<PAGE>
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
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EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-9603
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STEVENS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 75-2159407
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5500 Airport Freeway, Fort Worth, Texas 76117
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(Address of principal executive offices) (zip code)
817/831-3911
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(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
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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 August 5,1996
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Series A Stock, $0.10 Par Value 7,339,468
Series B Stock, $0.10 Par Value 2,110,634
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TABLE OF CONTENTS
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PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 3
December 31, 1995 and June 30, 1996
(unaudited)
Consolidated Condensed Statements of Operations 4
Three and Six months ended June 30, 1996 and 1995
(unaudited)
Consolidated Condensed Statements of 5
Stockholders' Equity December 31, 1995 and
Six months ended June 30, 1996 (unaudited)
Consolidated Condensed Statements of Cash Flows 6
Six months ended June 30, 1996 and 1995
(unaudited)
Notes to Consolidated Condensed Financial 7
Statements (unaudited)
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
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STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
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ASSETS (unaudited)
------
<S> <C> <C>
Current assets:
Cash $ 712 $ 717
Temporary investments 102 --
Trade accounts receivable, less allowance for losses of
$655 and $882 in 1995 and 1996, respectively 26,079 21,740
Costs and estimated earnings in excess of billings on
long-term contracts 18,341 12,779
Inventory (Note 3) 23,300 25,831
Deferred and refundable income taxes 832 1,651
Other current assets 666 2,702
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Total current assets 70,032 65,420
Property, plant and equipment (Note 4) 32,017 30,656
Other assets, net 15,598 13,854
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Total Assets $117,647 $109,930
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Trade accounts payable $ 15,117 $ 14,396
Billings in excess of costs and estimated earnings on
long-term contracts 219 266
Other current liabilities 9,019 7,196
Income taxes payable -- --
Customer deposits 3,851 3,608
Advances from affiliates -- 950
Current portion of long-term debt (Note 4) 3,699 7,268
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Total current liabilities 31,905 33,684
Long-term debt (Note 4) 33,470 30,269
Deferred income taxes 4,536 2,694
Deferred pension costs 2,364 2,364
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock, $0.10 par value, 2,000,000 shares
authorized, non issued and outstanding -- --
Series A common stock, $0.10 par value, 20,000,000
shares authorized, 7,312,000 and 7,331,000 shares
issued and outstanding at December 31, 1995 and
June 30, 1996, respectively 731 733
Series B common stock, $0.10 par value, 6,000,000
shares authorized, 2,139,000 and 2,120,000 shares
issued and outstanding at December 31, 1995 and
June 30, 1996, respectively 214 212
Additional paid-in-capital 39,144 39,844
Foreign currency translation adjustment 359 32
Excess pension liability adjustment (1,036) (1,036)
Retained earnings 5,960 1,134
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Total stockholders' equity 45,372 40,919
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Total Liabilities and Stockholders' Equity $117,647 $109,930
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</TABLE>
See notes to consolidated condensed financial statements.
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STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1996 1995 1996
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<S> <C> <C> <C> <C>
Net sales................................................. $37,474 $18,732 $70,516 $ 41,345
Cost of sales............................................. 28,907 16,680 53,800 35,474
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Gross profit.............................................. 8,567 2,052 16,716 5,871
Selling, general and administrative expenses.............. 4,919 4,446 9,774 9,291
Restructuring charge...................................... -- 1,000 -- 1,000
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Operating income (loss)................................... 3,648 (3,394) 6,942 (4,420)
Other income (expense):
Interest income........................................... 78 24 123 38
Interest expense.......................................... (803) (1,026) (1,631) (1,957)
Lawsuit settlement expense (Note 5)....................... -- (700) -- (700)
Other, net................................................ (152) (198) (30) (315)
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(877) (1,900) (1,538) (2,934)
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Income (loss) before income taxes......................... 2,771 (5,294) 5,404 (7,354)
Income tax (expense) benefit.............................. (1,219) 1,553 (2,404) 2,528
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Net income (loss)......................................... $ 1,552 $(3,741) $ 3,000 $ (4,826)
======= ======= ======= ========
Net income (loss) per common share (Note 7)............... $0.16 $(0.40) $0.31 $(0.51)
======= ======= ======= ========
Weighted average number of shares of common
and common stock equivalents outstanding
during the periods (Note 7)..............................
