<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                                   (MARK ONE)
              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JULY 28, 2001

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


             FOR THE TRANSITION PERIOD FROM __________ TO _________


                          COMMISSION FILE NUMBER 0-8493

                       STEWART & STEVENSON SERVICES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                TEXAS                                   74-1051605
    (State or other jurisdiction of                  (I.R.S. Employer
     incorporation or organization)                 Identification No.)

   2707 NORTH LOOP WEST, HOUSTON, TEXAS                   77008
 (Address of principal executive offices)               (Zip Code)


                                 (713) 868-7700
              (Registrant's telephone number, including area code)


                                 not applicable
              (Former name, former address and former fiscal year,
                          if changed since last report)


      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.      Yes [X]      No [ ]


      Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.


COMMON STOCK, WITHOUT PAR VALUE                        28,438,591 SHARES
          (Class)                               (Outstanding at August 7, 2001)


<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

The following information required by Rule 10-01 of Regulation S-X is provided
herein for Stewart & Stevenson Services, Inc. and Subsidiaries (the "Company"):

Consolidated Condensed Statements of Financial Position - July 28, 2001 and
January 31, 2001.

Consolidated Condensed Statements of Earnings - Three and Six Months Ended July
28, 2001 and July 29, 2000.

Consolidated Condensed Statements of Cash Flows - Three and Six Months Ended
July 28, 2001 and July 29, 2000.

Consolidated Condensed Statements of Comprehensive Income - Three and Six Months
Ended July 28, 2001 and July 29, 2000.

Notes to Consolidated Condensed Financial Statements.



                                       2
<PAGE>

<PAGE>

STEWART & STEVENSON SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                    JULY 28, 2001        JANUARY 31, 2001
                                                                   ---------------     -------------------
                                                                     (Unaudited)
<S>                                                                   <C>                    <C>
ASSETS
CURRENT ASSETS
   Cash and cash equivalents                                          $ 107,764              $ 109,955
   Accounts and notes receivable, net                                   199,513                172,441
   Recoverable costs and accrued profits not yet billed                   2,058                 22,415
   Inventories:
      Power Products                                                    171,793                170,176
      Petroleum Equipment                                                40,845                 26,809
      Airline Products                                                   25,860                 29,007
      Tactical Vehicle Systems                                            6,633                  3,861
      Other Business Activities                                             762                  1,863
      Excess of current cost over LIFO values                           (51,359)               (51,309)
                                                                      ---------              ---------
         Total inventories, net                                         194,534                180,407

   Prepaid and other current assets                                      15,714                 16,539
                                                                      ---------              ---------
      TOTAL CURRENT ASSETS                                              519,583                501,757

PROPERTY, PLANT AND EQUIPMENT, NET                                      114,615                114,765
INVESTMENTS AND OTHER ASSETS                                             21,355                 22,340
                                                                      ---------              ---------
                                                                      $ 655,553              $ 638,862
                                                                      =========              =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
   Notes payable                                                      $  10,469              $  12,611
   Accounts payable                                                      53,073                 66,437
   Accrued payrolls and incentives                                       19,764                 21,395
   Current portion of long-term debt                                        437                 20,437
   Billings in excess of costs                                           52,735                 30,638
   Other current liabilities                                             39,734                 36,685
                                                                      ---------              ---------
      TOTAL CURRENT LIABILITIES                                         176,212                188,203

COMMITMENTS AND CONTINGENCIES

LONG-TERM DEBT                                                           57,440                 66,568
ACCRUED POSTRETIREMENT BENEFITS & PENSION                                20,620                 18,879
DEFERRED COMPENSATION                                                     1,889                  2,145
OTHER LONG-TERM LIABILITIES                                               6,651                  2,483
                                                                      ---------              ---------
    TOTAL LIABILITIES                                                   262,812                278,278
                                                                      ---------              ---------
SHAREHOLDERS' EQUITY
  Common Stock, without par value, 100,000,000 shares
   authorized; 28,436,341 and 28,067,566 shares issued at
   July 28, 2001 and January 31, 2001, respectively                      51,997                 48,325
  Currency translation adjustment                                        (1,015)                  (929)
  Retained earnings                                                     341,759                313,188
                                                                      ---------              ---------
      TOTAL SHAREHOLDERS' EQUITY                                        392,741                360,584
                                                                      ---------              ---------
                                                                      $ 655,553              $ 638,862
                                                                      =========              =========

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.


