-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hkkfo2Glvra/eIjvfI+mrBBANEZlyL/l3loYIKhMoLPa3Dd1MQKVD6e3+b1WMnVL 9lztrSYZy1H8cNvuBtEwtA== 0000926236-99-000121.txt : 19991115 0000926236-99-000121.hdr.sgml : 19991115 ACCESSION NUMBER: 0000926236-99-000121 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEVENS INTERNATIONAL INC CENTRAL INDEX KEY: 0000817644 STANDARD INDUSTRIAL CLASSIFICATION: PRINTING TRADES MACHINERY & EQUIPMENT [3555] IRS NUMBER: 752159407 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09603 FILM NUMBER: 99747526 BUSINESS ADDRESS: STREET 1: 5500 AIRPORT FRWY CITY: FORT WORTH STATE: TX ZIP: 76117 BUSINESS PHONE: 8178313911 MAIL ADDRESS: STREET 1: PO BOX 3330 CITY: FORT WORTH STATE: TX ZIP: 76113 FORMER COMPANY: FORMER CONFORMED NAME: STEVENS GRAPHICS CORP DATE OF NAME CHANGE: 19920703 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 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 1-9603 STEVENS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 75-2159407 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 5500 Airport Freeway, Fort Worth, Texas 76117 (Address of principal executive offices) (zip code) 817/831-3911 (Registrant's telephone number, including area code) __________________________________________ (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 XX No _____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Title of Each Class Outstanding at November 5, 1999 Series A Stock, $0.10 Par Value 7,459,474 Series B Stock, $0.10 Par Value 2,042,659 TABLE OF CONTENTS Part I. FINANCIAL INFORMATION PAGE NUMBER Item 1. Financial Statements Consolidated Condensed Balance Sheets 3 December 31, 1998 and September 30, 1999 (unaudited) Consolidated Condensed Statements of Operations 4 Three and Nine months ended September 30, 1999 and 1998 (unaudited) Consolidated Condensed Statements of 5 Stockholders' Equity December 31, 1998 and Nine months ended September 30, 1999 (unaudited) Consolidated Condensed Statements of Cash Flows 6 Nine months ended September 30, 1999 and 1998 (unaudited) Notes to Consolidated Condensed Financial 7 Statements (unaudited) Item 2. Management's Discussion and Analysis of 10 Financial Condition and Results of Operations Part II. OTHER INFORMATION Item 1. Legal Proceedings 15 Item 4. Submission of Matters to a vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 15 CAUTIONARY STATEMENT - This Form 10-Q may contain statements which constitute "forward-looking" information as that term is defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission ("SEC") in its rules, regulations and releases. Stevens International, Inc. (the "Company") cautions investors that any such forward-looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements. Some of the factors that could cause actual results to differ materially from estimates contained in the Company's forward- looking statements are set forth in the Form 10-K for the year ended December 31, 1998. STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Amounts in thousands, except share data)
September 30, Dececmber 31, 1999 1998 (unaudited) ------ ------ ASSETS Current assets: Cash ............................. $ 5 $ 164 Trade accounts receivable, less allowance for losses of $181 and $181 and $138 in 1999 and 1998, respectively 943 1,711 Costs and estimated earnings in excess of billings on long-term contracts 1,241 665 Inventory (Note 3). ............. 7,401 6,146 Other current assets ............. 745 1,076 Assets held for sale (Note 6) ... -- 988 ------ ------ Total current assets ...... 10,335 10,750 Property, plant and equipment ...... 2,251 2,600 Other assets, net .................. 1,305 1,301 ------ ------ $13,891 $14,651 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable ........... $ 2,571 $3,035 Billings in excess of costs and estimated earnings on long-term contracts -- -- Other current liabilities ........ 3,008 3,780 Customer deposits ................ 943 310 Advances from stockholder ........ 2,399 1,645 Current portion of long-term debt 5 15 ------ ------ Total current liabilities . 8,927 8,785 Long-term debt ..................... 2,428 2,294 Note payable - stockholder ......... 2,950 2,950 Accrued pension costs .............. 3,577 3,577 Commitments and contingencies -- -- Stockholders' equity: Preferred stock, $0.10 par value, 2,000,000 shares authorized none issued and outstanding -- -- Series A common stock, $0.10 par value, 20,000,000 shares authorized, 7,459,000 and 7,418,000 shares issued and outstanding at September 30, 1999 and December 31, 1998, respectively 745 741 Series B common stock, $0.10 par value, 6,000,000 shares authorized, 2,044,000 and 2,085,000 shares issued and outstanding at June 30, 1999 and December 31, 1998, respectively 205 209 Additional paid-in-capital ....... 39,961 39,961 Accumulated other comprehensive (loss) ......................... (4,239) (4,150) Retained (deficit) ............... (40,662) (39,716) ------ ------ Total stockholders' equity (deficit) (3,990) (2,955) ------ ------ $13,891 $14,651 ====== ====== See notes to consolidated condensed financial statements.
