United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~April~~July 30, 2011

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 organization)		(I.R.S. Employer Identification Number)

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 x R * 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 R No o

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 x R Smaller reporting company o ~~(Do not check if a smaller reporting company)~~

~~Indicate~~(Do bynot check ~~mark~~if ~~whether the registrant is~~ a ~~shell~~smaller ~~company~~reporting ~~(as defined in Exchange Act Rule 12b-2~~company)~~Yes o No x~~

~~There~~Indicate isby nocheck ~~market~~mark ~~for~~whether the registrant’s ~~equity. As~~is ofa ~~May 31,~~shell ~~2011,~~company ~~there~~(as ~~were~~defined ~~56,025,210~~in ~~common~~Exchange ~~units~~Act ~~outstanding.~~Rule 12b-2)Yes o No R

There is no market for the registrant’s equity. As of September 4, 2011, 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

			Page
Part I.	Financial Information		Page
Part I.	Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets — As of April 30, 2011 and January 31, 2011	3
		Condensed Consolidated Balance Sheets – As of July 30, 2011 and January 31, 2011	3
		Condensed Consolidated Statements of Operations — Three months ended April 30, 2011 and May 1, 2010	4
		Condensed Consolidated Statements of Operations – Three and six months ended July 30, 2011 and July 31, 2010	4
		Condensed Consolidated Statements of Cash Flows — Three months ended April 30, 2011 and May 1, 2010	5
		Condensed Consolidated Statements of Cash Flows – Six months ended July 30, 2011 and July 31, 2010	5
		Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1920
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2630
	Item 4.	Controls and Procedures	2731
Part II.	Other Information
	Item 1.	Legal Proceedings	2731
	Item 1A.	Risk Factors	2832
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2832
	Item 3.	Defaults Upon Senior Securities	2832
	Item 4.	[Removed and Reserved]	2832
	Item 5.	Other Information	2832
	Item 6.	Exhibits	2832

Table of Contents

PART I. Financial Information

Item 1. Financial Statements

Stewart & Stevenson LLC and Subsidiaries

Condensed Consolidated Balance Sheets

	As of	~~As of~~
(Dollars in thousands)		April 30, 2011		January 31, 2011
	July 30, 2011			January 31, 2011
		(Unaudited)
(Dollars in thousands)	(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	149,~~166~~571	$	~~9,168~~$	9,168
Restricted cash		5,000		~~5,000~~	5,000
Accounts receivable, net		~~107~~108,~~881~~978		~~85,236~~	85,236
Recoverable costs and accrued profits not yet billed		3748,~~789~~088		~~78,934~~	78,934
Inventories, net		~~327~~362,~~559~~050		~~285,909~~	285,909
Other current assets		7,~~734~~790		~~7,186~~	7,186
Total current assets		~~500~~541,~~129~~477		~~471,433~~	471,433
Property, plant and equipment, net		8096,~~864~~847		~~75,077~~	75,077
Goodwill and intangibles, net		22,~~311~~119		~~16,064~~	16,064
Deferred financing costs and other assets		4,~~637~~254		~~5,029~~	5,029
Total assets		$	~~607~~664,~~941~~697	$	~~567,603~~$	567,603
Liabilities and shareholders’ equity
Current liabilities:
Bank notes payable		$	67,~~021~~147	$	~~7,401~~$	7,401
Current portion of long-term debt		2532,~~115~~616		40	40
Accounts payable		91122,~~217~~366		~~81,198~~	81,198
Accrued payrolls and incentives		1617,~~688~~565		~~15,913~~	15,913
Billings in excess of incurred costs		~~6,992~~65		~~4,285~~	4,285
Customer deposits		98,~~726~~943		~~80,346~~	80,346
Other current liabilities		4956,~~717~~155		~~43,979~~	43,979
Total current liabilities		~~294~~334,~~476~~857		~~233,162~~	233,162
Long-term debt, net of current portion		150,000		~~185,181~~	185,181
Other long-term liabilities		~~223~~172		~~226~~	226
Total liabilities		~~444~~485,~~699~~029		~~418,569~~	418,569
Commitments and contingencies
Shareholders’ equity:
Common units, 56,025,210 units issued and outstanding		74,113		74,113
Common units, 56,179,272 and 56,025,210 issued and outstanding as of July 30, 2011 and January 31, 2011, respectively		75,922			74,113
Accumulated other comprehensive income		6,~~516~~359		~~5,092~~	5,092
Retained earnings		8297,~~613~~387		~~69,829~~	69,829
Total shareholders’ equity		~~163~~179,~~242~~668		~~149,034~~	149,034
Total liabilities and shareholders’ equity		$	~~607~~664,~~941~~697	$	~~567,603~~$	567,603

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 Three Months Ended~~					For the Six Months Ended
(Dollars and units in thousands)		April 30, 2011		May 1, 2010
	July 30, 2011			July 31, 2010			July 30, 2011			July 31, 2010
Sales		$	271,367	$	161,936
(Dollars and units in thousands)
Cost of sales		220,829		136,257
Sales		$	313,445		$	206,132		$	584,812		$	368,068
Gross profit		50,538		25,679
Cost of sales		253,600			169,087			474,429			305,344
Selling and administrative expenses		31,327		24,875
Gross profit		59,845			37,045			110,383			62,724
Other expense, net		400		46
Selling and administrative expenses		36,456			24,605			67,783			49,480
Operating profit		18,811		758
Other (income) expense, net		(123)			(381)			277			(335)
Interest expense, net		4,854		4,973
Operating profit		23,512			12,821			42,323			13,579
Earings (loss) before income taxes		13,957		(4,215		)
Interest expense, net		4,846			4,911			9,700			9,884
Income tax expense		110		484
Earnings before income taxes		18,666			7,910			32,623			3,695
Net earnings (loss)		$	13,847	$	(4,699	)
Income tax expense		708			517			818			1,001
Weighted average units outstanding:
Net earnings		$	17,958		$	7,393		$	31,805		$	2,694
Basic		56,025		56,025
Weighted average units outstanding:
Diluted		56,025		56,025
Basic		56,128			56,025			56,077			56,025
Net earnings (loss) per common unit
Diluted		56,128			56,025			56,077			56,025
Basic		$	0.25	$	(0.08	)
Net earnings per common unit
Diluted		$	0.25	$	(0.08	)
Basic		$	0.32		$	0.13		$	0.57		$	0.05
Diluted		$	0.32		$	0.13		$	0.57		$	0.05

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
(Dollars in thousands)	~~April~~July 30, 2011			~~May 1, 2010~~		July 31, 2010
Operating activities
Net earnings (loss)	$	13,847		$	(4,699	)
Net earnings	$	31,805				$	2,694
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Adjustments to reconcile net earnings to net cash provided by operating activities:
Amortization of deferred financing costs	~~409~~819			~~441~~		850
Depreciation and amortization	48,~~121~~832			~~4,179~~		8,322
Non-cash foreign exchange gains	(5		)	—
Share-based compensation expense	1,809					-
Change in operating assets and liabilities net of the effect of acquisitions:
Non-cash foreign exchange (gains) losses	(131		)			110
Accounts receivable, net	(16,753		)	9,647
Change in operating assets and liabilities net of the effect of acquisitions:
Recoverable costs and accrued profits not yet billed	41,215			1,524
Accounts receivable, net	(17,820		)			11,516
Inventories, net	(29,108		)	(28,563		)
Recoverable costs and accrued profits not yet billed	30,908					(8,670		)
Accounts payable	7,370			11,159
Inventories, net	(63,291		)			(27,064		)
Accrued payrolls and incentives	248			(782		)
Accounts payable	38,522					13,814
Billings in excess of incurred costs	2,580			380
Accrued payrolls and incentives	1,144					398
Customer deposits	18,024			14,656
Billings in excess of incurred costs	(4,328		)			4,538
Other current assets and liabilities	2,334			(3,164		)
Customer deposits	18,195					27,396
Other, net	1,401			(349		)
Other current assets and liabilities	8,488					3,102
Net cash provided by operating activities	45,683			4,429
Other, net	1,171					(406		)
Investing activities
Net cash provided by operating activities	56,123					36,600
Capital expenditures	(1,308		)	(407		)
Investing activities
Additions to rental equipment	(3,058		)	(3,585		)
Capital expenditures	(4,427		)			(1,568		)
Acquisitions, net of cash acquired	(23,402		)	—
Additions to rental equipment	(20,401		)			(8,130		)
Proceeds from the sale of property, plant and equipment, net	—			18
Acquisitions, net of cash acquired	(23,500		)			-
Net cash used in investing activities	(27,768		)	(3,974		)
Proceeds from the sale of property, plant and equipment, net	-					18
Financing activities
Net cash used in investing activities	(48,328		)			(9,680		)
Change in short-term notes payable	(1,824		)	885
Financing activities
Changes in revolving loans	(10,116		)	180
Change in short-term notes payable	(748		)			2,049
Distributions to shareholders for tax obligations	(1,063		)	(241		)
Change in revolving loans	(2,614		)			(17,825		)
Net cash (used in) provided by financing activities	(13,003		)	824
Distributions to shareholders for tax obligations	(4,247		)			(253		)
Effect of exchange rate on cash	86			19
Net cash used in financing activities	(7,609		)			(16,029		)
Increase in cash and cash equivalents	4,998			1,298
Effect of exchange rate on cash	217					(30		)
Cash and cash equivalents, beginning of fiscal period	9,168			3,321
Increase in cash and cash equivalents	403					10,861
Cash and cash equivalents, end of fiscal period	$	14,166		$	4,619
Cash and cash equivalents, beginning of fiscal period	9,168					3,321
Cash paid for:
Cash and cash equivalents, end of fiscal period	$	9,571				$	14,182
Interest	$	578		$	826
Cash paid for:
Income taxes	$	275		$	162
Interest	$	8,620				$	9,097
Income taxes	$	1,814				$	1,555

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.

We are a leading designer, manufacturer and provider of specialized equipment and aftermarket parts and service for the oil and gas 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~~ and 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.

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 ~~April~~July 30, 2011 are not necessarily indicative of the results that will be realized for the fiscal year ending January 31, 2012. 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, 2011.

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 ~~revenue~~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 2011” began on February 1, 2011 and will end on January 31, 2012. We report results on the fiscal quarter method with each quarter comprising approximately 13 weeks. The ~~first~~second quarter of Fiscal 2011 began on ~~February~~May 1, 2011 and ended on ~~April~~July 30, 2011.

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.

Reclassifications: Certain reclassifications have been made in the prior year consolidated financial statements to conform to the current period presentation. ~~Our~~In our prior reports filed with the SEC through the third quarter of Fiscal 2010, we presented four segments: equipment, aftermarket parts and service, rental and corporate. In our Fiscal 2010 Annual Report on Form 10-K, we revised our segments to the following three segments: manufacturing, distribution and corporate and shared services. Information relating to the ~~first~~three ~~quarter~~and ofsix ~~Fiscal~~months ended July 31, 2010 included in the unaudited condensed consolidated financial statements herein and elsewhere in this Quarterly Report ~~have~~has been recast to reflect our new segment presentation. See “Note 4— Segment Data.”

~~New~~Reverse ~~Accounting~~Stock ~~Pronouncement~~Split: On ~~February~~As of May 131, 2011, we ~~adopted~~effected ana ~~update~~reverse tocommon ~~existing~~unit ~~guidance~~split onin ~~revenue~~the ~~recognition~~ratio ~~for~~of ~~arrangements with multiple deliverables~~1:1.785. ~~This~~All ~~update~~common ~~allows~~units ~~companies to allocate consideration for qualified separate deliverables using estimated selling price for both delivered~~ and ~~undelivered~~per ~~items~~common ~~when~~unit ~~vendor-specific~~calculations ~~objective~~have ~~evidence~~been orrecast ~~third-party~~to ~~evidence~~include ~~is unavailable. Additional disclosures are required that discuss~~ the ~~nature~~impact of multiple element arrangements, the types of deliverables under the arrangements, the general timing of their delivery, and significant factors and estimates used to determine estimated selling prices are required. The adoption of this ~~update~~reverse ~~did~~common ~~not~~unit ~~have a material impact on our consolidated financial statements~~split.

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Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements —– ~~Continued~~continued

(Unaudited)

New Accounting Pronouncement: On February 1, 2011, we adopted an update to existing guidance on revenue recognition for arrangements with multiple deliverables. This update allows companies to allocate consideration for qualified separate deliverables using estimated selling price for both delivered and undelivered items when vendor-specific objective evidence or third-party evidence is unavailable. Additional disclosures are required that discuss the nature of multiple element arrangements, the types of deliverables under the arrangements, the general timing of their delivery, and significant factors and estimates used to determine estimated selling prices. The adoption of this update did not have a material impact on our consolidated financial statements.

