UNITED STATES
                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 October 30, 1999

                              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             27,992,203 Shares
            (Class)                 (Outstanding at November 22, 1999)



<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 -- October 30, 1999 and
January 31, 1999.

Consolidated  Condensed  Statements of Earnings  (Loss) -- Nine Months and Three
Months Ended October 30, 1999 and October 31, 1998.

Consolidated  Condensed Statements of Cash Flows -- Nine Months and Three Months
Ended October 30, 1999 and October 31, 1998.




Notes to Consolidated Condensed Financial Statements.


<PAGE>




<TABLE>
<CAPTION>

STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL POSITION
(In thousands)
                                                                             ------------------          ------------------
                                                                              October 30, 1999            January 31, 1999
                                                                             ------------------          ------------------
                                                                                 (Unaudited)

<S>                                                                                <C>                        <C>
ASSETS
CURRENT ASSETS
   Cash and cash equivalents                                                       $19,935                    $12,959
   Accounts and notes receivable, net                                              198,041                    164,547
   Recoverable costs and accrued profits
      not yet billed                                                                 8,408                     99,097
   Income tax receivable                                                            32,587                     48,596
   Inventories:
      Power Products                                                               156,402                    182,894
      Petroleum Equipment                                                           25,277                     40,560
      Airline Products                                                              16,889                     10,079
      Other Business Activities                                                     41,838                     30,143
      Excess of current cost over LIFO values                                      (49,104)                   (48,474)
                                                                                 ------------               ------------
                                                                                   191,302                    215,202
                                                                                 ------------               ------------
      TOTAL CURRENT ASSETS                                                         450,273                    540,401

PROPERTY, PLANT AND EQUIPMENT                                                      279,314                    271,658
   Allowances for depreciation and
       amortization                                                               (155,828)                  (142,913)
                                                                                 ------------               ------------
                                                                                   123,486                    128,745

DEFERRED INCOME TAX ASSETS                                                           8,144                      7,904
INVESTMENTS AND OTHER ASSETS                                                        36,619                     28,727
                                                                                 ------------               ------------
                                                                                  $618,522                   $705,777
                                                                                 ============               ============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
   Notes payable                                                                   $14,961                    $17,468
   Accounts payable                                                                 72,744                     83,127
   Accrued payrolls and incentives                                                  12,058                     17,123
   Current income taxes                                                              2,920                      2,931
   Current portion of long-term debt                                                 8,920                     69,488
   Other current liabilities                                                        86,145                     95,349
                                                                                 ------------               ------------
      TOTAL CURRENT LIABILITIES                                                    197,748                    285,486
                                                                                 ------------               ------------

COMMITMENTS AND CONTINGENCIES

LONG-TERM DEBT                                                                      78,436                     83,530
DEFERRED INCOME TAX LIABILITIES                                                         58                         43
ACCRUED POSTRETIREMENT BENEFITS                                                     13,794                     13,019
DEFERRED COMPENSATION                                                                2,846                      3,336
SHAREHOLDERS' EQUITY
   Common Stock, without par value, 100,000,000
     shares authorized; 27,992,203 and 27,984,035
     shares issued, respectively                                                    47,722                     47,819
   Retained earnings                                                               277,918                    272,544
                                                                                 ------------               ------------
      TOTAL SHAREHOLDERS' EQUITY                                                   325,640                    320,363
                                                                                 ------------               ------------
                                                                                  $618,522                   $705,777
                                                                                 ============               ============

See accompanying notes to consolidated condensed financial statements.
</TABLE>

<PAGE>





<TABLE>
<CAPTION>

STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (LOSS)
(In thousands, except per share data)
                                                             ---------------------------------     --------------------------------
                                                                     Nine Months Ended                    Three Months Ended
                                                             ---------------------------------     --------------------------------
                                                               October 30,       October 31,          October 30,     October 31,
                                                                  1999              1998                 1999             1998
                                                             --------------   ----------------      -------------    --------------
                                                                      (Unaudited)                           (Unaudited)
<S>                                                              <C>               <C>                  <C>              <C>
Sales                                                            $624,267          $949,670             $234,716         $321,121
Cost of sales                                                     527,505           875,054              199,095          309,279
                                                             --------------    --------------      ---------------   --------------

Gross profit                                                       96,762            74,616               35,621           11,842

Selling and administrative expenses                                76,431            62,011               26,166           23,316
Interest expense                                                    8,812             8,868                2,102            2,912
Other income, net                                                  (3,778)          (13,097)                (339)          (2,867)
                                                             --------------    --------------      ---------------   --------------
                                                                   81,465            57,782               27,929           23,361
                                                             --------------    --------------      ---------------   --------------

Earnings (loss) from continuing operations
  before income taxes                                              15,297            16,834                7,692          (11,519)
Income tax provision (benefit)                                      5,673             5,960                2,857           (4,335)
                                                             --------------    --------------      ---------------   --------------
Earnings (loss) of consolidated companies                           9,624            10,874                4,835           (7,184)
Gain on sale of investment, net of tax provision of $846            2,746                 -                2,746                -
Equity in net earnings (loss) of
  unconsolidated  affiliates                                          142              (189)                (192)             267
                                                             --------------    --------------      ---------------   --------------

