77002
(Address of Principal Executive Offices)		(Zip Code)

(713) 751-2700

(Registrant’s telephone number including area code)

None

(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 if 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 R þ * No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or if such shorter period that the registrant was required to submit and post such files). Yes o No Rþ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated o Accelerated filer o Non-accelerated filer Rþ Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes o No Rþ

There is no market for the registrant’s equity. As of ~~May~~August 54, 2012, there were 56,179,272 common units outstanding.

* The registrant is currently not required to file reports, including this report, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 but is voluntarily filing this report with the Securities and Exchange Commission.

Table of Contents

STEWART & STEVENSON LLC AND SUBSIDIARIES

TABLE OF CONTENTS

Part I. Financial Information			Page
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets – As of May 5, 2012 and January 31, 2012	3
		Condensed Consolidated Balance Sheets – As of August 4, 2012 and January 31, 2012	3
		Condensed Consolidated Statements of Operations – Three months ended May 5, 2012 and April 30, 2011	4
		Condensed Consolidated Statements of Operations – Three and six months ended August 4, 2012 and July 30, 2011	4
		Condensed Consolidated Statements of Comprehensive Income – Three months ended May 5, 2012 and April 30, 2012	5
		Condensed Consolidated Statements of Comprehensive Income – Three and six months ended August 4, 2012 and July 30, 2011	5
		Condensed Consolidated Statements of Cash Flows – Three months ended May 5, 2012 and April 30, 2011	6
		Condensed Consolidated Statements of Cash Flows – Six months ended August 4, 2012 and July 30, 2011	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2022
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2934
	Item 4.	Controls and Procedures	3035
Part II. Other Information
	Item 1.	Legal Proceedings	3036
	Item 1A.	Risk Factors	3136
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3136
	Item 3.	Defaults Upon Senior Securities	3136
	Item 4.	Mine Safety Disclosures	3136
	Item 5.	Other Information	3136
	Item 6.	Exhibits	3136

Table of Contents

PART I. Financial Information

Item 1. Financial Statements

Stewart & Stevenson LLC and Subsidiaries

Condensed Consolidated Balance Sheets

	As of
	May 5, 2012		January 31, 2012
	August 4, 2012		January 31, 2012
(Dollars in thousands)	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	105,~~765~~187	$	4,211
Restricted cash	~~5,000~~-		5,000
Accounts receivable, net	~~131~~124,~~224~~534		116,144
Recoverable costs and accrued profits not yet billed	4775,~~214~~230		75,966
Inventories	~~465~~457,~~986~~772		438,550
Other current assets	56,~~829~~243		5,714
Total current assets	~~666~~668,~~018~~966		645,585
Property, plant and equipment, net	~~109~~113,~~512~~838		94,624
Goodwill and intangibles, net	2221,~~313~~794		22,864
Deferred financing costs and other assets	5,~~052~~032		4,928
Total assets	$	~~802~~809,~~895~~630	$	768,001
Liabilities and shareholders’ equity
Current liabilities:
Bank notes payable	$	119,~~499~~509	$	6,948
Accounts payable	~~116~~100,~~353~~678		143,493
Accrued payrolls and incentives	1711,~~584~~337		30,723
Billings in excess of incurred costs	~~329~~4,807		1,734
Customer deposits	9366,~~473~~065		85,579
Other current liabilities	4744,~~811~~486		41,752
Total current liabilities	~~287~~236,~~049~~882		310,229
Long-term debt, net of current portion	280,390		236,772
Long-term debt	327,326		236,772
Long-term debt to affiliate	12,510		-
Other long-term liabilities	-		8
Total liabilities	~~579~~576,~~949~~718		547,009
Commitments and contingencies
Shareholders’ equity:
Common units, 56,179,272 issued and outstanding	76,~~271~~272		76,101
Accumulated other comprehensive income	5,~~500~~316		5,236
Retained earnings	~~141~~151,~~175~~324		139,655
Total shareholders’ equity	~~222~~232,~~946~~912		220,992
Total liabilities and shareholders’ equity	$	~~802~~809,~~895~~630	$	768,001

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended				For the Six Months Ended
	May 5, 2012		April 30, 2011
	August 4, 2012		July 30, 2011		August 4, 2012		July 30, 2011
(Dollars and units in thousands)
Sales	$	~~374~~301,~~414~~607	$	~~271~~313,~~367~~445	$	676,021	$	584,812
Cost of sales	~~301~~243,~~380~~791		~~220~~253,~~829~~600		545,171		474,429
Gross profit	7357,~~034~~816		5059,~~538~~845		130,850		110,383
Selling and administrative expenses	3834,~~560~~986		3136,~~327~~456		73,546		67,783
Other expense, net	100		400
Other expense (income), net	258		(123)		358		277
Operating profit	3422,~~374~~572		1823,~~811~~512		56,946		42,323
Interest expense, net	5,~~630~~681		4,~~854~~846		11,311		9,700
Earnings before income taxes	2816,~~744~~891		1318,~~957~~666		45,635		32,623
Income tax expense	~~1,008~~130		~~110~~708		1,138		818
Net earnings	$	2716,~~736~~761	$	1317,~~847~~958	$	44,497	$	31,805
Weighted average units outstanding:
Basic	56,179		56,~~025~~128		56,179		56,077
Diluted	56,179		56,~~025~~128		56,179		56,077
Net earnings per common unit:
Basic	$	0.4930	$	0.2532	$	0.79	$	0.57
Diluted	$	0.4930	$	0.2532	$	0.79	$	0.57

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	For the Three Months Ended				For the Six Months Ended
	May 5, 2012		April 30, 2011
	August 4, 2012		July 30, 2011		August 4, 2012		July 30, 2011
(Dollars in thousands)
Net earnings	$	2716,~~736~~761	$	1317,~~847~~958	$	44,497	$	31,805
Currency translation adjustments	~~264~~(184)		~~1,424~~(157)		80		1,267
Comprehensive income	$	2816,~~000~~577	$	1517,~~271~~801	$	44,577	$	33,072

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Three Months Ended
	For the Six Months Ended
	May 5, 2012			April 30, 2011
	August 4, 2012			July 30, 2011
(Dollars in thousands)
Operating activities
Net earnings	$	2744,~~736~~497		$	1331,~~847~~805
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
Amortization of deferred financing costs	~~306~~708			~~409~~819
Depreciation and amortization	49,~~715~~477			48,~~121~~832
Share-based compensation expense	170			-1,809
Non-cash foreign exchange gains	(45104		)	(5131		)
Change in operating assets and liabilities net of the effect of acquisitions:
Accounts receivable, net	(148,~~932~~239		)	(1617,~~753~~820		)
Recoverable costs and accrued profits not yet billed	~~28,781~~714			4130,~~215~~908
Inventories	(2718,~~003~~907		)	(2963,~~108~~291		)
Accounts payable	(2742,~~357~~959		)	738,~~370~~522
Accrued payrolls and incentives	(1319,~~174~~399		)	~~248~~1,144
Billings in excess of incurred costs	(13,~~411~~055		)	2(4,~~580~~328		)
Customer deposits	7(19,~~825~~558		)	18,~~024~~195
Other current assets and liabilities	62,~~308~~737			28,~~334~~488
Other, net	(~~386~~751		)	1,~~401~~171
Net cash (used in) provided by operating activities	(848,~~467~~559		)	4556,~~683~~123
Investing activities
Capital expenditures	(13,~~583~~183		)	(14,~~308~~427		)
Additions to rental equipment	(18,~~291~~275		)	(320,~~058~~401		)
Acquisitions of properties	(16,153		)	-
Acquisitions, net of cash acquired	-			(23,~~402~~500		)
Net cash used in investing activities	(1927,~~027~~611		)	(2748,~~768~~328		)
Financing activities
Change in short-term notes payable	42,~~434~~460			(~~1,824~~748		)
Deferred financing costs	(~~429~~814		)	-
Decrease in restricted cash	5,000			-
Long-term debt to affiliate	12,510			-
Change in long-term revolving loans	4390,~~618~~554			(102,~~116~~614		)
Distributions to unitholders	(18,000		)	-
Distributions to unitholders for tax obligations	(814,~~216~~828		)	(14,~~063~~247		)
Net cash provided by (used in) financing activities	3376,~~917~~882			(137,~~003~~609		)
Effect of exchange rate on cash	~~131~~264			86217
Increase in cash and cash equivalents	~~6,554~~976			~~4,998~~403
Cash and cash equivalents, beginning of fiscal period	4,211			9,168
Cash and cash equivalents, end of fiscal period	$	105,~~765~~187		$	149,~~166~~571
Cash paid for:
Interest	$	19,~~100~~979		$	~~578~~8,620
Income taxes	$	~~632~~3,094		$	~~275~~1,814

See accompanying Notes to Condensed Consolidated Financial Statements

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Company Overview

Stewart & Stevenson LLC, headquartered in Houston, Texas, was formed for the purpose of acquiring from Stewart & Stevenson Services, Inc. and its affiliates on January 23, 2006 substantially all of their equipment, aftermarket parts and service and rental businesses that primarily served the oil and gas industry. Unless otherwise indicated or the context otherwise requires, the terms “Stewart & Stevenson,” the “Company,” “we,” “our” and “us” refer to Stewart & Stevenson LLC and its subsidiaries.

On February 26, 2007, we acquired substantially all of the operating assets and assumed certain liabilities of Crown Energy Technologies, Inc. and certain of its affiliates (collectively, “Crown”), which we refer to as the “Crown Acquisition.” Crown, which was headquartered in Calgary, Alberta, had multiple U.S. operations. Crown manufactured drilling, well servicing and workover rigs, stimulation equipment and provided related parts and services.

On March 23, 2011, we acquired 100% of the stock of EMDSI-Hunt Power, L.L.C. (“EMDSI”) in an all cash transaction from ITOCHU Corporation of Japan (“ITOCHU”), which we refer to as the “EMDSI Acquisition.” EMDSI, which is based in Harvey, Louisiana, specializes in the marketing and distribution of medium speed diesel engines for marine propulsion, drilling and power generation applications and is a provider of aftermarket parts and services.

We are a leading designer, manufacturer and provider of specialized equipment and aftermarket parts and service for the oil and gas and other industries. Our wide range of products covers hydraulic fracturing, well stimulation, workover, intervention and drilling operations. These products include well stimulation equipment, pumping, acidizing, coiled tubing, cementing and nitrogen units, drilling rigs, workover rigs, power generation systems and electrical support and distribution systems, as well as engines, transmissions, prime movers and material handling equipment. We have a substantial installed base of products, which provides us with significant opportunities for recurring, higher-margin aftermarket parts and service revenues from customers in the oil and gas, power generation and various other industries. In addition, we provide rental equipment to our customers, including generator sets, air compressors, rail car movers and material handling equipment.

Note 2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements and do not include all information and footnotes required by United States (“U.S.”) generally accepted accounting principles (“GAAP”) 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 presentation of the results for the interim periods presented. The results of operations for the three and six months ended ~~May~~August 54, 2012 are not necessarily indicative of the results that will be realized for the fiscal year ending January 31, 2013. These condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K and the notes thereto for the year ended January 31, 2012.

Use of Estimates and Assumptions: The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis, based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

Fiscal Year: Our fiscal year begins on February 1 of the year stated and ends on January 31 of the following year. For example, our “Fiscal 2012” began on February 1, 2012 and will end on January 31, 2013. We report results on the fiscal quarter method with each quarter comprising approximately 13 weeks. The ~~first~~second quarter of Fiscal 2012 began on ~~February~~May 16, 2012 and ended on ~~May~~August 54, 2012.

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

Consolidation: The consolidated financial statements include the accounts of Stewart & Stevenson LLC and all enterprises in which we have a controlling interest. All intercompany accounts and transactions have been eliminated. We do not have any variable-interest entities.

New Accounting Pronouncements: On February 1, 2012, we adopted Accounting Standards Update (“ASU”) No. 2011-08, “Intangibles-Goodwill and Other.” This accounting update provides companies with the option to make a qualitative evaluation about the likelihood of goodwill impairment. A company will be required to perform the two-step impairment test only if it concludes that the fair value of a reporting unit is more likely than not (i.e., more than 50% likelihood) less than its carrying value. This accounting update is effective for goodwill impairment tests performed in interim and annual periods for fiscal years beginning after December 15, 2011. We ~~will~~may apply this update in conjunction with our Fiscal 2012 annual impairment evaluation performed in the fourth quarter.

Also on February 1, 2012, we adopted ASU No. 2011-05, “Presentation of Comprehensive Income,” which requires that all non-owner changes in equity be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. Our adoption of the new guidance did not impact our consolidated financial position, results of operations or cash flows.

Also on February 1, 2012, we adopted ASU 2011-04, “Fair Value Measurement.” This new guidance amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. Our adoption of the new guidance did not impact our consolidated financial position, results of operations or cash flows, although it did require additional fair value disclosures.

Note 3. Segment Data

Our reportable segments are as follows:

Manufacturing

We design, manufacture and market equipment for U.S. and international oilfield service providers and drilling and workover contractors, as well as national oil companies that require integrated and customized product solutions. We manufacture equipment specifically for hydraulic fracturing, well stimulation, well workover, intervention and drilling operations. Our manufactured products include integrated solutions, which incorporate a variety of components into a single system, for a wide range of oilfield services and support applications. In addition, we provide parts and service to customers primarily in the oil and gas industry.

Distribution

We provide stand-alone products and aftermarket parts and service for products manufactured by us, our six key original equipment manufacturers (“OEM”) and other manufacturers. In addition, we provide rental equipment including generator sets, air compressors, rail car movers and material handling equipment to our customers. Our aftermarket parts and service operations, which provide us with a recurring, higher-margin source of revenue, serve customers engaged in the oil and gas, power generation, marine, mining, construction, commercial vehicle and material handling industries, as well as other industries.

Corporate and shared services

Our corporate and shared services segment includes administrative overhead normally not associated with specific activities within the operating segments. These expenses include legal, finance and accounting, internal audit, human resources, information technology, marketing, supply chain and similar corporate office costs.