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (Amounts in thousands, except per share data) Three months ended Nine months ended September 30, September 30, 1999 1998 1999 1998 ----- ----- ----- ------ Net sales ..................... $2,415 $2,737 $8,304 $17,777 Cost of sales ................. 1,930 2,147 4,856 14,222 ----- ----- ----- ------ Gross profit .................. 485 590 3,448 3,555 Loss on impairment of asset values ....................... 200 -- 200 -- Selling, general and administrative expenses ...... 1,115 1,577 3,511 5,798 ----- ----- ----- ------ Operating income (loss) ....... (830) (987) (263) (2,243) Other income (expense): Interest income ............ 30 -- 31 -- Interest expense ............ (220) (238) (577) (1,439) Other, net .................. 26 (57) (89) (308) Gain (loss) on sale of assets (Note 6)............. (3) (503) (48) 2,199 ----- ----- ----- ------ (173) (798) (689) 452 ----- ----- ----- ------ Income (loss) before income taxes and extraordinary item .. (997) (1,785) (946) (1,791) Income tax (expense) benefit .. (3) -- 0 (75) Income (loss) before extraordinary item ........... (994) (1,785) (946) (1,866) Extraordinary item (Note 8): .. Gain on early extinguishment of debt, net of tax effect . -- -- -- 11,221 ----- ----- ----- ------ Net income (loss) $( 994) $(1,785) $ (946) $ 9,355 ===== ===== ===== ====== Earnings (loss) per share - basic (Note 9): Income (loss) before extraordinary item $ (0.10) $ (0.19) $ (0.10) $ (0.19) Gain on early extinguishment of debt -- -- -- 1.18 ----- ----- ----- ------ Net income (loss) - basic $ (0.10) $ (0.19) $ (0.10) $ 0.99 ===== ===== ===== ====== Earnings (loss) per share - diluted (Note 9): Income (loss) before $ (0.10) $ (0.19) $ (0.10) $ (0.19) extraordinary item Gain on early extinguishment of debt -- -- -- 1.18 ----- ----- ----- ------ Net income (loss) - diluted $ (0.10) $ (0.19) $ (0.10) $ 0.99 ===== ===== ===== ====== Weighted average number of shares of common stock outstanding during the periods - basic (Note 9) 9,492 9,488 9,492 9,488 ===== ===== ===== ====== Weighted average number of shares of common and common stock equivalents outstanding during the periods - diluted (Note 9) 9,492 9,488 9,492 9,488 ===== ===== ===== ====== See notes to consolidated condensed financial statements.
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) (Amounts in thousands) Accumulated Additional Other Series A Stock Series B Stock Paid-In Retained Comprehensive Shares Amount Shares Amount Capital (Deficit) Loss Total ----- --- ----- --- ------ ------- ------ ------ Balance, January 1, 1999 7,418 $741 2,085 $209 $39,961 $(39,716) $(4,150) $(2,955) Net income (loss) -- -- -- -- -- (946) -- (946) Foreign currency translation adjustment -- -- -- -- -- -- (89) (89) Excess pension liability adjustment -- -- -- -- -- -- -- -- ----- Comprehensive loss (1,035) ----- Conversion of Series B stock to Series A stock 41 4 (41) (4) -- -- -- -- ----- --- ----- --- ------ ------- ------ ------ Balance, September 30, 1999 7,459 $745 2,044 $205 $39,961 $(40,662) $(4,239) $(3,990) ===== === ===== === ====== ======= ====== ====== See notes to consolidated condensed financial statements.