Net earnings (loss) from continuing operations                     12,512            10,685                7,389           (6,917)
Net loss from discontinued operations,
  net of tax benefit of $11,750                                         -           (20,000)                   -          (20,000)
                                                             --------------    --------------      ---------------   --------------

Net earnings (loss)                                               $12,512           $(9,315)             $ 7,389         $(26,917)
                                                             ==============    ==============      ===============   ==============

Weighted average shares outstanding:
   Basic:                                                          27,988            29,351               27,992           27,984
   Diluted:                                                        28,036            29,351               28,082           27,984

Earnings (loss) per share:
  Basic:
    Continuing operations                                           $0.45             $0.36                $0.26           $(0.25)
    Discontinued operations                                             -             (0.68)                   -            (0.71)
                                                             --------------    --------------      ---------------   --------------
                                                                    $0.45            $(0.32)               $0.26           $(0.96)
  Diluted:
    Continuing operations                                           $0.45             $0.36                $0.26           $(0.25)
    Discontinued operations                                             -             (0.68)                   -            (0.71)
                                                             --------------    --------------      ---------------   --------------
                                                                    $0.45            $(0.32)               $0.26           $(0.96)

Cash dividends per share                                           $0.255            $0.255               $0.085           $0.085
                                                             ==============    ==============      ===============   ==============

See accompanying notes to consolidated condensed financial statements.
</TABLE>


<PAGE>


<TABLE>
<CAPTION>

STEWART & STEVENSON SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
                                                                    -----------------------------        ---------------------------
                                                                         Nine Months Ended                  Three Months Ended
                                                                    -----------------------------        ---------------------------
                                                                     October 30,     October 31,          October 30,    October 31,
                                                                        1999            1998                 1999           1998
                                                                    ------------    -------------        ------------   ------------
                                                                             (Unaudited)                          (Unaudited)

<S>                                                                   <C>              <C>                  <C>            <C>
Operating Activities
   Net earnings (loss) from continuing operations                     $ 12,512         $ 10,685             $ 7,389        $(6,917)
   Adjustments to reconcile net earnings(loss)to net cash
     provided by (used in) operating activities:
       Accrued postretirement benefits                                     775                -                  59            190
       Depreciation and amortization                                    15,895           14,046               5,069          4,083
       Deferred income taxes, net                                         (225)          (2,899)                (54)             -
       Loss on sale of business                                              -              243                   -            243
       Change in operating assets and liabilities,
         net of the effect of acquisition:
          Accounts and notes receivable, net                           (33,494)         (14,095)            (12,946)       (56,442)
          Recoverable costs and accrued profits not
           yet billed                                                   90,689          (40,146)             26,439        (33,433)
          Inventories                                                   23,900          (24,252)             14,189         (9,819)
          Accounts payable                                             (15,448)              41              14,009         14,419
          Current income taxes, net                                     15,998          (61,301)              2,066        (30,562)
          Other current liabilities                                     (9,204)         (20,969)             (5,674)         3,792
          Other--principally long-term assets and liabilities           (8,479)           2,546              (2,628)        (1,990)
                                                                    ------------    -------------        ------------   ------------
   Net Cash Provided By (Used In) Continuing Operations                 92,919         (136,101)             47,918       (116,436)
   Net Cash Provided By (Used In) Discontinued Operations                    -          516,000                   -        (84,000)
                                                                    ------------    -------------        ------------   ------------
   Net Cash Provided By (Used in) Operating Activities                  92,919          379,899              47,918       (200,436)

Investing Activities
   Expenditures for property, plant and equipment                      (24,690)         (23,612)             (8,005)        (7,979)
   Acquisition of businesses                                                 -          (19,951)                  -         (1,201)
   Proceeds from sale of business                                            -            4,600                   -          4,600
   Disposal of property, plant and equipment, net                       14,054            1,931               6,101          1,266
                                                                    ------------    -------------        ------------   ------------
   Net Cash Used In Investing Activities                               (10,636)         (37,032)             (1,904)        (3,314)

Financing Activities
   Additions to long-term borrowings                                    16,234           25,000                   -         25,000
   Payments on long-term borrowings                                    (81,896)        (226,459)            (15,295)          (335)
   Net short-term (payments) borrowings                                 (2,507)         (28,037)            (10,585)         6,141
   Dividends paid                                                       (7,138)          (7,380)             (2,380)        (2,379)
   Repurchase of common stock                                                -         (120,000)                  -              -
   Exercise of stock options                                                 -              759                   -            170
                                                                    ------------    -------------        ------------   ------------
   Net Cash (Used In) Provided By Financing Activities                 (75,307)        (356,117)            (28,260)        28,597