Note 3. Comprehensive Income

Total comprehensive income ~~(loss)~~ was as follows:

	For the Three Months Ended							For the Six Months Ended
(Dollars in thousands)	April 30, 2011			May 1, 2010
	July 30, 2011				July 31, 2010			July 30, 2011		July 31, 2010
Net earnings (loss)	$	13,847		$	(4,699	)
(Dollars in thousands)
Currency translation gain	1,424			2,439
Net earnings	$	17,958			$	7,393		$	31,805	$	2,694
Comprehensive income (loss)	$	15,271		$	(2,260	)
Currency translation (loss) gain	(157		)		(27		)	1,267		2,412
Comprehensive income	$	17,801			$	7,366		$	33,072	$	5,106

Translation adjustments resulting from changes in exchange rates are reported in other comprehensive income. As of ~~April~~July 30, 2011 and ~~May~~July 131, 2010, the entire accumulated other comprehensive income ~~(loss)~~ balance consisted of currency translation adjustments. Foreign currency transaction exchange (gains) losses are recorded in other (income) expense, net in the consolidated statements of operations and were ($0.41) million and ($0.1)3 million during the ~~periods~~three and six months ended ~~April~~July 30, 2011, respectively and ~~May~~ less than $0.1 million and $0.1 million during the three and six months ended July 31, 2010, respectively.

Note 4. 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 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

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.

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:

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements —– ~~Continued~~continued

(Unaudited)

	For the Three Months Ended
(Dollars in thousands)	April 30, 2011			May 1, 2010
Sales
Manufacturing	$	112,495		$	58,298
Distribution	158,872			103,638
Total sales	$	271,367		$	161,936
Operating profit (loss)
Manufacturing	$	19,756		$	5,488
Distribution	10,259			3,579
Corporate and shared services	(11,204		)	(8,309		)
Total operating profit	$	18,811		$	758
Operating profit percentage
Manufacturing	17.6		%	9.4		%
Distribution	6.5		%	3.5		%
Consolidated	6.9		%	0.5		%

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
	July 30, 2011		July 31, 2010		July 30, 2011		July 31, 2010
(Dollars in thousands)
Sales
Manufacturing segment
Equipment	$	132,472	$	78,592	$	238,480	$	132,153
Parts and service		4,261		4,668		10,748		9,405
Total manufacturing sales	$	136,733	$	83,260	$	249,228	$	141,558

Distribution segment
Equipment	$	80,257	$	49,097	$	152,196	$	85,158
Parts and service		87,994		68,226		168,733		131,270
Rentals		8,461		5,549		14,655		10,082
Total distribution sales	$	176,712	$	122,872	$	335,584	$	226,510

Total sales	$	313,445	$	206,132	$	584,812	$	368,068

Operating profit (loss)
Manufacturing	$	25,315	$	11,058	$	45,071	$	16,546
Distribution		13,540		10,471		23,799		14,050
Corporate and shared services		(15,343)		(8,708)		(26,547)		(17,017)
Total operating profit	$	23,512	$	12,821	$	42,323	$	13,579

Operating profit percentage
Manufacturing		18.5%		13.3%		18.1%		11.7%
Distribution		7.7%		8.5%		7.1%		6.2%
Consolidated		7.5%		6.2%		7.2%		3.7%

Note 5. Long-Term Debt

	As of
(Dollars in thousands)	April 30, 2011			January 31, 2011
	July 30, 2011				January 31, 2011
Other debt	$	6,055		$	7,441
(Dollars in thousands)
Revolving credit facility	25,081			35,181
Other debt	$	7,165			$	7,441
Unsecured senior notes	150,000			150,000
Revolving credit facility	32,598				35,181
Total	181,136			192,622
Unsecured senior notes	150,000				150,000
Less: current portion of debt	(31,136		)	(7,441		)
Total	189,763				192,622
Long-term debt, net of current portion	$	150,000		$	185,181
Less: current portion of debt	(39,763		)		(7,441		)
Long-term debt, net of current portion	$	150,000			$	185,181

Other debt: Other debt includes certain secured loans ~~within~~relating to our South American operations, a floor plan financing agreement and certain equipment loans. The restricted cash on our balance sheet relates to collateral securing a portion of this debt.

Revolving Credit Facility: The revolving credit facility is a $250.0 million asset-based facility, which matures in February 2012, and is secured by substantially all accounts receivable, inventory and property, plant and equipment and provides for borrowings at LIBOR plus a margin ranging from 1.25% to 2.00% per annum, based on our leverage ratios, as specified in the credit agreement. The revolving credit facility has a $25.0 million sub-facility to be used by our Canadian subsidiary. As of ~~April~~July 30, 2011, borrowings under the facility bear interest at a weighted average interest rate of LIBOR plus 1.5%, or 12.7329%. A commitment fee of 0.30% to 0.375% per annum, based on our leverage ratios, is payable on all unused portions of the revolving credit facility. Interest payments are due monthly, or as LIBOR contracts expire. The revolving credit facility also has a $30.0 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 ~~April~~July 30, 2011, there were $1924.02 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 $~~158~~169.01 million at ~~April~~July 30, 2011.

Our revolving credit facility matures in February 2012 and, therefore, ~~the~~is ~~outstanding borrowings have been~~ reclassified toas current portion of long-term debt in our consolidated balance sheet as of ~~April~~July 30, 2011. We are in the process of negotiating a long-term extension of our revolving credit facility and, while we expect to be able to complete this extension, there is no assurance that we will be able to do so, or, if we are able to extend our revolving credit facility, whether it will be on substantially similar terms and conditions as are currently in effect.

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

Table of Contents

Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements —– ~~Continued~~continued

(Unaudited)

~~Unsecured~~The ~~Senior~~revolving ~~Notes:~~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 July 30, 2011. 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 $~~150~~30.0 million ofor ~~unsecured~~less. The financial covenant for the senior notes ~~bear~~indenture ~~interest~~requires atthat, ~~10%~~were ~~per~~we ~~annum~~to ~~and~~incur ~~mature~~additional indebtedness (subject to various exceptions set forth in ~~July 2014~~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.

~~The~~We ~~revolving~~incurred ~~credit facility~~ and ~~the~~capitalized ~~senior~~legal ~~notes contain financial~~ and ~~operating~~financing ~~covenants~~costs associated with ~~which~~establishing wethe ~~must~~revolving ~~comply~~credit ~~during~~facility and the ~~terms~~issuance of the ~~agreements~~unsecured senior notes. These ~~covenants~~deferred ~~include~~financing ~~the~~costs ~~maintenance~~are ofbeing ~~certain~~amortized ~~financial~~over ~~ratios, restrictions related to~~ the ~~incurrence~~terms of ~~certain~~the ~~indebtedness~~credit ~~and~~facility ~~investments,~~ and ~~prohibition~~senior ofnotes ~~the creation~~ of ~~certain~~five ~~liens. We~~years ~~were~~and ineight ~~compliance~~years, ~~with~~respectively, ~~all covenants~~ as ~~of April 30, 2011. The financial covenant for the revolving credit facility requires that we maintain~~ a ~~fixed~~component ~~charge~~of ~~coverage~~interest ~~ratio~~expense, asnet ~~defined~~ in the ~~agreement,~~consolidated statements of ~~at least 1~~operations.1 As toof ~~1.0;~~July 30, ~~however~~2011, ~~this covenant does not take effect until our available borrowing capacity is~~ $303.01 million orof ~~less. The~~unamortized ~~financial~~deferred ~~covenant~~financing ~~for~~costs ~~the senior notes indenture requires that,~~ were weincluded ~~to incur additional indebtedness (subject to various exceptions set forth~~ in the ~~indenture),~~balance ~~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~~sheet.~~5 to 1.0.~~

WeThe ~~incurred~~estimated ~~and~~fair ~~capitalized~~value ~~legal and financing costs associated with establishing the revolving credit facility and the issuance~~ of ~~the~~our ~~unsecured~~ senior notes~~. These~~ ~~deferred~~is ~~financing~~based ~~costs~~on ~~are~~unadjusted ~~being~~quoted ~~amortized~~market ~~over~~prices ~~the~~from ~~terms~~an ofactive ~~the~~market ~~credit~~(Level ~~facility~~1 ~~and~~inputs). ~~senior~~At ~~notes of five years and eight years~~July 30, ~~respectively~~2011, asour asenior ~~component~~notes ofwith ~~interest~~a ~~expense,~~carrying ~~net~~value ~~in the consolidated statements~~ of ~~operations. As of April 30, 2011,~~ $3150.50 million ofhad ~~unamortized~~a ~~deferred~~fair ~~financing~~value ~~costs~~of ~~were~~$153.0 ~~included in the balance sheet~~million.

Guarantor entities: The ~~estimated~~senior ~~fair~~notes ~~value~~were ofco-issued ~~our~~by ~~senior~~Stewart & ~~notes~~Stevenson isLLC ~~based~~and onStewart & ~~unadjusted~~Stevenson ~~quoted~~Funding ~~market~~Corp. ~~prices~~and ~~from~~are anguaranteed ~~active~~by ~~market~~all ~~(Level~~of 1our ~~inputs).~~subsidiaries Atexcept ~~April 30,~~one ~~2011~~domestic subsidiary, ~~our~~one ~~senior~~subsidiary ~~notes~~in ~~with~~Canada aand ~~carrying~~two ~~value~~subsidiaries ofin ~~$150~~South America.0 Stewart & ~~million~~Stevenson ~~had~~LLC aand ~~fair~~all ~~value~~ of its subsidiaries except one domestic subsidiary, one subsidiary in Canada and two subsidiaries in South America are co-borrowers on the $~~153~~250.70 million revolving credit facility.

Guarantor entities: The senior notes were co-issued by Stewart & Stevenson LLC and Stewart & Stevenson Funding Corp. and are guaranteed by all of our subsidiaries except one domestic subsidiary, one subsidiary in Canada and two subsidiaries in South America. Stewart & Stevenson LLC and all of its subsidiaries except one domestic subsidiary and two subsidiaries in South America are co-borrowers on the $250.0 million revolving credit facility.

The following condensed consolidated financial statements present separately the financial position, results of operations and cash flows of the co-issuers/guarantors (“Guarantor Entities”) and all non-guarantor subsidiaries of the Company (“Non-Guarantor Entities”) based on the equity method of accounting.

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Notes to Condensed Consolidated Financial Statements —– ~~Continued~~continued

(Unaudited)

Condensed Consolidating Balance Sheets

	As of April 30, 2011
	As of July 30, 2011
	(Unaudited)
(Dollars in thousands)	Guarantor Entities			Non-Guarantor Entities			Eliminations			Consolidated Totals
	Guarantor Entities				Non-Guarantor Entities				Eliminations			Consolidated Totals
Current assets	$	427,635		$	72,494		$	—		$	500,129
(Dollars in thousands)
Property, plant and equipment, net	73,206			7,658			—			80,864
Current assets	$	478,001			$	63,476			$	-		$	541,477
Other assets	2,492			11,303			13,153			26,948
Property, plant and equipment, net	94,385				2,462				-			96,847
Total assets	$	503,333		$	91,455		$	13,153		$	607,941
Other assets	12,173				4,688				9,512			26,373
Current liabilities	$	261,728		$	32,748		$	—		$	294,476
Total assets	$	584,559			$	70,626			$	9,512		$	664,697
Intercompany payables (receivables)	(71,773		)	71,773			—			—
Current liabilities	$	298,859			$	35,998			$	-		$	334,857
Long-term liabilities	150,136			87			—			150,223
Intercompany (receivables) payables	(44,103		)		44,103				-			-
Shareholders’ equity	163,242			(13,153		)	13,153			163,242
Long-term liabilities	150,135				37				-			150,172
Total liabilities and shareholders’ equity	$	503,333		$	91,455		$	13,153		$	607,941
Shareholders’ equity (deficit)	179,668				(9,512		)		9,512			179,668
Total liabilities and shareholders’ equity	$	584,559			$	70,626			$	9,512		$	664,697
	As of January 31, 2011
	Guarantor Entities				Non-Guarantor Entities				Eliminations			Consolidated Totals
Current assets	$	414,311			$	57,122			$	-		$	471,433
Property, plant and equipment, net	72,246				2,831				-			75,077
Other assets	881				4,827				15,385			21,093
Total assets	$	487,438			$	64,780			$	15,385		$	567,603
Current liabilities	$	200,693			$	32,469			$	-		$	233,162
Intercompany (receivables) payables	(47,606		)		47,606				-			-
Long-term liabilities	185,317				90				-			185,407
Shareholders’ equity (deficit)	149,034				(15,385		)		15,385			149,034
Total liabilities and shareholders’ equity	$	487,438			$	64,780			$	15,385		$	567,603