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands)
Nine Months Ended September 30, 1999 1998 ------ ------ Cash provided by operations: Net income (loss) ...................... $ (946) $ 9,355 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ....... 599 790 Extraordinary gain on debt extinguishment .................... -- (11,221) Other ............................... (88) (564) Changes in operating assets and liabilities: Trade accounts receivable ......... 769 (275) Contract costs in excess of billings (577) 1,829 Inventory ......................... (1,254) 775 Other assets ...................... 109 (841) Trade accounts payable ............ (464) 626 Other liabilities ................. 616 (3,385) ------ ------ Total cash (used in) provided by operating activities ................... (1,236) (2,911) Cash provided by (used in) investing activities: Additions to property, plant and equipment ............................. (32) (215) Disposal of Zerand Division and HMC in 1998 .............................. -- 12,530 Disposal of Ohio production facility 987 -- ------ ------ Total cash provided by (used in) investing activities .................... 955 12,315 ------ ------ Cash provided by (used in) financing activities: Exercise of Stock Options ............. -- 21 Net proceeds from (repayments of) long- term debt ............................. 133 5,708 (Decrease) in current portion of long-term debt ....................... (11) (15,303) ------ ------ Total cash provided by (used in) financing activities .................... 122 (9,574) ------ ------ Increase (decrease) in cash and temporary investments .................. (159) (170) Cash and temporary investments at beginning of period .................... 164 211 ------ ------ Cash and temporary investments at end of period ................................. $ 5 $ 41 ====== ====== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest ............................. $ 190 $ 591 Income taxes ......................... -- 1 See notes to consolidated condensed financial statements.
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Unaudited) 1. The consolidated condensed balance sheet as of September 30, 1999, the consolidated condensed statement of stockholders' equity for the period ended September 30, 1999, the consolidated condensed statements of operations for the three and nine months ended September 30, 1999 and 1998, and the consolidated condensed statements of cash flows for the nine month periods then ended have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position as of September 30, 1999 and the results of operations for the three and nine months ended September 30, 1999 and 1998 and the cash flows for the nine months ended September 30, 1999 and 1998 have been made. The December 31, 1998 consolidated condensed balance sheet is derived from the audited consolidated balance sheet as of that date. Complete financial statements for December 31, 1998 and related notes thereto are included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K"). The above financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information included in the 1998 Form 10-K. The results of operations for the three and nine months ended September 30, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year. 2. The Company designs, manufactures, markets and services web-fed packaging and printing systems and related equipment for its customers in the packaging industry and in the specialty/commercial and banknote and securities segments of the printing industry. The Company also markets and manufactures high-speed digital image processing systems primarily for use in the banknote and security printing industry. The Company combines various types of equipment capable of converting and printing, among other items, food and beverage containers, liquid container cartons, banknotes, postage stamps, lottery tickets, direct mail inserts, personal checks and business forms. The Company's technological and engineering capabilities allow it to combine any of the four major printing technologies (offset, flexography, rotogravure and intaglio) in its systems. Complete press systems are capable of multiple color and multiple size printing and perform such related functions as numbering, punching, perforating, slitting, cutting, creasing, folding and stacking. The presses can be custom engineered for non-standard form size and special auxiliary functions. 3. Inventories consist of the following: September 30, December 31, 1999 1998 ----- ----- (Amounts in thousands) Finished product ............. $1,514 $ 630 Work in progress ............. 1,581 1,458 Raw materials ................ 4,306 4,058 ----- ----- $7,401 $6,146 ===== ===== 4. For a description of the status of the bank credit facility at September 30, 1999, see "Liquidity and Capital Resources". Substantially all assets of the Company continue to be pledged as collateral on the Company's credit facilities. 