Increase (decrease) in cash and cash equivalents                         6,976          (13,250)             17,754       (175,153)
Cash and cash equivalents, beginning of period                          12,959           18,987               2,181        180,890
                                                                    ------------    -------------        ------------   ------------
Cash and cash equivalents, end of period                               $19,935          $ 5,737             $19,935        $ 5,737
                                                                    ------------    -------------        ------------   ------------

Supplemental  disclosure of cash flow information:
   Net cash paid during the period for:
     Interest payments                                                 $ 7,775          $ 7,308             $   613       $  2,386
     Income tax payments                                               $ 2,609          $ 5,483             $ 1,876       $ 30,606
   Non-cash investing activities:
     Issuance of notes receivable in sale of investment                $ 4,224          $     -             $ 4,224       $      -

See accompanying notes to consolidated condensed financial statements.
</TABLE>



<PAGE>


STEWART & STEVENSON SERVICES, INC.
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
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 nine months ended October 30, 1999
are not  necessarily  indicative  of the results  that will be realized  for the
fiscal year ending January 31, 2000.

The  accounting   policies   followed  by  the  Company  in  preparing   interim
consolidated  condensed  financial  statements are similar to those described in
the "Notes to Consolidated  Financial  Statements" in the Company's  January 31,
1999 Form 10-K.  An actual  valuation of inventory  under the 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  Company's  fiscal  year begins on February 1 of the year stated and ends on
January 31 of the  following  year.  For  example,  "Fiscal  1999"  commenced on
February 1, 1999 and ends on January 31, 2000. In Fiscal 1999, the Company began
reporting  results on the Fiscal Quarter method.  Each of the first three fiscal
quarters are exactly 13 weeks long, with the fourth fiscal quarter  covering the
remaining part of the fiscal year. The Company  believes the fiscal quarters are
comparable to the calendar quarters reported during Fiscal 1998, therefore prior
periods have not been restated.

As of January 31, 1998, the Company  adopted  Statement of Financial  Accounting
Standards  ("SFAS") No. 128 Earnings per Share, which specifies the computation,
presentation,  and disclosure  requirements  for earnings per share ("EPS").  It
replaces  the  presentation  of  primary  and fully  diluted  EPS with basic and
diluted  EPS.  Basic EPS excludes  all  dilution.  It is based upon the weighted
average  number of common  shares  outstanding  during the  period.  Diluted EPS
reflects the  potential  dilution  that would occur if all  securities  or other
contracts to issue common stock were exercised or converted into common stock.

The accompanying  consolidated  condensed  financial  statements for Fiscal 1998
contain  certain  reclassifications  to conform  with the  presentation  used in
Fiscal 1999.

Note B--Commitments and Contingencies

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 barred from  government  contracting.  The  Company  would also be
unable to sell  equipment  and  services  to  customers  that depend on loans or
financial  commitments from the Export Import Bank,  Overseas Private Investment
Corporation,  and similar government  agencies or otherwise receive the benefits
of federal assistance programs during a suspension or debarment.

The Company is a party to an Administrative Agreement with the United States Air
Force that imposes certain  requirements  on the Company  intended to assure the
U.S. Air Force that the Company is a responsible  government  contractor.  Under
this agreement,  the Company has established and maintains an effective  program
to ensure compliance with applicable laws and the Administrative  Agreement. The
program provides employees with education and guidance regarding  compliance and
ethical  issues,  operates  a  means  to  report  questionable  practices  on  a
confidential basis, and files periodic reports with the U.S. Air Force regarding
the Company's business  practices.  A default by the Company of the requirements
under the  Administrative  Agreement could result in the suspension or debarment
of the Company from receiving any new contracts or subcontracts with agencies of
the U.S.  Government  or the benefit of federal  assistance  payments.  Any such
suspension could also prevent the Company from receiving future modifications to
the Family of Military  Tactical Vehicles ("FMTV") contract unless the Secretary
of the  Army  found a  compelling  need to enter  into  such  modification.  The
Administrative Agreement expires pursuant to its term on March 19, 2001, but the
Company intends to maintain compliance programs on a continuing basis.

During Fiscal 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 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.

Most of the  production  under the original  FMTV  contract was  completed as of
January 31, 1999.  Revenues and profits  realized on the original FMTV contracts
are based on the Company's  estimates of total contract sales value and costs at
completion.  Stewart & Stevenson  has  incurred  significant  cost  overruns and
delivery  schedule  delays on the  original  FMTV  contracts  which the  Company
believes are primarily due to the government's  decision to delay the testing of
trucks and other government directed changes to the contracts.  In addition, the
Company has been directed by the U.S. Army to undertake  certain  changes to the
drive train of all vehicles produced under the first FMTV contract.  The Company
has and will continue to submit  Requests for Equitable  Adjustments  or claims,
seeking  increases in the FMTV contract  price for those  additional  costs that
relate to government  caused changes and delays. In connection with the original
FMTV contract, the Company has expensed the costs associated with $48 million in
claims  relating  to program  delays and  changes,  and has fully  reserved  $40
million  related to drive train  changes.  It is not  possible  to estimate  the
amount,  if any, that the Company will recover under such Requests for Equitable
Adjustments  or claims and any future  recovery of these amounts will be treated
as income in the period in which the matter is resolved.