9,564 9,451 9,584 9,451
======= ======= ======= ========
</TABLE>
See notes to consolidated condensed financial statements.
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STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES AMOUNT
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<S> <C> <C>
Series A Stock
Balance, December 31, 1995............................... 7,312 $ 731
Conversion of Series B stock to Series A Stock........... 19 2
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Balance, June 30, 1996................................... 7,331 $ 733
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Series B Stock
Balance, December 31, 1995............................... 2,139 $ 214
Conversion of Series B stock to Series A Stock........... (19) (2)
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Balance, June 30, 1996................................... 2,120 $ 212
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Additional paid-in capital
Balance, December 31, 1995............................... $39,144
Lawsuit settlement....................................... 700
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Balance, June 30, 1996................................... $39,844
=======
Foreign Currency Adjustment...............................
Balance, December 31, 1995............................... $ 359
Translation adjustments.................................. (327)
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Balance, June 30, 1996................................... $ 32
=======
Pension Liability Adjustment
Balance, December 31, 1995............................... $(1,036)
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Balance, June 30, 1996................................... $(1,036)
=======
Retained Earnings
Balance, December 31, 1995............................... $ 5,960
Net (loss) for six months ended June 30, 1996............ (4,826)
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Balance, June 30, 1996................................... $ 1,134
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Stockholders' Equity at June 30, 1996..................... $40,919
=======
</TABLE>
See notes to consolidated condensed financial statements.
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STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
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1995 1996
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<S> <C> <C>
Cash provided by operations:
Net income (loss)..................................... $ 3,000 $(4,826)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 2,652 2,761
Deferred and refundable taxes....................... -- (2,661)
Lawsuit settlement expense.......................... -- 700
Other............................................... 339 (327)
Changes in operating assets and liabilities:
Trade accounts receivable......................... (8,612) 4,339
Contract costs in excess of billings.............. (1,021) 5,608
Inventory......................................... (2,593) (2,530)
Other assets...................................... (647) (838)
Trade accounts payable............................ (2,495) (720)
Other liabilities................................. (1,291) (1,116)
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Total cash provided by (used in) operating activities... (10,668) 390
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Cash provided by (used in) investing activities:
Additions to property, plant and equipment............ (3,078) (679)
Proceeds from sale of assets.......................... 55 --
Deposits and other.................................... (179) 113
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Total cash provided by (used in) investing activities... (3,202) (566)
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Cash provided by (used in) financing activities:
Net proceeds from (repayments of) long-term debt...... 12,428 (3,489)
Increase in current portion of long-term debt......... -- 3,568
Exercise of stock options............................. 199 --
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Total cash provided by (used in) financing activities... 12,627 79
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Increase (decrease) in cash and temporary investments... (1,243) (97)
Cash and temporary investments at beginning of period... 1,473 814
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Cash and temporary investments at end of period......... $ 230 $ 717
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest........................................... $ 1,138 $ 1,525
Income taxes....................................... 1,846 90
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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<PAGE>
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated condensed balance sheet as of June 30, 1996, the
consolidated condensed statement of stockholders' equity for the period
ended June 30, 1996, the consolidated condensed statements of operations for
the three and six months ended June 30, 1996 and 1995, and the consolidated
condensed statements of cash flows for the six 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 June 30, 1996 and the results
of operations for the three and six months ended June 30, 1996 and 1995 and
the cash flows for the six months ended June 30, 1996 and 1995 have been
made. The December 31, 1995 consolidated condensed balance sheet is derived
from the audited consolidated balance sheet as of that date. Complete
financial statements for December 31, 1995 and related notes thereto are
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 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 1995 Form 10-K. The results of operations for the three and
six months ended June 30, 1996 and 1995 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 security and banknote
segments of the printing industry. The Company is also a worldwide leader in
the manufacture of rotary and platen die cutting and creasing equipment. The
Company manufactures 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. A growing use of the Company's die cutting
equipment is in non-printing applications to produce consumer items such as
potato chips, cookies, battery grids, disposable diapers, adhesive bandages,
and many other end products. The Company has the technological and
engineering expertise to combine any of the four major printing methods
(offset, flexography, rotogravure and intaglio) together with die cutters
and creasers and product delivery systems into a single system. 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.