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

Intra-segment revenues and costs are eliminated, and operating profit (loss) represents earnings (loss) before interest and income taxes. Operating results by segment were as follows:

	For the Three Months Ended						For the Six Months Ended
	May 5, 2012			April 30, 2011
	August 4, 2012			July 30, 2011			August 4, 2012			July 30, 2011
(Dollars in thousands)
Sales
Manufacturing segment
Manufacturing segment
Equipment	$	115,438		$	132,472		$	269,444		$	238,480
Equipment	$	154,006		$	106,008
Parts and service	5,302			4,261			11,195			10,748
Parts and service	5,893			6,487
Total manufacturing sales	$	120,740		$	136,733		$	280,639		$	249,228
Total manufacturing sales	$	159,899		$	112,495
Distribution segment
Distribution segment
Equipment	$	78,733		$	80,257		$	186,743		$	152,196
Equipment	$	108,010		$	71,939
Parts and service	91,478			87,994			188,151			168,733
Parts and service	96,673			80,739
Rentals	10,656			8,461			20,488			14,655
Rentals	9,832			6,194
Total distribution sales	$	180,867		$	176,712		$	395,382		$	335,584
Total distribution sales	$	214,515		$	158,872
Total Sales	$	301,607		$	313,445		$	676,021		$	584,812
Total sales	$	374,414		$	271,367
Operating profit (loss)
Operating profit (loss)
Manufacturing	$	23,032		$	25,315		$	54,119		$	45,071
Manufacturing	$	31,087		$	19,756
Distribution	11,416			13,540			28,449			23,799
Distribution	17,033			10,259
Corporate and shared services	(11,876		)	(15,343		)	(25,622		)	(26,547		)
Corporate and shared services	(13,746		)	(11,204		)
Total operating profit	$	22,572		$	23,512		$	56,946		$	42,323
Total operating profit	$	34,374		$	18,811
Operating profit percentage
Operating profit percentage
Manufacturing	19.1		%	18.5		%	19.3		%	18.1		%
Manufacturing	19.4		%	17.6		%
Distribution	6.3		%	7.7		%	7.2		%	7.1		%
Distribution	7.9		%	6.5		%
Consolidated	7.5		%	7.5		%	8.4		%	7.2		%
Consolidated	9.2		%	6.9		%

Note 4. Long-Term Debt

	As of
	May 5, 2012		January 31, 2012
	August 4, 2012		January 31, 2012
(Dollars in thousands)
Other debt	$	11,499	$	6,948
Bank notes payable	$	9,509	$	6,948
Long-term debt to affiliate	12,510		-
Revolving credit facility	~~130~~177,~~390~~326		86,772
Unsecured senior notes	150,000		150,000
Total	~~304~~349,~~399~~345		243,720
Less: current portion of debt	(119,~~499~~509)		(6,948)
Long-term debt, net of current portion	$	292,900	$	236,772
Long-term debt	$	339,836	$	236,772

~~Other~~Bank ~~debt~~Notes Payable: ~~Other~~Bank ~~debt~~notes payable includes certain short-term secured loans relating to our South American operations, a floor plan financing agreement and certain equipment loans. During the second quarter of Fiscal 2012, we entered into a new floor plan agreement with a new lender to finance the operations of one of our subsidiaries. The new agreement currently provides for a $6.0 million wholesale floor plan facility, bears interest at Prime Rate less a margin of 0.5%, is secured by the inventory and equipment the facility finances and their related proceeds and may be canceled by the lender or us at any time. The restricted cash on our balance sheet ~~relates~~represented to collateral securing athe ~~portion~~old floor plan financing agreement that was not required by the new lender or the terms of ~~this~~the ~~debt~~new agreement.

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

Long-term ~~debt~~Debt to ~~affiliate~~Affiliate: Our long-term debt to affiliate relates to ~~the financing of~~ our March 2012 acquisition of the U.S. properties of Crown, which we had previously leased. This debt matures in ten years, bears interest at 5.0% per annum, requires quarterly interest payments ~~beginning~~which began in June 2012 and quarterly principal payments of $0.4 million beginning in June 2017, with the principal balance of $5.4 million, along with accrued interest thereon, due in March 2022.

Revolving Credit Facility: On ~~December~~July 2311, ~~2011~~2012, we ~~entered~~exercised ~~into~~$75 million of the $125 million accordion feature in the Third Amended and Restated Credit Agreement (the “Credit Agreement”). ~~for~~As ~~our~~a ~~revolving~~result, ~~credit~~the ~~facility. The~~ Credit Agreement as expanded provides for a $~~250~~325 million asset-based revolving credit facility, which is expandable by aan additional $~~125~~50 million accordion, is secured by substantially all accounts receivable, inventory and property, plant and equipment of the Company and expires on December 23, 2016. Borrowings bear interest based on a pricing grid that is determined by the available borrowing capacity under the revolving credit facility and the interest rate selected: LIBOR plus a margin ranging from 1.75% to 2.25% per annum or Prime Rate plus a margin ranging from 0.75% to 1.25%. These ranges may be further reduced by 0.25% (25 basis points) based on our leverage ratios, as specified in the Credit Agreement. Borrowings under the revolving credit facility bear interest at a weighted average interest rate of 2.39% as of May 5, 2012. Commitment fees are charged for the undrawn portion of the revolving credit facility based on the usage of the revolving credit facility with 0.50% per annum being charged for usage less than or equal to 35% ($87.5 million) and 0.375% per annum being charged for usage greater than 35%. Interest payments are due monthly, or as LIBOR contracts expire. The revolving credit facility also has a $50.0 million sub-facility which may be used for letters of credit. The Credit Agreement limits available borrowings to certain percentages of our assets. As of May 5, 2012, there were $20.2 million of letters of credit outstanding. Based on the outstanding borrowings, letters of credit issued and the terms of the asset-based revolving credit facility, our available borrowing capacity was approximately $73.6 million at May 5, 2012. As required by the terms of the revolving credit facility, our available borrowing capacity is required to be reduced by the principal amount of our senior notes outstanding plus $25 million in the event the senior notes are not repaid by the date which is 60 days prior to their stated maturity of July 2014 or the maturity of the senior notes is not otherwise extended to at least 90 days beyond the maturity of the revolving credit facility.

Borrowings under the revolving credit facility bear interest at a weighted average interest rate of 2.31% as of August 4, 2012. Commitment fees are charged for the undrawn portion of the revolving credit facility based on the usage of the revolving credit facility with 0.50% per annum being charged for usage less than or equal to 35% ($113.8 million) and 0.375% per annum being charged for usage greater than 35%. Interest payments are due monthly, or as LIBOR contracts expire. The revolving credit facility also has a $50.0 million sub-facility which may be used for letters of credit. The Credit Agreement limits available borrowings to certain percentages of our assets. As of August 4, 2012, there were $15.1 million of letters of credit outstanding. Based on the outstanding borrowings, letters of credit issued and the terms of the asset-based revolving credit facility, our available borrowing capacity was approximately $106.0 million at August 4, 2012. As required by the terms of the revolving credit facility, our available borrowing capacity is required to be reduced by the principal amount of senior notes outstanding plus $25 million in the event the senior notes are not repaid by the date which is 60 days prior to their stated maturity of July 2014 or the maturity of the senior notes is not otherwise extended to at least 90 days beyond the maturity of the revolving credit facility.

Unsecured Senior Notes: The $150.0 million of unsecured senior notes bear interest at 10% per annum and mature in July 2014.

The revolving credit facility and the senior notes contain financial and operating covenants with which we must comply during the terms of the agreements. These covenants include the maintenance of certain financial ratios, restrictions related to the incurrence of certain indebtedness and investments, and prohibition of the creation of certain liens. We were in compliance with all covenants as of ~~May~~August 54, 2012. The financial covenant for the revolving credit facility requires that we maintain a fixed charge coverage ratio, as defined in the agreement, of at least 1.1 to 1.0; however, this covenant does not take effect until our available borrowing capacity is $2536.0 million or less. The financial covenant for the senior notes requires that, were we to incur additional indebtedness, pay dividends or make certain other restricted payments (in each case, subject to various exceptions set forth in the indenture), after giving effect to the incurrence of such additional indebtedness, we have a consolidated coverage ratio, as defined in the indenture, of at least 2.5 to 1.0.

During the ~~fourth~~six ~~quarter~~months ofended ~~Fiscal~~August 4, ~~2011~~2012, we incurred $10.87 million of capitalized legal and financing costs associated with the revolving credit facility. As of ~~May~~August 54, 2012, $4.2 million of capitalized legal and financing costs ~~were~~are recorded in deferred financing costs and other in our consolidated balance sheet.

Our notes payable and revolving credit facility have interest rates which are tied to current market rates, and thus, their fair value approximates their recorded amounts. The estimated fair value of our senior notes was determined from information obtained from third party pricing sources, including broker quotes (Level 2 inputs). At May 5, 2012, our senior notes with a carrying value of $150.0 million had a fair value of $149.7 million.

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

~~Guarantor~~Our ~~entities: The~~bank ~~senior~~ notes ~~were~~payable ~~co-issued~~and byrevolving ~~Stewart &~~credit ~~Stevenson~~facility ~~LLC~~have ~~and~~interest ~~Stewart &~~rates ~~Stevenson~~which ~~Funding~~are ~~Corp.~~tied ~~and~~to ~~are~~current ~~guaranteed~~market byrates, ~~all~~and ofthus, ~~our~~their ~~subsidiaries~~fair ~~except~~values ~~one~~approximate ~~domestic~~their ~~subsidiary,~~recorded ~~one~~amounts. ~~subsidiary~~The inestimated ~~Canada~~fair ~~and~~value ~~two~~of ~~subsidiaries~~our insenior ~~South~~notes ~~America. Stewart &~~was ~~Stevenson~~determined ~~LLC~~from ~~and~~information ~~all~~obtained offrom ~~its~~third ~~subsidiaries~~party ~~except~~pricing ~~one~~sources, ~~domestic~~including ~~subsidiary,~~broker ~~one~~quotes ~~subsidiary~~(Level in2 ~~Canada~~inputs). ~~and~~At ~~two~~August ~~subsidiaries~~4, in2012, ~~South~~our ~~America~~senior ~~are~~notes ~~co-borrowers~~with ona ~~the~~carrying value of $~~250~~150.0 million ~~revolving~~had ~~credit~~a ~~facility~~fair value of $150.8 million.

Guarantor Entities: The ~~following~~senior ~~condensed~~notes ~~consolidated~~were ~~financial~~co-issued ~~statements~~by ~~present~~Stewart & ~~separately~~Stevenson ~~the~~LLC ~~financial~~and ~~position,~~Stewart & ~~results~~Stevenson ofFunding ~~operations~~Corp. and ~~cash~~are ~~flows~~guaranteed by all of ~~the~~our ~~co-issuers/guarantors~~subsidiaries ~~(“Guarantor~~except ~~Entities”)~~one domestic subsidiary, one subsidiary in Canada and two subsidiaries in South America. Stewart & Stevenson LLC and all ~~non-guarantor~~of its subsidiaries ofexcept ~~the~~one ~~Company~~domestic ~~(“Non-Guarantor~~subsidiary, ~~Entities”)~~one ~~based~~subsidiary in Canada and two subsidiaries in South America are co-borrowers on the ~~equity~~$325.0 ~~method~~million ofrevolving ~~accounting~~credit facility.

The following condensed consolidated financial statements present separately the financial position, results of operations and cash flows of Stewart & Stevenson LLC, which is the parent entity, Stewart & Stevenson Funding Corp. and the guarantors (collectively, “Guarantor Entities”) and all non-guarantor subsidiaries of the Company (“Non-Guarantor Entities”) based on the equity method of accounting. Stewart & Stevenson LLC and Stewart & Stevenson Funding Corp. have no operations, nor any material assets, and have been combined with the guarantor subsidiaries for this presentation.

Condensed Consolidating Balance Sheets

As of May 5, 2012

As of August 4, 2012

(Unaudited)

Guarantor Entities

Non-Guarantor Entities

Eliminations

Consolidated Totals

(Dollars in thousands)

Current assets

~~594~~607,~~865~~228

7161,~~153~~738

~~666~~668,~~018~~966

Property, plant and equipment, net

~~107~~111,~~050~~392

2,~~462~~446

~~109~~113,~~512~~838

Other assets

98,~~818~~650

3,~~816~~668

1314,~~731~~508

2726,~~365~~826

Total assets

~~711~~727,~~733~~270

7767,~~431~~852

1314,~~731~~508

~~802~~809,~~895~~630

Current liabilities

~~246~~198,~~878~~806

4038,~~171~~076

~~287~~236,~~049~~882

Intercompany (receivables) payables

(5044,~~991~~284)

5044,~~991~~284

Long-term liabilities

~~292~~339,~~900~~836

Shareholders’ equity (deficit)

~~222~~232,~~946~~912

(1314,~~731~~508)

1314,~~731~~508

~~222~~232,~~946~~912

Total liabilities and shareholders’ equity

~~711~~727,~~733~~270

7767,~~431~~852

1314,~~731~~508

~~802~~809,~~895~~630

	As of January 31, 2012
	Guarantor Entities		Non-Guarantor Entities		Eliminations		Consolidated Totals
(Dollars in thousands)
Current assets	$	577,929	$	67,656	$	-	$	645,585
Property, plant and equipment, net	92,193		2,431		-		94,624
Other assets	16,229		3,946		7,617		27,792
Total assets	$	686,351	$	74,033	$	7,617	$	768,001

Current liabilities	$	273,111	$	37,118	$	-	$	310,229
Intercompany (receivables) payables	(44,523)		44,523		-		-
Long-term liabilities	236,771		9		-		236,780
Shareholders’ equity (deficit)	220,992		(7,617)		7,617		220,992
Total liabilities and shareholders’ equity	$	686,351	$	74,033	$	7,617	$	768,001

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

Condensed Consolidating Statements of Operations

(Unaudited)

	For the Three Months Ended May 5, 2012
	For the Three Months Ended August 4, 2012
	Guarantor Entities		Non-Guarantor Entities		Eliminations		Consolidated Totals
(Dollars in thousands)
Sales	$	~~340~~273,~~228~~106	$	3428,~~186~~501	$	-	$	~~374~~301,~~414~~607
Cost of sales	~~272~~219,~~805~~167		2824,~~575~~624		-		~~301~~243,~~380~~791
Gross profit	6753,~~423~~939		53,~~611~~877		-		7357,~~034~~816
Selling and administrative expenses	3430,~~475~~787		4,~~085~~199		-		3834,~~560~~986
Equity in earnings of subsidiaries	(169)		-		169		-
Equity in loss of subsidiaries	808		-		(808)		-
Other (income) expense, net	(30)		130		-		100
Other expense, net	104		154		-		258
Operating profit	33,147		1,396		(169)		34,374
Operating profit (loss)	22,240		(476)		808		22,572
Interest expense, net	4,~~731~~917		~~899~~764		-		5,~~630~~681
Earnings before income taxes	28,416		497		(169)		28,744
Earnings (loss) before income taxes	17,323		(1,240)		808		16,891
Income tax expense	680		328		-		1,008
Income tax expense (benefit)	562		(432)		-		130
Net earnings	$	27,736	$	169	$	(169)	$	27,736
Net earnings (loss)	$	16,761	$	(808)	$	808	$	16,761
Currency translation adjustments	(216)	~~5,196~~	32	~~(4,932)~~	-	-	(184)	~~264~~
Comprehensive income (loss)	$	3216,~~932~~545	$	(~~4,763~~776)	$	~~(169)~~808	$	2816,~~000~~577

For the Three Months Ended April 30, 2011

For the Three Months Ended July 30, 2011

Guarantor Entities

Non-Guarantor Entities

Eliminations

Consolidated Totals

(Dollars in thousands)

Sales

~~240~~284,~~171~~061

3129,~~196~~384

~~271~~313,~~367~~445

Cost of sales

~~195~~232,~~428~~521

2521,~~401~~079

~~220~~253,~~829~~600

Gross profit

4451,~~743~~540

58,~~795~~305

5059,~~538~~845

Selling and administrative expenses

2732,~~279~~953

43,~~048~~503

3136,~~327~~456

Equity in earnings of subsidiaries

(~~808~~3,798)

~~808~~3,798

Other (income) expense, net

(52173)

~~452~~50

~~400~~(123)

Operating profit

1822,~~324~~558

14,~~295~~752

(~~808~~3,798)