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  in
excess of $5 million 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 guaranteed the project  financing  ($42.6 million at October 30,
1999) of a power  generation  plant in  Argentina.  Included  in "Other  accrued
liabilities"  at  October  30,  1999  is a  reserve  of  $22.6  million  for the
anticipated loss related to such guarantee. This estimated loss is predicated on
projections of future events and realization value of the underlying collateral.
The Company has amended the guarantee  agreement with the project lender and has
agreed to provide standby letters of credit ("LOC's") in varying amounts between
May 31, 1999 and June 30, 2000  totaling the entire  outstanding  balance of the
project financing ($19.7 million had been provided as of October 30, 1999). Such
LOC's may be drawn and applied in payment of the $42.6  million upon the earlier
of an event of default or December 31, 2000.

The  Company  has  provided  certain  guarantees  in support  of its  customers'
financing  of  purchases  from the  Company in the form of both  residual  value
guarantees and debt  guarantees.  The maximum exposure of the Company related to
guarantees  at October 30, 1999 is $6.0  million,  excluding  the $42.6  million
discussed above.


<PAGE>



Note C:  Earnings (loss) per share (unaudited)

Reconciliation  of the numerators and  denominators of the basic and diluted EPS
computation is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>


                                                          ----------------------------------  ----------------------------------
                                                                  Nine Months Ended                  Three Months Ended
                                                          ----------------------------------  ----------------------------------
                                                             October 30,       October 31,       October 30,       October 31,
                                                                1999              1998              1999              1998
                                                          ----------------  ----------------  ----------------  ----------------

<S>                                                             <C>               <C>               <C>             <C>
Basic Earnings (Loss) Per Share:
  Net Earnings (Loss) from Continuing Operations                $ 12,512          $ 10,685          $ 7,389          $ (6,917)

  Weighted Average Shares Outstanding                             27,988            29,351           27,992            27,984
                                                          ----------------  ----------------  ----------------  ----------------
    Basic Earnings (Loss) Per Share from Continuing
     Operations                                                    $0.45             $0.36            $0.26            $(0.25)
                                                          ----------------  ----------------  ----------------  ----------------

  Net Loss from Discontinued Operations                         $      -          $(20,000)         $      -         $(20,000)
  Weighted Average Shares Outstanding                             27,988            29,351            27,992           27,984
                                                          ----------------  ----------------  ----------------  ----------------
    Basic Loss Per Share from Discontinued
      Operations                                                   $   -            $(0.68)           $   -            $(0.71)
                                                          ----------------  ----------------  ----------------  ----------------
                                                                   $0.45            $(0.32)           $0.26            $(0.96)
                                                          ================  ================  ================  ================
</TABLE>

<TABLE>
<CAPTION>



                                                          ----------------------------------  ----------------------------------
                                                                  Nine Months Ended                  Three Months Ended
                                                          ----------------------------------  ----------------------------------
                                                             October 30,       October 31,       October 30,        October 31,
                                                                1999              1998              1999               1998
                                                          ----------------  ----------------  ----------------  ----------------

<S>                                                             <C>               <C>                <C>              <C>
Diluted Earnings (Loss) Per Share:
  Net Earnings (Loss) from Continuing Operations                $ 12,512          $ 10,685           $ 7,389          $ (6,917)

  Weighted Average Shares Outstanding                             27,988            29,351            27,992            27,984
  Shares Issuable from Assumed Conversion of
    Common Stock                                                      48                 -                90                 -
                                                          ----------------  ----------------  ----------------  ----------------
  Weighted Average Shares Outstanding, as adjusted                28,036            29,351            28,082            27,984
                                                          ----------------  ----------------  ----------------  ----------------

    Diluted Earnings (Loss) Per Share from Continuing
      Operations                                                   $0.45             $0.36             $0.26            $(0.25)
                                                          ----------------  ----------------  ----------------  ----------------

  Net Loss from Discontinued Operations                            $   -          $(20,000)            $   -          $(20,000)

  Weighted Average Shares Outstanding                             28,036            29,351            28,082            27,984
                                                          ----------------  ----------------  ----------------  ----------------

    Diluted Loss Per Share from Continuing
      Operations                                                  $    -           $(0.68)             $   -            $(0.71)
                                                          ----------------  ----------------  ----------------  ----------------
                                                                  $ 0.45           $(0.32)             $0.26            $(0.96)
                                                          ================  ================  ================  ================

</TABLE>


<PAGE>


Note D:  Segment information (unaudited)

Financial  information  relating to industry  segment is shown below,  including
information on Airline  Products  which is being included as a separate  segment
this  quarter for the first time.  Previously  Airline  Products was included in
Other Business Activities (in thousands):
<TABLE>
<CAPTION>