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<PAGE>
3. Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
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(Amounts in thousands)
<S> <C> <C>
Finished product $ 7,204 $ 6,864
Work in progress 9,231 12,091
Raw materials 6,865 6,876
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$23,300 $25,831
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</TABLE>
4. For a description of the amendment and restatement of the bank credit
facility in May and thereafter, see "Liquidity and Capital Resources".
Substantially all assets of the Company continue to be pledged as collateral
on the Company's credit facilities. The long term debt is recorded net of
unamortized debt issue costs of $0.97 million at June 30, 1996.
5. The Company is party to a number of legal actions arising in the ordinary
course of its business. In management's opinion, the Company has adequate
legal defenses and/or insurance coverage in respect to each of these legal
actions and does not believe that they will materially affect the Company's
operations, liquidity, or financial position. See "Legal Proceedings" herein
and in the 1995 Form 10-K.
The June 1996 resolution of the Company's class action lawsuit, which had
been in litigation for five years, resulted in a one-time $700,000, ($0.07)
per share charge to second quarter earnings. In this settlement, the Company
paid no cash but agreed to issue warrants valued at $700,000 to purchase the
Company's Series A stock. The warrants are exercisable over a one-year
period from the date of issuance and represent the right to purchase up to
737,619 shares of Series A stock from the Company at an exercise price of
$2.67 per share. If exercised, the warrants would result in $1,970,918 of
additional equity to the Company.
6. The benefit of recoverable income tax expense for the three and six months
ended June 30, 1996 was $1,553,000 and $2,528,000, of which $686,000 was
principally related to reductions in currently payable taxes and $1,842,000
related to reductions in deferred taxes.
7. Earnings per common share for 1996 and 1995 are based upon the weighted
average number of shares of common and common stock equivalents (stock
options, when dilutive) outstanding during the periods. 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.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Sales The Company's sales for the six months ended June 30, 1996 decreased by
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$29.2 million (or 41%) compared to sales in the same period in 1995 due
primarily to sales decreases in the packaging systems divisions ($23.1 million),
the banknote printing equipment division ($0.2 million), and the specialty web
products division ($5.9 million).
Gross Profit The Company's gross profit for the six months ended June 30, 1996
- ------------
decreased by $10.8 million compared to gross profit in the same period in 1995
due primarily to decreased sales volume for packaging systems and specialty web
products. Gross profit margin for 1996 decreased to 14.2% of sales as compared
to 23.7% of sales for 1995. This decrease in gross profit margin in 1996 was
due primarily to approximately $3 million in continuing product development
costs related to a series of new products, changes in product mix, and certain
increased product performance and warranty expenses.
Selling, General and Administrative Expenses The Company's selling, general,
- --------------------------------------------
and administrative expenses decreased by $0.5 million for the six months ended
June 30, 1996 compared to the same period in 1995 due to decreases in
advertising, personnel and related costs at operating divisions, and certain
corporate administrative and legal costs. Selling, general and administrative
expenses for the six months ended June 30, 1996 were 22.5% of sales compared to
13.9% of sales for the same period in 1995 due to the $29.2 million decrease in
sales without corresponding expense decreases.
Restructuring Charge The dramatic continuation of the slowdown in capital
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spending by the Company's customers necessitated significant work force and cost
reductions, as well as the consolidation of certain facilities and operating
functions, resulting in a $1 million restructuring charge.
Other Income (Expense) The Company's interest expense increased by $0.3
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million for the six months ended June 30, 1996 compared to the same period in
1995 due to increased borrowing by the Company to fund operations. Interest
income decreased by $0.1 million for the six months ended June 30, 1996 as
compared to interest income in the same period in 1995 due to the use of cash to
minimize the amount borrowed under the Company's credit facilities.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Sales The Company's sales for the three months ended June 30, 1996 decreased by
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$18.7 million (or 50%) compared to sales in the same period in 1995 due
primarily to sales decreases in the packaging systems divisions ($14.3 million),
specialty web products division ($4.0 million ) and the banknote printing
equipment division ($0.4 million).