1823,~~811~~512

Interest expense, net

4,~~115~~037

~~739~~809

4,~~854~~846

Earnings before income taxes

1418,~~209~~521

~~556~~3,943

(~~808~~3,798)

1318,~~957~~666

Income tax expense (benefit)

~~362~~563

~~(252)~~145

~~110~~708

Net earnings

1317,~~847~~958

~~808~~3,798

(~~808~~3,798)

1317,~~847~~958

Currency translation adjustments

(157)

~~1,424~~

(157)

~~1,424~~

Comprehensive income

1317,~~847~~958

23,~~232~~641

(~~808~~3,798)

1517,~~271~~801

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

Condensed Consolidating Statements of ~~Cash Flows~~Operations

(Unaudited)

	For the Three Months Ended May 5, 2012
	For the Six Months Ended August 4, 2012
	Guarantor Entities		Non-Guarantor Entities		Eliminations		Consolidated Totals
(Dollars in thousands)
Net cash provided by (used in):
Sales	$	613,334	$	62,687	$	-	$	676,021
Operating activities
Cost of sales	491,972		53,199		-		545,171
Net earnings	$	27,736	$	169	$	(169)	$	27,736
Gross profit	121,362		9,488		-		130,850
Equity in earnings of subsidiaries	(169)		-		169		-
Selling and administrative expenses	65,262		8,284		-		73,546
Other adjustments	(42,976)		6,773		-		(36,203)
Equity in loss of subsidiaries	639		-		(639)		-
Operating activities	(15,409)		6,942		-		(8,467)
Other expense, net	74		284		-		358
Investing activities	(18,743)		(284)		-		(19,027)
Operating profit	55,387		920		639		56,946
Financing activities	28,178		5,739		-		33,917
Interest expense, net	9,648		1,663		-		11,311
Effect of exchange rate on cash	5,215		(5,084)		-		131
Earnings (loss) before income taxes	45,739		(743)		639		45,635
Net (decrease) increase in cash	(759)		7,313		-		6,554
Income tax expense (benefit)	1,242		(104)		-		1,138
Cash at the beginning of the period	1,066		3,145		-		4,211
Net earnings (loss)	$	44,497	$	(639)	$	639	$	44,497
Cash at the end of the period	$	307	$	10,458	$	-	$	10,765
Currency translation adjustments	4,980		(4,900)		-		80
Comprehensive income (loss)	$	49,477	$	(5,539)	$	639	$	44,577

	For the Three Months Ended April 30, 2011
	For the Six Months Ended July 30, 2011
	Guarantor Entities		Non-Guarantor Entities		Eliminations		Consolidated Totals
(Dollars in thousands)
Net cash provided by (used in):
Sales	$	524,232	$	60,580	$	-	$	584,812
Operating activities
Cost of sales	427,949		46,480		-		474,429
Net earnings	$	13,847	$	808	$	(808)	$	13,847
Gross profit	96,283		14,100		-		110,383
Equity in earnings of subsidiaries	(808)		-		808		-
Selling and administrative expenses	60,232		7,551		-		67,783
Other adjustments	32,189		(353)		-		31,836
Equity in earnings of subsidiaries	(4,606)		-		4,606		-
Operating activities	45,228		455		-		45,683
Other (income) expense, net	(225)		502		-		277
Investing activities	(27,740)		(28)		-		(27,768)
Operating profit	40,882		6,047		(4,606)		42,323
Financing activities	(11,243)		(1,760)		-		(13,003)
Interest expense, net	8,152		1,548		-		9,700
Effect of exchange rate on cash	-		86		-		86
Earnings before income taxes	32,730		4,499		(4,606)		32,623
Net increase (decrease) in cash	6,245		(1,247)		-		4,998
Income tax expense (benefit)	925		(107)		-		818
Cash at the beginning of the period	2,273		6,895		-		9,168
Net earnings	$	31,805	$	4,606	$	(4,606)	$	31,805
Cash at the end of the period	$	8,518	$	5,648	$	-	$	14,166
Currency translation adjustments	-		1,267		-		1,267
Comprehensive income	$	31,805	$	5,873	$	(4,606)	$	33,072

Note 5. Significant Balance Sheet Accounts

Allowance for Doubtful Accounts: Activity in the allowance for doubtful accounts was as follows:

	For the Three Months Ended
	May 5, 2012		April 30, 2011
(Dollars in thousands)
Allowance for doubtful accounts at beginning of period	$	2,616	$	2,707
Additions to reserves	461		220
Writeoffs against allowance for doubtful accounts	(10)		(393)
Collections of previously reserved items	51		10
Allowance for doubtful accounts at end of period	$	3,118	$	2,544

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

Condensed Consolidating Statements of Cash Flows

(Unaudited)

	For the Six Months Ended August 4, 2012
	Guarantor Entities		Non-Guarantor Entities		Eliminations		Consolidated Totals
(Dollars in thousands)
Net cash provided by (used in):
Operating activities
Net earnings (loss)	$	44,497	$	(639)	$	639	$	44,497
Equity in loss of subsidiaries	639		-		(639)		-
Other adjustments	(103,837)		10,781		-		(93,056)
Operating activities	(58,701)		10,142		-		(48,559)
Investing activities	(27,086)		(525)		-		(27,611)
Financing activities	79,694		(2,812)		-		76,882
Effect of exchange rate on cash	5,216		(4,952)		-		264
Net (decrease) increase in cash	(877)		1,853		-		976
Cash at the beginning of the period	1,066		3,145		-		4,211
Cash at the end of the period	$	189	$	4,998	$	-	$	5,187

	For the Six Months Ended July 30, 2011
	Guarantor Entities		Non-Guarantor Entities		Eliminations		Consolidated Totals
(Dollars in thousands)
Net cash provided by (used in):
Operating activities
Net earnings	$	31,805	$	4,606	$	(4,606)	$	31,805
Equity in earnings of subsidiaries	(4,606)		-		4,606		-
Other adjustments	24,484		(166)		-		24,318
Operating activities	51,683		4,440		-		56,123
Investing activities	(48,214)		(114)		-		(48,328)
Financing activities	(4,448)		(3,161)		-		(7,609)
Effect of exchange rate on cash	-		217		-		217
Net (decrease) increase in cash	(979)		1,382		-		403
Cash at the beginning of the period	2,273		6,895		-		9,168
Cash at the end of the period	$	1,294	$	8,277	$	-	$	9,571

In the six months ended August 4, 2012, the financial statements of the Guarantor Entities include $4.9 million of other comprehensive income and the financial statements of the Non-Guarantor entities contain $4.9 million of other comprehensive loss related to currency translation adjustments recorded in the current year to properly account for an intercompany transaction not correctly translated in prior periods.

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

Note 5. Significant Balance Sheet Accounts

Allowance for Doubtful Accounts: Activity in the allowance for doubtful accounts was as follows:

	For the Three Months Ended				For the Six Months Ended
	August 4, 2012		July 30, 2011		August 4, 2012		July 30, 2011
(Dollars in thousands)
Allowance for doubtful accounts at beginning of period	$	3,118	$	2,544	$	2,616	$	2,707
Additions (reductions) to reserves	(42)		298		419		518
Writeoffs against allowance for doubtful accounts	(380)		(126)		(390)		(519)
Collections of previously reserved items	29		24		80		34
Allowance for doubtful accounts at end of period	$	2,725	$	2,740	$	2,725	$	2,740

Inventories: Summarized below are the components of inventories:

	As of
	May 5, 2012		January 31, 2012
	August 4, 2012		January 31, 2012
(Dollars in thousands)
Inventory purchased under distributor agreements	$	~~165~~174,~~705~~210	$	174,131
Raw materials and spare parts	~~146~~153,~~787~~177		127,345
Work in process	~~151~~126,~~485~~064		135,555
Finished goods	24,~~009~~321		1,519
Total inventories	$	~~465~~457,~~986~~772	$	438,550

Raw materials and spare parts include OEM equipment and components used in the manufacturing segment. Included in work in process are seven drilling rigs that are substantially complete and ready for customer orders. Finished goods include manufactured equipment that is essentially complete. The inventory balances above are net of inventory valuation allowances totaling $40.21 million and $40.6 million as of ~~May~~August 54, 2012 and January 31, 2012, respectively.

Property, Plant and Equipment, net: Components of property, plant and equipment, net, were as follows:

	As of
	May 5, 2012			January 31, 2012
	August 4, 2012					January 31, 2012
(Dollars in thousands)
Machinery and equipment	$	35,~~179~~294		$	~~34,590~~	$	34,590
Buildings and leasehold improvements	4344,~~436~~022			~~32,655~~		32,655
Rental equipment	8893,~~445~~996			~~87,502~~		87,502
Computer hardware and software	5,~~666~~763			~~5,570~~		5,570
Accumulated depreciation	(7882,~~850)~~507		)	~~(74,947)~~		(74,947		)
Net depreciable assets	$	9396,~~876~~568		$	~~85,370~~	$	85,370
Construction in progress	56,~~080~~714			~~1,085~~		1,085
Land	10,556			~~8,169~~		8,169
Property, plant and equipment, net	$	~~109~~113,~~512~~838		$	~~94,624~~	$	94,624

During the first quarter of Fiscal 2012, we acquired the U.S. properties of Crown that we had previously leased for approximately $12.6 million and an additional facility for $3.5 million.

Depreciation expense was $4.13 million and $38.64 million during the three and six months ended ~~May~~August 54, 2012, respectively and ~~April~~$4.1 million and $7.7 million during the three and six months ended July 30, 2011, respectively.

1415

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

Intangible Assets and Goodwill: Amounts allocated to intangible assets are amortized in a manner over which the expected benefits of those assets are realized pursuant to their estimated useful lives. Intangible asset values include the following:

		As of May 5, 2012
		As of August 4, 2012
	Estimated Useful Life	Gross Carrying Value		~~Accumulated Amortization~~	Accumulated Amortization		~~Currency Translation~~		Currency Translation	~~Net~~		Net
(Dollars in thousands)
Non-current amortizable intangible assets:
Engineering drawings	2.5-10 Years	$	6,346	$	~~(5,540)~~$	(5,606	$)	~~189~~	$	$189	~~995~~	$	929
Distribution contracts	27 Years	5,997		~~(1,412)~~	(1,567		-)		-	~~4,585~~		4,430
Customer relationships	6-11 Years	9,489		~~(4,664)~~	(4,940		~~652~~)		634	~~5,477~~		5,183
Non-compete covenant	5 Years	1,420		~~(1,526)~~	(1,526		~~106~~)		106	-		-
Total		$	23,252	$	~~(13,142)~~$	(13,639	$)	~~947~~	$	$929	~~11,057~~	$	10,542
Indefinite-lived intangible assets:
Trademarks and tradename	-	7,077		-	-		~~378~~		374	~~7,455~~		7,451
Total		$	30,329	$	~~(13,142)~~$	(13,639	$)	~~1,325~~	$	$1,303	~~18,512~~	$	17,993

		As of January 31, 2012
	Estimated Useful Life	Gross Carrying Value		~~EMDSI Acquisition~~	EMDSI Acquisition		~~Accumulated Amortization~~		Accumulated Amortization	~~Currency Translation~~		~~Net~~Currency Translation		Net
(Dollars in thousands)
Non-current amortizable intangible assets:
Engineering drawings	2.5-10 Years	$	6,346	$	-$	-	$	~~(5,474)~~	$	$(5,474	~~189~~)	$	~~1,061~~189	$	1,061
Distribution contracts	27 Years	3,384		~~2,613~~	2,613		~~(1,240)~~		(1,240	-	)	~~4,757~~-		4,757
Customer relationships	6-11 Years	7,409		~~2,080~~	2,080		~~(4,360)~~		(4,360	~~638~~	)	~~5,767~~638		5,767
Non-compete covenant	5 Years	1,420		-	-		~~(1,500)~~		(1,500	~~106~~	)	26106		26
Total		$	18,559	$	~~4,693~~$	4,693	$	~~(12,574)~~	$	$(12,574	~~933~~)	$	~~11,611~~933	$	11,611
Indefinite-lived intangible assets:
Trademarks and tradename	-	6,316		~~762~~	762		-		-	~~374~~		~~7,452~~374		7,452
Total		$	24,875	$	~~5,455~~$	5,455	$	~~(12,574)~~	$	$(12,574	~~1,307~~)	$	191,~~063~~307	$	19,063

Amortization expense was $0.65 million and $01.51 million during the three and six months ended ~~May~~August 54, 2012, respectively and ~~April~~$0.6 million and $1.2 million during the three and six months ended July 30, 2011, respectively.

~~The following table presents goodwill (relating entirely to the distribution segment) as of the dates indicated, as well as changes in the account during the period shown:~~16

	Amount
(Dollars in thousands)
Carrying amount as of January 31, 2012	$	3,801
Goodwill acquired during the year	-
Carrying amount as of May 5, 2012	$	3,801

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

~~Warranty~~The ~~Costs:~~following ~~Generally,~~table ~~the~~presents ~~only~~goodwill ~~warranty~~(relating ~~provided~~entirely to ~~our~~the ~~customers~~distribution ~~for~~segment) ~~products~~as weof ~~sell that were originally manufactured by others, including our key OEMs, is~~ the ~~warranty~~dates ~~provided by those original manufacturers. We warrant products manufactured~~indicated, ~~and~~as ~~services~~well ~~provided,~~as bychanges usin ~~for periods of three to 18 months. Based on historical experience and contract terms, we accrue~~ the ~~estimated~~account ~~cost~~during ~~of our product and service warranties at~~ the ~~time~~period of sale or, in some cases, when specific warranty exposures are identified and quantifiable. Accrued warranty costs are adjusted periodically to reflect actual experience. Certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. Occasionally, a material warranty issue can arise that is beyond our historical experience. We accrue for any such warranty issues as they become known and estimable.shown:

A summary of activity for accrued warranty costs, recorded in other current liabilities on the consolidated balance sheets for the periods ended May 5, 2012 and April 30, 2011, was as follows:

	Amount
(Dollars in thousands)
Carrying amount as of January 31, 2012	$	3,801
Goodwill acquired during the year	-
Carrying amount as of August 4, 2012	$	3,801

	For the Three Months Ended
	May 5, 2012		April 30, 2011
(Dollars in thousands)
Accrued warranty costs at beginning of period	$	10,686	$	9,110
Payments for warranty obligations	(1,848)		(1,317)
Warranty accrual	2,798		1,063
Accrued warranty costs at end of period	$	11,636	$	8,856

Warranty Costs: Generally, the only warranty provided to our customers for products we sell that were originally manufactured by others, including our key OEMs, is the warranty provided by those original manufacturers. We warrant products manufactured, and services provided, by us for periods of three to 18 months. Based on historical experience and contract terms, we accrue the estimated cost of our product and service warranties at the time of sale. Accrued warranty costs are adjusted periodically to reflect actual experience. Certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. Occasionally, a material warranty issue can arise that is beyond our historical experience. We accrue for any such warranty issues as they become known and estimable.