                                       3

<PAGE>
STEWART & STEVENSON SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                   SIX MONTHS ENDED                THREE MONTHS ENDED
                                                           -------------------------------  ---------------------------------
                                                            JULY 28, 2001    JULY 29, 2000   JULY 28, 2001    JULY 29, 2000
                                                           ---------------  --------------  ---------------  ----------------
<S>                                                           <C>              <C>              <C>              <C>
Sales                                                         $ 731,910        $ 528,091        $ 390,389        $ 266,978
Cost of sales                                                   625,408          440,888          332,776          228,361
                                                              ---------        ---------        ---------        ---------
Gross profit                                                    106,502           87,203           57,613           38,617

Recovery of costs incurred, net                                 (20,800)            --               --               --
Selling and administrative expenses                              72,011           69,430           36,530           30,643
Interest expense                                                  3,758            4,356            1,693            2,047
Interest and investment income                                   (2,112)          (4,592)            (897)            (400)
Other (income) expense, net                                        (286)          (6,282)            (266)          (6,040)
                                                              ---------        ---------        ---------        ---------
                                                                 52,571           62,912           37,060           26,250
                                                              ---------        ---------        ---------        ---------

Earnings before income taxes                                     53,931           24,291           20,553           12,367
Income tax expense                                               19,956            9,014            7,539            4,588
                                                              ---------        ---------        ---------        ---------
Net earnings from continuing operations                          33,975           15,277           13,014            7,779
Loss on disposal of discontinued
    operations, net of tax of $372                                 (628)            --               --               --
                                                              ---------        ---------        ---------        ---------
Net earnings                                                  $  33,347        $  15,277        $  13,014        $   7,779
                                                              =========        =========        =========        =========

Weighted average shares outstanding:
   Basic                                                         28,206           28,005           28,327           28,013
   Diluted                                                       28,927           28,175           29,146           28,229

Earnings per share:
  Basic
     Continuing operations                                    $    1.20        $    0.55        $    0.46        $    0.28
     Loss on disposal of discontinued operations                  (0.02)            --               --               --
                                                              ---------        ---------        ---------        ---------
     NET EARNINGS PER SHARE                                   $    1.18        $    0.55        $    0.46        $    0.28
                                                              =========        =========        =========        =========

  Diluted
     Continuing operations                                    $    1.17        $    0.54        $    0.45        $    0.27
     Loss on disposal of discontinued operations                  (0.02)            --               --               --
                                                              ---------        ---------        ---------        ---------
     NET EARNINGS PER SHARE                                   $    1.15        $    0.54        $    0.45        $    0.27
                                                              =========        =========        =========        =========

Cash dividends per share                                      $   0.170        $   0.170        $   0.085        $   0.085

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.



                                       4


<PAGE>
STEWART & STEVENSON SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                              SIX MONTHS ENDED            THREE MONTHS ENDED
                                                                       -----------------------------  ---------------------------
                                                                         JULY 28, 2001 JULY 29, 2000  JULY 28, 2001 JULY 29, 2000
                                                                       --------------  -------------  ------------- -------------
                                                                                               (Unaudited)
<S>                                                                        <C>           <C>           <C>           <C>
OPERATING ACTIVITIES
   Net earnings from continuing operations                                 $  33,975     $  15,277     $  13,014     $   7,779
   Adjustments to reconcile net earnings to net
     cash provided by (used in) operating activities:
       Accrued postretirement benefits & pension                               1,741           618           645           370
       Depreciation and amortization                                          10,901        11,025         5,438         5,493
       Deferred income taxes, net                                             (3,106)         (754)        1,378          (790)
       Gain on sale of business assets                                          --          (5,649)         --          (5,649)
       Change in operating assets and liabilities net of the effect
         of acquisition, divestiture and discontinued operations:
          Accounts and notes receivable, net                                 (29,612)       36,946        21,799        (8,018)
          Recoverable costs and accrued profits not yet billed                20,357        (4,736)        8,817         1,247
          Inventories                                                        (14,127)       15,958        (6,406)       28,272
          Accounts payable                                                   (13,364)      (37,832)       (7,227)      (27,803)
          Accrued payrolls and incentive                                      (1,630)       (4,332)       (2,008)           89
          Current income taxes, net                                            4,509        10,127       (11,622)        5,836
          Other current liabilities                                            6,753         7,219        (7,558)       10,058
          Other--principally long-term assets and liabilities                 21,703        (4,374)       24,105        (2,905)
                                                                           ---------     ---------     ---------     ---------
   NET CASH PROVIDED BY OPERATING ACTIVITIES                                  38,100        39,493        40,375        13,979
                                                                           ---------     ---------     ---------     ---------

INVESTING ACTIVITIES
   Expenditures for property, plant and equipment                            (22,819)      (20,558)      (10,657)      (10,279)
   Proceeds from sale of business assets                                       2,323        44,622          --          44,622
   Disposal of property, plant and equipment, net                              1,280         2,288           433         2,165
                                                                           ---------     ---------     ---------     ---------
   NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                       (19,216)       26,352       (10,224)       36,508
                                                                           ---------     ---------     ---------     ---------