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<PAGE>
Gross Profit The Company's gross profit for the three months ended June 30,
- ------------
1996 decreased by $6.5 million compared to gross profit in the same period in
1995 due primarily to decreased sales volume for packaging systems and specialty
web products. Gross profit margin for 1996 decreased to 11.0% of sales as
compared to 22.9% of sales for 1995. This decrease in gross profit margin in
1996 was due primarily to approximately $1.5 million in continuing product
development costs related to a series of new products, changes in product mix,
and certain increased product performance and warranty expenses.
Selling, General and Administrative Expenses The Company's selling, general,
- --------------------------------------------
and administrative expenses decreased by $0.5 million for the three months ended
June 30, 1996 compared to the same period in 1995 due to decreases in
advertising, personnel and related costs at operating divisions, and certain
corporate administrative and legal costs. Selling, general and administrative
expenses for the six months ended June 30, 1996 were 23.7% of sales compared to
13.1% of sales for the same period in 1995 due to the $18.7 million decrease in
sales without corresponding expense decreases.
Restructuring Charge The dramatic continuation of the slowdown in capital
- --------------------
spending by the Company's customers necessitated significant work force and cost
reductions, as well as the consolidation of certain facilities and operating
functions, resulting in a $1 million restructuring charge.
Other Income (Expense) The Company's interest expense increased by $0.2
- ----------------------
million for the three months ended June 30, 1996 compared to the same period in
1995 due to increased borrowing by the Company to fund operations. Interest
income decreased by $0.05 million for the three months ended June 30, 1996 as
compared to interest income in the same period in 1995 due to the use of cash to
minimize the amount borrowed under the Company's credit facilities.
TAX MATTERS
The Company's effective state and federal income tax rate ("effective tax rate")
was 34.4% and 44.5% for the six months ended June 30, 1996 and 1995,
respectively. These effective tax rates were due to recoverable taxes in 1996
and federal and state taxes payable in 1995. The recovery tax rate in 1996 was
substantially lower due to various non-deductible expenses in 1996.
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. During the latter part of 1995 and during 1996, the
Company has experienced an increased need for working capital resulting in
continued high levels of borrowings under its bank credit facility. The working
capital needs are directly related to the slowness in orders in 1995 and 1996
and certain product performance issues which have delayed deliveries, increased
costs and delayed cash collections. Also, the growing international mix of the
Company's new orders which typically
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have less favorable cash flow terms than domestic orders, and the introduction
of new products have resulted in increased borrowings.
The Company continues to experience product performance issues with respect to
certain of these newer machines which has negatively impacted collection of
accounts receivable and the booking of new orders. The Company believes,
however, that progress is being made regarding resolving certain performance
issues.
The reduced liquidity resulting from the order slowdown and collection delays
required the Company to fully draw upon its bank credit facility and did not
allow for the payment of a $3.6 million principal payment due June 30, 1996 to
its Senior Subordinated Note holders. In addition, the losses incurred by the
Company in the three and six months ended June 30, 1996 resulted in non-
compliance with a debt coverage ratio in the Company's bank credit facility.
The Company has obtained temporary waivers from its bank and the holders of its
Senior Subordinated Notes and is working toward a restructuring of its
indebtedness.
The Company has retained Rauscher Pierce Refsnes, Inc. to advise the board of
directors on strategic and financial alternatives available to the Company.
Possible strategies include the addition of capital through a merger or business
combination with other companies, raising additional equity, or a restructuring
or sale of part of the Company, all in an effort to maximize shareholder value.
There can be no assurance that any transaction will be consummated.
Historically, the Company has funded its capital needs with cash provided by
operating activities, borrowings under bank credit facilities, issuance of long-
term debt and the sale and private placement of common stock. Net cash provided
by (used in) operating activities was $0.4 million in the six months of 1996 and
($10.7 million) in the first six months of 1995.
At June 30, 1996, the Company's indebtedness was comprised primarily of a bank
credit facility and the Company's Senior Subordinated Notes due June 30, 2000.