                                           --------------------------------------    -------------------------------------
                                                     Nine Months Ended                        Three Months Ended
                                           --------------------------------------    -------------------------------------
                                               October 30,          October 31,          October 30,          October 31,
                                                  1999                 1998                 1999                 1998
                                           -----------------    -----------------    -----------------    ----------------
<S>                                               <C>                  <C>                  <C>                 <C>
Sales:
  Power Products                                  $396,578             $424,005             $130,381            $150,177
  Tactical Vehicle Systems                          63,588              385,160               51,555             121,312
  Petroleum Equipment                               64,899               82,260               12,787              31,138
  Airline Products                                  74,863               23,187               29,026               6,647
  Other Business Activities                         24,339               35,058               10,967              11,847
                                           -----------------    -----------------    -----------------    ----------------
    Total                                         $624,267             $949,670             $234,716            $321,121
                                           =================    =================    =================    ================

Operating Profit (Loss):
  Power Products                                  $ 15,660             $ 26,799             $  4,869            $  6,726
  Tactical Vehicle Systems                          13,248              (11,363)              10,105             (17,140)
  Petroleum Equipment                                2,222                7,135               (1,427)              2,650
  Airline Products                                    (547)                 320                  214                (404)
  Other Business Activities                         (1,076)                 858               (1,476)                138
                                           -----------------    -----------------    -----------------    ----------------
    Total                                         $ 29,507             $ 23,749            $  12,285            $ (8,030)
                                           =================    =================    =================    ================


Corporate expense, net                              (5,427)              (6,736)              (2,491)             (2,201)

Non-operating interest income                           29                8,689                    -               1,624

Interest expense                                    (8,812)              (8,868)              (2,102)             (2,912)
                                           -----------------    -----------------    -----------------    ----------------

Earnings (loss) from continuing
   operations before income taxes                 $ 15,297             $ 16,834             $  7,692           $ (11,519)
                                           =================    =================    =================    ================
</TABLE>

There have been no material  changes in total assets by industry  segment  since
January 31, 1999.

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

This  discussion  should be read in conjunction  with the attached  consolidated
condensed  financial  statements and notes thereto,  and with the Company's Form
10-K and notes thereto for the fiscal year ended January 31, 1999. 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 herein and therein,
which  identify  important  factors  that could cause  actual  results to differ
materially from those in the forward-looking statements.

RESULTS OF OPERATIONS

Sales for the three months  ended  October 30, 1999  ("Third  Quarter")  totaled
$234.7 million  compared to sales of $321.1 million from  continuing  operations
for the comparable  period in 1998.  Net earnings for the Third Quarter  totaled
$7.4 million or $0.26 per basic and diluted share compared to a net loss of $6.9
million or $(0.25) per basic and diluted share from continuing operations a year
ago. Results for the Third Quarter include a $2.7 million  after-tax gain on the
sale of the  Company's  fifty  percent  interest  in GFI Control  Systems,  Inc.
Excluding this gain, net earnings for the Third Quarter  totaled $4.6 million or
$0.17 per basic and diluted  share.  The net loss for the third  quarter of 1998
included after-tax  provisions of $12.6 million or $(0.45) per basic and diluted
share relating to cost overruns,  superseded  materials,  and efforts to resolve
truck performance  issues on the initial FMTV truck contract.  The third quarter
of 1998 included a $20.0 million loss from discontinued  operations,  or $(0.71)
per basic and diluted  share,  regarding  adjustments  to the purchase price and
other matters  relating to the sale of the  Company's Gas Turbine  Operations to
General  Electric  Company.  Total loss for the third  quarter of 1998 was $26.9
million or $(0.96) per basic and diluted share.

The Power Products  segment,  which is responsible for marketing and aftermarket
support of a wide range of industrial equipment, recorded Third Quarter sales of
$130.4 million  compared to $150.2  million for the  comparable  period in 1998.
Sales for the  second  quarter  of 1999  included  seasonally  high sales in the
agricultural market as well as several large  international  orders that did not
recur in the Third Quarter. Compared to last year, sales were adversely impacted
by lower sales in the oil and gas  markets.  Year-to-date  sales for Fiscal 1999
and 1998 totaled  $396.6  million and $424.0  million,  respectively.  Operating
profit for the Power Products segment totaled $4.9 million for the Third Quarter
compared to $6.7 million a year ago.  Operating profit for  year-to-date  Fiscal
1999 totaled $15.7 million  compared to $26.8 million for the comparable  period
last year. This segment is achieving  modest volume growth in selected  markets,
but has not yet experienced  improvements from the recent rebound in oil and gas
prices.

The Tactical Vehicle Systems segment,  which manufactures  tactical vehicles for
the U.S. Army and others,  recorded sales of $51.6 million for the Third Quarter
compared to $5.8  million in the second  quarter of 1999 and $121.3  million for
the comparable  period a year ago.  Year-to-date  sales for Fiscal 1999 and 1998
totaled $63.6 million and $385.2  million,  respectively.  The decline of $321.6
million was caused by a break in the scheduled  production of trucks as compared
to constant  production for the comparable  period last year.  Production on the
follow-on  contract began in mid-September  and generated an operating profit of
$10.1 million for the Third Quarter compared with a $17.1 million operating loss
in the third quarter of 1998.  Operating  profit  increased to $13.2 million for
year-to-date  Fiscal 1999  compared to an  operating  loss of $11.4  million for
year-to-date  Fiscal 1998. Improved operating margins resulted from an effective
cost  reduction  program  and a higher  initial  sales  price per truck  sold to
compensate for costs incurred during the recent production shutdown.