~~Other~~A ~~current~~summary ~~liabilities: Included~~of activity for accrued warranty costs, recorded in other current liabilities ~~were~~on ~~$5.6~~the ~~million~~consolidated ~~and~~balance ~~$10.9~~sheets, ~~million~~for ofthe ~~accrued~~periods ~~job~~ended ~~costs as of May~~August 54, 2012 and ~~April~~July 30, 2011, ~~respectively. No~~was ~~other~~as ~~item comprises more than 5% of total current liabilities.~~follows:

	For the Three Months Ended						For the Six Months Ended
	August 4, 2012			July 30, 2011			August 4, 2012			July 30, 2011
(Dollars in thousands)
Accrued warranty costs at beginning of period	$	11,636		$	8,856		$	10,686		$	9,110
Payments for warranty obligations	(1,643		)	(1,011		)	(3,491		)	(2,328		)
Warranty accrual	2,077			1,673			4,875			2,736
Accrued warranty costs at end of period	$	12,070		$	9,518		$	12,070		$	9,518

Other Current Liabilities: Included in other current liabilities were $4.9 million and $5.8 million of accrued job costs as of August 4, 2012 and January 31, 2012, respectively. No other item comprises more than 5% of total current liabilities.

Note 6. Equity and Share-Based Compensation

The Company has 56,179,272 common units issued and outstanding, which consist of both Common Units and Common B Units. Additionally, we have Common A Units, none of which are issued or outstanding. These three classes of Units have the same economic rights. The voting and transfer rights of the three classes differ in that the Common Units are entitled to one vote per Common Unit and upon transfer shall remain designated as Common Units. The Common A Units are entitled to ten votes per Common A Unit and upon transfer will be designated as Common Units. The Common B Units are entitled to ten votes per Common B Unit and upon transfer may be designated by the transferor as Common B Units, Common A Units or Common Units. The number of Common Units and Common B Units issued and outstanding was 27,747,927 and 28,431,345, respectively, as of ~~May~~August 54, 2012 and January 31, 2012.

Stewart & Stevenson LLC is a limited liability company, therefore, U.S. federal and certain state taxes are paid by the holders of our common units. As a limited liability company, the common unit holders’ liability is limited to the capital invested in the Company.

1617

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

Share-Based Compensation: On September 5, 2007, our board of directors adopted the 2007 Incentive Compensation Plan (“Incentive Plan”). The Incentive Plan received the required approval of a majority of our unit holders and became effective on September 27, 2007. In connection with the adoption and approval of the Incentive Plan, the compensation committee of the board, which has the responsibility to administer the Incentive Plan, made certain grants of restricted units to our non-executive directors and certain members of our senior executive management. The grants to our four non-executive directors totaled 134,454 restricted units vesting in five (5) 26,891 unit tranches, with each such tranche vesting upon board service for a complete fiscal year. In addition, approximately 62,745 of the restricted units granted to three former directors were earned as part of their service to us with the balance of their grants being forfeited. The executive grants total 33,613 restricted units vesting in five (5) 6,723 unit tranches, with each tranche vesting upon employment for a complete fiscal year. In addition, approximately 11,204 of the restricted units granted to a former executive were earned before his resignation from the Company with the balance being forfeited. The executive grants are subject to the achievement of net pre-tax income growth in the relevant fiscal year that exceeds the median net pre-tax income growth of a peer group of companies consisting of Schlumberger, Ltd., National Oilwell Varco, Inc., Weatherford International Ltd. and Cameron International Corp. and are subject to acceleration in the case of an executive’s death or disability. This performance condition was met for Fiscal 2011, 2010 and 2007 and 6,723 units vested in each fiscal year; however, this performance condition was not met for Fiscal 2009 or Fiscal 2008 and those tranches were forfeited. All grants are subject to (i) the completion of an initial public equity offering and (ii) accelerated vesting upon a change-in-control of the company. No expense has been recognized for these grants because the contingent condition has not occurred and, as of ~~May~~August 54, 2012, diluted earnings per common unit excluded the approximately 228,571 contingent unvested restricted units related to these September 2007 grants.

On May 31, 2011, upon the recommendation of our chairman, approval of our compensation committee and pursuant to the Amended and Restated 2007 Incentive Compensation Plan, we made two grants of equity awards to our Chief Executive Officer. The first was a grant of 154,062 fully vested common units made on May 31, 2011. The second was options to purchase 112,045 common units, which grant was made on May 31, 2011. These options vest on the first anniversary of the date of the grant, subject to the achievement of a Board-approved Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) target for Fiscal 2011 of $122.0 million (our actual EBITDA was $138.8 million) and have an exercise price of $11.00.

As there is no active market for our common units, the fair value for the common units was determined through an independent, third-party valuation of the Company. This valuation resulted in a fair value of $11.00 per common unit. As such, the 154,062 common units, which vested immediately, were recognized as compensation expense at a fair value of $11.00 per common unit and resulted in approximately $1.7 million of compensation expense recorded in selling and administrative expenses during the second quarter of Fiscal 2011.

In order to determine the fair value for the 112,045 options granted on May 31, 2011, we used the Black-Scholes option pricing model. The options have an exercise price of $11.00 per ~~option~~common unit and a ten-year contractual life. The following valuation assumptions were used: expected volatility (40.03%), risk-free interest rate (1.70%), expected term (4.55 years) and no expected dividends.

As there is no active market for our common units, we utilized comparisons to a peer group of companies for certain of our key valuation assumptions, including the expected volatility and expected term. The risk-free interest rate assumption is based upon observed interest rates reasonably appropriate for the term of the options. The dividend yield assumption is based on our history and expectation of dividend payouts. Utilizing these valuation assumptions, the fair value of these options was $3.92 per common unit, or $0.4 million of total fair value As the service measure ~~exceeds~~exceeded the performance measure, which was anticipated to and has been met for Fiscal 2011, the fair value of $0.4 million iswas ~~being~~ recognized as compensation expense ratably over the one year service requirement and approximately $0.3 million was recognized as compensation expense, recorded in selling and administrative expenses, in Fiscal 2011. Compensation expense of approximately $0.1 million was recognized during the first ~~quarter~~six months of Fiscal 2012. ~~While~~Both the service and performance ~~condition~~conditions for these options ~~has~~have been met ~~for~~and ~~Fiscal~~they ~~2011, these options~~ are ~~not~~vested ~~yet~~and exercisable asin ~~the service condition has not been reached~~full.

1718

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

There ~~were~~have been no grants of restricted units or options to purchase common units during ~~the first quarter of~~ Fiscal 2012. There ~~were~~have been no option exercises or vesting of restricted units during ~~the first quarter of~~ Fiscal 2012.

On April 16, 2012, an $18.0 million distribution was paid to the common unitholders of Stewart & Stevenson LLC. This represented the first distribution other than tax distributions made to unitholders.

Note 7. Income Taxes

As a limited liability company, income is reported for federal and state income tax purposes (except for the Texas Margins tax and foreign taxes reported at the entity level) by our unit holders. During the three and six months ended ~~May~~August 54, 2012, we recognized tax expense of $0.5 million and ~~April~~$1.2 million, respectively, of Texas Margins tax. During the three and six months ended July 30, 2011, we recognized tax expense of $0.76 million and $0.49 million, respectively, of Texas Margins tax. During the three and six months ended ~~May~~August 54, 2012, we recognized tax benefit of $0.4 million and ~~April~~$0.1 million, respectively, associated with foreign jurisdictions. During the three and six months ended July 30, 2011, we recognized tax expense of $0.31 million and tax benefit of $0.31 million, respectively, associated with foreign jurisdictions.

Generally, we make quarterly distributions to our unit holders to fund their tax obligations. During the ~~three~~six months ended ~~May~~August 54, 2012 and ~~April~~July 30, 2011, we made tax distributions of $814.28 million and $14.12 million, respectively, to our unit holders.

Note 8. Related Party Transactions

In Fiscal 2009, we received a $37.5 million equipment order from an affiliate that was negotiated at arms-length on terms that were consistent with market pricing for such equipment. Full payment for the order has been received but revenue recognition is deferred until the equipment is sold to a third party. In the second quarter of Fiscal 2011, we purchased a portion of this equipment from the affiliate for $7.4 million and subsequently sold it to a third party for $7.8 million. As a result of this sale to a third party, we recognized revenue and cost of sales, including acquisition cost paid to the affiliate of $0.4 million. As of ~~May~~August 54, 2012 and January 31, 2012, we held the remaining portion of the equipment in inventories in the amount of $24.2 million for resale on behalf of our affiliate, and maintained $30.5 million of the payments received from the affiliate as customer deposits.

In March 2012, we acquired the U.S. properties of Crown for approximately $12.6 million. This acquisition was financed with the proceeds of a $12.5 million loan from an affiliate and is recorded on our balance sheet as long-term debt to affiliate. The loan matures in ten years, bears interest at 5.0% per ~~annum~~year, and requires quarterly interest payments ~~beginning~~which began in June 2012 and quarterly principal payments of $0.4 million beginning in June 2017, with the principal balance of $5.4 million, along with accrued interest thereon, due in March 2022. The annual interest expense for Fiscal 2012 will be approximately $0.5 million, ~~and~~ is being recognized ratably over the fiscal year and is recorded in interest expense, net in our statements of operations.

Also in March 2012, an affiliate acquired the Canada property of Crown from its owner. As a consequence of that acquisition, our lease from the prior owner was replaced by a lease from this affiliate. The lease terms and conditions remain unchanged, including annual rent payments of Canadian $0.8 million per ~~annum~~year, except that the lease term is 10 years ending in March 2022 and rent escalates in accordance with changes in the U.S. consumer price index. The new lease provides us (i) an option to extend the term for two consecutive periods of five years each and (ii) a right of first refusal to purchase the property in the event the affiliate receives a third party bona fide offer to purchase the property. The annual rent payments for Fiscal 2012 will be approximately Canadian $0.7 million and are being recognized ratably over the fiscal year and are recorded in cost of sales and selling and administrative expenses in our statements of operations.

1819

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

Note 9. Litigation and Contingencies

In August 2011, a $10.8 million judgment against the Company was entered in the 80th Judicial District Court of Harris County, Texas in the matter of Brady Foret v. Stewart & Stevenson, et al. Our insurer has defended, and is continuing to defend, the Company in this case and has indicated that the judgment will be appealed. Our self-insurance retention for this matter is $1.0 million, which amount has been accrued in a prior year. Any costs associated with the appeal and any payment required by an eventual final judgment will be covered by our insurance policies. This matter is not expected to have a material adverse effect to our consolidated balance sheets, results of operations or cash flows.

We are also a defendant in a number of lawsuits relating to matters normally incident to our business. No individual case, or group of cases presenting substantially similar issues of law or fact, is expected to have a material effect on the manner in which we conduct our business or on our consolidated results of operations, financial position or liquidity. We maintain certain insurance policies that provide coverage for product liability and personal injury cases. These insurance policies are subject to a self-insured retention for which we are responsible, which is generally $~~500,000~~0.5 million for newer cases and $1.0 million for cases initiated before Fiscal 2009. We have established reserves that we believe to be adequate based on current evaluations and our experience in these types of claim situations. Nevertheless, an unexpected outcome or adverse development in any such case could have a material adverse impact on our consolidated results of operations in the period in which it occurs.

Note 10. EMDSI Acquisition

On March 23, 2011, we acquired 100% of the stock of EMDSI-Hunt Power, L.L.C. (“EMDSI”) in an all cash transaction from ITOCHU Corporation of Japan (“ITOCHU”) (the “EMDSI Acquisition”) for total consideration of approximately $25.8 million. EMDSI, which is based in Harvey, Louisiana, specializes in the marketing and distribution of medium speed diesel engines for marine propulsion, drilling and power generation applications and is a provider of aftermarket parts and service.

The unaudited pro forma condensed combined ~~statement~~statements of operations for the ~~three~~six months ended ~~April~~July 30, 2011 gives effect to the March 23, 2011 consummation of the EMDSI Acquisition as if the transaction occurred on February 1, 2011. The unaudited pro forma information is presented for illustration purposes only and is not necessarily indicative of results of operations which would have been reported had the transaction actually occurred on February 1, 2011.

	For the Three Months Ended
	For the Six Months Ended
	May 5, 2012		April 30, 2011
	August 4, 2012			July 30, 2011
	(unaudited)		(unaudited)
				(Pro Forma)
(Dollars and units in thousands)	(unaudited)			(unaudited)
Sales	$	~~374~~676,~~414~~021	$	~~278,374~~$	591,819
Net earnings	$	2744,~~736~~497	$	~~13,471~~$	31,747
Weighted average units outstanding:
Basic	56,179		~~56,025~~	56,077
Diluted	56,179		~~56,025~~	56,077
Net earnings per common unit:
Basic	$	0.4979	$	~~0.24~~$	0.57
Diluted	$	0.4979	$	~~0.24~~$	0.57

1920

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

Note 11. Subsequent Events

We are winding down our operations in Venezuela due to the continued difficult economic and political environment experienced in this country. Our Venezuelan subsidiary’s revenues have represented 0.15%, 0.34% and 2.29% of our consolidated revenues for Fiscal Years 2011, 2010 and 2009, respectively. During this same period, its total assets have decreased, given the working capital intensive nature of our business, from $3.8 million as of January 31, 2010, to $0.8 million as of August 4, 2012. It is expected that we will be able to continue to service and sell to Venezuela through our Colombian subsidiary. While we are not legally dissolving or selling this entity, nor its assets or liabilities, it is anticipated that as early as the third quarter of Fiscal 2012, we will have a substantial liquidation of its assets and liabilities. At such time that our Venezuelan subsidiary is substantially liquidated, we will be required to recognize the cumulative currency translation adjustment loss of $3.2 million related to our Venezuelan subsidiary, which is currently recorded as a component of accumulated other comprehensive income in our balance sheets, as a non-cash foreign currency exchange loss, a component of other expense (income), net in our statements of operations.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

This Quarterly Report includes statements that are, or may be deemed to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts and are not limited to the outlook for our future business and financial performance. They appear in a number of places throughout this ~~report~~Quarterly Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and some of which are beyond our control. We believe that these risks and uncertainties include:

· periodic economic and industry downturns affecting the oil and gas industry;

· competitive pressures in the industries that we serve;

· factors affecting our international sales and operations;

· the potential loss of a key OEM supplier;

· our failure to accurately estimate costs associated with products produced under fixed-price contracts;

· our ability to translate backlog into revenue and profit;

· the effect of regulation of hydraulic fracturing on the demand for our products;

· the impact of governmental laws and regulations, including environmental laws and regulations;

· the hazards to which our employees and customers are exposed during the conduct of our business;

· the occurrence of events not covered by insurance;

· our susceptibility to adverse weather conditions affecting the Gulf Coast;

· unforeseen difficulties relating to acquisitions;

· our ability to attract and retain qualified employees;

· our failure to maintain key licenses;

· our ability to protect our intellectual property;

· our level of indebtedness and restrictions on our activities imposed by our debt instruments;

· our principal stockholder could exercise control of our affairs through his beneficial ownership of a majority of our common equity; and

· the other factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2012, which is accessible on the Securities and Exchange Commission’s website at www.sec.gov.

These factors should not be construed as exhaustive and should be read with the other cautionary statements in this Quarterly Report.

We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate, may differ materially from those made in, or suggested by, the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition, liquidity and growth, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.