FINANCING ACTIVITIES
   Additions to long-term borrowings                                            --          20,047          --            --
   Payments on long-term borrowings                                          (20,219)      (20,221)      (20,155)         (414)
   Net short-term borrowings (payments)                                       (2,142)      (10,724)       (1,254)       (1,234)
   Dividends paid                                                             (4,776)       (4,761)       (2,391)       (2,382)
   Exercise of stock options                                                   6,062          --           5,592          --
                                                                           ---------     ---------     ---------     ---------
   NET CASH USED IN FINANCING ACTIVITIES                                     (21,075)      (15,659)      (18,208)       (4,030)
                                                                           ---------     ---------     ---------     ---------

Increase (Decrease) in cash and cash equivalents                              (2,191)       50,186        11,943        46,457
Cash and cash equivalents, beginning of period                               109,955        11,715        95,821        15,444
                                                                           ---------     ---------     ---------     ---------
Cash and cash equivalents, end of period                                   $ 107,764     $  61,901     $ 107,764     $  61,901
                                                                           =========     =========     =========     =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Net cash paid during the period for:
       Interest                                                            $   4,101     $   4,742     $   3,578     $   3,608
       Income tax                                                             18,377         7,203        17,989         6,611

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.



                                       5

<PAGE>
STEWART & STEVENSON SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                               SIX MONTHS ENDED                      THREE MONTHS ENDED
                                     -----------------------------------     ----------------------------------
                                                 (Unaudited)                            (Unaudited)
                                      JULY 28, 2001       JULY 29, 2000       JULY 28, 2001      JULY 29, 2000
                                     ---------------     ---------------     ---------------    ---------------
<S>                                     <C>                 <C>                 <C>                 <C>
Net earnings                            $ 33,347            $ 15,277            $ 13,014            $  7,779

Currency translation loss                    (86)               (179)                (22)                (91)
                                        --------            --------            --------            --------

Comprehensive income                    $ 33,261            $ 15,098            $ 12,992            $  7,688
                                        ========            ========            ========            ========
</TABLE>

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.



                                       6

<PAGE>

STEWART & STEVENSON SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE A--BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated condensed financial statements have been prepared
in accordance with Rule 10-01 of Regulation S-X for interim financial statements
required to be filed with the Securities and Exchange Commission and do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. However, the information furnished
herein reflects all normal recurring adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods. The results of operations for the three and six months ended July 28,
2001 are not necessarily indicative of the results that will be realized for the
fiscal year ending January 31, 2002.

The Company's fiscal year begins on February 1 of the year stated and ends on
January 31 of the following year. For example, the Company's fiscal year 2001
(hereinafter referred to as "2001") commenced on February 1, 2001 and ends on
January 31, 2002. In addition, other years are referred to in the same manner.
The Company reports results on the fiscal quarter method with each quarter
comprising approximately 13 weeks.

The accounting policies followed by the Company in preparing interim
consolidated financial statements are similar to those described in the "Notes
to Consolidated Financial Statements" in the Company's January 31, 2001 Form
10-K. An actual valuation of inventory under the last-in-first-out ("LIFO")
method can be made only at the end of each year based on the inventory levels
and costs at that time. Accordingly, interim LIFO calculations are based on
management's estimates of expected year-end inventory levels and costs. Interim
results are subject to the final year-end LIFO inventory valuation.

The accompanying consolidated condensed financial statements for 2000 and
related notes contain certain reclassifications to conform with the presentation
used in 2001.

NOTE B--SEGMENT INFORMATION

Financial information relating to industry segments is as follows (in thousands
except percentages):

<TABLE>
<CAPTION>
                                                     SIX MONTHS ENDED                       THREE MONTHS ENDED
                                          ------------------------------------     ------------------------------------
                                            JULY 28, 2001       JULY 29, 2000       JULY 28, 2001        JULY 29, 2000
                                          ----------------    ----------------     ---------------     ----------------
                                                                           (Unaudited)
<S>                                          <C>                  <C>                  <C>                  <C>
SALES
  Power Products                             $ 384,771            $ 283,615            $ 217,099            $ 155,299
  Tactical Vehicle Systems                     217,265              134,325              108,771               55,652
  Petroleum Equipment                           71,606               34,261               36,868               18,813
  Airline Products                              46,988               56,585               22,878               28,275
  Other Business Activities                     11,280               19,305                4,773                8,939
                                             ---------            ---------            ---------            ---------
    Total                                    $ 731,910            $ 528,091            $ 390,389            $ 266,978
                                             =========            =========            =========            =========
OPERATING PROFIT (LOSS)
  Power Products                             $  10,604            $   2,417            $   8,778            $   3,233
  Tactical Vehicle Systems                      54,706               28,957               16,361               14,321
  Petroleum Equipment                            3,595                 (269)               2,208                  404
  Airline Products                              (6,909)              (4,337)              (2,558)              (4,341)
  Other Business Activities                        333                2,632                  107                3,266
                                             ---------            ---------            ---------            ---------
    Total                                    $  62,329            $  29,400            $  24,896            $  16,883
                                             =========            =========            =========            =========