	As of January 31, 2011
	Guarantor Entities			Non-Guarantor Entities			Eliminations		Consolidated Totals
Current assets	$	414,311		$	57,122		$	—	$	471,433
Property, plant and equipment, net	72,246			2,831			—		75,077
Other assets	881			4,827			15,385		21,093
Total assets	$	487,438		$	64,780		$	15,385	$	567,603
Current liabilities	$	200,693		$	32,469		$	—	$	233,162
Intercompany payables (receivables)	(47,606		)	47,606			—		—
Long-term liabilities	185,317			90			—		185,407
Shareholders’ equity	149,034			(15,385		)	15,385		149,034
Total liabilities and shareholders’ equity	$	487,438		$	64,780		$	15,385	$	567,603

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Notes to Condensed Consolidated Financial Statements —– ~~Continued~~continued

(Unaudited)

Condensed Consolidating Statements of Operations

(Unaudited)

	For the Three Months Ended April 30, 2011
	For the Three Months Ended July 30, 2011
(Dollars in thousands)	Guarantor Entities			Non-Guarantor Entities			Eliminations			Consolidated Totals
	Guarantor Entities				Non-Guarantor Entities				Eliminations			Consolidated Totals
Sales	$	240,171		$	31,196		$	—		$	271,367
(Dollars in thousands)
Cost of sales	195,428			25,401			—			220,829
Sales	$	284,061			$	29,384			$	-		$	313,445
Gross profit	44,743			5,795			—			50,538
Cost of sales	232,521				21,079				-			253,600
Selling and administrative expenses	27,279			4,048			—			31,327
Gross profit	51,540				8,305				-			59,845
Equity in earnings of subsidiaries	(808		)	—			808			—
Selling and administrative expenses	32,953				3,503				-			36,456
Other (income) expense, net	(52		)	452			—			400
Equity in earnings of subsidiaries	(3,798		)		-				3,798			-
Operating profit	18,324			1,295			(808		)	18,811
Other (income) expense, net	(173		)		50				-			(123		)
Interest expense, net	4,115			739			—			4,854
Operating profit	22,558				4,752				(3,798		)	23,512
Earnings before income taxes	14,209			556			(808		)	13,957
Interest expense, net	4,037				809				-			4,846
Income tax expense (benefit)	362			(252		)	—			110
Earnings before income taxes	18,521				3,943				(3,798		)	18,666
Net earnings	$	13,847		$	808		$	(808	)	$	13,847
Income tax expense	563				145				-			708
Net earnings	$	17,958			$	3,798			$	(3,798	)	$	17,958
	For the Three Months Ended July 31, 2010
	Guarantor Entities				Non-Guarantor Entities				Eliminations			Consolidated Totals
Sales	$	186,658			$	19,474			$	-		$	206,132
Cost of sales	152,108				16,979				-			169,087
Gross profit	34,550				2,495				-			37,045
Selling and administrative expenses	21,403				3,202				-			24,605
Equity in loss of subsidiaries	1,526				-				(1,526		)	-
Other income, net	(250		)		(131		)		-			(381		)
Operating profit (loss)	11,871				(576		)		1,526			12,821
Interest expense, net	4,179				732				-			4,911
Earnings (loss) before income taxes	7,692				(1,308		)		1,526			7,910
Income tax expense	299				218				-			517
Net earnings (loss)	$	7,393			$	(1,526	)		$	1,526		$	7,393

	For the Three Months Ended May 1, 2010
	Guarantor Entities			Non-Guarantor Entities			Eliminations			Consolidated Totals
Sales	$	144,061		$	17,875		$	—		$	161,936
Cost of sales	120,684			15,573			—			136,257
Gross profit	23,377			2,302			—			25,679
Selling and administrative expenses	21,809			3,066			—			24,875
Equity in loss of subsidiaries	2,097			—			(2,097		)	—
Other (income) expense, net	(381		)	427			—			46
Operating (loss) profit	(148		)	(1,191		)	2,097			758
Interest expense, net	4,254			719			—			4,973
Loss before income taxes	(4,402		)	(1,910		)	2,097			(4,215		)
Income tax expense	297			187			—			484
Net loss	$	(4,699	)	$	(2,097	)	$	2,097		$	(4,699	)

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Notes to Condensed Consolidated Financial Statements —– ~~Continued~~continued

(Unaudited)

Condensed Consolidating Statements of Operations

(Unaudited)

	For the Six Months Ended July 30, 2011
		Guarantor Entities			Non-Guarantor Entities			Eliminations			Consolidated Totals

(Dollars in thousands)
Sales		$	524,232		$	60,580		$	-		$	584,812
Cost of sales		427,949			46,480			-			474,429
Gross profit		96,283			14,100			-			110,383

Selling and administrative expenses		60,232			7,551			-			67,783
Equity in earnings of subsidiaries		(4,606		)	-			4,606			-
Other (income) expense, net		(225		)	502			-			277
Operating profit		40,882			6,047			(4,606		)	42,323

Interest expense, net		8,152			1,548			-			9,700
Earnings before income taxes		32,730			4,499			(4,606		)	32,623
Income tax expense (benefit)		925			(107		)	-			818
Net earnings		$	31,805		$	4,606		$	(4,606	)	$	31,805

	For the Six Months Ended July 31, 2010
		Guarantor Entities			Non-Guarantor Entities			Eliminations			Consolidated Totals
Sales		$	330,719		$	37,349		$	-		$	368,068
Cost of sales		272,792			32,552			-			305,344
Gross profit		57,927			4,797			-			62,724

Selling and administrative expenses		43,212			6,268			-			49,480
Equity in loss of subsidiaries		3,624			-			(3,624		)	-
Other (income) expense, net		(631		)	296			-			(335		)
Operating profit (loss)		11,722			(1,767		)	3,624			13,579

Interest expense, net		8,432			1,452			-			9,884
Earnings (loss) before income taxes		3,290			(3,219		)	3,624			3,695
Income tax expense		596			405			-			1,001
Net earnings (loss)		$	2,694		$	(3,624	)	$	3,624		$	2,694

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Notes to Condensed Consolidated Financial Statements – continued

(Unaudited)

Condensed Consolidating Statements of Cash Flows

(Unaudited)

	For the Three Months Ended April 30, 2011
	For the Six Months Ended July 30, 2011
(Dollars in thousands)	Guarantor Entities			Non-Guarantor Entities			Eliminations			Consolidated Totals
		Guarantor Entities					Non-Guarantor Entities					Eliminations			Consolidated Totals
Net cash provided by (used in):
(Dollars in thousands)
Operating activities
Net cash provided by (used in):
Net earnings	$	13,847		$	808		(808		)	$	13,847
Operating activities
Equity in earnings of subsidiaries	(808		)	—			808			—
Net earnings		$	31,805				$	4,606				$	(4,606	)	$	31,805
Other adjustments	32,189			(353		)	—			31,836
Equity in earnings of subsidiaries		(4,606		)			-					4,606			-
Operating activities	45,228			455			—			45,683
Other adjustments		24,484					(166		)			-			24,318
Investing activities	(27,740		)	(28		)	—			(27,768		)
Operating activities		51,683					4,440					-			56,123
Financing activities	(11,243		)	(1,760		)	—			(13,003		)
Investing activities		(48,214		)			(114		)			-			(48,328		)
Effect of exchange rate on cash	—			86			—			86
Financing activities		(4,448		)			(3,161		)			-			(7,609		)
Net increase (decrease) in cash	6,245			(1,247		)	—			4,998
Effect of exchange rate on cash		-					217					-			217
Cash at the beginning of the period	2,273			6,895			—			9,168
Net (decrease) increase in cash		(979		)			1,382					-			403
Cash at the end of the period	$	8,518		$	5,648		$	—		$	14,166
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

	For the Three Months Ended May 1, 2010
	For the Six Months Ended July 31, 2010
	~~Guarantor Entities~~	Guarantor Entities		~~Non-Guarantor Entities~~			~~Eliminations~~Non-Guarantor Entities			~~Consolidated Totals~~		Eliminations			Consolidated Totals
Net cash provided by (used in):
Operating activities
Net loss	$	(4,699	)	$	(2,097	)	2,097			$	(4,699	)
Net earnings (loss)		$	2,694				$	(3,624	)			$	3,624		$	2,694
Equity in loss of subsidiaries	~~2,097~~	3,624		—			~~(2,097~~-		)	—		(3,624		)	-
Other adjustments	~~8,461~~	31,252		~~667~~			—2,654			~~9,128~~		-			33,906
Operating activities	~~5,859~~	37,570		~~(1,430~~		)	—(970		)	~~4,429~~		-			36,600
Investing activities	~~(3,946~~	(9,419	)	~~(28~~)		)	—(261		)	~~(3,974~~		)-			(9,680		)
Financing activities	~~(2,049~~	(17,689	)	~~2,873~~)			—1,660			~~824~~		-			(16,029		)
Effect of exchange rate on cash	—	-		19			—(30		)	19		-			(30		)
Net (decrease) increase in cash	(136		)	1,434			—			1,298
Net increase in cash		10,462					399					-			10,861
Cash at the beginning of the period	~~248~~	248		~~3,073~~			—3,073			~~3,321~~		-			3,321
Cash at the end of the period	$	~~112~~$	10,710	$	~~4,507~~		$	—3,472		$	~~4,619~~	$	-		$	14,182

Note 6. 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
(Dollars in thousands)	~~April 30, 2011~~	July 30, 2011		~~May 1, 2010~~			July 31, 2010				July 30, 2011			July 31, 2010
Allowance for doubtful accounts at beginning of period	$	~~2,707~~$	2,544	$	~~4,919~~		$	5,190			$	2,707		$	4,919
Additions to reserves	220			553
Additions (reductions) to reserves		298					(885		)		518			(332		)
Writeoffs against allowance for doubtful accounts	~~(393~~	(126	)	~~(317~~)		)	(172		)		(519		)	(489		)
Collections of previously reserved items	10	24		35			28				34			63
Allowance for doubtful accounts at end of period	$	~~2,544~~$	2,740	$	~~5,190~~		$	4,161			$	2,740		$	4,161

1213

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Notes to Condensed Consolidated Financial Statements —– ~~Continued~~continued

(Unaudited)

Inventories, net: Summarized below are the components of inventories:

	As of
(Dollars in thousands)	April 30, 2011			January 31, 2011
		July 30, 2011				January 31, 2011
Inventory purchased under distributor agreements	$	121,795		$	107,872
(Dollars in thousands)
Raw materials and spare parts	84,628			79,231
Inventory purchased under distributor agreements		$	130,726			$	107,872
Work in process	121,136			97,501
Raw materials and spare parts		107,256				79,231
Finished goods	—			1,305
Work in process		121,995				97,501
Total inventories, net	$	327,559		$	285,909
Finished goods		2,073				1,305
Total inventories, net		$	362,050			$	285,909

Raw materials and spare parts include OEM equipment and components used in the manufacturing segment. Included in work in process are ~~eight~~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 ~~reserve~~valuation ~~adjustments~~allowances totaling $3234.2 million and $30.4 million as of ~~April~~July 30, 2011 and January 31, 2011, respectively.

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

	As of
(Dollars in thousands)	April 30, 2011			January 31, 2011
		July 30, 2011					January 31, 2011
Machinery and equipment	$	31,852		$	29,852
(Dollars in thousands)
Buildings and leasehold improvements	31,116			27,918
Machinery and equipment		$	33,573				$	29,852
Rental equipment	66,786			67,067
Buildings and leasehold improvements		31,090					27,918
Computer hardware and software	4,830			4,701
Rental equipment		85,175					67,067
Accumulated depreciation	(65,910		)	(62,220		)
Computer hardware and software		4,822					4,701
Net depreciable assets	$	68,674		$	67,318
Accumulated depreciation		(69,234		)			(62,220		)
Construction in progress	4,021			696
Net depreciable assets		$	85,426				$	67,318
Land	8,169			7,063
Construction in progress		3,252					696
Property, plant and equipment, net	$	80,864		$	75,077
Land		8,169					7,063
Property, plant and equipment, net		$	96,847				$	75,077

Depreciation expense was $34.61 million and $37.87 million during the three and six months ended ~~April~~July 30, 2011, respectively, and ~~May~~$3.8 million and $7.6 million during the three and six months ended July 131, 2010, respectively.