Any forward-looking statements which we make in this Quarterly Report speak only as of the date of such statement, and, except as required under the federal securities laws and the rules and regulations of the SEC, we undertake no obligation to update publicly any forward-looking statements in this Quarterly Report after the date of this Quarterly Report, whether as a result of new information, future events or otherwise. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

2022

Table of Contents

Overview

We are a leading designer, manufacturer and provider of specialized equipment and aftermarket parts and service for the oil and gas industry and other industries that we have served for over 100 years.

Our wide range of products covers hydraulic fracturing, well stimulation, workover, intervention and drilling operations. These products include pumping, acidizing, coiled tubing, cementing and nitrogen units; drilling rigs, workover rigs; power generation systems; and electrical support and distribution systems, as well as engines, transmissions and material handling equipment. We have a substantial installed base of products, which provides us with significant opportunities for recurring, higher-margin aftermarket parts and service revenues from customers in the oil and gas, power generation and various other industries. In addition, we provide rental equipment to our customers, including generator sets, air compressors, rail car movers and material handling equipment.

Business drivers and measures

Revenue factors

Oil and ~~gas~~Gas ~~industry~~Industry ~~capital~~Capital ~~expenditures~~Expenditures. Sales of our equipment are significantly driven by the capital spending programs of our customers. Growing worldwide demand for energy has resulted in significantly increased capital expenditures by oil and gas producers in recent years. We believe that we are well positioned for the rapid growth in the development of unconventional oil and gas resources, particularly in North America, which require utilization of technologically advanced well stimulation equipment of the nature that we provide. Although commodity price fluctuations may impact the level of oil and gas exploration activity in the long term, we believe the capital spending programs of our customers at this time continue to be strong; however, the recent short-term decrease in gas prices has caused some lessening and/or delay in demand for our products as evidenced by our equipment order backlog. While we do not anticipate this development to significantly affect us in the first half of the year, this could result in decreased activity in the second half of Fiscal 2012. A decrease in the capital spending programs of our customers would adversely impact our equipment sales and, to a lesser extent, our aftermarket parts and service and rental sales. Approximately 68.0% and 77.8% of our revenues in the three months ended May 5, 2012 and April 30, 2011, respectively, came from customers in the oil and gas industry.

~~Non~~We are experiencing a slow-~~oil~~down ~~and~~in demand for our well stimulation equipment resulting primarily from lower prices for gas ~~industries~~and other commodities, which, in turn, have brought about lower capital expenditures by our customers. While Wethis ~~believe~~slow-down ~~that~~could ~~many~~continue through 2013, it provides increased opportunities for our company for the service and refurbishment of such equipment, which are more in demand during these slower periods. These developments have not impacted our business in the ~~non-~~first half of Fiscal 2012 as compared to the same period of Fiscal 2011. In our distribution segment, equipment sales have decreased in the second quarter of Fiscal 2012 as a result of lower demand for the oil and gas ~~industries~~sector wecompared ~~serve,~~to ~~particularly~~the first quarter of Fiscal 2012. Improvement in the ~~commercial~~level ~~vehicle~~of demand in this sector will depend on the state of our national economy in the course of the remaining months of 2012. Approximately 64.0% and ~~material~~67.2% ~~handling~~of ~~industries,~~our ~~provide~~revenues usin ~~with~~the ~~opportunities~~three toand ~~continue~~six tomonths ~~grow~~ended August 4, 2012, respectively and 80.0% and 81.9% of our ~~business~~revenues in the three and six months ended July 30, 2011, respectively, came from customers in the oil and gas industry.

~~Aftermarket~~Non-oil ~~parts~~ and ~~service~~Gas ~~demand~~Industries. We ~~provide~~believe ~~aftermarket~~that ~~parts~~many ~~and~~of ~~service and rental equipment to customers in~~ the non-oil and gas, ~~power~~industries ~~generation,~~we ~~marine~~serve, ~~mining,~~particularly ~~construction,~~the commercial vehicle and material handling industries~~. These sales generated approximately 27.2% and 32.2% of our revenues during the three months ended May 5~~, ~~2011 and April 30, 2011, respectively. We~~ provide ~~aftermarket parts and service for equipment manufactured by approximately 100 manufacturers, including products manufactured by~~ us ~~and~~with ~~our~~opportunities ~~six~~to ~~key~~continue ~~OEMs,~~to ~~and~~grow our ~~aftermarket~~ business ~~provides us with a recurring revenue stream~~. ~~Our rental revenue includes generators, compressors and material handling equipment.~~

~~Backlog.~~Aftermarket ~~Among~~Parts ~~the~~and ~~metrics~~Service ~~we track to monitor demand in our business is equipment order backlog~~Demand. We ~~define~~provide ~~backlog~~aftermarket asparts ~~unfilled~~and ~~equipment~~service ~~orders~~and ~~that~~rental ~~consist~~equipment ofto ~~written~~customers ~~purchase~~in ~~orders~~the oroil ~~signed~~and ~~contracts accompanied~~gas, ifpower ~~required by our credit policies~~generation, ~~by credit support (typically down payments or letters of credit). As of May 5~~marine, ~~2012~~mining, ~~our equipment order backlog was $391.3 million~~construction, ~~compared~~commercial tovehicle ~~$412.2~~and ~~million~~material ashandling ~~of April 30, 2011~~industries. ~~Our~~Aftermarket ~~equipment~~parts ~~order~~and ~~backlog~~service ~~grew~~sales ~~for~~generated ~~eight~~approximately ~~consecutive~~32.6% ~~quarters,~~and ~~beginning~~29.6% ~~with the fourth quarter~~ of ~~Fiscal~~our ~~2009~~revenues ~~through~~during the ~~third~~three ~~quarter~~and ofsix ~~Fiscal~~months ~~2011. Since~~ended ~~this~~August 4, ~~time~~2012, ~~backlog~~respectively, ~~has~~and ~~begun~~31.9% toand ~~fluctuate~~33.1% asof ~~underlying~~our ~~orders~~revenues ~~have~~during ~~been~~the ~~delivered~~three and ~~new~~six ~~equipment~~months ~~orders~~ended ~~have~~July 30, ~~slowed; however~~2011, ~~new orders continue to be booked~~respectively. ~~The~~ ~~price~~We ofprovide ~~gas~~aftermarket ~~has~~parts ~~decreased~~and ~~during~~service ~~this~~for ~~time~~equipment ~~and~~manufactured ~~certain~~by ~~anticipated~~approximately ~~orders~~100 ~~have been delayed~~manufacturers, ~~pending~~including ~~our~~products ~~customers’~~manufactured ~~evaluation~~by ofus ~~both the oil~~ and ~~gas~~our ~~markets~~six ~~and~~key ~~economic climate~~OEMs, asand ~~well~~our asaftermarket ~~their~~business ~~own~~provides ~~customer’s~~us ~~needs.~~with ~~We expect to recognize~~ a ~~significant~~recurring ~~portion~~revenue ofstream. ~~our~~Our ~~equipment~~rental ~~order~~products ~~backlog~~include asgenerators, ~~revenue~~compressors ~~during~~and ~~the~~material ~~remainder~~handling ~~of Fiscal 2012~~equipment.

21Backlog. Among the metrics we track to monitor demand in our business is equipment order backlog. We define backlog as unfilled equipment orders that consist of written purchase orders or signed contracts accompanied, if required by our credit policies, by credit support (typically down payments or letters of credit). As of August 4, 2012, our equipment order backlog was $318.7 million, compared to $419.7 million as of July 30, 2011. Our equipment order backlog continued to grow through the third quarter of Fiscal 2011. Since this time, backlog has begun to fluctuate through the first quarter of Fiscal 2012 and steadily decline thereafter as underlying orders have been delivered and new equipment orders have decreased. The price of gas and other commodities has fluctuated during this time and our customers have slowed, and in some circumstances delayed, orders pending their evaluation of both the oil and gas markets and economic climate, as well as their own customer’s needs. We estimate that we will recognize around 70% of our August 4, 2012, equipment order backlog as revenue during the remainder of Fiscal 2012.

Table of Contents

Backlog of $~~391~~318.37 million as of ~~May~~August 54, 2012 included a $30.5 million equipment order received in Fiscal 2009 from an affiliate. Revenue recognition from this order is deferred until title to the equipment passes to a third party and all other revenue recognition criteria have been met. A deposit in the amount of $30.5 million is recorded as a customer deposit in our consolidated balance sheet. Included in inventories is $24.2 million in costs related to this order.

Seasonality. Our revenues are not significantly affected by seasonality.

Operational factors

Ensuring ~~timely~~Timely ~~supply~~Supply of ~~components~~Components. While we believe that the opportunities to grow our business are significant, there are also challenges and uncertainties we face in executing our business plans. Our ability to procure certain components on a timely basis to meet the delivery needs of our customers is a concern, though the recent softness experienced in the oil and gas sector has lessened this concern. A substantial portion of the products we sell includes components provided by our six key OEMs and on occasion we need to rely upon alternative sources of supply for those components ~~because of the current levels of high demand for the components we require~~. Our ability to satisfy the delivery requirements of a customer on a timely basis is critical to our success.

Labor ~~market~~Market ~~constraints~~Constraints. Although we have the benefit of a highly trained and experienced workforce, we believe that attracting and retaining high quality and experienced personnel is a critical to our success. In ~~factor~~periods of strong demand and rapid growth, this can place a significant challenge to our organization, though the recent softness in the market, particularly in the oil and gas ~~related~~sector, ~~activities~~has ~~and~~lessened ~~our~~this ~~distribution segment~~concern. ~~Accordingly~~Regardless, we place particular emphasis on career development programs that seek to improve the retention of employees, including senior and middle management.

Presentation of historical financial information

Our fiscal year begins on February 1 of the stated year and ends on January 31 of the following year. For example, Fiscal 2012 began on February 1, 2012 and will end on January 31, 2013. We report results on the fiscal quarter method, with each quarter comprising approximately 13 weeks. The ~~first~~second quarter of Fiscal 2012 began on ~~February~~May 16, 2012 and ended on ~~May~~August 54, 2012.

Operation as an LLC

We conduct our operations through Stewart & Stevenson LLC, a limited liability company, and, as a result, U.S. federal and certain state income taxes are paid by the holders of our common units. Therefore, no U.S. federal income tax expense is recorded in our statement of operations. The amounts shown under ‘‘income taxes’’ in our consolidated financial statements reflect income tax expense associated with foreign jurisdictions and certain state taxes.

New accounting pronouncements

On February 1, 2012, we adopted Accounting Standards Update (“ASU”) No. 2011-08, “Intangibles-Goodwill and Other.” This accounting update provides companies with the option to make a qualitative evaluation about the likelihood of goodwill impairment. A company will be required to perform the two-step impairment test only if it concludes that the fair value of a reporting unit is more likely than not (i.e., more than 50% likelihood) less than its carrying value. This accounting update is effective for goodwill impairment tests performed in interim and annual periods for fiscal years beginning after December 15, 2011. We ~~will~~may apply this update in conjunction with our Fiscal 2012 annual impairment evaluation performed in the fourth quarter.

Table of Contents

~~Current~~Also ~~Quarterly~~on ~~Trends—Three~~February 1, ~~Months~~2012, ~~Ended~~we ~~May 5~~adopted ASU 2011-04, ~~2012~~“Fair Value Measurement.” This new guidance amends current fair value measurement and ~~January 31~~disclosure guidance to include increased transparency around valuation inputs and investment categorization. Our adoption of the new guidance did not impact our consolidated financial position, ~~2012~~results of operations or cash flows, although it did require additional fair value disclosures.

Current Quarterly Trends—Three Months Ended August 4, 2012 and May 5, 2012

The following table presents our sales and operating profit by segment on a trailing quarter basis as follows:

	For the Three Months Ended							Change
	May 5, 2012			January 31, 2012
	August 4, 2012				May 5, 2012			$			%
(Dollars in thousands)
Sales
Manufacturing segment sales	$	~~159~~120,~~899~~740		$	~~192,947~~$	159,899		$	(39,158	)	-24.5%
Distribution segment sales	~~214~~180,~~515~~867			~~194,915~~	214,515			(33,648		)	-15.7%
Total sales	$	~~374~~301,~~414~~607		$	~~387,862~~$	374,414		$	(72,806	)	-19.4%
Operating profit (loss)
Manufacturing	$	3123,~~087~~032		$	~~36,166~~$	31,087		(8,056		)	-25.9%
Distribution	1711,~~033~~416			~~15,158~~	17,033			(5,617		)	-33.0%
Corporate and shared services	(1311,~~746)~~876		)	~~(10,667)~~	(13,746		)	1,870			13.6%
Total operating profit	$	3422,~~374~~572		$	~~40,657~~$	34,374		$	(11,803	)	-34.3%

Our sales for the three months ended ~~May~~August 54, 2012 decreased $1372.48 million, or 319.54%, as compared to the three months ended ~~January~~May 315, 2012. Manufacturing segment sales decreased $3339.02 million, ~~while~~and distribution segment sales ~~increased~~decreased $1933.6 million. ~~The~~All ~~decrease~~product inlines for our manufacturing segment ~~sales~~experienced ~~was~~decreases ~~largely~~during ~~attributable~~this toperiod, awith ~~$43.7~~the ~~million~~largest ~~decrease~~decreases in well stimulation ~~equipment,~~and ~~offset by a $17~~rigs.1 ~~million~~We ~~increase~~attribute inthe ~~rig~~decreased ~~equipment~~well ~~sales. Well~~ stimulation equipment sales ~~decreased due~~ to ~~a slow-down in orders received during~~ the ~~fourth quarter of Fiscal 2011, which was largely attributable to the decrease in gas prices and customers evaluating the~~ current oil and gas and economic environment~~. Distribution~~ ~~segment sales increased for equipment, parts~~ and ~~service and rentals, with equipment sales representing $15.3 million of~~ the ~~increase,~~uncertainty ~~largely~~this ~~from~~brings ~~power generation equipment. Overall operating profit margins decreased~~ to ~~9.2%~~our ~~for~~customers’ ~~the~~capital ~~three~~spending ~~months ended May 5~~programs, ~~2012~~as ~~from~~evidenced ~~10.5%~~by ~~for~~our ~~the~~equipment ~~three~~order ~~months ended January 31, 2012~~backlog. ~~This~~Distribution ~~decrease in operating profit margin is reflective of increased sales from our distribution~~ segment, ~~which~~equipment ~~generate a lower operating profit margin, and amounted to approximately 57% of total~~ sales ~~for~~also ~~the~~decreased ~~three~~in ~~months~~essentially ~~ended~~all ~~May 31,~~product ~~2012,~~lines as ~~compared~~these tocustomers ~~approximately~~are ~~50%~~experiencing ofsimilar ~~total~~circumstances ~~sales~~that ~~for~~are ~~the~~currently ~~three~~impacting ~~months ended January 31, 2012. Increased selling and administrative expenses in~~ our ~~corporate~~manufacturing ~~and shared services~~ segment ~~were attributable to increased salaries and wages, advertising and travel expenses~~. Our equipment backlog grew by $39.7 million to $391.3 million as of May 5, 2012, from $351.6 million as of January 31, 2012, with well stimulation representing the substantial portion of this increase.