OPERATING MARGIN PERCENTAGE
  Power Products                                   2.8%                 0.9%                 4.0%                 2.1%
  Tactical Vehicle Systems                        25.2                 21.6                 15.0                 25.7
  Petroleum Equipment                              5.0                 (0.8)                 6.0                  2.1
  Airline Products                               (14.7)                (7.7)               (11.2)               (15.4)
  Other Business Activities                        3.0                 13.6                  2.2                 36.5
  Total                                            8.5                  5.6                  6.4                  6.3

</TABLE>


                                       7


<PAGE>

A reconciliation of operating profit to earnings before income taxes is as
follows (in thousands):

<TABLE>
<CAPTION>
                                                            SIX MONTHS ENDED                   THREE MONTHS ENDED
                                                    ---------------------------------  ---------------------------------
                                                               (Unaudited)                        (Unaudited)
                                                     JULY 28, 2001     JULY 29, 2000    JULY 28, 2001     JULY 29, 2000
                                                    ---------------   ---------------  ---------------   ---------------
<S>                                                    <C>               <C>               <C>               <C>
Operating profit                                       $ 62,329          $ 29,400          $ 24,896          $ 16,883

Corporate expenses, net                                  (6,753)           (5,345)           (3,547)           (2,869)

Non-operating interest and investment income              2,112             4,592               897               400

Interest expense                                         (3,757)           (4,356)           (1,693)           (2,047)
                                                       --------          --------          --------          --------
Earnings before income taxes                           $ 53,931          $ 24,291          $ 20,553          $ 12,367
                                                       ========          ========          ========          ========
</TABLE>

NOTE C--ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting For Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts and hedging activities. Effective February 1, 2001,
the Company adopted SFAS No. 133. Such adoption did not have a material effect
on the Company's results of operations or financial position.

In September 2000, the Emerging Issues Task Force ("EITF") released abstract No.
00-10, "Accounting for Shipping and Handling Fees and Costs," which was adopted
by the Company effective January 31, 2001. EITF No. 00-10 requires that shipping
and handling costs billed to customers be recorded as sales. Accordingly, the
Company has restated its quarterly sales and cost of sales for 2000. Such
restatement had no impact on gross profit or net earnings.

In June 2001, the FASB issued SFAS No. 141 "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations entered into
after June 30, 2001 and SFAS No. 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets. SFAS No. 142
requires that the balance sheet valuation of goodwill and other intangible
assets be evaluated for impairment at least annually. Further, it requires that
amortization of goodwill cease beginning with the Company's fiscal year 2002.
Any transition charges recognized upon implementation of SFAS No. 142 will be
accounted for as a cumulative effect of a change in accounting principle. The
Company has approximately $14 million of unamortized goodwill and other
intangible assets as of July 28, 2001, and expects to recognize approximately
$600,000 of amortization expense associated therewith during Fiscal 2001. The
Company is currently evaluating the possible impact of the adoption of these
standards on its financial statements.

NOTE D--COMMITMENTS AND CONTINGENCIES

As a custom packager of power systems, the Company issues bid and performance
guarantees in the form of performance bonds or standby letters of credit.
Performance type letters of credit totaled $4.1 million at July 28, 2001.

The Company's government contract operations are subject to U.S. Government
investigations of business practices and cost classifications from which legal
or administrative proceedings can result. Based on government procurement
regulations, under certain circumstances a contractor can be fined, as well as
suspended or debarred from government contracting. In that event, the Company
would also be unable to sell equipment or services to customers that depend on
loans or financial commitments from the Export Import Bank, Overseas Private
Investment Corporation, and similar government agencies during a suspension or
debarment.

During 1998, the U.S. Customs Service detained a medium tactical vehicle that
was being shipped by the Company for display in a European trade show. The
Company has been advised that the U.S. Customs Service and the Department of
Justice are investigating potential violations by the Company of laws relating
to the export of controlled military vehicles, weapons mounting systems, and
firearms. Such investigation could result in the filing of criminal, civil, or
administrative sanctions against the Company and/or individual employees and
could result in a suspension or debarment of the Company from receiving new
contracts or subcontracts with agencies of the U.S. Government or the benefit of
federal assistance payments. It is presently impossible to determine the actual
costs that may be incurred to resolve this matter or whether the resolution will
have a material adverse effect on the Company's results of operations.