13Intangible 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:

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Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements —– ~~Continued~~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 July 30, 2011
	Estimated Useful Life		Gross Carrying Value		EMDSI Acquisition		Accumulated Amortization			Currency Translation		Net
(Dollars in thousands)
Non-current amortizable intangible assets:
Engineering drawings	2.5-10 Years		$	6,346	$	-	$	(5,342	)	$	189	$	1,193
Distribution contracts	27 Years		3,384		2,613		(890		)	-		5,107
Customer relationships	6-11 Years		7,409		2,080		(3,694		)	801		6,596
Non-compete covenant	5 Years		1,420		-		(1,344		)	115		191
Total			$	18,559	$	4,693	$	(11,270	)	$	1,105	$	13,087

Indefinite-lived intangible assets:
Trademarks and tradename	-		6,316		762		-			413		7,491

Total			$	24,875	$	5,455	$	(11,270	)	$	1,518	$	20,578

		As of April 30, 2011
(Dollars in thousands)	Estimated Useful Life	Gross Carrying Value		Acquisition		Accumulated Amortization			Currency Translation		Net
Non-current amortizable intangible assets:
Engineering drawings	2.5-10 Years	$	6,346	$	—	$	(5,276	)	$	189	$	1,259
Distribution contracts	7-27 Years	3,384		1,928		(707		)	—		4,605
Customer relationships	5-11 Years	7,409		3,927		(3,380		)	842		8,798
Patents	4 Years	209		—		(209		)	—		—
Non-compete covenant	5 Years	1,420		—		(1,262		)	118		276
Total		$	18,768	$	5,855	$	(10,834	)	$	1,149	$	14,938
Indefinite-lived intangible assets:
Trademarks and tradename	—	6,316		500		—			422		7,238
Total		$	25,084	$	6,355	$	(10,834	)	$	1,571	$	22,176

We acquired approximately $5.5 million of intangible assets in a recent acquisition which are recorded in goodwill and intangibles, net in our consolidated balance sheet. See “Note 11— EMDSI Acquisition.”

Based upon our preliminary purchase price allocation, we acquired approximately $6.4 million of intangible assets and $0.1 million of goodwill in a recent acquisition. These preliminary amounts are recorded in goodwill and intangibles, net in our consolidated balance sheet. In addition, the preliminary purchase price allocation reflects a $1.2 million construction contract liability in connection with the acquired backlog in this acquisition and this amount is recorded in other current liabilities in our consolidated balance sheet. All these amounts are preliminary and remain subject to change as the determination of fair value for the assets acquired and liabilities assumed remains in process. See “Note 11— EMDSI Acquisition.”

		As of January 31, 2011
	Estimated Useful Life		Gross Carrying Value		Accumulated Amortization			Impairment			Currency Translation		Net
(Dollars in thousands)
Non-current amortizable intangible assets:
Engineering drawings	2.5-10 Years		$	6,346	$	(5,211	)	$	-		$	189	$	1,324
Distribution contracts	27 Years		3,384		(624		)	-			-		2,760
Customer relationships	6-11 Years		7,409		(3,097		)	-			635		4,947
Non-compete covenant	5 Years		1,420		(1,182		)	-			105		343
Total			$	18,559	$	(10,114	)	$	-		$	929	$	9,374

Indefinite-lived intangible assets:
Trademarks	-		9,150		-			(2,834		)	374		6,690

Total			$	27,709	$	(10,114	)	$	(2,834	)	$	1,303	$	16,064

		As of January 31, 2011
(Dollars in thousands)	Estimated Useful Life	Gross Carrying Value		Accumulated Amortization			Impairment			Currency Translation		Net
Non-current amortizable intangible assets:
Engineering drawings	2.5-10 Years	$	6,346	$	(5,211	)	$	—		$	189	$	1,324
Distribution contracts	27 Years	3,384		(624		)	—			—		2,760
Customer relationships	6-11 Years	7,409		(3,097		)	—			635		4,947
Patents	4 Years	209		(209		)	—			—		—
Non-compete covenant	5 Years	1,420		(1,182		)	—			105		343
Total		$	18,768	$	(10,323	)	$	—		$	929	$	9,374
Indefinite-lived intangible assets:
Trademarks	—	9,150		—			(2,834		)	374		6,690
Total		$	27,918	$	(10,323	)	$	(2,834	)	$	1,303	$	16,064

Amortization expense was $0.6 million and $1.2 million during the three and six months ended July 30, 2011, respectively, and $0.4 million and $0.8 million during the three and six months ended July 31, 2010, respectively.

~~Amortization~~The ~~expense~~following ~~was~~table ~~$0.5~~presents ~~million~~goodwill ~~and~~(relating ~~$0.4~~entirely ~~million~~to ~~during~~ the ~~three~~distribution ~~months~~segment) ~~ended~~as ~~April 30,~~of ~~2011~~the ~~and~~dates ~~May 1~~indicated, ~~2010,~~as ~~respectively.~~well as changes in the account during the period shown:

	Amount
(Dollars in thousands)
Carrying amount as of January 31, 2011	$	-
Goodwill acquired during the year	1,541
Carrying amount as of July 30, 2011	$	1,541

See “Note 11— EMDSI Acquisition” for information on the goodwill acquired during Fiscal 2011.

During the fourth quarter of Fiscal 2010, we performed our annual impairment test for goodwill and indefinite-lived intangible assets and determined that the carrying amount for our Crown reporting unit exceeded its estimated fair value. As a result of the second step of the impairment analysis, we determined that the Crown reporting unit’s indefinite-lived intangible assets were partially impaired and its goodwill was determined to have no residual value.

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 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.15

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Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements —– ~~Continued~~continued

(Unaudited)

AWarranty ~~summary~~Costs: ofGenerally, ~~activity~~the only warranty provided to our customers for ~~accrued~~products we sell that were originally manufactured by others, including our key OEMs, is the warranty ~~costs~~provided by those original manufacturers. We warrant products manufactured, ~~recorded~~and inservices ~~other~~provided, ~~current~~by ~~liabilities~~us for periods of three to 18 months. Based on historical experience and contract terms, we accrue the ~~consolidated~~estimated ~~balance~~cost ~~sheets~~of ~~for~~our product and service warranties at the ~~periods~~time ~~ended~~of ~~April 30~~sale or, ~~2011~~in some cases, when specific warranty exposures are identified and ~~May 1~~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, ~~2010~~arbitration or litigation. Occasionally, ~~was~~a material warranty issue can arise that is beyond our historical experience. We accrue for any such warranty issues as ~~follows:~~they become known and estimable.

	For the Three Months Ended
(Dollars in thousands)	April 30, 2011			May 1, 2010
Accrued warranty costs at beginning of period	$	9,110		$	4,398
Payments for warranty obligations	(1,317		)	(706		)
Warranty accrual	1,063			269
Accrued warranty costs at end of period	$	8,856		$	3,961

A summary of activity for accrued warranty costs, recorded in other current liabilities on the consolidated balance sheets for the periods ended July 30, 2011 and July 31, 2010, was as follows:

Other current liabilities: Included in other current liabilities are $10.9 million and $12.2 million of accrued job costs as of April 30, 2011 and January 31, 2011, respectively. No other item comprises more than 5% of total current liabilities.

	For the Three Months Ended							For the Six Months Ended
		July 30, 2011			July 31, 2010				July 30, 2011			July 31, 2010
(Dollars in thousands)
Accrued warranty costs at beginning of period		$	8,856		$	3,961			$	9,110		$	4,398
Payments for warranty obligations		(1,011		)	(823		)		(2,328		)	(1,529		)
Warranty accrual		1,673			1,621				2,736			1,890
Accrued warranty costs at end of period		$	9,518		$	4,759			$	9,518		$	4,759

Other current liabilities: Included in other current liabilities were $8.1 million and $12.2 million of accrued job costs as of July 30, 2011 and January 31, 2011, respectively. No other item comprises more than 5% of total current liabilities.

Note 7. Equity

We have 56,~~025~~179,~~210~~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. As The number of ~~April~~Common ~~30,~~Units ~~2011~~and Common B Units issued and ~~January~~outstanding as of July 3130, 2011, ~~the~~was ~~number~~27,747,927 ofand ~~Common~~28,431,345, ~~Units~~respectively, and ~~Common~~as Bof ~~Units~~January 31, ~~issued~~2011, ~~and outstanding~~ was 27,033,613 and 28,991,597, respectively.

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.

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 shares 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 shares vesting in five (5) 26,891 share tranches, with each such tranche vesting upon board service for a complete fiscal year. In addition, approximately 62,745 of the restricted shares 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 shares vesting in five (5) 6,723 share tranches, with each tranche vesting upon employment for a complete fiscal year. In addition, approximately 11,204 of the restricted shares 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 2010 and 6,723 shares vested; 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 ~~April~~July 30, 2011, diluted earnings per ~~share~~common unit excluded the approximately 228,571 contingent unvested restricted shares~~. A~~ ~~total~~related ~~of 221,849 restricted shares will vest upon completion of an initial public offering, and we will record a non-cash compensation expense in connection therewith in an amount equal~~ to ~~the~~these ~~grant-date~~September 2007 ~~fair value of such vested shares, estimated to be approximately $5~~grants.~~0 million,~~

~~Note 8. Income Taxes~~16

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Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements —– ~~Continued~~continued

(Unaudited)

~~Generally~~On May 31, we2011, ~~make~~upon ~~quarterly~~the ~~distributions~~recommendation of our chairman, approval of our compensation committee and pursuant to the Amended and Restated 2007 Incentive Compensation Plan, our ~~unit~~board ~~holders~~authorized the grant to ~~fund~~our ~~their~~Chief ~~tax~~Executive ~~obligations~~Officer of 154,062 common units, which vested immediately, and 448,179 options to purchase common units, which vest in four (4) equal tranches upon the attainment of both service and performance measures. The ~~During~~service measure is satisfied upon the ~~three~~fulfillment ~~months~~of ~~ended~~a ~~April~~one-year 30service anniversary for each of the next four years from the date of grant, May 31, 2011, ~~and~~through May 131, ~~2010~~2015. Each such tranche, wehowever, ~~made~~remains ~~tax~~subject ~~distributions~~to the attainment of ~~$1.1 million~~a performance measure(s), as established by the compensation committee and $0approved by our board of directors, in respect of the fiscal year preceding the service anniversary date (e.2g., May ~~million~~31, ~~respectively~~2012 service anniversary subject to meeting the performance measure for fiscal year ended January 31, 2012). No measurement date has been established for tranches two through four as the performance measure(s) remains to ~~our~~be ~~unit~~established. We ~~holders~~recognized non-cash, share-based compensation expense of approximately $1.8 million related to these items during the three months ended July 30, 2011.

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, our board authorized the grant of 33,613 restricted shares to each of our three recently appointed non-executive directors, which vest in five (5) 6,723 share tranches with the first tranche vesting on May 31, 2011 and each of the next four tranches vesting upon board service for a complete fiscal year (with respect to Fiscal 2011 service through January 31, 2012 being deemed a complete fiscal year). All of these 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, if an initial public equity offering has occurred. No expense has been recognized for these grants because the contingent condition has not occurred and, as of July 30, 2011, diluted earnings per common unit excluded the approximately 100,839 contingent unvested restricted shares related to these May 2011 grants.

Note 8. 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 July 30, 2011, we recognized tax expense of $0.6 million and $0.9 million, respectively, of Texas Margins tax. During the three and six months ended July 31, 2010, we recognized tax expense of $0.3 million and $0.6 million, respectively, of Texas Margins tax. During the three and six months ended July 30, 2011, we recognized tax expense of $0.1 million and tax benefit of $0.1 million, respectively, associated with foreign jurisdictions. During the three and six months ended July 31, 2010, we recognized tax expense of $0.2 million and $0.4 million, respectively, associated with foreign jurisdictions.

Generally, we make quarterly distributions to our unit holders to fund their tax obligations. During the six months ended July 30, 2011 and July 31, 2010, we made tax distributions of $4.2 million and $0.3 million, respectively, to our unit holders.

Note 9. Related Party Transactions

During the fourth quarter of Fiscal 2009, we received a $37.5 million equipment order from an affiliate of the Company’s shareholder. Revenue recognition from this ~~transaction~~order will be deferred until title to the ~~product~~equipment passes to a third party and all other revenue recognition criteria have been met. ~~Cash~~ During the first quarter of Fiscal 2011, the final payment from this affiliate was received and the full $37.5 million has been collected in cash. Coincident with full payment and pursuant to the terms of the sales agreement with the affiliate, for legal and commercial purposes, the affiliate owns and maintains title and risk of loss for the equipment in this order. The cash payments received from and amounts invoiced to this affiliate pursuant to this ~~transaction~~order are recorded as a customer deposit in the consolidated balance sheet and amounted to $3730.5 million and $31.2 million as of ~~April~~July 30, 2011 and January 31, 2011, respectively. Included in inventories, net are $2924.72 million and $29.5 million of costs related to this ~~transaction~~order, respectively, as of these same dates. During the three months ended July 30, 2011, we purchased a portion of this equipment, and in so doing re-acquired title, from this affiliate and subsequently sold it to a third party and recognized revenue and cost of sales in the consolidated statements of operations. Included in other current liabilities as of July 30, 2011, is $7.4 million due to this affiliate for the equipment we purchased, which was paid in August 2011. The $7.4 million due to the affiliate includes an incremental $0.4 million over what the affiliate originally paid to us for this portion of the equipment and this incremental $0.4 million was recognized as cost of sales upon selling the equipment to the third party during the second quarter of Fiscal 2011. No other amounts have been recorded in the consolidated statements of operations for this ~~transaction~~order to date.