~~Comparison~~Overall operating profit margin decreased to 7.5% for the three months ended August 4, 2012 from 9.2% for the three months ended May 5, 2012. This decrease in operating profit margin is reflective of ~~Results~~overall decreases in sales volume, higher distribution segment sales as a percentage of ~~Operations—Three~~total ~~Months~~sales, ~~Ended~~which generate lower operating profit margin, and lower distribution segment operating profit margin. While manufacturing segment operating profit margin remained steady, distribution segment operating profit margin dropped 1.6% points due to increased labor and overall operating costs. Decreased selling and administrative expenses in our corporate and shared services segment were attributable to decreased salaries and wages, advertising and travel expenses, offset by increased legal and professional expenses. Our equipment order backlog decreased by $72.6 million from $391.3 million as of May 5, 2012, ~~and~~to ~~April~~$318.7 million as of August 304, ~~2011~~2012, with well stimulation representing over 80% of this decrease.

Sales - For the three months ended May 5, 2012, our sales were $374.4 million, an increase of $103.0 million, or 38.0%, compared to the same period of Fiscal 2011 sales of $271.4 million. The increase in sales impacted both operating segments and was primarily attributable to an overall increase in equipment sales from the oil and gas industry, with increased equipment sales for our well stimulation, seismic products and rigs in our manufacturing segment. Increased sales of power generation, transmissions, prime movers and material handling were primarily responsible for the increase in equipment sales in the distribution segment. Parts and service sales increased in the distribution segment. Sales for the first quarter of Fiscal 2011 include the impact of the EMDSI Acquisition which is reported in our distribution segment, from the date of its acquisition, March 23, 2011.25

Table of Contents

Comparison of Results of Operations—Three Months Ended August 4, 2012 and July 30, 2011

Sales - For the three months ended August 4, 2012, our sales were $301.6 million, a decrease of $11.8 million, or 3.8%, compared to the same period of Fiscal 2011 sales of $313.4 million. The decrease in sales impacted both operating segments and was primarily attributable to an overall decrease in equipment sales from customers in the oil and gas industry, with decreased equipment sales for our well stimulation, seismic products and rigs in our manufacturing segment. Decreased sales of transmissions, engines and rail car movers were partially offset by increased sales of prime movers, power generation and material handling equipment in our distribution segment. Parts and service sales increased in both segments and rental sales increased in the distribution segment.

A breakdown of sales for the periods is as follows:

For the Three Months Ended

Change

May 5, 2012

April 30, 2011

August 4, 2012

July 30, 2011

(Dollars in thousands)

Manufacturing segment

Equipment

~~154~~115,~~006~~438

~~106~~132,~~008~~472

47(17,~~998~~034)

45-12.39%

Parts and service

5,~~893~~302

64,~~487~~261

~~(594)~~1,041

-924.24%

Total manufacturing sales

~~159~~120,~~899~~740

~~112~~136,~~495~~733

47(15,~~404~~993)

42-11.17%

Distribution segment

Equipment

~~108~~78,~~010~~733

7180,~~939~~257

36(1,~~071~~524)

~~50.~~-1.9%

Parts and service

9691,~~673~~478

8087,~~739~~994

153,~~934~~484

194.70%

Rentals

910,~~832~~656

68,~~194~~461

32,~~638~~195

5825.79%

Total distribution sales

~~214~~180,~~515~~867

~~158~~176,~~872~~712

554,~~643~~155

352.04%

Total sales

~~374~~301,~~414~~607

~~271~~313,~~367~~445

~~103~~(11,~~047~~838)

38-3.08%

Operating profit (loss)

Manufacturing

3123,~~087~~032

1925,~~756~~315

11(2,~~331~~283)

57-9.40%

Distribution

1711,~~033~~416

1013,~~259~~540

6(2,~~774~~124)

66-15.07%

Corporate and shared services

(1311,~~746~~876)

(1115,~~204~~343)

(23,~~542)~~467

-22.76%

Total operating profit

3422,~~374~~572

1823,~~811~~512

~~15,563~~(940)

82-4.70%

Operating profit percentage

Manufacturing

19.41%

1718.65%

Distribution

76.93%

67.57%

Consolidated

97.25%

67.95%

Manufacturing segment sales ~~increased~~decreased by 4211.17%, or $4716.40 million, for the three months ended ~~May~~August 54, 2012 compared to the same period in Fiscal 2011. Equipment sales ~~increased~~decreased by $4817.0 million, while parts and ~~were~~service ~~partially~~sales ~~offset~~increased by ~~a decrease of~~ $01.60 million ~~in parts and service sales~~. Equipment sales ~~increased~~decreased in all product lines, ~~except power generation,~~ with well stimulation equipment continuing to generate the largest portion of the ~~increase~~decrease. ~~Rigs and seismic products continued to increase significantly during the quarter.~~ A breakdown of manufacturing segment equipment sales by product line is as follows:

	For the Three Months Ended				Change
	May 5, 2012		April 30, 2011		$		%
(Dollars in thousands)
Manufacturing equipment sales
Well stimulation	$	114,898	$	92,047	$	22,851	24.8%
Rigs	22,224		5,399		16,825		311.6%
Seismic products	10,782		4,188		6,594		157.4%
Electric products	5,660		1,947		3,713		190.7%
Power generation	-		2,425		(2,425)		-100.0%
Other	442		2		440
Total equipment sales	$	154,006	$	106,008	$	47,998	45.3%

Table of Contents

Distribution segment sales increased by $55.6 million to $214.5 million for the three months ended May 5, 2012, compared to $158.9 million during the same period of Fiscal 2011. The increase in distribution segment sales was due to increased equipment sales of $36.1 million, parts and service sales of $15.9 million and rentals sales of $3.6 million. The increase in transmissions and prime movers sales was primarily due to higher sales volumes for oilfield equipment. Power generation sales increased primarily due to sales in non-oil and gas industries; however, we are experiencing increased sales from our oil and gas industry customers for power generation equipment resulting from infrastructure constraints in non-conventional oil and gas plays.

	For the Three Months Ended				Change
	August 4, 2012		July 30, 2011		$		%
(Dollars in thousands)
Manufacturing equipment sales
Well stimulation	$	99,338	$	109,923	$	(10,585)	-9.6%
Rigs	10,637		12,202		(1,565)		-12.8%
Seismic products	1,626		4,711		(3,085)		-65.5%
Electric products	3,526		3,877		(351)		-9.1%
Power generation	-		1,731		(1,731)		-100.0%
Other	311		28		283
Total equipment sales	$	115,438	$	132,472	$	(17,034)	-12.9%

	For the Three Months Ended				Change
	May 5, 2012		April 30, 2011		$		%
(Dollars in thousands)
Distribution equipment sales
Power generation	$	31,713	$	14,796	$	16,917	114.3%
Prime movers	24,784		18,295		6,489		35.5%
Transmissions	22,712		14,237		8,475		59.5%
Material handling	12,063		8,817		3,246		36.8%
Engines	8,561		9,630		(1,069)		-11.1%
Rail car movers	4,257		4,117		140		3.4%
Other	3,920		2,047		1,873		91.5%
Total equipment sales	$	108,010	$	71,939	$	36,071	50.1%

Distribution segment sales increased by $4.2 million to $180.9 million for the three months ended August 4, 2012, compared to $176.7 million during the same period of Fiscal 2011. The increase in distribution segment sales was due to increased parts and service sales of $3.5 million and rental sales of $2.2 million, offset by decreased equipment sales of $1.5 million. Equipment sales in the distribution segment decreased slightly, with the larger decreases in transmissions and engines sales substantially offset by increases in the various other product categories as our customers are experiencing decreased demand for oil and gas industry related products. Distribution segment equipment sales reflected the following changes in our distribution segment products:

Gross profit — Our gross profit was $73.0 million for the three months ended May 5, 2012 compared to $50.5 million for the same period in Fiscal 2010, reflecting an increase in gross profit margin from 18.6% to 19.5%. Our gross profit margin increased by 0.9 points due to higher sales volumes and product mix. The manufacturing segment gross profit margin increased from 22.3% to 23.7%, an increase of 1.4 points, and the distribution segment gross profit margin increased from 16.0% to 16.4%, an increase of 0.4 points. These increases in gross profit margin were due in large part to higher sales volumes and product mix.

	For the Three Months Ended				Change
	August 4, 2012		July 30, 2011		$		%
(Dollars in thousands)
Distribution equipment sales
Prime movers	$	17,438	$	15,942	$	1,496	9.4%
Power generation	15,564		12,884		2,680		20.8%
Transmissions	13,715		22,230		(8,515)		-38.3%
Material handling	12,663		8,133		4,530		55.7%
Engines	7,581		13,838		(6,257)		-45.2%
Rail car movers	3,314		4,303		(989)		-23.0%
Other	8,458		2,927		5,531		189.0%
Total equipment sales	$	78,733	$	80,257	$	(1,524)	-1.9%

~~Selling~~Gross ~~and~~profit ~~administrative~~– ~~expenses~~Our —gross ~~Selling~~profit ~~and~~was ~~administrative expenses increased by~~ $757.28 million ~~to $38.6 million~~ for the three months ended ~~May~~August 54, 2012, ~~primarily~~compared asto a$59.8 ~~result~~million offor ~~increases~~the insame ~~salaries~~period ~~and wages, including reductions~~ in ~~bonus~~Fiscal ~~accruals,~~2011. ~~increased~~Our ~~headcount,~~gross ~~share-based~~profit ~~compensation~~margin ~~expense,~~remained ~~travel,~~relatively ~~depreciation and advertising expenses~~flat, ~~all~~increasing offrom ~~which~~19.1% ~~amounted~~ to ~~approximately $6~~19.~~0 million~~2%. ~~These~~ The ~~expenses~~manufacturing ~~were~~segment ~~partially~~gross ~~offset~~profit bymargin ~~reductions~~increased infrom ~~legal~~22.3% ~~and~~to ~~professional expense and new product development costs~~25.0%, ~~The~~an ~~remaining~~ increase isof ~~attributable~~2.7 topoints, and ~~reflective~~the ~~of,~~distribution ~~the~~segment ~~overall~~gross ~~increase~~profit inmargin ~~our~~decreased ~~business~~from ~~activity~~16.6% Asto 15.3%, a ~~percentage~~decrease of ~~sales, selling and administrative expenses decreased to 10~~1.3% ~~from 11~~points.5% ~~for~~These ~~the~~changes ~~three~~in ~~months~~gross ~~ended~~profit ~~May 5,~~margin ~~2012,~~were asdue ~~compared~~in tolarge ~~the~~part ~~same~~to ~~period~~changes in ~~Fiscal~~product ~~2011~~mix.

~~Other~~Selling ~~expense,~~and ~~net~~administrative —expenses ~~Other~~– ~~expense,~~Selling ~~net~~and administrative expenses decreased by $1.5 million to $035.10 million for the three months ended ~~May~~August 54, 2012. The ~~compared~~Fiscal 2011 period reflected the expensing of costs relating to our proposed initial public offering ($02.45 million) ~~for~~and ~~the~~share-based ~~three~~compensation ~~months~~expense ~~ended~~($1.8 ~~April 30~~million), ~~2011~~which were not recurring items in the Fiscal 2012 period. In ~~Other~~comparison ~~expense~~without isthese ~~primarily~~costs, the ~~result~~Fiscal 2012 selling and administrative expenses increased $2.8 million, which primarily resulted from increases in salaries and wages and legal and professional fees, offset by decreased bonus expense. As a percentage of ~~foreign~~sales, ~~currency~~selling ~~transaction~~and ~~losses~~administrative ~~related~~expenses toremained ~~our~~flat ~~foreign~~at ~~subsidiaries~~11.6% for the three months ended August 4, 2012, and July 30, 2011.

~~Operating~~Other ~~profit~~expense —(income), ~~Our~~net ~~operating~~– ~~profit~~Other ~~increased~~expense to(income), ~~$34.4~~net ~~million,~~decreased orto ~~9.2%~~expense of ~~sales,~~$0.3 ~~during~~million for the three months ended ~~May~~August 54, 2012 ~~from~~compared ~~$18.8~~to ~~million,~~income orof 6$0.9%1 ofmillion ~~sales,~~for in the ~~same~~three ~~period~~months ofended ~~Fiscal~~July 30, 2011,. ~~primarily~~Other asexpense is primarily the result of ~~higher~~foreign ~~sales~~currency ~~volumes~~transaction ~~and overall improved gross profit margins~~losses.

~~Interest~~Operating ~~expense,~~profit ~~net~~– -Our ~~Interest~~operating ~~expense,~~profit ~~net~~decreased ~~for~~to $22.6 million during the three months ended ~~May~~August 54, 2012 ~~increased~~from by $023.75 million ~~over~~in the same period inof Fiscal 2011. Operating ~~mainly~~profit as a ~~result~~percentage of ~~higher~~sales ~~borrowings~~remained ~~and~~the ~~interest~~same ~~rates~~ for ~~our~~both ~~revolving~~periods ~~credit~~at ~~facility~~7.5% of sales. The decrease in ~~the~~operating ~~current~~profit ~~period~~reflects lower sales volume, offset by lower selling and administrative expenses.

2527

Table of Contents

Interest expense, net - Interest expense, net for the three months ended August 4, 2012 increased by $0.8 million over the same period in Fiscal 2011 mainly as a result of higher borrowings, coupled with slightly higher interest rates, in the current period.

Segment data

Our reportable segments are as follows:

Manufacturing

Distribution

We provide stand-alone products and aftermarket parts and service for products manufactured by us, our six key OEMs and other manufacturers. In addition, we provide rental equipment including generator sets, air compressors, rail car movers and material handling equipment to our customers. Our aftermarket parts and service operations, which provide us with a recurring, higher-margin source of revenue, serve customers engaged in the oil and gas, power generation, marine, mining, construction, commercial vehicle and material handling industries, as well as other industries.

Corporate and shared services

Intra-segment revenues and costs are eliminated, and operating profit (loss) represents earnings (loss) before interest and income taxes.

Segment Results Comparison – Three Months Ended ~~May~~August 54, 2012 and ~~April~~July 30, 2011

Manufacturing

Operating profit generated by our manufacturing segment ~~increased~~decreased to $3123.10 million, or 19.41% of sales, for the three months ended ~~May~~August 54, 2012, from $1925.83 million, or 1718.65% of sales, for the same period of Fiscal 2011. The $112.3 million ~~increase~~decrease in operating profit was attributable to ~~increases~~a decrease of $123.86 million in sales volume, increases in selling and administrative expenses of $1.7 million and $0.2 million in other expenses, which ~~was~~were partially offset by an increase inof ~~selling~~$3.2 ~~and~~million ~~administrative~~in ~~expenses~~average ofgross ~~$1.5~~profit ~~million~~margin. ~~Selling~~The increase in selling and administrative ~~expenses~~expense ~~increases~~was ~~were~~ primarily ~~related~~due to ~~higher~~increased salaries and wages, ~~increased~~with ~~headcount~~smaller ~~and~~increases ~~travel~~in advertising, ~~partially~~facility ~~offset~~and ~~by decreases in~~ new product development costs ~~($0~~.9 These ~~million).~~increases ~~The~~were ~~remaining~~partially ~~increase~~offset isby ~~attributable~~decreased ~~to,~~bonus and ~~reflective~~legal ~~of,~~and ~~the~~professional ~~overall increase in our business activity~~expense.