The Company is also a defendant in a number of lawsuits relating to contractual,
product liability, personal injury, and warranty matters




                                       8
<PAGE>

normally incident to the Company's business. No individual case, or group of
cases presenting substantially similar issues of law or fact, involve a claim
for damages which are material to the Company's financial statements or are
expected to have a material effect on the manner in which the Company conducts
its business. Although management has established reserves that it believes to
be adequate in each case, an unforeseen outcome in such cases could have a
material adverse impact on the results of operations in the period it occurs.

The Company has provided certain guarantees in support of its customers'
financing of purchases from the Company in the form of both residual value and
debt guarantees. The maximum exposure of the Company related to guarantees at
July 28, 2001 is $5.4 million.

The Company leases certain additional property and equipment under lease
arrangements of varying terms whose annual rentals are less than 1% of
consolidated sales.

NOTE E--SUBSEQUENT EVENTS

In Fiscal 2000, the Company filed a certified claim with the U.S. Government
seeking recovery of costs incurred by the Company resulting from retrofitting
all vehicles produced under the first FMTV contract for changes in drive train
components. All costs associated with the retrofitting were expensed by the
Company as incurred. The U.S. Army and the Company agreed to attempt resolution
through voluntary participation in the Alternative Disputes Resolution process
managed by the Armed Services Board of Contract Appeals. This process took place
in August 2001 and concluded with the agreement that the Company would receive
$18.5 million in settlement of its claim. The Company has recorded the recovery
and related receivable in August 2001. The U.S. Government has agreed to use its
best efforts to effect payment by December 31, 2001. If payment is not made by
December 31, 2001, the settlement shall be converted to a consent decree with
interest accruing from January 1, 2002 until paid.

In August of 2001, management committed to a plan to restructure its Airline
Products segment that includes relocation and consolidation of most of its
products and workforce to Kennesaw, Georgia. Costs associated with the
restructuring will be incurred primarily in the third and fourth quarters of
Fiscal 2001.



                                       9
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

This discussion should be read in conjunction with the attached condensed
consolidated financial statements and notes thereto, and with the Company's Form
10-K and notes thereto for the fiscal year ended January 31, 2001. The following
discussion contains forward-looking statements which are based on assumptions
such as timing, volume, and pricing of customers' orders. In connection
therewith, please see the cautionary statements contained therein and the
heading labeled "Factors That May Affect Future Results" below, which identify
important factors that could cause actual results to differ materially from
those in the forward-looking statements.

The Company's fiscal year begins on February 1 of the year stated and ends on
January 31 of the following year and the Company reports its results on a fiscal
quarter basis, with each quarter being approximately 13 weeks long. For example,
"Fiscal second quarter 2001" commenced on April 29, 2001 and ends on July 28,
2001.

RESULTS OF OPERATIONS

Sales for Fiscal second quarter 2001 grew 46% to $390.4 million compared to
sales of $267.0 million in the same period a year ago. Gross profit percentage
for the same period was 14.8%, slightly higher than the 14.3% recorded during
Fiscal first quarter 2001 and the 14.5% recorded in last year's second quarter.

Sales for the first six months of Fiscal 2001 grew 39% to $731.9 million versus
$528.1 million for the first six months of Fiscal 2000. This year's first six
months includes special non-recurring items that impacted cost of goods sold by
$5.1 million and which impacted gross profit by 0.7 percentage points. These
adjustments pertained to accounts receivable, inventory realization, and higher
warranty costs. Other factors impacting the gross margin comparison with last
year include lower margins in the Airline Products segment and a return to more
normal margins in the Tactical Vehicle Systems segment.

Recovery of costs incurred, net represented recovery pursuant to a certified
claim with the U.S. Government for costs incurred by the Company resulting from
production delays in the first multi-year Family of Medium Tactical Vehicles
("FMTV") contract. A settlement of $22.0 million was reached during Fiscal first
quarter 2001 which was reduced by $1.2 million of related expenses for legal and
professional services.

Selling and Administrative expenses were $36.5 million, or 9.4% of sales for
Fiscal second quarter 2001 compared to $35.5 million or 10.4% of sales in Fiscal
first quarter of 2001 and $30.6 million or 11.5% in Fiscal second quarter 2000.
Selling and Administrative expenses for the first six months of Fiscal 2001 were
$72.0 million, or 9.8% of sales compared to $69.4 million, or 13.2% for the same
period in the prior year. The first six months of Fiscal 2001 included special
non-recurring items of $1.5 million pertaining to legal expenses and provisions
for a doubtful receivable. The first six months of Fiscal 2000 included a $7.0
million provision for a doubtful receivable.