Note 10. Litigation and Contingencies

During Fiscal 2009, the State of Texas began conducting a sales and use tax audit for Fiscal 2006, 2007 and 2008. ~~Recently,~~The ~~the~~ audit period has been expanded to include Fiscal 2009. In the second quarter of Fiscal 2009, we completed a preliminary analysis and recorded our then best estimate of probable loss as a charge to selling and administrative expenses and other current liabilities in our consolidated financial statements. As the audit process and periods have evolved, we have continued to evaluate this analysis and have recorded adjustments to the accrual reflecting our best estimate of probable loss. The audit remains in process and, accordingly, our ultimate loss could be greater, or less, than the amounts we have recorded.

WeIn ~~are~~August 2011, ~~also~~ a ~~defendant~~$10.8 inmillion ajudgment ~~number~~against ofthe ~~lawsuits~~Company ~~relating~~was toentered ~~matters~~in ~~normally~~the ~~incident~~80th toJudicial ~~our~~District ~~business.~~Court Noof ~~individual~~Harris ~~case~~County, orTexas ~~group~~in ofthe ~~cases~~matter ~~presenting~~of ~~substantially~~Brady ~~similar~~Foret ~~issues~~v. ofStewart & ~~law or fact~~Stevenson, iset ~~expected~~al. toOur ~~have~~insurer ahas ~~material~~defended, ~~effect~~and onis ~~the~~continuing ~~manner~~to ~~in which we conduct our business or on our consolidated results of operations~~defend, ~~financial~~the ~~position~~Company orin ~~liquidity.~~this Wecase ~~maintain~~and ~~certain~~has ~~insurance~~indicated ~~policies~~ that ~~provide~~the ~~coverage~~judgment ~~for~~will ~~product~~be ~~liability and personal injury cases~~appealed. Our ~~These insurance policies are subject to a~~ self-~~insured~~insurance retention for ~~which~~this wematter ~~are responsible, which~~ is ~~generally~~ $~~500,000 for newer cases and $~~1.0 million, ~~for~~which ~~cases~~amount ~~initiated~~has ~~before~~been ~~Fiscal~~accrued ~~2009.~~in Wea ~~have~~prior ~~established~~year. Any ~~reserves~~costs ~~that~~associated wewith ~~believe~~the toappeal ~~be adequate based on current evaluations~~ and ~~our~~any ~~experience~~payment inrequired ~~these~~by ~~types~~an ofeventual ~~claim~~final ~~situations.~~judgment ~~Nevertheless,~~will anbe ~~unexpected~~covered ~~outcome~~by orour ~~adverse~~insurance ~~development~~policies. This inmatter ~~any~~is ~~such~~not ~~case~~expected ~~could~~to have a material adverse ~~impact~~effect onto our consolidated balance sheets, results of operations inor ~~the~~cash ~~period in which it occurs~~flows.

~~Note 11. EMDSI Acquisition~~17

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 for total consideration of approximately $25.7 million, subject to final closing adjustments. The acquisition was funded from available cash and through borrowings under our revolving credit facility. 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 following summarizes our preliminary assessment of the fair values of the assets acquired and liabilities assumed at the acquisition date. The assets acquired and liabilities assumed remain subject to final closing adjustments, and our ongoing evaluation thereof, which could impact the amount of net tangible assets acquired and, thus, increase or decrease the total consideration transferred. The excess of the consideration transferred over the preliminary assessment of fair value amounts to $0.1 million and is recorded as goodwill. Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. We are in the process of reviewing third-party valuations for the inventories, property, plant and equipment, contract backlog, intangible assets and goodwill acquired. Accordingly, the amounts below, which reflect our preliminary assessment of fair value as of the acquisition date, remain subject to change.

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Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements —– ~~Continued~~continued

(Unaudited)

(Dollars in thousands)	Fair Values
Assets acquired:
Cash	$	2,345
Accounts receivable	5,009
Inventories	11,016
Property, plant and equipment	5,019
Other assets	177
Intangible assets	6,355
Goodwill	135
Liabilities assumed:
Accounts payable	2,087
Notes payable	112
Accrued liabilities	922
Construction contract liability	1,188
Net assets acquired/Consideration transferred	$	25,747

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.

~~The unaudited pro forma condensed combined statement of operations for the three months ended April~~Note ~~30,~~11. ~~2011 and May 1, 2010 gives effect to the March 23, 2011 consummation of the~~ EMDSI Acquisition as if the transaction occurred on February 1, 2011 and 2010, respectively. The unaudited pro forma information is presented for illustration purposes only and is not necessarily indicative of the results of operations which would actually have been reported had the combination been in effect during these periods, or for which we might expect to report in the future.

~~Stewart~~On March &23, ~~Stevenson~~2011, ~~LLC~~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”) for total consideration of approximately $25.7 million, subject to final closing adjustments. In July 2011, we paid an additional $0.1 million to ITOCHU as the final closing adjustment. The acquisition was funded from available cash and ~~Subsidiaries Pro~~through ~~Forma~~borrowings ~~Results~~under ~~including~~our revolving credit facility. 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 results of operations of EMDSI are included in our consolidated results of operations as of the acquisition date.

	Three Months Ended
(Dollars in thousands, except per unit data)	April 30, 2011		May 1, 2010
	(unaudited)		(unaudited)
Sales	$	278,374	$	166,228
Net earnings (loss)	$	13,471	$	(6,834	)
Weighted average units outstanding:
Basic	56,025		56,025
Diluted	56,025		56,025
Earnings (loss) per common unit:
Basic	$	0.24	$	(0.12	)
Diluted	$	0.24	$	(0.12	)

Recording of Assets Acquired and Liabilities Assumed

17The following summarizes our preliminary assessment of the fair values of the assets acquired and liabilities assumed at the acquisition date. We are in the process of reviewing third-party valuations of the fair values of inventories, property, plant and equipment, construction contract assets and liabilities, intangible assets, deferred revenue and goodwill. The excess of the consideration transferred over the preliminary assessment of fair value amounts to $1.5 million and is recorded as goodwill (all to our Distribution segment). Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The amounts below, which reflect our preliminary assessment of fair value as of the acquisition date, remain subject to change.

*(Dollars in thousands)*	Fair Values
Assets acquired:
Cash	$	2,345
Accounts receivable	5,009
Inventories	11,016
Property, plant and equipment	5,019
Other assets	207
Intangible assets	5,455
Construction contract assets	941
Goodwill	1,541


Liabilities assumed:
Accounts payable	2,087
Notes payable	112
Accrued liabilities	812
Deferred revenue	1,222
Construction contract liabilities	1,455
Net assets acquired/Consideration transferred	$	25,845

Inventories: A step-up adjustment of $1.5 million was recorded to present the inventories acquired at their fair value. This adjustment will be recorded into cost of sales as the underlying inventory is sold.

Property, plant and equipment: A step-up adjustment of $1.8 million was recorded to present the property, plant and equipment acquired at its fair value and will be depreciated over the next three to twenty-five years.

Construction contract assets and liabilities and deferred revenue: We acquired construction contracts in process and deferred revenue from EMDSI that have been recorded at their fair value as of the acquisition date. These construction contract assets and liabilities, recorded in other current assets and liabilities, respectively, in our consolidated balance sheets, will be recognized as revenue, along with the remaining consideration to be received from these contracts, as each underlying contract is completed and delivered. The deferred revenue, recorded in customer deposits in our consolidated balance sheets, will be recognized as revenue when the underlying services are performed and completed.

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Stewart & Stevenson LLC and Subsidiaries

Notes to Condensed Consolidated Financial Statements —– ~~Continued~~continued

(Unaudited)

~~Note~~Intangible 12assets: We identified intangible assets acquired in the EMDSI acquisition, including a distribution contract, customer relationships for equipment packages and parts and service and the EMDSI tradename. ~~Subsequent~~The ~~Events~~EMDSI tradename is considered an indefinite-lived intangible asset, which will not be amortized, but will be subject to an annual impairment test. The following table summarizes the fair values recorded for the identified intangible assets and their estimated useful lives:

Reverse Stock Split: As of May 31, 2011, we effected a reverse common unit split in the ratio of 1:1.785. All common units and per common unit calculations have been recast to include the impact of this reverse common unit split.

(Dollars in thousands)	Fair Values		Useful Lives
Distribution contract	$	2,613	7 years
Customer relationships - equipment packages		468	6 years
Customer relationships - parts and service		1,612	5 years
Tradename		762	Indefinite
Total identified intangible assets	$	5,455

~~Stock~~The ~~Compensation: On~~fair ~~May 31,~~values ~~2011,~~for ~~upon~~ the ~~recommendation~~construction ofcontract ~~our~~assets ~~chairman~~and liabilities, ~~our~~deferred ~~compensation~~revenue, ~~committee~~intangible ~~approved~~assets ~~a grant~~and, ~~vesting immediately~~consequently, ~~of 154~~goodwill,~~062~~ ~~shares~~have tochanged from our ~~Chief~~preliminary ~~Executive~~assessment ~~Officer.~~of ~~We will record a non-cash compensation expense in connection therewith in an amount equal to the grant date~~ fair value as of ~~such vested shares, estimated to be approximately $2.3 million. Also on May~~April 3130, 2011, based upon ~~the recommendation of~~ our ~~chairman,~~current ~~our~~preliminary ~~compensation~~assessment ~~committee approved a grant to our Chief Executive Officer~~ of ~~448,179~~fair ~~options~~value toas ~~purchase common shares at a strike price~~ of ~~$15~~July 30, ~~vesting~~2011. inThe ~~four~~impact ~~(4) equal tranches upon the attainment~~ of ~~performance~~these ~~measures~~changes indid ~~respect~~not ofhave ~~each~~a ofmaterial ~~our~~impact ~~next~~to ~~four (4) fiscal years established by~~ the ~~compensation~~consolidated ~~committee~~statements ~~and approved by our board~~ of ~~directors.~~operations Wefor ~~estimate~~either ~~that~~ the ~~grant~~three ~~date~~months ~~fair~~ended ~~value of this award to be approximately $2.7 million and expect to recognize a portion of this non-cash compensation expense in each of our next four (4)~~April ~~fiscal years~~30, ~~beginning~~2011 ~~with~~or the ~~second~~three ~~quarter~~months ofended ~~Fiscal 2011~~July 30, ~~unless and to the extent it becomes unlikely that any such tranche of options will ultimately not vest~~2011.

OnPro ~~May 31,~~Forma ~~2011,~~Impact ~~upon the recommendation~~ of ~~our~~EMDSI chairman, our compensation committee approved, subject to the completion of an initial public offering of our stock, a grant of 33,613 restricted shares to each of our three recently appointed non-executive directors, which vest in five (5) 6,723 share tranches with the first tranche vesting on May 31, 2011 and each of the next four tranches vesting upon board service for a complete fiscal year (with respect to Fiscal 2011 service through January 31, 2012 being deemed a complete fiscal year). The estimated grant date fair value of this award is $1.5 million. Subject to the completion of an initial public offering of our stock, we will record a non-cash compensation expense in an amount equal to the grant date fair value of vested shares, with ratable expense recognized for completed fiscal periods thereafter.Acquisition

~~Also~~The onunaudited ~~May 31,~~pro ~~2011,~~forma ~~upon~~condensed ~~the~~combined ~~recommendation~~statement of ~~our~~operations ~~chairman,~~for ~~our compensation committee approved, subject to~~ the ~~completion~~three ofand ansix ~~initial~~months ~~public~~ended ~~offering~~July 30, of2011 ~~our~~and ~~stock~~July 31, a2010 ~~special,~~gives ~~one-time~~effect ~~grant~~ to ~~our~~the ~~employees~~March 23, 2011 consummation of ~~(i) 100,000~~the ~~shares~~EMDSI toacquisition ~~our~~as ~~Vice~~if ~~Chairman~~the ~~and~~transaction ~~Chief~~occurred ~~Financial~~on ~~Officer~~February 1, 2011 and ~~(ii) approximately 550~~2010,~~000~~ ~~shares~~respectively. inThe ~~the~~unaudited ~~aggregate~~pro toforma ~~all~~information ~~current~~is ~~employees~~presented ~~who~~for ~~were~~illustration ~~employed~~purposes byonly ~~the~~and ~~Company~~is onnot ~~June 1,~~necessarily ~~2010. Upon~~indicative of the ~~completion~~results of anoperations ~~initial~~which ~~public~~would ~~offering~~actually ofhave ~~our~~been ~~stock,~~reported wehad ~~will~~the ~~record~~combination abeen ~~non-cash compensation expense~~ in aneffect ~~amount~~during ~~equal~~these toperiods, ~~the~~or ~~grant~~for ~~date~~which ~~fair~~we ~~value~~might ofexpect ~~such vested shares, estimated~~ to bereport ~~approximately~~in ~~$9.8~~the ~~million~~future.