In addition the Company's chairman has loaned the Company $950,000, as described
below. As of June 30, 1996, there was outstanding $15.3 million in Senior
Subordinated Notes, bearing interest at the rate of 10.5% per annum, with
principal payments of $3.6 million being due on June 30, 1996 and each June 30
thereafter, and a final payment of $0.86 million at maturity. As previously
stated, the June 30, 1996 principal payment was not made.
Under its credit facility, the Company may borrow up to $27 million in the form
of direct borrowings and letters of credit. As of June 30, 1996 there was $23
million in direct borrowings and $3.9 million in standby letters of credit
outstanding under the credit facility. The interest rate on direct borrowings
under the credit facility is at the lender's prime rate, or at the Company's
option, an offshore rate (generally equivalent to LIBOR) plus 1.5%, which
equates to 7.0% at June 30, 1996.
At June 30, 1996, $8.1 million of the Company's borrowings were at the lender's
prime rate of interest (8.25%) and $15.0 million of the borrowings were at an
offshore rate plus 1.5% (7.0%). The amounts borrowed under the credit facility
have been used for working capital.
Both the agreement concerning the credit facility and the agreement with the
holders of the Senior Subordinated Notes provide for joint and several
guaranties by the domestic operating subsidiaries of the Company. To secure the
indebtedness and the guaranties, a first lien was granted to the lender,
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<PAGE>
and a second lien was granted to the holders of the Senior Subordinated Notes,
on substantially all the assets of the Company and its domestic divisions.
The borrowings under the credit facility and Senior Subordinated Notes agreement
are subject to various restrictive covenants related to financial ratios as well
as limitations on capital expenditures and additional indebtedness. The credit
facility permits the Company to borrow up to $5 million for domestic
acquisitions without lender consent. The Company is not allowed to pay
dividends.
In May of 1996, the Company and its lender agreed to modify the credit facility
by providing for a reduction in the minimum required debt service coverage ratio
during 1996. The Company did not attain the minimum debt service coverage ratio
at June 30, 1996 due to the large loss in the second quarter of 1996. The
company believes it has reached an agreement in principle with respect to a
further modification of its credit facility and its Senior Subordinated Note
Agreement providing for a restructuring of the Company's bank and subordinated
indebtedness. Final documentation of this restructuring is anticipated in
September 1996. If the restructuring documentation process is unsuccessful, the
Company would be in violation of certain of its loan covenants.
Assuming that the contemplated restructuring of its indebtedness is completed
and that one of several strategic, financial alternatives presently being
pursued by the Company is consummated, management believes that cash flow from
operations will be adequate to fund its existing operations, repay indebtedness,
and allow it to pursue its strategic objectives 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
growth strategies, including the financing of possible future acquisitions. 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 June 30, 1996, the Company's Chairman and Chief
Executive Officer has loaned the Company $950,000 for its short-term cash
requirements which is to be mandatorily repaid from proceeds of the Banque de
France receivable ( approximately $1.7 million). To date this amount has not
been repaid.
In addition to the availability of external financing, management believes that
the Company's liquidity will be impacted by its ability to achieve a
satisfactory resolution of the product performance and warranty issues, timely
deliveries, acceptance of the ACE system by the Bank of England and final
acceptance of the SNOW press by Banque de France, the degree of international
orders (which generally have less favorable cash flow terms and require letters
of credit that reduce credit availability), improved terms of domestic orders,
and timely implementation of cost reduction measures. There can be no assurance
that the Company will be successful in any or all of these areas.
Backlog and Orders The Company's backlog of unfilled orders at June 30, 1996
- ------------------
was approximately $27.4 million compared to $40.4 million at December 31, 1995,
a decrease of (32.0%). The backlog decrease included $10.2 million of
packaging, $1.4 million of banknote related equipment and $2.0 million of
specialty web equipment offset by an increase of $0.6 million at the Company's
French printing press repair and service company, as compared to year-end 1995.
The backlog at June 30 in each of the preceding five years has ranged from a low
of $34.9 million in 1991 to a high of $65.0 million in 1995.