Interest and investment income more than doubled to $0.9 million in the Fiscal
second quarter 2001 compared to $0.4 million for Fiscal second quarter 2000 due
to higher average cash and investment balances, partially offset by lower
effective interest rates. Interest and investment income decreased $2.5 million
during the first six months of Fiscal 2001 to $2.1 million compared to $4.6
million in the previous year. Included in the previous year's results was $4.0
million in interest income in connection with tax refunds from the Internal
Revenue Service. Interest expense decreased $0.3 million principally due to
lower average borrowings.

Other income in Fiscal 2000 second quarter and six months results included a
$5.6 million gain from sale of the gas compression leasing business.

Net earnings from continuing operations in Fiscal second quarter 2001 were $13.0
million or $0.45 per diluted share versus $7.8 million or $0.27 per share in
last year's second quarter. Net earnings from continuing operations for the
first half more than doubled to $33.9 million or $1.17 per share compared to
$15.3 million or $0.54 per diluted share in the same period for Fiscal 2000. Net
loss from discontinued operations in the first half of Fiscal 2001 was $ 0.6
million or $0.02 per share. Total net earnings in Fiscal second quarter 2001
were $33.3 million or $1.15 per diluted share compared with $15.3 million or
$0.54 per share for the comparable period of Fiscal 2000.

SEGMENT DATA

The Company's management analyzes financial results in five business segments
based on distinct product and customer types: Power Products, Tactical Vehicle
Systems, Petroleum Equipment, Airline Products, and Other Business Activities.
Such segments are described below along with analyses of their respective
results of operations.



                                       10
<PAGE>

The Power Products segment, which is responsible for marketing and aftermarket
support of a wide range of industrial equipment, recorded Fiscal second quarter
2001 sales of $217.1 million, a 40% increase over sales of $155.3 million in the
same period of last year. The sales growth was paced by $40 million in revenue
for two turnkey power generation projects that are part of the California
Independent System Operation ("ISO") Summer Reliability Program. Operating
profit totaled $8.8 million versus $3.2 million in the comparable period of last
year. The operating profit rate in Fiscal second quarter 2001 improved to 4.0
percent as compared to 2.1 percent in last year's second quarter as a result of
product mix and productivity improvements. Last year's second quarter included a
$2.5 million increase in reserves primarily for inventories.

The Tactical Vehicle Systems segment, which manufactures tactical vehicles for
the U.S. Army and others, recorded sales of $108.8 million in the Fiscal second
quarter 2001 compared to $55.7 million a year ago. Operating profit for the
quarter totaled $16.4 million, compared with $14.3 million in the Fiscal second
quarter 2000. In Fiscal 1998, the Company filed a claim with the U.S. government
seeking recovery of costs incurred resulting from delays from the original
production plan in the first multi-year FMTV contract. The U.S. Army and the
Company participated in a voluntary dispute resolution process which took place
in April 2001 and resulted in a $22.0 million settlement which was included in
Fiscal first quarter 2001 results. Operations in Fiscal first quarter 2001 also
included special non-recurring items of $1.7 million, principally related to
this cost recovery. Margin rates for this segment are anticipated to be somewhat
lower in the third quarter due to sales mix, principally resulting from option
sales that carry lower prices. A rebound in margin rates is expected in the
fourth quarter.

The Petroleum Equipment segment manufactures equipment for the oil and gas
exploration, production, and well stimulation industries. Sales in this segment
totaled $36.9 million for Fiscal second quarter 2001 compared to $18.8 million
in the same period of Fiscal 2000. Operating profit for the second quarter was
$2.2 million versus a profit of $0.4 million in the previous year. The order
backlog at the end of the second quarter totaled $63.0 million, compared with
$47.4 million at the end of Fiscal 2000. Demand for this segment's products
remains strong and the Company anticipates improvements in profit margin
achieved in the second quarter to continue into the second half of fiscal 2001.

The Airline Products segment, which manufactures airline ground support products
and mobile railcar movers, recorded sales of $22.9 million in Fiscal second
quarter 2001, compared with $28.3 million in the same quarter last year.
Operating loss for the second quarter totaled $2.6 million, an improvement from
the first quarter loss of $4.4 million and last year's second quarter loss of
$4.3 million. Operations in Fiscal first quarter 2001 included the impact of
special non-recurring items of $3.1 million related to higher costs for extended
warranties and expenses for inventory realization. The performance improvement
team, established earlier this year, continues to make progress and improved
margins are expected during the second half of Fiscal 2001 before any costs
associated with the rationalization of the segment's manufacturing facilities. -
See "Subsequent Events" below.