	Three Months Ended				Six Months Ended
	July 30, 2011		July 31, 2010		July 30, 2011		July 31, 2010
(Dollars and units in thousands)	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Sales	$	313,445	$	213,224	$	591,819	$	379,452

Net earnings (loss)	$	17,958	$	6,255	$	31,747	$	(44)

Weighted average units outstanding:
Basic	56,128		56,025		56,077		56,025
Diluted	56,128		56,025		56,077		56,025

Earnings (loss) per common unit:
Basic	$	0.32	$	0.11	$	0.57	$	(0.00)
Diluted	$	0.32	$	0.11	$	0.57	$	(0.00)

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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 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;

· the ability of our principal stockholder ~~could~~to exercise control of our affairs through his beneficial ownership of a majority of our common equity, including all of our Class B common stock; and

· the other factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2011, 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.

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.

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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~~ and 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 industry capital 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. 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 7780.80% and 7581.59% of our revenues in the three and six months ended ~~April~~July 30, 2011, respectively, and ~~May1~~77.1% and 78.5% of our revenues in the three and six months ended July 31, 2010, respectively, came from customers in the oil and gas industry.

Non-oil and gas industries. We believe that many of the non-oil and gas industries we serve, particularly the commercial vehicle and material handling industries, provide us with opportunities to continue to grow our business.

Aftermarket parts and service demand. In addition, we provide aftermarket parts and service and rent equipment to customers in the oil and gas, power generation, marine, mining, construction, commercial vehicle and material handling industries. These sales generated approximately 3231.29% and 4133.81% of our revenues during the three and six months ended ~~April~~July 30, 2011, respectively, and ~~May1~~38.1% and 41.0% during the three and six months ended July 31, 2010, respectively. We provide aftermarket parts and service for equipment manufactured by approximately 100 manufacturers, including products manufactured by us and our key OEMs, and our aftermarket business provides us with a recurring revenue stream. Our rental revenue includes generators, compressors and material handling equipment.

Backlog. 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 ~~April~~July 30, 2011, our equipment order backlog was $~~412~~419.27 million, compared to $~~259~~298.97 million as of ~~May~~July 131, 2010.

Backlog of $~~412~~419.27 million as of ~~April~~July 30, 2011 ~~includes~~included a $3730.5 million ~~related~~equipment ~~party transaction reflecting an~~ order received in Fiscal 2009 from an affiliate of our shareholder. Revenue recognition from this ~~transaction~~order will be deferred until title to the related product passes to a third party and all other revenue recognition criteria have been met. A deposit in the amount of $3730.5 million is recorded as a customer deposit in our consolidated balance sheet. Included in inventories, net is $2924.72 million in costs related to this ~~contract, and no amounts have been recorded in the consolidated statements of operations through April 30, 2011~~order.

Seasonality. Our revenues are not significantly affected by seasonality.

Operational factors

Ensuring timely supply of 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. In the current environment of strong demand for products and services of the type we provide, our ability to procure certain components on a timely basis to meet the delivery needs of our customers is a 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 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 significant challenge in the current competitive environment, particularly in oil- and gas-related activities. Accordingly, we place particular emphasis on career development programs that seek to improve the retention of employees, including senior and middle management.

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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 2011 began on February 1, 2011 and will end on January 31, 2012. We report results on the fiscal quarter method, with each quarter comprising approximately 13 weeks. The ~~first~~second quarter of Fiscal 2011 began on ~~February~~May 1, 2011 and ended on ~~April~~July 30, 2011.

Operation as an LLC

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

New Accounting Pronouncement

On February 1, 2011, we adopted an update to existing guidance on revenue recognition for arrangements with multiple deliverables. This update allows companies to allocate consideration for qualified separate deliverables using estimated selling price for both delivered and undelivered items when vendor-specific objective evidence or third-party evidence is unavailable. Additional disclosures are required that discuss the nature of multiple element arrangements, the types of deliverables under the arrangements, the general timing of their delivery, and significant factors and estimates used to determine estimated selling prices ~~are required~~. The adoption of this update did not have a material impact on our consolidated financial statements.

Segment presentation

We recently revised our segment presentation to present the following reportable segments:

· Manufacturing, which includes the design, manufacture and marketing of equipment for oilfield service providers, drilling and workover contractors, U.S. and international oilfield service companies, and national oil companies. We provide parts and service to customers primarily in the oil and gas industry.

· Distribution, which includes the distribution of stand-alone products and the provision of aftermarket parts and service for products manufactured by us, our key OEMs and other manufacturers, as well as the renting of equipment, including generator sets, rail car movers and material handling equipment.

· Corporate and shared services, which includes administrative overhead normally not associated with specific activities within our operating segments.

For more information on our segments, see ‘‘—Segment data.’’

Comparison of Results of Operations—Three Months Ended ~~April~~July 30, 2011 and ~~May~~July 131, 2010

Sales - For the three months ended ~~April~~July 30, 2011, our sales were $~~271~~313.4 million, an increase of $~~109~~107.53 million, or 6752.61%, compared to the same period of Fiscal 2010 sales of $~~161~~206.91 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, primarily for our well stimulation equipment. Parts and service sales ~~increased~~decreases in ~~both~~our ~~segments~~manufacturing segment were offset by parts and service sales increases in our distribution segment. ~~Prime~~Increased ~~mover~~sales of transmissions, ~~power~~prime ~~generation~~movers, engines and ~~transmissions~~power ~~sales~~generation equipment were primarily responsible for the increase in equipment sales in the distribution segment. Sales for the second quarter of Fiscal 2011 include the impact of the EMDSI ~~Acquisition~~acquisition, reported in our distribution segment, ~~from~~which ~~March 23, 2011 through April 30, 2011 and~~ amounted to approximately $13.53 million.

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A breakdown of sales for the periods is as follows:

	For the Three Months Ended						Change
(Dollars in thousands)	April 30, 2011			May 1, 2010			$			%
	July 30, 2011			July 31, 2010			$			%
Manufacturing segment
(Dollars in thousands)
Equipment	$	106,008		$	53,561		$	52,447		97.9	%
Manufacturing segment
Parts and service	6,487			4,737			1,750			36.9	%
Equipment	$	132,472		$	78,592		$	53,880		68.6%
Total manufacturing sales	$	112,495		$	58,298		$	54,197		93.0	%
Parts and service	4,261			4,668			(407)			-8.7%
Distribution segment
Total manufacturing sales	$	136,733		$	83,260		$	53,473		64.2%
Equipment	$	71,939		$	36,061		$	35,878		99.5	%
Distribution segment
Parts and service	80,739			63,044			17,695			28.1	%
Equipment	$	80,257		$	49,097		$	31,160		63.5%
Rentals	6,194			4,533			1,661			36.6	%
Parts and service	87,994			68,226			19,768			29.0%
Total distribution sales	$	158,872		$	103,638		$	55,234		53.3	%
Rentals	8,461			5,549			2,912			52.5%
Total sales	$	271,367		$	161,936		$	109,431		67.6	%
Total distribution sales	$	176,712		$	122,872		$	53,840		43.8%
Operating profit (loss)
Total sales	$	313,445		$	206,132		$	107,313		52.1%
Manufacturing	$	19,756		$	5,488		14,268			260.0	%
Operating profit (loss)
Distribution	10,259			3,579			6,680			186.6	%
Manufacturing	$	25,315		$	11,058		14,257			128.9%
Corporate and shared services	(11,204		)	(8,309		)	(2,895		)	(34.8	)%
Distribution	13,540			10,471			3,069			29.3%
Total operating profit	$	18,811		$	758		$	18,053
Corporate and shared services	(15,343)			(8,708)			(6,635)			-76.2%
Operating profit percentage
Total operating profit	$	23,512		$	12,821		$	10,691		83.4%
Manufacturing	17.6		%	9.4		%
Operating profit percentage
Distribution	6.5		%	3.5		%
Manufacturing	18.5%			13.3%
Consolidated	6.9		%	0.5		%
Distribution	7.7%			8.5%
Consolidated	7.5%			6.2%

Manufacturing segment sales increased by 9364.02%, or $5453.25 million, for the three months ended ~~April~~July 30, 2011 compared to the same period in Fiscal 2010, of which $5253.49 million was related to equipment sales and $10.84 million was related to ana ~~increase~~decrease in parts and service sales. ~~The~~Equipment ~~increase~~sales increased in ~~equipment~~all ~~sales~~product ~~was~~lines ~~primarily~~with ~~attributable~~well tostimulation ~~higher~~equipment ~~sales~~continuing ~~volumes~~to ~~for~~generate ~~well~~the ~~stimulation~~largest ~~equipment~~portion ~~and~~of ~~seismic~~the ~~products~~increase, ~~which~~though ~~was~~rig ~~partially~~sales ~~offset~~also byincreased ~~lower~~significantly ~~sales~~during ~~volumes~~the ofsecond ~~power~~quarter. ~~generation~~A ~~equipment~~breakdown ~~(associated~~of ~~with~~manufacturing ~~deepwater~~segment ~~drilling~~equipment ~~rig~~sales ~~build~~by ~~cycles)~~product line is as follows:

	For the Three Months Ended				Change
(Dollars in thousands)	April 30, 2011		May 1, 2010		$			%
	July 30, 2011		July 31, 2010		$			%
(Dollars in thousands)
Manufacturing equipment sales
Well stimulation	$	92109,~~047~~923	$	2774,~~341~~104	$	6435,~~706~~819		~~236~~48.73%	%
Rigs	512,~~399~~202		63,~~299~~759		~~(900~~8,443		)	~~(14~~224.36%	)%
Seismic products	4,~~188~~711		40332		4,~~148~~379
Power generation	2,425		16,649		(14,224		)	(85.4	)%
Electric products	3,877		163		3,714
Electric products	1,947		2,504		(557		)	(22.2	)%
Power generation	1,731		213		1,518			712.7%
Other	228		~~728~~21		~~(726~~7		)	~~(99~~33.73%	)%
Total equipment sales	$	~~106~~132,~~008~~472	$	5378,~~561~~592	$	5253,~~447~~880		9768.96%	%

Distribution sales increased by $55.2 million to $158.9 million for the three months ended April 30, 2011, compared to $103.6 million during the same period of Fiscal 2010. The increase in distribution sales was due to increased equipment sales of $35.9 million, parts and service of $17.7 million and rentals of $1.6 million. The increase in prime movers, transmissions and engines was primarily due to higher sales volumes for oilfield equipment. Power generation equipment sales increased in large part due to sales for back-up power to data centers. Equipment sales increased due to the following changes in our distribution products:23

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	For the Three Months Ended				Change
(Dollars in thousands)	April 30, 2011		May 1, 2010		$		%
Distribution equipment sales
Prime movers	$	18,295	$	5,973	$	12,322	206.3	%
Power generation	14,796		6,193		8,603		138.9	%
Transmissions	14,237		7,850		6,387		81.4	%
Engines	9,630		6,363		3,267		51.3	%
Material handling	8,817		5,874		2,943		50.1	%
Rail car movers	4,117		2,023		2,094		103.5	%
Other	2,047		1,785		262		14.7	%
Total equipment sales	$	71,939	$	36,061	$	35,878	99.5	%

Distribution segment sales increased by $53.8 million to $176.7 million for the three months ended July 30, 2011, compared to $122.9 million during the same period of Fiscal 2010. The increase in distribution segment sales was due to increased equipment sales of $31.1 million, parts and service sales of $19.8 million and rentals sales of $2.9 million. The increase in transmissions, prime movers and engine sales was primarily due to higher sales volumes for oilfield equipment. Distribution segment equipment sales increased due to the following changes in our distribution segment products:

Gross profit — Our gross profit was $50.5 million for the three months ended April 30, 2011 compared to $25.7 million for the same period in Fiscal 2010, reflecting an increase in gross profit margin from 15.9% to 18.6%. Our gross profit margin increased by 2.7 percentage points due to higher sales volumes and product mix. The manufacturing segment gross profit margin increased from 16.4% to 22.3%, an increase of 5.9 percentage points. This increase was due in large part to higher sales volumes and product mix, with a significant portion of this increase attributable to well stimulation equipment. The distribution segment gross profit margin increased from 15.5% to 16.0%, an increase of 0.5 percentage points.