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<PAGE>
The reduction in backlog is the result of a reduced order flow in late 1995
which has continued in 1996. Orders for the six months ended June 30, 1996 were
$29.8 million compared to $66.8 million for the comparable period in 1995, a
decrease of $37.0 million while shipments decreased $29.2 million. The Company
believes the above noted reduced order flow is the result of fluctuations in the
flow of major printing and packaging system orders and certain product
performance issues. As a result, the Company is continuing to adjust its rate
of future production and accompanying costs to match this reduced order flow.
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
On December 5, 1990, Howard Lasker, as the representative of an alleged class
consisting of purchasers of the Company's common stock between October 18, 1989
and October 31, 1990, filed a lawsuit against the Company and certain officers
and directors of the Company. The suit was certified as a class action in March
1992.
The Company, its officers' and directors' liability insurance carrier, and the
Plaintiff negotiated a written settlement of the dispute. The court issued its
final approval of the settlement agreement by order dated June 18, 1996. The
settlement resulted in the dismissal of the litigation. As part of the
settlement, the Company has agreed to issue to the class warrants to purchase
Series A Common Stock with an aggregate value of $700,000. The value of the
warrants was charged to the Company's earnings in June 1996. (See Note 5 of
Notes to Consolidated Condensed Financial Statements).
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held its 1996 Annual Meeting of Stockholders (the "Meeting")
on May 23, 1996. At the Meeting, the Stockholders of the Company
considered and voted upon the following matters, with the results
indicated:
(1) The following directors, constituting all of the directors of the Company,
were elected to serve as directors for the ensuing year:
Series A Nominees Votes For Votes Withheld
----------------- --------- --------------
John W. Stodder 5,329,270 67,729
Edgar H. Schollmaier 5,329,270 67,729
Michel A. Destresse 5,329,270 67,729
Series B Nominees
-----------------
Paul I. Steyens 2,130,227 287
Richard I. Stevens 2,130,227 287
Constance I. Stevens 2,130,227 287
Robert H. Brown, Jr. 2,130,227 287
James D. Cavanaugh 2,130,227 287
Robert B. Holland, III 2,130,227 287
(2) The Stockholders of the Company ratified the selection of Deloitte & Touche
as the Company's independent accountants to audit the Company's financial
statements for the 1996 fiscal year by the Following vote:
Abstentions
Votes For Votes Against Broker Non-Votes
--------- ------------- ----------------
7,475,971 41,120 10,422
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
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 Form of Indemnity Agreement. (2)
10.3 Second Amended and Restated Stock Option Plan of the Company. (5)
10.4 Description of Stevens Graphics Incentive Plan. (3)
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<PAGE>
10.5 Description of Hamilton Life Insurance Payroll Deduction Plan. (2)
10.6 Labor Agreement, dated July 2, 1994, between Hamilton-Stevens Group,
Inc. and the International Union United Automobile, Aerospace and
Agricultural Implement Workers of America. (9)
10.9 Chem-Dyne Site Trust Fund Agreement, dated September 23, 1985. (2)
10.10 Lease Agreement between Space Unlimited Joint Venture #3 and Stevens
Corporation ("Stevens"), dated September 11, 1981, and related lease
addendum. (2)
10.11 First Extension Agreement dated January 19, 1987 between Stevens and
Space Unlimited Joint Venture #3. (3)
10.12 First Amended Joint Venture Agreement of Space Unlimited Joint Venture
#3, dated June 26, 1980, and related Assignment of Joint Interest and
Loan Modification, Assumption Agreement and Release.(2)
10.13 Second Extension Agreement between the Company and Space Unlimited
Joint Venture #3. (6)
10.14 Stevens Graphics Corporation Pension Plan and Trust. (6)
10.15 Stevens Graphics Corporation Profit Sharing and 401 (k) Savings
Retirement Plan. (6)
10.17 Lease Agreement between Rochester Hills Executive Park and Zerand-
Bernal Group, Inc. (8)
10.18 Severance Agreement among the Company, Post, and Robert F. Hopkins.
(6)
10.19 Restated and Amended Subordinated Debt Agreement dated March 27, 1992,
together with forms of Subordinated Notes and Subordinated Guaranties.