Other business activities not identified in a specific segment include
predominantly gas compression equipment sales. Fiscal second quarter 2001 sales
were $4.8 million, compared to $8.9 million for the comparable period last year.
The decline in sales year over year was principally due to the exiting of the
gas compression leasing business last year. Second quarter operating profit was
$0.1 million compared to $3.3 million in last year's second quarter, which
included a $5.6 million gain on sale of the gas compression leasing business.

UNFILLED ORDERS

The Company's unfilled orders consist of written purchase orders, letters of
intent, and oral commitments. These unfilled orders are generally subject to
cancellation or modification due to customer relationships or other conditions.
Purchase options are not included in unfilled orders until exercised. Unfilled
orders as of July 28, 2001 and as of July 29, 2000 were as follows:


                                          -------------------------
                                           July 28,         July 29,
                                            2001              2000
                                          -------------------------
                                              ( In millions)
     Tactical Vehicle Systems             $ 493.1           $ 795.7
     Power Products                         146.1             116.7
     Petroleum Equipment                     63.0              55.6
     Airline Products                        17.1              17.2
     All Other                               10.6              10.1
                                          -------------------------
                                          $ 729.9           $ 995.3
                                          =========================


                                       11
<PAGE>

Total unfilled orders decreased $115.3 million during the quarter principally as
a result of deliveries under the multi-year Tactical Vehicle Systems contract
and completion of two turnkey power generation projects in California in the
Power Products segment. The Petroleum Equipment segment's unfilled orders
increased $15.6 million during the quarter due to certain large orders received.

Over the coming months, the Company expects the backlog in its Tactical Vehicle
Systems segment to continue to decrease as existing contractual orders are
filled.


LIQUIDITY AND CAPITAL RESOURCES

During Fiscal second quarter 2001, cash of $40.4 million was provided by
operations which included a $22.0 million recovery from the U.S. Government.
During the same period, the Company invested $10.7 million in property, plant
and equipment to expand its existing businesses and for the purchase and
implementation of its new enterprise information system. Payments of cash
dividends on common stock totaled $2.4 million during the quarter. Cash and
equivalents were $107.8 million at July 28, 2001, an increase of $11.9 million
versus the prior quarter. Borrowings at the end of the Fiscal second quarter
were $68.3 million, a decrease of $30.3 million versus the previous quarter. The
decrease in debt was due to a scheduled repayment of $20.0 million and $8.9
million mortgage note reduction in connection with the sale of the remaining
partnership interest in the corporate headquarters building.

The Company's sources of cash liquidity included cash and equivalents, cash from
operations, amounts available under credit facilities, and other external
sources of funds. The Company believes that these sources are sufficient to fund
the current requirements of working capital, capital expenditures, dividends,
and other financial commitments. The Company has in place an unsecured revolving
debt facility that could provide up to approximately $145 million, net of $5
million outstanding under a $25 million letter of credit sub facility. This
revolving facility matures during Fiscal 2004. In addition, the Company has $55
million in senior notes outstanding.

The Company's unsecured long-term notes, which include the revolving credit
notes and senior notes, were issued pursuant to agreements containing covenants
that restrict indebtedness, guarantees, rentals, and other items. Additional
covenants in the revolving credit notes require the Company to maintain a
minimum tangible net worth and interest coverage. Since these requirements are
calculated from earnings and cash flow, dividends could be restricted
indirectly. Dividends at the current level are not restricted as of the date of
this report.

The Company has additional banking relationships which provide uncommitted
borrowing arrangements. In the event that any acquisition of additional
operations, growth in existing operations, settlements of lawsuits or disputes,
changes in inventory levels, accounts receivable, tax payments, or other working
capital items create a permanent need for working capital or capital
expenditures in excess of the existing cash and equivalents and committed lines
of credit, the Company may seek to borrow under other long-term financing
instruments or seek additional equity capital.

SUBSEQUENT EVENTS

In Fiscal 2000, the Company filed a certified claim with the U.S. Government
seeking recovery of costs incurred by the Company resulting from retrofitting
all vehicles produced under the first FMTV contract for changes in drive train
components. All costs associated with the retrofitting were expensed by the
Company as incurred. The U.S. Army and the Company agreed to attempt resolution
through voluntary participation in the Alternative Disputes Resolution process
managed by the Armed Services Board of Contract Appeals. This process took place
in August 2001 and concluded with the agreement that the Company would receive
$18.5 million in settlement of its claim. The Company has recorded the recovery
and related receivable in August 2001. The U.S. Government has agreed to use its
best efforts to effect payment by December 31, 2001. If payment is not made by
December 31, 2001, the settlement shall be converted to a consent decree with
interest accruing from January 1, 2002 until paid.