The  Petroleum  Equipment  segment  manufactures   equipment  for  oil  and  gas
exploration, production, and well stimulation industries. Sales for this segment
totaled $12.8 million for the Third Quarter compared to $31.1 million last year.
Year-to-date sales of $64.9  million and $82.3  million were recorded for Fiscal
1999 and 1998, respectively.  The operating loss for Petroleum Equipment totaled
$1.4  million  for the Third  Quarter  compared to an  operating  profit of $2.7
million last year.  Year-to-date  operating  results  declined from an operating
profit of $7.1 million  during year-to-date Fiscal 1998 to $2.2  million  during
year-to-date Fiscal 1999.  The decrease in sales and operating  profit  resulted
from a depleted order backlog in the depressed oil and gas markets.

Information  on Airline  Products is being  included as a separate  segment this
quarter for the first time.  Previously  Airline  Products was included in Other
Business  Activities.  The Airline Products segment  manufactures airline ground
support  products.  Sales for the segment  totaled  $29.0  million for the Third
Quarter  compared to $6.6 million for the  comparable  period in 1998. The $22.4
million increase  primarily  resulted from the acquisition of Tug  Manufacturing
Corporation  ("Tug") in December 1998 and improved sales in previously  existing
products.   Sales  of  $74.9   million  and  $23.2  million  were  recorded  for
year-to-date Fiscal 1999 and Fiscal 1998,  respectively.  An operating profit of
$0.2 million was recorded for the Third Quarter compared to an operating loss of
$0.4 million for the comparable  period in 1998.  This increase is due to higher
sales and margins associated with the Tug acquisition. An operating loss of $0.5
million was recorded for year-to-date Fiscal 1999 and included the impact of new
product  development  costs.  This is  compared to an  operating  profit of $0.3
million for the comparable period in 1998.

Other  business   activities  not  identified  in  a  specific  segment  include
predominantly gas compression  equipment for sale or lease.  Sales totaled $11.0
million  for the Third  Quarter,  compared to $11.8  million for the  comparable
period last year.  A Third  Quarter  operating  loss of $1.5  million  versus an
operating profit of $0.1 million a year ago resulted  primarily from start up of
the  gas  compression  business.  Sales  of  $24.3  million  were  recorded  for
 year-to-date Fiscal 1999, a $10.7 million decrease over the comparable period
last year. The year-to-date Fiscal 1998 sales included the operations of a power
plant which was sold during  1998,  thereby  reducing  sales for other  business
activities  in Fiscal 1999.  An operating  loss of $1.1 million was recorded for
year-to-date  Fiscal 1999 as compared to an operating profit of $0.9 million for
the comparable period last year.


Net corporate  expenses decreased from $6.7 million for year-to-date Fiscal 1998
to $5.4 million for year-to-date Fiscal 1999 largely due to  non-recurring  duty
drawbacks and harbor tax refunds  recorded in the first  quarter of 1999.  Other
income,  net,  includes  interest income earned on proceeds from the sale of the
Company's Gas Turbine  Operations to General Electric Company which totaled $1.7
million and $8.7  million  for the third  quarter and first nine months in 1998,
respectively.

Net cash  provided by operating  activities  totaled $47.9 million for the Third
Quarter and $92.9 million for the nine months ended October 30, 1999. During the
past  nine  months,  total  debt  decreased  $68.2  million  and  cash  and cash
equivalents increased $7.0 million.



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 October 30, 1999 and January 31, 1999 were as follows (in
millions):

<TABLE>
<CAPTION>

                                                                  ----------------------------    ----------------------------
                                                                       October 30, 1999                January 31, 1999
                                                                  ----------------------------    ----------------------------


<S>                                                                       <C>                              <C>
Tactical Vehicle Systems                                                  $ 960.3                          $ 991.7
Power Products                                                               60.8                             69.9
Petroleum Equipment                                                          17.3                             38.6
Airline Products                                                             19.4                             12.7
All Other                                                                    18.8                              5.2
                                                                        -----------                      -----------
                                                                          $1,076.6                        $1,118.1
                                                                        ===========                      ===========
</TABLE>

Unfilled  orders of the  Tactical  Vehicle  Systems  segment at October 30, 1999
consisted  principally  of the four year follow-on  contract  awarded in October
1998 by the United States Department of the Army to manufacture  medium tactical
vehicles.

CAPITAL EXPENDITURES AND COMMITMENTS

Capital  spending for  property,  plant and  equipment  was $8.0 million for the
Third Quarter as well as for the comparable period in Fiscal 1998.