	For the Three Months Ended				Change
	July 30, 2011		July 31, 2010		$		%
(Dollars in thousands)
Distribution equipment sales
Transmissions	$	22,230	$	9,561	$	12,669	132.5%
Prime movers	15,942		6,669		9,273		139.0%
Engines	13,838		8,234		5,604		68.1%
Power generation	12,884		12,992		(108)		-0.8%
Material handling	8,133		5,720		2,413		42.2%
Rail car movers	4,303		2,838		1,465		51.6%
Other	2,927		3,083		(156)		-5.1%
Total equipment sales	$	80,257	$	49,097	$	31,160	63.5%

~~Selling~~Gross ~~and~~profit ~~administrative~~– ~~expenses~~Our —gross ~~Selling~~profit ~~and~~was ~~administrative expenses increased by~~ $659.58 million ~~to $31.3 million~~ for the three months ended ~~April~~July 30, 2011, ~~primarily~~compared asto a$37.0 ~~result~~million offor ~~increases~~the same period in ~~salaries~~Fiscal ~~and~~2010, ~~wages~~reflecting ~~due~~an toincrease ~~the~~in ~~restoration~~gross ofprofit ~~previous~~margin ~~pay~~from ~~cuts~~18.0% into ~~August~~19.1%. Our ~~2010,~~gross aprofit ~~company-wide~~margin ~~pay~~increased ~~increase~~by ~~effective~~1.1 atpoints ~~the~~due ~~start~~to ofhigher ~~Fiscal~~sales ~~2011~~volumes ofand ~~approximately~~product 4mix.~~0%,~~ ~~increased~~The ~~headcount~~manufacturing ~~and~~segment agross ~~one-time~~profit ~~bonus~~margin toincreased ~~our~~from ~~new~~18.1% ~~Chief~~to ~~Executive Officer~~22.3%, ~~all~~an increase of ~~which amounted to approximately $~~4.2 ~~million~~points. ~~The~~This ~~remaining~~ increase iswas ~~not~~due ~~attributable~~in large part to ~~any~~higher ~~single~~sales ~~area~~volumes and product mix, ~~but~~with isa ~~reflective~~significant portion of ~~the~~this ~~overall~~ increase inattributable ~~our~~to ~~business~~well ~~activity. As~~stimulation aequipment ~~percentage~~sales. ofThe ~~sales,~~distribution ~~selling~~segment ~~and~~gross ~~administrative~~profit ~~expenses~~margin decreased tofrom 1117.59% ~~from~~to 1516.46%, ~~for~~a ~~the~~decrease ~~three~~of ~~months~~1.3 ~~ended~~points ~~April 30,~~due ~~2011, as compared~~ to ~~the~~changes ~~same period~~ in ~~Fiscal~~our ~~2010~~product mix.

~~Other~~Selling ~~expense,~~and ~~net~~administrative —expenses ~~Other~~– ~~expense~~Selling and administrative expenses increased by $011.49 million to $036.45 million for the three months ended ~~April~~July 30, 2011, ~~compared~~primarily as a result of increases in salaries and wages due to the ~~same~~restoration ~~period~~of previous pay cuts in August 2010, a company-wide pay increase effective at the start of Fiscal ~~2010~~2011 ~~primarily~~of approximately 4.0%, increased headcount, expensing of costs relating to our proposed initial public offering ($2.5 million), share-based compensation expense ($1.8 million), travel and as ~~the~~a result of ~~foreign~~the ~~currency~~inclusion ~~transaction~~of ~~losses~~operations ~~related~~of EMDSI for a full quarter, all of which amounted to approximately $10.0 million. The remaining increase is attributable to and reflective of the overall increase in our ~~foreign~~business ~~subsidiaries~~activity. As a percentage of sales, selling and administrative expenses decreased to 11.6% from 11.9% for the three months ended July 30, 2011, as compared to the same period in Fiscal 2010.

~~Operating~~Other ~~profit~~ (~~loss~~income) —expense, ~~Our~~net ~~operating~~– ~~profit~~Other ~~increased~~income todecreased $180.83 million, orfor ~~6.9% of sales, during~~ the three months ended ~~April~~ July 30, 2011 ~~from~~compared ~~$0.8~~to ~~million, or 0.5% of sales, in~~ the same period ofin Fiscal 2010,. ~~primarily~~Other asincome is primarily the result of ~~higher~~foreign ~~sales~~currency ~~volumes~~transaction ~~and~~gains ~~gross~~related ~~profit~~to ~~margins~~our foreign subsidiaries.

~~Interest~~Operating ~~expense,~~profit ~~net~~– —Our ~~Interest~~operating ~~expense~~profit increased to $23.5 million, ~~net~~or ~~for~~7.5% of sales, during the three months ended ~~April~~July 30, 2011 ~~decreased~~from by $012.18 million, ~~over~~or 6.2% of sales, in the same period inof Fiscal 2010, ~~mainly~~primarily as athe result of ~~lower~~higher ~~borrowings~~sales ~~outstanding~~volumes on and ~~interest~~higher ~~rates~~overall ~~for~~gross ~~our~~profit ~~revolving credit facility~~margins.

Interest expense, net - Interest expense, net for the three months ended July 30, 2011 decreased by $0.1 million over the same period in Fiscal 2010 mainly as a result of lower borrowings outstanding on and interest rates for our revolving credit facility.

Segment data

~~Our~~In our prior reports filed with the SEC through the third quarter of Fiscal 2010, we presented four segments: equipment, aftermarket parts and service, rental and corporate. In our Fiscal 2010 Annual Report on Form 10-K, we revised our segments to the following three segments: manufacturing, distribution and corporate and shared services. Information relating to ~~the first quarter of~~ Fiscal 2010 included herein and in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report ~~have~~has been recast to reflect our new segment presentation.

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Our reportable segments are as follows:

Manufacturing

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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

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 ~~April~~July 30, 2011 and ~~May~~July 131, 2010

Manufacturing

Operating profit generated by our manufacturing segment increased to $1925.83 million, or 1718.65% of sales, for the three months ended ~~April~~ July 30, 2011, from $511.51 million, or 913.43% of sales, for the same period of Fiscal 2010. The $14.32 million increase in operating profit was attributable to increases of $1211.19 million in sales volume, ~~and~~ $3.45 million in ~~increases due to~~ higher average gross profit margins, and ~~a decrease of~~ $0.2 million in other ~~expense~~income. These improvements were partially offset by an increase in selling and administrative expenses of $1.4 million, ~~which~~ primarily related to higher salaries and wages due to the restoration of previous pay cuts in August 2010, a company-wide pay increase effective at the start of Fiscal 2011 of approximately 4.0%, increased headcount and new product development expenses.

Our manufacturing backlog as of ~~April~~July 30, 2011 was $~~278~~279.67 million, as compared to $~~205~~234.01 million as of ~~May~~July 131, 2010, an increase of 3519.95%. Backlog of $~~278~~279.67 million as of ~~April~~July 30, 2011 ~~includes~~included a $3730.5 million ~~related~~equipment ~~party transaction, reflecting an~~ order received in Fiscal 2009 from an affiliate of our shareholder. Revenue recognition from this ~~transaction~~order will be deferred until title to the product passes to a third party and all other revenue recognition criteria have been met. Cash payments received pursuant to this ~~transaction~~order are recorded as customer deposits in the ~~condensed~~ consolidated balance sheet and amounted to $3730.5 million as of ~~April~~July 30, 2011. Included in inventories, net is $2924.72 million of costs related to this ~~transaction, and no amounts have been recorded in the condensed consolidated statements of operations for this transaction to date~~order.

Distribution

Operating profit generated by the distribution segment increased to $1013.35 million during the three months ended ~~April~~July 30, 2011 from $310.65 million during the same period in Fiscal 2010, representing ana ~~increase~~decrease in operating profit percentage from 38.5% to 67.57%. The $63.70 million increase in operating profit was attributable to increases of $8.89 million in sales volume, ~~and~~partially offset by decreases of $01.56 million in average gross profit margins, ~~partially~~and ~~offset by~~ increases of $2.4.0 million in selling and administrative expenses and $0.23 million in other expense. The increase in selling and administrative expenses was due to higher salaries and wages due to the restoration of previous pay cuts in August 2010, a company-wide pay increase effective at the start of Fiscal 2011 of approximately 4.0%, increased headcount and increases relating to the inclusion of the operations of EMDSI, including depreciation and amortization.

Our distribution backlog as of ~~April~~July 30, 2011 was $~~133~~140.60 million, as compared to $5464.96 million on ~~May~~July 131, 2010, an increase of ~~145~~116.07%.

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Corporate and shared services

Corporate and shared services expenses increased to $1115.23 million during the three months ended ~~April~~July 30, 2011 compared to $8.37 million during the same period of Fiscal 2010, primarily as a result of higher salaries and wages due to the restoration of previous pay cuts in August 2010, a company-wide pay increase effective at the start of Fiscal 2011 of approximately 4.0%, increased headcount, ~~and~~expensing aof ~~one-time~~costs ~~bonus~~relating to our ~~new~~proposed ~~CEO~~initial public offering ($2.5 million), share-based compensation expense ($1.8 million) and travel during the three months ended ~~April~~July 30, 2011. ~~Due~~Corporate ~~to higher sales volumes, corporate~~ and shared services expenses ~~decreased~~increased from 54.12% to 4.19% as a percentage of sales.

24Comparison of Results of Operations—Six Months Ended July 30, 2011 and July 31, 2010

Sales - For the six months ended July 30, 2011, our sales were $584.8 million, an increase of $216.7 million, or 58.9%, compared to the same period of Fiscal 2010 sales of $368.1 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, primarily for our well stimulation equipment. Parts and service sales increased in both segments. Increases in transmissions, prime movers, power generation and engine sales were primarily responsible for the increase in equipment sales in the distribution segment. Sales for the Fiscal 2011 period included the impact of the EMDSI acquisition, reported in our distribution segment, from March 23, 2011 through July 30, 2011 and amounted to approximately $4.8 million.

A breakdown of sales for the periods is as follows:

	For the Six Months Ended				Change
	July 30, 2011		July 31, 2010		$		%
(Dollars in thousands)
Manufacturing segment
Equipment	$	238,480	$	132,153	$	106,327	80.5%
Parts and service	10,748		9,405		1,343		14.3%
Total manufacturing sales	$	249,228	$	141,558	$	107,670	76.1%

Distribution segment
Equipment	$	152,196	$	85,158	$	67,038	78.7%
Parts and service	168,733		131,270		37,463		28.5%
Rentals	14,655		10,082		4,573		45.4%
Total distribution sales	$	335,584	$	226,510	$	109,074	48.2%

Total sales	$	584,812	$	368,068	$	216,744	58.9%

Operating profit (loss)
Manufacturing	$	45,071	$	16,546	28,525		172.4%
Distribution	23,799		14,050		9,749		69.4%
Corporate and shared services	(26,547)		(17,017)		(9,530)		-56.0%
Total operating profit	$	42,323	$	13,579	$	28,744	211.7%

Operating profit percentage
Manufacturing	18.1%		11.7%
Distribution	7.1%		6.2%
Consolidated	7.2%		3.7%

Manufacturing segment sales increased by 76.1%, or $107.7 million, for the six months ended July 30, 2011 compared to the same period in Fiscal 2010, of which $106.3 million was related to equipment sales and $1.4 million was related to an increase in parts and service sales. The increase in equipment sales was primarily attributable to higher sales volumes for well stimulation equipment, rigs, seismic products and electric products, which was partially offset by lower sales volumes of power generation equipment (associated with deepwater drilling rig build cycles) as follows:

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	For the Six Months Ended				Change
	July 30, 2011		July 31, 2010		$		%
(Dollars in thousands)
Manufacturing equipment sales
Well stimulation	$	201,970	$	101,445	$	100,525	99.1%
Rigs	17,601		10,058		7,543		75.0%
Seismic products	8,899		372		8,527
Electric products	5,824		2,667		3,157		118.4%
Power generation	4,156		16,862		(12,706)		-75.4%
Other	30		749		(719)		-96.0%
Total equipment sales	$	238,480	$	132,153	$	106,327	80.5%

Distribution segment sales increased by $109.1 million to $335.6 million for the six months ended July 30, 2011, compared to $226.5 million during the same period of Fiscal 2010. The increase in distribution segment sales was due to increased equipment sales of $67.0 million, parts and service sales of $37.5 million and rental sales of $4.6 million. The increase in transmissions, prime movers and engine sales was primarily due to higher sales volumes for oilfield equipment. Power generation equipment sales increased in large part due to sales for back-up power to data centers. Equipment sales of our distribution segment increased due to the following changes in our distribution segment products:

	For the Six Months Ended				Change
	July 30, 2011		July 31, 2010		$		%
(Dollars in thousands)
Distribution equipment sales
Transmissions	$	36,467	$	17,411	$	19,056	109.4%
Prime movers	34,237		12,642		21,595		170.8%
Power generation	27,680		19,185		8,495		44.3%
Engines	23,468		14,597		8,871		60.8%
Material handling	16,950		11,594		5,356		46.2%
Rail car movers	8,420		4,861		3,559		73.2%
Other	4,974		4,868		106		2.2%
Total equipment sales	$	152,196	$	85,158	$	67,038	78.7%

Gross profit – Our gross profit was $110.4 million for the six months ended July 30, 2011 compared to $62.7 million for the same period in Fiscal 2010, reflecting an increase in gross profit margin from 17.0% to 18.9%. Our gross profit margin increased by 1.9 points due to higher sales volumes and product mix. The manufacturing segment gross profit margin increased from 17.4% to 22.3%, an increase of 4.9 points. This increase was due in large part to higher sales volumes and product mix, with a significant portion of this increase attributable to well stimulation equipment sales. The distribution segment gross profit margin decreased from 16.8% to 16.3%, a decrease of 0.5 points due to changes in our product mix.