Our manufacturing backlog as of ~~May~~August 54, 2012 was $~~267~~201.29 million, as compared to $~~278~~279.67 million as of ~~April~~July 30, 2011, a decrease of 427.18%. Backlog as of both of these dates included an equipment order received in Fiscal 2009 from an affiliate in the amount of $30.5 million ~~and $37~~.5 ~~million, respectively.~~ Revenue recognition from this order is deferred until title to the product passes to a third party and all other revenue recognition criteria have been met. AsA ~~of May 5, 2012, a~~ deposit in the amount of $30.5 million ~~was~~is recorded as a customer deposit in the consolidated balance sheet ~~and~~as ~~included~~of August 4, 2012. Included in inventories ~~was~~is $24.2 million of costs related to this order.

2628

Table of Contents

Distribution

Operating profit generated by the distribution segment ~~increased~~decreased to $1711.04 million during the three months ended ~~May~~August 54, 2012 from $1013.35 million during the same period in Fiscal 2011, representing ana ~~increase~~decrease in operating profit percentage from 67.57% to 76.93%. The $62.71 million ~~increase~~decrease in operating profit was attributable to ~~increases~~decreases of $92.~~1 million~~4 ~~in sales volume, $0.6~~ million in average gross profit ~~margins~~margin and an increase of $0.3 6 million in ~~other,~~selling ~~partially~~and administrative expenses, offset by anincreases ~~increase~~ of $30.37 million in ~~selling~~sales volume and ~~administrative~~a ~~expenses~~decrease of $0.2 million in other. The increase in selling and administrative ~~expenses~~expense was primarily due to ~~higher~~increased salaries and wages, ~~increased~~along ~~headcount~~with ~~and~~smaller ~~travel,~~increases ~~partially offset by decreases~~ in ~~bonus~~facility ~~accruals~~and ~~($2.3~~travel ~~million)~~expense. These ~~The~~increases ~~remaining~~were ~~increase~~partially isoffset ~~attributable~~by ~~to,~~decreased bonus and ~~reflective~~bad ~~of,~~debt ~~the overall increase in our business activity~~expense.

Our distribution backlog as of ~~May~~August 54, 2012 was $~~124~~116.18 million, as compared to $~~133~~140.60 million on ~~April~~July 30, 2011, a decrease of 716.16%.

Corporate and shared services

Corporate and shared services expenses ~~increased~~decreased to $1311.79 million during the three months ended ~~May~~August 54, 2012 compared to $1115.23 million during the same period of Fiscal 2011,. ~~primarily~~The asFiscal a2011 ~~result~~period reflected the expensing of ~~higher~~costs ~~salaries~~relating ~~and~~to ~~wages,~~our proposed initial public offering ($2.5 million) and share-based compensation expense ($1.8 million), ~~advertising~~which were not recurring items in the Fiscal 2012 period. In comparison without these costs, the Fiscal 2012 selling and ~~travel~~administrative expenses. ~~These~~increased ~~increases~~$0.9 ~~were~~million, ~~partially~~which ~~offset~~primarily byresulted ~~decreases~~from increases in salaries and wages and legal and professional fees, offset by decreases in advertising and ~~bonus~~travel ~~accruals~~expenses. Corporate and shared services expenses decreased from 4.19% to 3.79% as a percentage of sales.

Comparison of Results of Operations—Six Months Ended August 4, 2012 and July 30, 2011

Sales - For the six months ended August 4, 2012, our sales were $676.0 million, an increase of $91.2 million, or 15.6%, compared to the same period of Fiscal 2011 sales of $584.8 million. The increase in sales impacted both operating segments and was primarily attributable to an overall increase in equipment sales from customers in the oil and gas industry, with increased equipment sales primarily from well stimulation and rigs in our manufacturing segment. Increased sales of power generation, prime movers and material handling were primarily responsible for the increase in equipment sales in the distribution segment. Parts and service sales increased, primarily in the distribution segment.

Table of Contents

A breakdown of sales for the periods is as follows:

	For the Six Months Ended				Change
	August 4, 2012		July 30, 2011		$		%
(Dollars in thousands)
Manufacturing segment
Equipment	$	269,444	$	238,480	$	30,964	13.0%
Parts and service	11,195		10,748		447		4.2%
Total manufacturing sales	$	280,639	$	249,228	$	31,411	12.6%

Distribution segment
Equipment	$	186,743	$	152,196	$	34,547	22.7%
Parts and service	188,151		168,733		19,418		11.5%
Rentals	20,488		14,655		5,833		39.8%
Total distribution sales	$	395,382	$	335,584	$	59,798	17.8%

Total sales	$	676,021	$	584,812	$	91,209	15.6%

Operating profit (loss)
Manufacturing	$	54,119	$	45,071	9,048		20.1%
Distribution	28,449		23,799		4,650		19.5%
Corporate and shared services	(25,622)		(26,547)		925		3.5%
Total operating profit	$	56,946	$	42,323	$	14,623	34.6%

Operating profit percentage
Manufacturing	19.3%		18.1%
Distribution	7.2%		7.1%
Consolidated	8.4%		7.2%

Manufacturing segment sales increased by 12.6%, or $31.4 million, for the six months ended August 4, 2012 compared to the same period in Fiscal 2011. Equipment sales increased by $31.0 million and parts and service sales increased by $0.4 million. Equipment sales increased in all product lines, except power generation, with rigs and well stimulation generating the largest portion of the increase. A breakdown of manufacturing segment equipment sales by product line is as follows:

	For the Six Months Ended				Change
	August 4, 2012		July 30, 2011		$		%
(Dollars in thousands)
Manufacturing equipment sales
Well stimulation	$	214,236	$	201,970	$	12,266	6.1%
Rigs	32,861		17,601		15,260		86.7%
Seismic products	12,408		8,899		3,509		39.4%
Electric products	9,186		5,824		3,362		57.7%
Power generation	-		4,156		(4,156)		-100.0%
Other	753		30		723
Total equipment sales	$	269,444	$	238,480	$	30,964	13.0%

Distribution segment sales increased by $59.8 million to $395.4 million for the six months ended August 4, 2012, compared to $335.6 million during the same period of Fiscal 2011. The increase in distribution segment sales was due to increased equipment sales of $34.6 million, parts and service sales of $19.4 million and rental sales of $5.8 million. The increase in prime movers sales was primarily due to higher sales volumes for oilfield equipment, while the increase in power generation and material handling sales was primarily attributable to sales in other industries and was partially offset by a decrease in engine and rail car movers sales. Distribution segment equipment sales reflected the following changes in our distribution segment products:

Table of Contents

	For the Six Months Ended				Change
	August 4, 2012		July 30, 2011		$		%
(Dollars in thousands)
Distribution equipment sales
Power generation	$	47,277	$	27,680	$	19,597	70.8%
Prime movers	42,222		34,237		7,985		23.3%
Transmissions	36,427		36,467		(40)		-0.1%
Material handling	24,726		16,950		7,776		45.9%
Engines	16,142		23,468		(7,326)		-31.2%
Rail car movers	7,571		8,420		(849)		-10.1%
Other	12,378		4,974		7,404		148.9%
Total equipment sales	$	186,743	$	152,196	$	34,547	22.7%

Gross profit – Our gross profit was $130.8 million for the six months ended August 4, 2012 compared to $110.4 million for the same period in Fiscal 2011, reflecting an increase in gross profit margin from 18.9% to 19.4%. Our gross profit margin increased by 0.5 points due to higher sales volumes and product mix. The manufacturing segment gross profit margin increased from 22.3% to 24.2%, an increase of 1.9 points, and the distribution segment gross profit margin decreased from 16.3% to 15.9%, a decrease of 0.4 points. The increase in manufacturing gross profit margin was due in large part to higher sales volumes and product mix. The decrease in the distribution gross profit margin was due to increased equipment sales which carry a lower gross profit margin.

Selling and administrative expenses – Selling and administrative expenses increased by $5.7 million to $73.5 million for the six months ended August 4, 2012. The Fiscal 2011 period reflected the expensing of costs relating to our proposed initial public offering ($2.5 million) and share-based compensation expense ($1.8 million), which were not recurring items in the Fiscal 2012 period. In comparison without these costs, the Fiscal 2012 selling and administrative expenses increased $10.0 million, which primarily resulted from increases in salaries and wages, legal and professional fees, travel and advertising expenses, offset by reductions in bad debt and new product development expenses. As a percentage of sales, selling and administrative expenses decreased to 10.9% from 11.6% for the six months ended August 4, 2012, as compared to the same period in Fiscal 2011.

Other expense, net – Other expense, net increased to $0.4 million for the six months ended August 4, 2012 compared to $0.3 million for the six months ended July 30, 2011. Other expense is primarily the result of foreign currency transaction losses.

Operating profit – Our operating profit increased to $56.9 million, or 8.4% of sales, during the six months ended August 4, 2012 from $42.3 million, or 7.2% of sales, in the same period of Fiscal 2011, primarily as the result of higher sales volumes and overall gross profit margins.

Interest expense, net - Interest expense, net for the six months ended August 4, 2012 increased by $1.6 million over the same period in Fiscal 2011 mainly as a result of higher borrowings, coupled with slightly higher interest rates, in the current period.

Segment Results Comparison – Six Months Ended August 4, 2012 and July 30, 2011

Manufacturing

Operating profit generated by our manufacturing segment increased to $54.1 million, or 19.3% of sales, for the six months ended August 4, 2012, from $45.1 million, or 18.1% of sales, for the same period of Fiscal 2011. The $9.0 million increase in operating profit was attributable to increases of $7.0 million in sales volume and $5.4 million in average gross profit margin, which were partially offset by an increase in selling and administrative expenses of $3.1 million. Selling and administrative expenses increases were primarily related to higher salaries and wages, increased travel and advertising, partially offset by decreases in new product development costs and bonus expense. The remaining increase was attributable to, and reflective of, the overall increase in our business activity.

Table of Contents

Distribution

Operating profit generated by the distribution segment increased to $28.4 million during the six months ended August 4, 2012 from $23.8 million during the same period in Fiscal 2011, representing an increase in operating profit percentage from 7.1% to 7.2%. The $4.6 million increase in operating profit was attributable to increases of $9.8 million in sales volume and $0.4 million in other, partially offset by a decrease of $1.7 in average gross profit margin and an increase of $3.9 million in selling and administrative expenses. The increase in selling and administrative expenses was due to higher salaries and wages, depreciation, facility and travel, partially offset by decreases in bonus accruals and bad debt expense. The remaining increase was attributable to, and reflective of, the overall increase in our business activity.

Corporate and shared services

Corporate and shared services expenses decreased to $25.6 million during the six months ended August 4, 2012 compared to $26.5 million during the same period of Fiscal 2011. The Fiscal 2011 period reflected the expensing of costs relating to our proposed initial public offering ($2.5 million) and share-based compensation expense ($1.8 million), which were not recurring items in the Fiscal 2012 period. In comparison without these costs, the Fiscal 2012 selling and administrative expenses increased $3.4 million, which primarily resulted from increases in salaries and wages and legal and professional fees. Corporate and shared services expenses decreased from 4.5% to 3.8% as a percentage of sales.

Liquidity and Capital Resources

Our principal source of liquidity is cash generated by operations. We also have aan ~~$250 million~~ asset-based revolving credit facility, which was increased to $325 million in the second quarter of Fiscal 2012, which we draw upon when necessary to satisfy our working capital needs and generally pay down with available cash. Our liquidity needs are primarily driven by changes in working capital associated with execution of large manufacturing projects. While many of our contracts include advance customer deposits and progress billings, some international contracts provide for substantial portions of funding under confirmed letters of credit upon delivery of the products.

We have funded, and expect to continue to fund, operations through cash flows generated by operating activities and borrowings under our revolving credit facility. We also expect that ongoing requirements for debt service and capital expenditures will be funded from these sources.

Our future liquidity requirements will be for working capital, capital expenditures, debt service and general corporate purposes. Our borrowing capacity under the revolving credit facility is impacted by, among other factors, the amount of working capital and qualifying assets therein. Based on our current level of operations, we believe that cash flow from operations and available cash, together with available borrowings under our revolving credit facility, will be adequate to meet our short-term and long-term liquidity needs. However, our ability to meet our working capital and debt service requirements is subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. If we are not able to meet such requirements, we may be required to seek additional sources of capital.

Cash flows

	For the Three Months Ended
	For the Six Months Ended
	May 5, 2012		April 30, 2011
	August 4, 2012		July 30, 2011
(Dollars in thousands)
Net cash (used in) provided by operating activities	$	(848,~~467~~559)	$	4556,~~683~~123
Net cash used in investing activities	(1927,~~027~~611)		(2748,~~768~~328)
Net cash provided by (used in) financing activities	3376,~~917~~882		(137,~~003~~609)

As of ~~May~~August 54, 2012, our cash and cash equivalent balance was $105.82 million. The level of cash and cash equivalents is impacted by the timing of cash receipts, disbursements and borrowings and payments under our revolving credit facility.

2732

Table of Contents

~~Net~~For the six months ended August 4, 2012, cash ~~flow~~used ~~from~~in operating activities ~~for~~was ~~the~~$48.6 ~~three~~million ~~months~~compared ~~ended~~to ~~May 5,~~cash ~~2012~~provided ~~decreased~~ by operating activities of $5456.1 million ~~compared~~for to the same period inof Fiscal 2011, a decrease of $104.7 million. While net earnings increased $1312.97 million in the first six months of Fiscal 2012 over the first six months of Fiscal 2011, the decrease in cash flow from operating activities was largely attributable to decreased cash flow due to (i) the timing of ~~(i)~~ completing, billing and collecting on projects for accounts receivable and recoverable costs and accrued profits not yet billed and (ii) ~~receipt~~the ofslowdown ~~down~~in ~~payments on~~ new ~~contracts~~customer ~~signed~~orders ~~for~~impacting customer deposits, which in the aggregate amounted to $2258.64 million between the two periods. Further, decreases in accounts payable and accrued payroll and incentives ~~used~~required increased cash use of $48102.10 million ofwhen ~~cash~~comparing ~~flow~~these two periods. The decrease in accrued payroll and incentives ~~relates~~related to ~~both~~ the timing of payroll cycles and the payment of Fiscal 2011 bonuses, while the decrease in accounts payable ~~reflects~~reflected a decrease in our order rate, as well as the timing of placing orders and making payments. Given the substantial increase in our business experienced in Fiscal 2011, inventory purchases increased significantly; however, with the slow-down we are beginning to experience, inventory purchases have decreased in the first six months of Fiscal 2012 over the first six months of Fiscal 2011 and required $44.4 million less cash between these two periods.

Net cash used in investing activities decreased by $820.7 million for the ~~three~~six months ended ~~May~~August 54, 2012 compared to the same period in Fiscal 2011. The overall decrease ~~results~~resulted from less cash flow attributable to acquisitions in Fiscal 2012 of $7.23 million and decreased capital expenditures and additions to rental equipment in the aggregate for Fiscal 2012 of $113.54 million.