LIQUIDITY AND CAPITAL RESOURCES

The Company's sources of liquidity include cash and cash 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.  During the nine  months  ended  October 30, 1999
current liabilities  decreased by $87.7 million.  The repayment of $75.0 million
of senior debt and a $10.4  million  decline in "Accounts  payable" were the key
contributors to this decrease.  Total debt decreased by $68.2 million during the
nine months ending October 30, 1999. The Company has provided $22.6 million,  as
a current  liability,  for its probable partial  performance  under a guarantee,
although no demand for performance has been received. (See Note B -- Commitments
and Contingencies and Note 7 to the consolidated financial statements for Fiscal
1998  included in Form 10-K.) The  Company has in place an  unsecured  revolving
credit facility that could provide up to approximately $150 million net of a $25
million  letter of credit  facility,  of which $125  million  was  available  at
October  30,  1999,   but  subject  to  certain   limitations  as  a  result  of
modifications  made effective  January 31, 1999. (See Note 9 to the consolidated
financial  statements  for Fiscal 1998  included  in Form 10-K.) This  revolving
facility matures during Fiscal 2001.

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 other  lawsuits or
disputes,  changes  in  inventory  levels,  new  capital  investments,  accounts
receivable  or other working  capital items create a permanent  need for working
capital  or  capital  expenditures  in  excess  of the  existing  cash  and cash
equivalents and committed lines of credit,  the Company may seek to borrow under
other long-term financing sources or curtail certain activities.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Forward-Looking Statements

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this quarterly  report contain  forward-looking
statements that are based on current  expectations,  estimates,  and projections
about the markets and  industries  in which the Company  operates,  management's
beliefs, and assumptions made by management.  These  forward-looking  statements
are made  pursuant  to the Safe  Harbor  Provisions  of the  Private  Securities
Litigation  Reform Act of 1995.  These  statements  are not guarantees of future
performance and involve certain risks,  uncertainties  and assumptions  ("future
factors") which are difficult to predict. Therefore, actual outcomes and results
may  differ   materially   from  what  is  expressed  or   forecasted   in  such
forward-looking  statements.  The Company  undertakes  no  obligation  to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.

Future  factors  include  risks  associated  with  newly  acquired   businesses;
increasing  price  and  product/service  competition  by  foreign  and  domestic
competitors;  rapid  technological  developments  and  changes;  the  ability to
continue to introduce  competitive  new products and services on a timely,  cost
effective  basis; the mix of  products/services;  the achievement of lower costs
and expenses;  reliance on large customers;  technological,  implementation  and
cost/financial risks in use of large, multi-year contracts;  the cyclical nature
of the  markets  served;  the  outcome of  pending  and  future  litigation  and
governmental  proceedings  and continued  availability  of financing,  financial
instruments and financial resources in the amount, at the times and on the terms
required to support the Company's  business;  the  assessment  of  unanticipated
taxes by foreign or domestic governmental authorities;  the risk of cancellation
or adjustments  of specific  orders and  termination  of significant  government
programs;  and the failure of the  Company or third  parties to become Year 2000
capable.  These are  representative  of the future factors that could affect the
outcome of  forward-looking  statements.  In addition,  such statements could be
affected by general  industry and market  conditions  and growth rates,  general
domestic  and  international  conditions  including  interest  rates,  rates  of
inflation and currency exchange rate fluctuations and other future factors.

Government Contracting Factors

Major contracts for military systems are performed over extended periods of time
and are  subject  to changes in scope of work and  delivery  schedules.  Pricing
negotiations  on  changes  and  settlement  of  claims,   including  claims  for
additional  taxes,  often extend over  prolonged  periods of time. The Company's
ultimate  profitability on such contracts will depend not only upon the accuracy
of the Company's cost projections, but also the eventual outcome of an equitable
settlement of contractual issues with the U.S. Government.  Due to uncertainties
inherent in the estimation and claim negotiation  process,  no assurances can be
given that management's  estimates will be accurate,  and variances between such
estimates and actual results could be material.  Furthermore,  during the course
of the contract,  the Company may be required to make certain  payments which it
believes are  recoverable  under the contract  from the U.S.  Government  or its
vendors.  To the extent that such  amounts are not actually  recovered,  results
under the contract could be materially adversely affected. Also to the extent of
any timing  differences  between the date of payment of any such amounts and the
date  of  recovery,  the  Company's  liquidity  could  be  materially  adversely
affected.

During Fiscal 1998, the Company was awarded a new multi-year  contract that will
extend production of the FMTV into 2002 (or 2003 if the government exercises its
option to purchase additional vehicles). The funding of the new FMTV contract is
subject to the inherent  uncertainties  of congressional  appropriations.  As is
typical  of  multi-year  defense  contracts,  the FMTV  contract  must be funded
annually by the Department of the Army and may be terminated at any time for the
convenience of the government.  As of October 30, 1999, funding in the amount of
$315 million for the new FMTV contract had been  authorized and  appropriated by
the U.S.  Congress.  If the new  FMTV  contract  is  terminated  other  than for
default,  the FMTV contracts provide for termination charges that will reimburse
the Company for allowable costs, but not necessarily all costs.