In August of 2001, management committed to a plan to restructure its Airline
Products segment that includes relocation and consolidation of most of its
products and workforce to Kennesaw, Georgia. Costs associated with the
restructuring will be incurred primarily in the third and fourth quarters of
Fiscal 2001.


                                       12

<PAGE>

FACTORS THAT MAY AFFECT FUTURE RESULTS

FORWARD-LOOKING STATEMENTS

This filing contains forward-looking statements that are based on management's
current expectations, estimates, and projections. These statements are not
guarantees of future performance and involve a number of risks, uncertainties,
and assumptions and are made pursuant to the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995. Many factors, including those
discussed more fully elsewhere in this release and in the Company's filings with
the Securities and Exchange Commission, particularly its latest annual report on
Form 10-K, as well as others, could cause results to differ materially from
those stated. Specific important factors that could cause actual results,
performance, or achievements to differ materially from such forward-looking
statements include risk of competition, risks relating to technology, risks of
general economic conditions, risks relating to personnel, risks of dependence on
government, inherent risks of government contracts, risks of claims and
litigation, risks as to global trade matters, risks as to cost controls, risks
as to acquisitions, risks as to currency fluctuations, risks as to environmental
and safety matters, and risks as to distributorships, all as more specifically
outlined in the Company's latest annual report on Form 10-K. In addition, such
forward-looking statements could be affected by general industry and market
conditions and growth rates, general domestic and international conditions
including interest rates, inflation and currency exchange rates and other future
factors. Actual outcomes and results may differ materially from what is
expressed or forecasted in such forward-looking statements.




                                       13
<PAGE>


PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

During 1998, the U.S. Customs Service detained a medium tactical vehicle that
was being shipped by the Company for display in a European trade show. The
Company has been advised that the U.S. Customs Service and the Department of
Justice are investigating potential violations by the Company of laws relating
to the export of controlled military vehicles, weapons mounting systems, and
firearms. Such investigation could result in the filing of criminal, civil, or
administrative sanctions against the Company and/or individual employees and
could result in a suspension or debarment of the Company from receiving new
contracts or subcontracts with agencies of the U.S. Government or the benefit of
federal assistance payments.

The Company is also a defendant in a number of lawsuits relating to contractual,
product liability, personal injury, and warranty matters normally incident to
the Company's business. No individual case, or group of cases presenting
substantially similar issues of law or fact, involve a claim for damages which
are material to the Company's financial statements or are expected to have a
material effect on the manner in which the Company conducts its business.
Although management has established reserves that it believes to be adequate in
each case, an unforeseen outcome in such cases could have a material adverse
impact on the results of operations in the period it occurs.



                                       14
<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On June 12, 2001 the Company's Annual Meeting of Shareholders was held. Set
forth below is a brief description of each matter acted upon at the meeting and
the number of votes cast for, against or withheld and abstaining, or not voting
as to each matter.


      ELECTION OF DIRECTORS               FOR           WITHHELD      ABSTAINED
                                         -----         ----------     ---------

      Donald E. Stevenson              24,937,415        377,150
      Robert S. Sullivan               24,937,617        376,948
      Max L. Lukens                    24,927,817        386,848

      Ratification of Accountants      24,993,503        317,082         3,980


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a)  Exhibits:

     3.2 Sixth Restated Bylaws of Stewart & Stevenson Services, Inc., effective
     June 12, 2001


(b)  Form 8-K Report Date - May 9, 2001 (First Quarter Conference Call and
     Earnings Release Schedule)
     Items reported -   Item 5.  Other Events
                        Item 7.  Exhibits

     Form 8-K Report Date - May 24, 2001 (First Quarter 2001 Financial Results)
     Items reported -   Item 5.  Other Events
                        Item 7.  Exhibits

     Form 8-K Report Date - June 13, 2001 (Announces Two New Directors and
     Second Quarter Dividend)
     Items reported -   Item 5.  Other Events
                        Item 7.  Exhibits



                                       15

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 28th day of August 2001.

STEWART & STEVENSON SERVICES, INC.


By: /s/ MICHAEL L. GRIMES
Michael L. Grimes
President and Chief Executive Officer
(Principal Executive Officer)


By: /s/ JOHN H. DOSTER
John H. Doster
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)


By: /s/ JOHN B. SIMMONS
John B. Simmons
Controller and Chief Accounting Officer
(Chief Accounting Officer)



                                       16