5. The Company is subject to various claims, including product liability claims, which arise in the ordinary course of business, and is a party to various legal proceedings that constitute ordinary routine litigation incidental to the Company's business. A successful product liability claim brought against the Company in excess of its product liability coverage could have a material adverse effect upon the Company's business, operating results and financial condition. In management's opinion, the Company has adequate legal defense and/or insurance coverage in respect to each of these legal actions and does not believe that such actions, if they occur either individually or in the aggregate, will materially affect the Company's operations or financial position. See "Legal Proceedings" herein and in the 1998 Form 10-K. 6. A description of the Company's divestitures in 1999 and 1998 follow: Sale of Hamilton Production and Storage Facilities In the second quarter of 1999, the Company concluded the sale of the real property at its Hamilton, Ohio production facility for an aggregate consideration of $725,000. The transaction resulted in a small loss due to certain unanticipated costs of vacating the facility. An inventory storage facility at Hamilton, Ohio was sold in August 1999 for an aggregate consideration of $70,000. With the conclusion of this transaction, all real property in Ohio has now been sold. Proceeds of these transactions were used to repay certain expenses of the sale, certain property taxes and repay a portion of the $2.5 million loan from Paul I. Stevens, the Company's chairman and chief executive officer, which was partially collateralized by a lien on these production and storage facilities. Sale of Hamilton Machining Center in July 1998 On July 28, 1998 the Company sold the real and personal property at its Hamilton, Ohio machining center ("HMC") and the major portion of its machinery and equipment at its assembly facility in Hamilton, Ohio for an aggregate consideration of approximately $4.33 million. This transaction resulted in a second quarter 1998 loss on sale of assets of approximately $0.8 million and an additional loss of $0.5 million in the third quarter of 1998 as a result of HMC inventory and other inventory that was abandoned by the Company and included in the sale. Proceeds of the transaction were used to repay the $4 million secured bridge term loan from the Company's new bank lender (the "Bridge Loan") which was loaned to the Company on June 30, 1998. HMC had outside sales of $1.2 million and operating losses of $0.35 million in 1997. The Company has replaced certain of the capabilities of its machining center with a group of new and traditional suppliers. Sale of Assets of Zerand Division in April 1998 On April 27, 1998, the Company sold substantially all the assets of the Zerand division to Valumaco Incorporated, a new company formed for the asset purchase. In addition, Valumaco Incorporated assumed certain liabilities of the Zerand division. The assets sold included the real property, platen die cutter systems, and other original Zerand products such as delivery equipment, wide- web rotogravure printing systems, stack flexographic printing systems, unwind and butt splicer systems, and related spare parts, accounts payable, and other assumed liabilities. Excluded from the proposed transaction were the System 2000 flexographic printing systems and the System 9000 narrow-web rotogravure printing systems produced at the Zerand division and related accounts receivable, inventory and engineering drawings. The sale price was approximately $13.7 million, which consisted of cash proceeds of $10.1 million, a one-year $1 million escrow "holdback", and the purchaser's assumption of approximately $2.6 million of certain liabilities of Zerand, including the accounts payable. This transaction resulted in an approximate $10 million reduction of the Company's senior debt. The Company realized an approximate $3.6 million gain on the sale of Zerand assets in the second quarter of 1998. 7. The Company's effective tax rate was 0.0% in 1999 and in 1998. Due to accumulated losses, there were no recoverable income taxes for the nine months ended September 30, 1999 or 1998. 8. On June 30, 1998 the Company refinanced a major portion of its debt structure as part of its plan to reduce its debt. Through a combination of new secured bank borrowings of approximately $6 million, and loans from its Chairman, CEO and principal shareholder, Paul I. Stevens, aggregating $4.5 million, the Company has paid off both its Senior bank lender and its Senior Subordinated notes, aggregating approximately $19.5 million. The repayment of the Company's Senior Subordinated notes resulted in an extraordinary gain on early extinguishment of debt of approximately $11.2 million, or $1.10 per share. The secured bank credit facilities have first liens on certain assets of the Company, principally inventory, accounts receivable, and the Company's Texas real estate. Paul I. Stevens' loans have first liens on certain assets of the Company, principally the assets of a foreign subsidiary, and certain accounts receivable for new equipment being installed at a customer location, as well as second liens on inventory, accounts receivable, and the Company's Texas real estate. 9. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Since the Series A and Series B stock have identical dividend and participation rights in the Company's earnings, they have been considered to be comparable in the calculation. 10. Disclosure of segment data follows: Segments Three months ended Nine months ended September 30, September 30, 1999 1998 1999 1998 ----- ----- ----- ------ Revenues: Banknote inspection, printing and packaging equipment ... $1,416 $2,057 $6,147 $10,471 French repair and service ... 999 680 2,157 3,001 Zerand platen cutter - sold in 1998 ................... 0 0 0 4,305 ----- ----- ----- ------ Consolidated ........... $2,415 $2,737 $8,304 $17,777 Loss before tax: Banknote inspection, printing and packaging equipment ... $(967) $(1,765) $(844) $(2,684) French repair and service ... (30) (20) (102) 195 Zerand platen cutter - sold in 1998 ................... 0 0 0 698 ----- ----- ----- ------ Consolidated ............ $(997) $(1,785) $(946) $(1,791)
There were no significant intersegment revenues. The basis of segmentation has not changed since December 31, 1998. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year 2000 Compliance Disclosure The Company's main computer system and software are not currently Year- 2000 compliant. The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, but not limited to, a temporary inability to process transactions, invoices, or other similar normal business activities. The Company has undertaken a study, utilizing external consultants, to evaluate the Company's internal information systems infrastructure as it relates to the Year-2000 situation and believes it has identified Year-2000 non-compliant processes. The Company has undertaken projects to update and replace all non-compliant internal information systems and processes to ensure that the Year-2000 situation will not have a detrimental impact on the internal operations of the Company. The cost to update and replace non-compliant systems is approximately $50,000 to $100,000 consisting of hardware and software and will be incurred through December 31, 1999. The cost of Year-2000 compliance is not projected to have a significant negative impact on the Company's financial results in subsequent years. The Company is surveying its suppliers and service providers to determine potential exposure from external, non-compliant sources. No exposures have been identified, to date, from external sources. The Company has or is addressing its Year-2000 exposures. However, should an unforeseeable Year-2000 situation arise that poses a severe threat to the Company, the Company expects to be able to revert to PC and manual backup internal processes until the situation can be resolved. As an additional contingency, the Company's consultant, who developed the software used by the Company, is capable of backup processing on its own compatible computer system that is already Year- 2000 compliant. The Company does not utilize single source service providers or vendors and as such, may change to other providers and vendors in the case of non-compliance. RESULTS OF OPERATIONS Comparison of Nine Months Ended September 30, 1999 and 1998 Sales The Company's sales for the nine months ended September 30, 1999 decreased by $9.5 million (or 53.3%) compared to sales in the same period in 1998 due primarily to decreases in packaging products ($4.4 million) and French service and repair sales ($ 0.8 million). A total of $4.3 million of the decrease resulted from sales of Zerand, which was sold on April 27, 1998. Gross Profit The Company's gross profit for the nine months ended September 30, 1999 decreased by $107 thousand compared to gross profit in the same period in 1998. While this decrease was small, the gross profit margin increased to 41.5% of sales as compared to 20% in the comparable period in 1998 due to product mix and shipment of products at near normal margins and the Company's evaluation of its last-in first-out ("LIFO) inventory reserve and corresponding decrement in the calculated LIFO reserve. The Company evaluated its LIFO inventory reserve principally because of the sale of its machining and production facilities in Ohio in mid-1998 and the complete 1998 changeover of manufacturing philosophy from a "machine and make the component parts" to a "purchase the machined part." This LIFO evaluation process reduced the current year LIFO reserve calculation and, accordingly, increased the gross profit by $1.3 million (or $0.14 per share) for the nine months ended September 30, 1999. Selling, General and Administrative Expenses The Company's selling, general, and administrative expenses decreased by $2.3 million (or 39.4%) for the nine months ended September 30, 1999 compared to the same period in 1998 due to cost reduction efforts at corporate headquarters and manufacturing locations in connection with the reduced volume of sales, as well as the impact of the sale of Zerand. Selling, general and administrative expenses for the nine months ended September 30, 1999 were 42 % of sales compared to 32% of sales for the same period in 1998 due to the