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 barred from  government  contracting.  The  Company  would also be
unable to sell  equipment  and  services  to  customers  that depend on loans or
financial  commitments from the Export Import Bank,  Overseas Private Investment
Corporation,  and similar government  agencies or otherwise receive the benefits
of federal assistance payments during a suspension or debarment.

The Company is a party to an Administrative Agreement with the United States Air
Force that imposes certain  requirements  on the Company  intended to assure the
U.S. Air Force that the Company is a responsible  government  contractor.  Under
this agreement,  the Company has established and maintains an effective  program
to ensure compliance with applicable laws and the Administrative  Agreement. The
program provides employees with education and guidance regarding  compliance and
ethical  issues,  operates  a  means  to  report  questionable  practices  on  a
confidential basis, and files periodic reports with the U.S. Air Force regarding
the Company's business  practices.  A default by the Company of the requirements
under the  Administrative  Agreement could result in the suspension or debarment
of the Company from receiving any new contracts or subcontracts with agencies of
the U.S.  Government  or the benefit of federal  assistance  payments.  Any such
suspension could also prevent the Company from receiving future modifications to
the FMTV contract  unless the  Secretary of the Army finds a compelling  need to
enter into such modification.  The Administrative  Agreement expires pursuant to
its term on March 19,  2001,  but the  Company  intends to  maintain  compliance
programs on a continuing basis.

Year 2000 Compliance

In the past,  many  computer  software  programs  were written  using two digits
rather  than four to define the  applicable  year.  As a result,  date-sensitive
computer  software may  recognize a date using "00" as the year 1900 rather than
the year 2000.  If this  situation  occurs,  the  potential  exists for computer
system failures or  miscalculations  by computer  programs,  which could disrupt
operations. This is generally referred to as the Year 2000 issue.

The Company has established a team to address the potential  impacts of the year
2000 on each of its critical  business  functions.  The team has  concluded  its
assessment of the Company's critical  date-sensitive  technology,  including its
information  systems,  computer  equipment and other systems used in its various
operations.  The  Company  has  completed  the  process of making  the  required
modifications to or replacing these systems to be year 2000 compliant. The final
modification costs are expected to be approximately $2 million.  The majority of
these costs are  attributable  to the  purchase of new computer  equipment.  The
Company's  contingency plan for any non-compliant  systems will be developed for
each particular system if, and as, they are identified.

Systems modification costs are being expensed as incurred. Costs associated with
new equipment are being  capitalized  and will be amortized over the life of the
product.

In  addition  to  addressing  the  Company's  internal  systems,  the  team  has
identified  key  vendors  that  could  be  impacted  by year  2000  issues,  and
communication  has been made with such  vendors.  The Company has  evaluated the
responses to this  correspondence  and has not  identified  any critical  vendor
systems whose timely  remediation  poses a material  threat to the operations of
the Company.  The most likely worst case scenario would involve the interruption
of  supply  of key  materials  necessary  to timely  complete  production  under
outstanding contract commitments.

While the Company  believes  that its  program is  sufficient  to  identify  the
critical  issues and associated  costs  necessary to address  possible year 2000
problems  in a timely  manner,  there can be no  assurance  that the  program or
underlying  steps  implemented  will be successful in resolving all such issues
prior to the year 2000.  If the steps taken by the Company  (or  critical  third
parties) are not made in a timely  manner,  or are not successful in identifying
and remedying all significant year 2000 issues, business interruptions or delays
could occur.  Based on the  information the Company has gathered to date and its
expectation of its ability to remedy problems encountered,  the Company believes
that it will not experience significant business interruptions that would have a
material adverse impact on its results of operations or financial condition.


<PAGE>


PART II.  OTHER INFORMATION

Item 1. Legal Proceedings.

During Fiscal 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  in
excess of $5 million 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.

Item 6. Exhibits and Reports on Form 8-K.

(a)      Exhibits:

          27.1            Financial Data Schedule

(b)      Reports on Form 8-K:

         A report on Form 8-K was filed with the  Commission on August 23, 1999,
         reporting the results for the Company's second quarter.

         A report on Form 8-K was filed  with the  Commission  on  September  9,
         1999, reporting that the Company's FMTV A1 entered production.

         A report on Form 8-K was filed with the  Commission  on  September  15,
         1999, reporting the Company's quarterly dividend.


<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 13th day of December, 1999.

STEWART & STEVENSON SERVICES, INC.


By:  /s/ Michael L. Grimes
Michael L. Grimes
President and Chief Executive Officer


By:  /s/ John H. Doster
John H. Doster
Senior Vice President and Chief Financial Officer
(as principal financial officer and authorized officer)


By:  /s/ Patrick G. O'Rourke
Patrick G. O'Rourke
Controller and Chief Accounting Officer
(as chief accounting officer)


<PAGE>





EXHIBIT INDEX

 Exhibit Number and Description

                  27.1  Financial data schedule.