Net cash provided by financing activities increased by $4684.95 million for ~~three~~the six months ended ~~May~~August 54, 2012 compared to the same period in Fiscal 2011. Borrowings under our revolving credit facility and short-term notes payable increased $6096.04 million to fund portions of our operating and investing activities, as well as distributions to our unitholders. We financed the purchase of the U.S. properties of Crown, ~~which we had previously leased,~~ with debt to an affiliate of $12.5 million. Distributions to our unitholders increased $2528.26 million, with $710.26 million of this increase attributable to higher net earnings and the remaining $18.0 million representing the first distribution to our unitholders other than for taxes. The payment of future distributions to our unitholders other than for taxes is at the discretion of the Company’s Board of Directors and will be dependent upon the Company’s results of operations, financial condition, capital requirements and other factors deemed relevant by the Company’s Board of Directors.

Financing Sources

InOn ~~December~~July ~~2011~~11, 2012, we ~~renewed~~exercised $75 million of the $125 million accordion feature in the Third Amended and Restated Credit Agreement (the “Credit Agreement”) to provide flexibility as we evaluate business and strategic opportunities, as well as to address our liquidity needs. As a result, the Credit Agreement as expanded provides for a $~~250~~325 million asset-based revolving credit facility, which is expandable by aan additional $~~125~~50 million accordion, ~~and it~~ is secured by substantially all accounts receivable, inventory and property, plant and equipment of the Company and expires inon December 23, 2016. Borrowings bear interest based on a pricing grid that is determined by the available borrowing capacity under the revolving credit facility and the interest rate selected: LIBOR plus a margin ranging from 1.75% to 2.25% per annum or Prime Rate plus a margin ranging from 0.75% to 1.25%. These ~~Based~~ranges onmay ~~the~~be ~~outstanding~~further ~~borrowings,~~reduced ~~letters~~by of0.25% ~~credit~~(25 ~~issued~~basis ~~and~~points) ~~the terms of the asset-~~based ~~revolving~~on ~~credit facility,~~ our ~~available~~leverage ~~borrowing capacity was approximately $73.6 million at May 5~~ratios, ~~2012.~~as Asspecified ~~required by the terms of the revolving credit facility, our available borrowing capacity is required to be reduced by the principal amount of our senior notes outstanding plus $25 million~~ in the ~~event~~Credit the senior notes are not repaid by the date which is 60 days prior to their stated maturity of July 2014 or the maturity of the senior notes is not otherwise extended to at least 90 days beyond the maturity of the revolving credit facilityAgreement.

WeBased ~~are~~on in the ~~process~~outstanding borrowings, letters of ~~exercising~~credit issued and the ~~accordion~~terms ~~feature~~of ~~under~~the ~~our~~asset-based revolving credit facility, ~~for~~our aavailable borrowing capacity was approximately $75106.0 million ~~expansion~~at August 4, 2012. ~~The~~ ~~expansion~~As required by the terms of ~~our~~the revolving credit facility, our available borrowing capacity is ~~expected~~required to be ~~completed~~reduced ~~during~~by the ~~second~~principal ~~quarter~~amount of ~~Fiscal~~senior ~~2012,~~notes ~~although~~outstanding ~~there~~plus is$25 nomillion ~~assurance~~in ~~that~~the weevent ~~will~~the besenior ~~able~~notes toare donot ~~so,~~repaid ~~and~~by the date which is ~~anticipated~~60 days prior to ~~allow~~their ~~flexibility~~stated asmaturity weof ~~evaluate~~July 2014 ~~business~~or ~~and~~the ~~strategic~~maturity ~~opportunities,~~of asthe ~~well~~senior asnotes ~~address~~is ~~our~~not ~~liquidity~~otherwise ~~needs~~extended to at least 90 days beyond the maturity of the revolving credit facility.

In June 2006, we issued $150.0 million in principal amount of 10% Senior Notes due 2014. The senior notes are unsecured and are guaranteed on an unsecured basis by our domestic restricted subsidiaries. The senior notes mature on July 15, 2014, and interest is payable semi-annually on January 15 and July 15.

2833

Table of Contents

Borrowings under our revolving credit facility and our senior notes were as follows:

	As of
	May 5, 2012		January 31, 2012
	August 4, 2012		January 31, 2012
(Dollars in thousands)
Revolving credit facility	$	~~130~~177,~~390~~326	$	86,772
Unsecured senior notes	150,000		150,000
Total	$	~~280~~327,~~390~~326	$	236,772

The revolving credit facility and the senior notes contain financial and operating covenants with which we must comply during the terms of the agreements. These covenants include the maintenance of certain financial ratios, restrictions related to the incurrence of certain indebtedness and investments, and prohibition of the creation of certain liens. We were in compliance with all covenants as of ~~May~~August 54, 2012. The financial covenant for the revolving credit facility requires that we maintain a fixed charge coverage ratio, as defined in the agreement, of at least 1.1 to 1.0; however, this covenant does not take effect until our available borrowing capacity is $2536.0 million or less. The covenants in the senior notes indenture requires that, if we were to incur additional indebtedness, pay dividends or make certain other restricted payments (in each case, subject to various exceptions set forth in the indenture), after giving effect to the incurrence of such additional indebtedness, we have a fixed charge coverage ratio, as described in the indenture, of at least 2.5 to 1.0.

Our estimated capital expenditures for Fiscal 2012 are not anticipated to exceed $3530.0 million, with up to $12.0 million of this amount available for additions to our rental fleet. This estimate excludes the impact of the U.S. Crown property acquisitions and future acquisitions, if any.

Recent Developments

Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk

Foreign Exchange Risk

Our international subsidiaries in Colombia and Venezuela transact most of their business in their respective local currencies, while our Canadian subsidiary conducts its business in both Canadian and U.S. dollars. Revenues generated by our Canadian, Colombian and Venezuelan subsidiaries comprised 5.4.5%, 2.14% and 0.10%, respectively, of our total revenue during the ~~three~~six months ended ~~May~~August 54, 2012. Our results of operations were not significantly impacted by changes in currency exchange rates.

A 10% depreciation of the Canadian dollar with respect to the U.S. dollar would have caused our Canadian subsidiary’s assets and sales as of and for the ~~three~~six months ended ~~May~~August 54, 2012 to decrease in U.S. dollar terms by approximately $2.97 million and $23.12 million, respectively. A 10% depreciation of the Colombian peso with respect to the U.S. dollar would have caused our Colombian subsidiary’s assets and sales as of and for the ~~three~~six months ended ~~May~~August 54, 2012 to decrease in U.S. dollar terms by approximately $2.31 million and $01.75 million, respectively.

On January 10, 2010, the Venezuelan government devalued its currency from 2.15 Bolivars per U.S. dollar to 4.30 Bolivars per U.S. dollar (‘‘the official rate’’) and the Venezuelan economy has since been designated as hyperinflationary. We have historically utilized the official rate for our Venezuelan operations. Beginning February 1, 2010, we utilized the U.S. dollar as the functional currency for our Venezuelan subsidiary and remeasured its financial statements into U.S. dollars at the official rate. Accordingly, using ‘‘hyperinflationary accounting,’’ we recognized the related losses or gains from such remeasurement of its balance sheet in the consolidated statements of its operations.34

Table of Contents

AtOn January 3110, ~~2011~~2010, ~~we evaluated~~ the ~~rate~~Venezuelan atgovernment ~~which~~devalued weits ~~remeasure~~currency ~~our~~from ~~Venezuelan~~2.15 ~~subsidiary~~Bolivars ~~and~~per ~~concluded~~U.S. ~~that~~dollar ~~based~~to on4.30 ~~the~~Bolivars ~~continued~~per ~~slow-down~~U.S. ofdollar (‘‘the ~~Venezuelan~~official ~~economy~~rate’’) and ~~resultant~~the ~~constraints~~Venezuelan ~~presently~~economy ~~impacting~~has ~~the~~since ~~banking~~been ~~environment~~designated ~~and~~as ~~associated~~hyperinflationary. ~~limitations~~We ~~therein,~~have ~~that~~historically utilized the ~~SITME~~official rate offor ~~5.30~~our ~~Bolivars~~Venezuelan ~~per U~~operations.S. ~~dollar~~Beginning ~~was~~February 1, a2010, ~~more~~we ~~appropriate~~utilized ~~remeasurement~~the ~~rate~~U.S. ~~The~~dollar ~~result~~as ofthe ~~this~~functional ~~change~~currency infor ~~remeasurement~~our ~~rate~~Venezuelan ~~did~~subsidiary ~~not~~and ~~have~~remeasured aits ~~material impact to our~~ financial statements into U.S. ~~During~~dollars at the ~~three~~official ~~months~~rate. ~~ended May 5~~Accordingly, ~~2012~~using ~~and~~‘‘hyperinflationary ~~April 30~~accounting,’’ ~~2011,~~we recognized the ~~SITME~~related ~~rate~~losses ~~and~~or ~~official~~gains ~~rate~~from ~~did~~such ~~not~~remeasurement ~~fluctuate~~of ~~significantly.~~its Asbalance asheet ~~result,~~in the ~~effect~~consolidated statements of ~~remeasuring~~its ~~our Venezuelan subsidiary was insignificant~~operations.

At January 31, 2011, we evaluated the rate at which we remeasure our Venezuelan subsidiary and concluded that based on the continued slow-down of the Venezuelan economy and resultant constraints presently impacting the banking environment and associated limitations therein, that the SITME rate of 5.30 Bolivars per U.S. dollar was a more appropriate remeasurement rate. The result of this change in remeasurement rate did not have a material impact to our financial statements. During the six months ended August 4, 2012 and July 30, 2011, the SITME rate and official rate did not fluctuate significantly. As a result, the effect of remeasuring our Venezuelan subsidiary was insignificant.

Interest Rate Risk

We use variable-rate debt under our revolving credit facility to finance certain of our operations and capital expenditures. Assuming the entire $~~250~~325.0 million revolving credit facility was drawn, each quarter point change in interest rates would result in a $0.68 million change in annual interest expense.

Effects of inflation

We do not believe that inflation has had a material adverse effect on our financial condition or results of operations in recent years. However, to the extent that the cost of components and other supplies that we purchase rise and we are unable to pass those price increases on to our customers, our financial condition and results of operations would be adversely affected. In instances in which we enter into contracts, such as for the manufacture of certain equipment that requires lead time between the placing of the order and delivery, the majority of those contracts are at a fixed price. Any increase in component and other supply costs over the term of these contracts would reduce our profit margin on those products.

Item 4. Controls and Procedures

Effectiveness of Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that information we are required to disclose in reports that we file with or submit to the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC. An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports we file with the SEC is recorded, processed, summarized and reported within the time periods required by the SEC, and is accumulated and communicated to management including our CEO and CFO, as appropriate, to allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

Management, including our CEO and CFO, evaluated the changes in our internal control over financial reporting during the quarter ended ~~May~~August 54, 2012. We determined that there were no changes in our internal control over financial reporting during the quarter ended ~~May~~August 54, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

30We are also a defendant in a number of lawsuits relating to matters normally incident to our business. No individual case, or group of cases presenting substantially similar issues of law or fact, is expected to have a material effect on the manner in which we conduct our business or on our consolidated results of operations, financial position or liquidity. We maintain certain insurance policies that provide coverage for product liability and personal injury cases. These insurance policies are subject to a self-insured retention for which we are responsible, which is generally $0.5 million for newer cases and $1.0 million for cases initiated before Fiscal 2009. We have established reserves that we believe to be adequate based on current evaluations and our experience in these types of claim situations. Nevertheless, an unexpected outcome or adverse development in any such case could have a material adverse impact on our consolidated results of operations in the period in which it occurs.

Table of Contents

We are also a defendant in a number of lawsuits relating to matters normally incident to our business. No individual case, or group of cases presenting substantially similar issues of law or fact, is expected to have a material effect on the manner in which we conduct our business or on our consolidated results of operations, financial position or liquidity. We maintain certain insurance policies that provide coverage for product liability and personal injury cases. These insurance policies are subject to a self-insured retention for which we are responsible, which is generally $500,000 for newer cases and $1.0 million for cases initiated before Fiscal 2009. We have established reserves that we believe to be adequate based on current evaluations and our experience in these types of claim situations. Nevertheless, an unexpected outcome or adverse development in any such case could have a material adverse impact on our consolidated results of operations in the period in which it occurs.

Item 1A. Risk Factors

For a discussion of potential risks and uncertainties relating to our business and an investment in our senior notes, see the factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2012, which is accessible on the Securities and Exchange Commission’s website at www.sec.gov. There have been no material changes to the risk factors disclosed in the Fiscal 2011 Form 10-K.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

31.1	Rule 13a-14(a)/15d-14(a) certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10.1	Third Supplemental Indenture, dated as of March 26, 2012, among Stewart & Stevenson LLC, Stewart Stevenson Acquisition LLC and Wells Fargo Bank National Association, to Indenture dated as of July 6, 2006.
31.2	Rule 13a-14(a)/15d-14(a) certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10.2	First Amendment to Third Amended and Restated Credit Agreement and First Amendment to US Security Agreement, dated as of March 14, 2012, by and among Stewart & Stevenson LLC, Stewart & Stevenson Distributor Holdings LLC, Stewart & Stevenson Power Products LLC, Stewart & Stevenson Petroleum Services LLC, Stewart & Stevenson Funding Corp., Stewart & Stevenson Material Handling LLC, Stewart & Stevenson Manufacturing Technologies LLC, EMDSI-Hunt Power, LLC, as US Borrowers, Stewart & Stevenson Canada Inc. as a Canadian Borrower, the lenders party thereto, JPMorgan Chase Bank, N.A. as Administrative Agent and as U.S. Collateral Agent, JPMorgan Chase Bank, N.A. Toronto Branch as Canadian Administrative Agent and as Canadian Collateral Agent and JPMorgan Chase Bank, N.A., as Export-Related Lender.
32.1	Section 1350 certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Section 1350 certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101	The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended May 5, 2012, formatted in Extensible Business Reporting Language (XBRL), include: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) related notes.

*XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise is not subject to liability under these sections.36

Table of Contents

10.3	Second Amendment to Third Amended and Restated Credit Agreement, dated as of June 29, 2012, by and among Stewart & Stevenson LLC, Stewart & Stevenson Distributor Holdings LLC, Stewart & Stevenson Power Products LLC, Stewart & Stevenson Petroleum Services LLC, Stewart & Stevenson Funding Corp., Stewart & Stevenson Material Handling LLC, Stewart & Stevenson Manufacturing Technologies LLC, EMDSI-Hunt Power, LLC, as US Borrowers, Stewart & Stevenson Canada Inc. as a Canadian Borrower, the lenders party thereto, JPMorgan Chase Bank, N.A. as Administrative Agent and as U.S. Collateral Agent, JPMorgan Chase Bank, N.A. Toronto Branch as Canadian Administrative Agent and as Canadian Collateral Agent and JPMorgan Chase Bank, N.A., as Export-Related Lender.

31.1	Rule 13a-14(a)/15d-14(a) certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Rule 13a-14(a)/15d-14(a) certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Section 1350 certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Section 1350 certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*101	The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended August 4, 2012, formatted in Extensible Business Reporting Language (XBRL), include: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows and (v) related notes.

SIGNATURES

The Company has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereto duly authorized.

		STEWART & STEVENSON LLC

	By:	/S/ STEVE FULGHAM
		Steve Fulgham
		Chief Executive Officer


	By:	/S/ JOHN B. SIMMONS
		John B. Simmons
		Chief Financial Officer

~~June~~September 1514, 2012

3237

Filing Compare · Stewart & Stevenson LLC