huge reduction in sales in 1999. The reduction in expenses was not proportionate to the reduction in sales discussed above. Other Income (Expense) The Company's interest expense decreased by $0.86 million for the nine months ended September 30, 1999 compared to the same period in 1998 due to the reduced borrowings in 1999 resulting from the application of the Zerand and Hamilton sale proceeds to pay down bank indebtedness and the early extinguishment of $17.3 million of subordinated notes, offset by an increased cost of borrowing in 1999. Interest income was negligible for the nine months ended September 30, 1999 and 1998. Comparison of Three Months Ended September 30, 1999 and 1998 Sales The Company's sales for the three months ended September 30, 1999 decreased by $0.3 million (or 11.8%) compared to sales in the same period in 1998 due primarily to decreases in packaging systems products ($0.6 million), offset by an increase of French service and repair sales ($0.3 million). Gross Profit The Company's gross profit for the three months ended September 30, 1999 decreased by $0.1 million compared to gross profit in the same period in 1998 due primarily to reduced depreciation and product development costs in 1999. Gross profit margin for 1999 decreased to 20.1% of sales as compared to 21.6% for 1998. This decrease in gross profit margin in 1999 was due primarily to product mix and slightly less than normal margins on standard products in 1999. Selling, General Administrative Expenses The Company's selling, general, and administrative expenses decreased by $0.5 million (or 29.3%) for the three months ended September 30, 1999 compared to the same period in 1998 due to continuing cost reduction efforts. Selling, general and administrative expenses for the three months ended September 30, 1999 were 46.2% of sales compared to 57.6% of sales for the same period in 1998 due to the continuing cost reductions in 1999. Other Income (Expense) The Company's interest expense decreased by $0.02 million for the three months ended September 30, 1999 compared to the same period in 1998 due to the reduced borrowing in 1999. The approximate $20 million in debt reduction since March 31, 1998 resulted from the sale of Zerand and HMC and the June 30, 1998 debt restructuring discussed in "LIQUIDITY AND CAPITAL RESOURCES." TAX MATTERS The Company's effective state and federal income tax rate ("effective tax rate") was 0% for the nine months ended September 30, 1999. Due to continuing losses in 1998, there were no recoverable tax benefits for the nine months ended September 30, 1999. LIQUIDITY AND CAPITAL RESOURCES Liquidity and Capital Resources The Company requires capital primarily to fund its ongoing operations, to service its existing debt and to pursue its strategic objectives including new product development and penetration of international markets. The Company's working capital needs typically increase because of a number of factors, including the duration of the manufacturing process and the relatively large size of most orders. Historically, the Company has funded its capital requirements with cash provided by operating activities, borrowings under credit facilities, issuances of long-term debt and the sale and private placement of common stock. Net cash provided by (used in) operating activities (before working capital requirement) was $0.43 million and $(1.64) million for the nine months ended September 30, 1999 and 1988, respectively. Working capital provided (used) cash of $(0.8) million and $(1.27) million for the nine months ended September 30, 1999 and 1998, respectively. The Company's capital expenditures for the first nine months of 1999 and 1998 were $32 thousand and $0.2 million, respectively, and were used primarily for certain machinery and equipment modernization. Various research and product development expenditures have been incurred in 1998 and 1999 to improve the Company's System 2000 flexographic press product line, and to develop a short run, quick make-ready flexographic product application. On June 30, 1998 the Company refinanced a major portion of its secured indebtedness ("the Debt Restructuring") as part of its plan to reduce its debt. Through a combination of new secured bank borrowings of approximately $6 million, and loans from its Chairman, CEO and principal shareholder, Paul I. Stevens, aggregating $4.5 million, the Company paid off principal amounts due its senior secured bank lender and its secured senior subordinated noteholders, aggregating approximately $19.5 million. Repayment of the secured Senior Subordinated Notes resulted in an extraordinary gain on early extinguishment of debt of approximately $11.2 million in the second quarter of 1998. Under its credit facility, the Company's maximum borrowings are limited to a borrowing base formula, which cannot exceed $7.5 million in the form of direct borrowings and letters of credit. As of September 30, 1999 there were $2.45 million in direct borrowings and no standby letters of credit outstanding under the bank credit facility, with no additional availability for such borrowings. The Company's bank