Selling and administrative expenses – Selling and administrative expenses increased by $18.3 million to $67.8 million for the six months ended July 30, 2011, primarily as a result of increases in salaries and wages due to the restoration of previous pay cuts in August 2010, a company-wide pay increase effective at the start of Fiscal 2011 of approximately 4.0%, increased headcount, a one-time bonus to our new Chief Executive Officer, expensing of costs relating to our proposed initial public offering ($2.5 million), share-based compensation expense ($1.8 million), new product development expenses, travel and as a result of the operations of EMDSI, all of which amounted to approximately $16.0 million. The remaining increase is attributable to and reflective of the overall increase in our business activity. As a percentage of sales, selling and administrative expenses decreased to 11.6% from 13.4% for the six months ended July 30, 2011, as compared to the same period in Fiscal 2010.

Other (income) expense, net – Other expense increased by $0.6 million to other expense of $0.3 million from other income of $0.3 million for the six months ended July 30, 2011 compared to the same period in Fiscal 2010, primarily as the result of foreign currency transaction losses related to our foreign subsidiaries.

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Operating profit – Our operating profit increased to $42.3 million, or 7.2% of sales, during the six months ended July 30, 2011 from $13.6 million, or 3.7% of sales, in the same period of Fiscal 2010, primarily as the result of higher sales volumes and higher overall gross profit margins.

Interest expense, net - Interest expense, net for the six months ended July 30, 2011 decreased by $0.2 million over the same period in Fiscal 2010 mainly as a result of lower borrowings outstanding on and interest rates for our revolving credit facility.

Segment Results Comparison – Six Months Ended July 30, 2011 and July 31, 2010

Manufacturing

Operating profit generated by our manufacturing segment increased to $45.1 million, or 18.1% of sales, for the six months ended July 30, 2011, from $16.5 million, or 11.7% of sales, for the same period of Fiscal 2010. The $28.6 million increase in operating profit was attributable to increases of $24.0 million in sales volume and $7.0 million in increases due to higher average gross profit margins, and a decrease of $0.4 million in other expense. These improvements were partially offset by an increase in selling and administrative expenses of $2.8 million primarily related to higher salaries and wages due to the restoration of previous pay cuts in August 2010, a company-wide pay increase effective at the start of Fiscal 2011 of approximately 4.0%, increased headcount and new product development expenses.

Our manufacturing backlog as of July 30, 2011 was $279.7 million, as compared to $234.1 million as of July 31, 2010, an increase of 19.5%. Backlog of $279.7 million as of July 30, 2011 included a $30.5 million equipment order received in Fiscal 2009 from an affiliate of our shareholder. Revenue recognition from this order will be deferred until title to the product passes to a third party and all other revenue recognition criteria have been met. Cash payments received pursuant to this order are recorded as customer deposits in the consolidated balance sheet and amounted to $30.5 million as of July 30, 2011. Included in inventories, net is $24.2 million of costs related to this order.

Distribution

Operating profit generated by the distribution segment increased to $23.8 million during the six months ended July 30, 2011 from $14.1 million during the same period in Fiscal 2010, representing an increase in operating profit percentage from 6.2% to 7.1%. The $9.7 million increase in operating profit was attributable to increases of $17.8 million in sales volume, partially offset by a decrease of $1.2 million in average gross profit margins and increases of $6.4 million in selling and administrative expenses and $0.5 million in other expense. The increase in selling and administrative expenses was due to higher salaries and wages due to the restoration of previous pay cuts in August 2010, a company-wide pay increase effective at the start of Fiscal 2011 of approximately 4.0%, increased headcount and increases relating to the inclusion of the operations of EMDSI, including depreciation and amortization.

Our distribution backlog as of July 30, 2011 was $140.0 million, as compared to $64.6 million on July 31, 2010, an increase of 116.7%.

Corporate and shared services

Corporate and shared services expenses increased to $26.5 million during the six months ended July 30, 2011 compared to $17.0 million during the same period of Fiscal 2010, primarily as a result of higher salaries and wages due to the restoration of previous pay cuts in August 2010, a company-wide pay increase effective at the start of Fiscal 2011 of approximately 4.0%, increased headcount, a one-time bonus to our new Chief Executive Officer, expensing of costs relating to our proposed initial public offering ($2.5 million), share-based compensation expense ($1.8 million) and travel during the six months ended July 30, 2011. Corporate and shared services expenses as a percentage of sales decreased to 4.5% from 4.6%.

Liquidity and Capital Resources

Our principal source of liquidity is cash generated by operations. We also have a $250 million asset-based revolving credit facility, 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.

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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 liquidity needs for the next twelve months. 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
(Dollars in thousands)	April 30, 2011			May 1, 2010
	July 30, 2011				July 31, 2010
Net cash provided by operating activities	$	45,683		$	4,429
(Dollars in thousands)
Net cash used in investing activities	(27,768		)	(3,974		)
Net cash provided by operating activities	$	56,123			$	36,600
Net cash (used in) provided by financing activities	(13,003		)	824
Net cash used in investing activities	(48,328		)		(9,680		)
Net cash used in financing activities	(7,609		)		(16,029		)

As of ~~April~~July 30, 2011, our cash and cash equivalent balance was $149.26 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.

Net cash flow provided by operating activities for the ~~three~~six months ended ~~April~~July 30, 2011 increased by $4119.35 million compared to the same period in Fiscal 2010. This increase in the Fiscal ~~2011~~2011period ~~period~~ was largely attributable to greater earnings. ~~and~~This ~~the~~source ~~completion~~ of ~~long-term~~increased ~~contracts~~cash ~~that were billed and collected~~flow, ~~plus~~along ~~increases~~with in customer deposits~~. These~~ ~~sources~~and ofaccounts ~~increased~~payable, ~~cash flow~~ in large part funded the build-up in inventory during the ~~three~~six months ended ~~April~~July 30, 2011, which ~~reflects~~is reflective of the overall increase in business activity for our company.

Net cash used in investing activities increased by $2338.86 million for the ~~three~~six months ended ~~April~~July 30, 2011 compared to the same period in Fiscal 2010. This increase was due to increases in capital expenditures and additions to rental equipment as well as the acquisition on March 23, 2011 of EMDSI. See “Note 11— ~~EMDSI~~ Acquisition.” ~~Capital expenditures and additions to rental equipment remained relatively consistent between both periods.~~

Net cash used in financing activities ~~increased~~decreased by $~~13.~~8.4 million for ~~the~~six ~~three~~ months ended ~~April~~July 30, 2011 compared to the same period in Fiscal 2010, and primarily ~~relate~~relates to ~~higher~~lower payments in Fiscal 2011 under our revolving credit facility due to ~~increased~~lower ~~cash~~outstanding ~~flow from operating activities~~balances, ~~plus~~ increased payments for our short-term notes payable~~. Net~~ ~~earnings~~and ~~for Fiscal 2011 resulted in~~ increased distributions to our unit holders for tax obligations due to increases in net earnings for Fiscal 2011.

Current Resources

We have an asset-based revolving credit facility in the amount of $250.0 million with a $25.0 million sub-facility to be used by our Canadian subsidiary. The $250.0 million revolving credit facility, which matures in February 2012, is secured by substantially all accounts receivable, inventory and property, plant and equipment and provides for borrowings at LIBOR, plus a margin ranging from 1.25% to 2.00% per annum, based on our leverage ratios, as specified in the credit agreement. 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 $~~158~~169.01 million at ~~April~~July 30, 2011.

25Our revolving credit facility matures in February 2012 and, therefore, is presented as current portion of long-term debt in our consolidated balance sheet as of July 30, 2011. We are in the process of negotiating a long-term extension of our revolving credit facility and, while we expect to be able to complete this extension, there is no assurance that we will be able to do so, or, if we are able to extend our revolving credit facility, whether it will be on substantially similar terms and conditions as are currently in effect.

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Our revolving credit facility matures in February 2012 and, therefore, the outstanding borrowings have been reclassified to current portion of long-term debt in our consolidated balance sheet as of April 30, 2011. We are in the process of negotiating a long-term extension of our revolving credit facility and, while we expect to be able to complete this extension, there is no assurance that we will be able to do so, or, if we are able to extend our revolving credit facility, whether it will be on substantially similar terms and conditions as are currently in effect.

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

	As of
(Dollars in thousands)	April 30, 2011		January 31, 2011
	July 30, 2011			January 31, 2011
Revolving credit facility	$	25,081	$	35,181
(In thousands)
Unsecured senior notes	150,000		150,000
Revolving credit facility	$	32,598		$	35,181
Total	$	175,081	$	185,181
Unsecured senior notes	150,000			150,000
Total	$	182,598		$	185,181

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 ~~April~~July 30, 2011. 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 $30.0 million or less. The financial covenant for the senior notes indenture requires that, were we to incur additional indebtedness (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.

We currently believe that our total estimated capital expenditures for Fiscal 2011 will be approximately $36.0 million, with up to $25.0 million ~~of this amount~~ to be used for additions to our rental fleet.

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 65.35%, 3.46% and 0.2%, respectively, of our total revenue during the ~~three~~six months ended ~~April~~July 30, 2011. 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 ~~fiscal~~six ~~quarter~~months ended ~~April~~July 30, 2011 to decrease in U.S. dollar terms by approximately $23.80 million and $13.61 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 ~~fiscal~~six ~~quarter~~months ended ~~April~~July 30, 2011 to decrease in U.S. dollar terms by approximately $2.14 million and $01.89 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.

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~~currency~~At ~~for~~January 31, 2011, we evaluated the rate at which we remeasure our Venezuelan subsidiary and ~~remeasured~~concluded ~~its~~that ~~financial~~based ~~statements~~on ~~into~~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. ~~dollars~~dollar atwas ~~the~~a ~~official~~more appropriate remeasurement rate. ~~Accordingly,~~The ~~using~~result ~~‘‘hyperinflationary~~of ~~accounting~~this change in remeasurement rate did not have a material impact to our financial statements. During the six months ended July 30,’’ we2011 ~~recognized~~and July 31, 2010, the ~~related~~SITME ~~losses~~rate orand ~~gains~~official ~~from~~rate ~~such~~did ~~remeasurement~~not offluctuate ~~its~~significantly. ~~balance~~As ~~sheet~~a inresult, the ~~consolidated~~effect ~~statements~~ of ~~its~~remeasuring ~~operations~~our Venezuelan subsidiary was insignificant.

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 its 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 first quarter of Fiscal 2011 and Fiscal 2010, 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 $250.0 million revolving credit facility was drawn, each quarter point change in interest rates would result in a $0.6 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 ~~April~~July 30, 2011. We determined that there were no changes in our internal control over financial reporting during the quarter ended ~~April~~July 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

27In 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.

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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, 2011, 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 2010 Form 10-K.

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

~~Not~~On ~~applicable~~May 31, 2011, our board authorized the grant to our Chief Executive Officer of 154,062 common units, which vested immediately, and 448,179 options to purchase common units, which vest subject to the attainment of both service and performance measures. The issuance of these securities is exempt from registration under the Securities Act pursuant to Rule 701 thereunder.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. [Removed and Reserved]

Item 5. Other Information

Not applicable.

Item 6. Exhibits

10.1		Second Supplemental Indenture, dated as of March 23, 2011, among Stewart & Stevenson LLC, EMDSI-Hunt Power, L.L.C. and Wells Fargo Bank National Association, to Indenture dated as of July 6, 2006 (Filed as Exhibit 10.1(b) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 31, 2010 filed on May 2, 2011 (File No. 001-33836) and incorporated herein by reference.)
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.
10.2		Employment Agreement, dated February 2, 2011, between Stewart & Stevenson LLC and Stephen Fulgham (Filed as Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 31, 2010 filed on May 2, 2011 (File No. 001-33836) and incorporated herein by reference.)
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.
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.
32.1	Section 1350 certification of the Principal Executive Officer pursuant to Section 906 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.
32.2	Section 1350 certification of the Principal Financial Officer pursuant to Section 906 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.
*101	The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 30, 2011, 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 Cash Flows, and (iv) related notes (furnished herewith).
32.2		Section 1350 certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

28*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.

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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 1, 2011

	STEWART & STEVENSON LLC

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


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

29September 12, 2011

Filing Compare · Stewart & Stevenson LLC