credit facilities have first liens on certain assets of the Company, principally inventory, accounts receivable, and the Company's Texas real estate. Paul I. Stevens' loans aggregating $5.35 million at September 30, 1999 have first liens on certain assets of the Company, principally the assets of a foreign subsidiary, and certain accounts receivable for new customer equipment, as well as second liens on inventory, accounts receivable and the Company's Texas real estate. The Company was paid $500,000 of the Zerand escrow hold back funds net of amounts owed to the purchaser on November 6, 1998. Because these hold back funds collateralize certain Paul I. Stevens advances, the $500,000 was paid to him to reduce his secured loans to the Company. Interest on the bank facility is 1.25% over prime with a maturity of June 30, 2001 on the revolving credit facility. The amount borrowed on the revolving credit facility was approximately $2.45 million on September 30, 1999. The Company paid in full a $4.0 million bank Bridge Loan on July 28, 1998 from the sale of HMC and the major portion of its machinery and equipment at its assembly facility in Hamilton, Ohio. The secured loans from Paul I. Stevens are due June 30, 2001 and bear interest at rates that vary up to 2% over bank prime. The borrowings under the bank credit facility are subject to various restrictive covenants related to financial ratios as well as limitations on capital expenditures and additional indebtedness. The Company is not allowed to pay dividends. The Company was unable to pay certain pension plan minimum payments due on September 15, 1999. Accordingly, the Company filed the necessary forms with the Pension Benefit Guaranty Corporation to initiate distress terminations of the Company's two defined benefit pension plans (see Part II - Legal Proceedings herein). Assuming that one of several strategic financial alternatives, principally the return of normalized order flow rates, the private placement of an equity investment in the Company, and the additional sale of assets, among others presently being pursued by the Company is consummated, management believes that cash flow from operations will be adequate to fund its existing operations and repay scheduled indebtedness over the next 12 months. In addition, the Company may incur, from time to time, additional short- and long-term bank indebtedness (under its existing credit facility or otherwise) and may issue, in public or private transactions, its equity and debt securities to provide additional funds necessary for the continued pursuit of the Company's operational strategies. The availability and terms of any such sources of financing will depend on market and other conditions. There can be no assurance that such additional financing will be available or, if available, will be on terms and conditions acceptable to the Company. Through September 30, 1999, the Company's Chairman and Chief Executive Officer has loaned the Company $2.4 million for its short-term cash requirements and $2.95 million on a long-term basis. There is no continuing agreement by Paul I. Stevens to fund short-term cash requirements of the Company; and there can be no assurance that any additional loans will be available, or if available, will be on terms and conditions acceptable to the Company. As of September 30, 1999, these amounts have not been repaid, and no interest has been paid to Paul I. Stevens. The success of the Company's plans will continue to be impacted by its ability to achieve a satisfactory level of orders for printing systems, timely deliveries, the degree of international orders (which generally have less favorable cash flow terms and require letters of credit that reduce credit availability), and improved terms of domestic orders. While the Company believes it is making progress in these areas, there can be no assurance that the Company will be successful in these endeavors. Backlog and Orders The Company's backlog of unfilled orders at September 30, 1999 was approximately $4.9 million compared to $2.5 million at December 31, 1998 . The backlog of packaging systems at September 30, 1999 increased $2.1 million as compared to year-end 1998, as well as small increases in the Company's other product lines. The backlog at September 30 in each of the preceding five years has ranged from a low of $4.2 million in 1998 to a high of $57.1 million in 1995. Orders for the nine months ended September 30, 1999 were $10.7 million compared to $7.3 million for the comparable period in 1998, an increase of $3.4 million while shipments decreased $5.1 million, excluding Zerand in 1998. The Company believes the above noted increased order flow is the result of fluctuations in the flow of major printing and packaging system orders. When sales are recorded under the completed contract method of accounting, the Company normally experiences a six to nine month lag between the time new orders are booked and the time they are reflected in sales and results of operations. Larger orders, which are accounted for using the percentage of completion method of accounting, are reflected in sales and results of operations as the project progresses through the manufacturing cycle. PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is subject to various claims, including product liability claims, which arise in the ordinary course of business, and is a party to various legal proceedings that constitute ordinary routine litigation incidental to the Company's business. No assurance can be given regarding the outcome of any case; however a negative outcome in excess of insurance coverage could have a material adverse effect on the Company's business, operating results and financial condition. On September 15, 1999 the Company filed the necessary forms with the Pension Benefit Guaranty Corporation (PBGC) to initiate distress terminations of the Company's two defined benefit pension plans. The PBGC is a federal agency that insures and protects pension benefits in certain pension plans when the sponsoring company cannot make the required contributions to fund projected benefit obligations of the plans. The Company's low volume of printing press sales has resulted in extensive lay-offs, plant closings and sales of certain operating divisions over the past three years. The reduction in employment has, in turn, created a higher than normal demand for pension benefits necessitating the Company's decision to file for distress termination of the plans. The filings will begin a series of negotiations with the PBGC regarding funding of the pension benefits of employees. The PBGC has the right to file a lien on Company assets up to 30% of the net assets of the Company. Item 4. Submission of Matters to a Vote of Security Holders None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit Number Description of Exhibit ------- ----------------------------- 3.1 Second Amended and Restated Certificate of Incorporation of the Company.(1) 3.2 Bylaws of the Company, as amended.(2) 4.1 Specimen of Series A Common Stock Certificate.(3) 4.2 Specimen of Series B Common Stock Certificate.(4) 10.1 Asset Contract to Purchase Real Estate dated February 8, 1999 by and between the Company and Production Manufacturing, Inc. (5) 11.1 Computation of Net Income per Common Share.(*) 27.1 Financial Data Schedule.(*) *Filed herewith. (1) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1990 and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 33-15279) and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 33-24486) and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's report on Form 8-A filed August 19, 1988 and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference. (b) Reports on Form 8-K. The Registrant filed a Current Report on Form 8-K dated August 2, 1999 to report the denial of the Company's appeal on the delisting of its Series A and Series B common stock from the American Stock Exchange under Item 5. Other Events. The Company believes that a continuing market for the securities of the Company has developed over the counter. The over the counter trading symbols for the securities of the Company are "SVEIA" for Series A shares and "SVEIB" for Series B shares. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Stevens International, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STEVENS INTERNATIONAL, INC. Date: November 11, 1999 By: /s/ Paul I. Stevens Paul I. Stevens Chief Executive Officer and Acting Chief Financial Officer EX-11.1 2 EXHIBIT 11.1 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES COMPUTATIONS OF NET INCOME (LOSS) PER COMMON SHARE (UNAUDITED) (Amounts in thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ----- ----- ----- ----- Basic and diluted: Weighted average shares outstanding- basic ............... 9,492 9,488 9,492 9,488 Assumed exercise of Series A and B stock options (Treasury stock method) - - - - - - - - ----- ----- ----- ----- Total common share equivalents - diluted .......................... 9,492 9,488 9,492 9,488 ===== ===== ===== ===== Income (loss) before extraordinary item.............................. $ (994) $(1,785) $ (946) $(1,866) Extraordinary item (Note 8): Gain on early extinguishment of debt, net of tax effect - - - - - - 11,221 ----- ----- ----- ----- Net income (loss) $ (994) $(1,785) $ (946) $ 9,355 ===== ===== ===== ===== Earnings (loss) per share - basic (Note 9) Income (loss) before extraordinary item $(0.10) $ (0.19) $(0.10) $ (0.19) Gain on early extinguishment of debt - - - - - - 1.18 ----- ----- ----- ----- Net income (loss) - basic $(0.10) $ (0.19) $(0.10) $ 0.99 ===== ===== ===== ===== Earnings (loss) per share - diluted (Note 9) Income (loss) before extraordinary item $(0.10) $ (0.19) $(0.10) $(0.19) Gain on early extinguishment of debt - - - - - - 1.18 ----- ----- ----- ----- Net income (loss) - diluted $(0.10) $ (0.19) $(0.10) $ 0.99 ===== ===== ===== ===== See notes to consolidated condensed financial statements.
EX-27.1 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 SEP-30-1999 5 0 1,124 181 7,401 10,335 9,928 7,677 13,891 8,927 5,378 0 0 950 (4,940) 13,891 8,304 8,304 4,856 4,856 3,511 200 577 (946) 0 (946) 0 0 0 (946) (0.10) (0.10)
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