(6)
10.20 Amended and Restated Intercreditor and Subordination Agreement dated
April 26, 1994. (11)
10.21 Contract of Sales between the Company and the Banque de France. (6)
10.23 Asset Purchase Agreement dated July 20, 1993 among Post Machinery
Company, Inc., the Company, and Bobst Group, Inc. and Bobst, S.A. (10)
10.24 Letter Agreement dated August 5, 1993 amending Asset Purchase
Agreement among the Company, Post Machinery Company, Inc. Bobst Group,
Inc., and Bobst, S.A. (10)
10.25 Intellectual Property Purchase Agreement dated August 5, 1993 among
the Company, Post Machinery Company, Inc., and Bobst S.A. (10)
10.26 Fourth Amendment to Amended and Restated Senior Subordinated Note
Agreement dated April 29, 1994. (11)
10.27 Form of Stock Purchase Agreement dated as of September 16, 1994
between the Company and certain investors. (12)
10.28 Credit Agreement, dated May 16, 1995, between the Company and Bank of
America, Texas, N.A. (13)
10.29 First Amendment to Amended and Restated Subordination and
Intercreditor Agreement dated August 1995. (14)
10.30 Fifth Amendment to Amended and Restated Senior Subordinated Note
Agreement dated August 1995. (14)
10.31 First Amendment to Credit Agreement effective August 15, 1995 between
the Company and Bank of America Texas, N.A. (14)
10.32 Second Amended and Restated Master Note: Reference Rate Related dated
August 15, 1995, executed by the Company and payable to the order of
Bank of America Texas, N.A. in the original principal amount of $27
million. (14)
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<PAGE>
10.33 Second Amendment to Credit Agreement effective December 1995 between
the Company and Bank of America Texas, N.A. (14)
10.34 Letter Agreement and Promissory Note by and between the Company and
Paul I. Stevens dated April 22, 1996. (15)
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 Quarterly Report on
Form 10-Q for the period ended June 30, 1994 and incorporated herein
by reference.
(6) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1991 and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 33-32089) and incorporated herein by reference.
(8) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1993 and incorporated herein
by reference.
(9) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1994 and incorporated
herein by reference.
(10) Previously filed as an exhibit to the Company's Current Report on Form
8-K filed August 12, 1993 and incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1994 and incorporated herein
by reference.
(12) Previously filed as an exhibit to the Company's Registration Statement
on Form S-3 (No. 33-84246) and incorporated herein by reference.
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<PAGE>
(13) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1995 and incorporated herein
by reference.
(14) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and incorporated herein by
reference.
(15) Previously filed as an exhibit to the Company's Annual Report on Form
10-Q for the period ended March 31, 1996 and incorporated herein by
reference.
(b) Reports on Form 8-K.
None.
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<PAGE>
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: August 13, 1996 By:
Paul I. Stevens
Chief Executive Officer
and Acting Chief Financial Officer
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<PAGE>
EXHIBIT 11.1
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATIONS OF NET INCOME PER COMMON SHARE
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1996 1995 1996
------- ------- ------ -------
<S> <C> <C> <C> <C>
Primary and fully diluted:
Weighted average shares outstanding................ 9,388 9,451 9,388 9,451
Assumed exercise of Series A and B stock options
(Treasury stock method).......................... 176 -- 196 --
------ ------- ------ -------
Total common share equivalents..................... 9,564 9,451 9,584 9,451
====== ======= ====== =======
Net income (loss).................................. $1,552 $(3,741) $3,000 $(4,826)
====== ======= ====== =======
Per share amounts -- Primary and fully diluted:
Net income (loss).................................. $ 0.16 $ (0.40) $ 0.31 $ (0.51)
====== ======= ====== =======
</TABLE>
-18-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF STEVENS INTERNATIONAL, INC. AND
SUBSIDIARIES AS OF JUNE 30, 1996 AND FOR THE THREE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 717
<SECURITIES> 0
<RECEIVABLES> 22,622
<ALLOWANCES> 882
<INVENTORY> 25,831
<CURRENT-ASSETS> 65,420
<PP&E> 56,050
<DEPRECIATION> 25,394
<TOTAL-ASSETS> 109,930
<CURRENT-LIABILITIES> 33,684
<BONDS> 30,269
0
0
<COMMON> 945
<OTHER-SE> 39,974
<TOTAL-LIABILITY-AND-EQUITY> 109,930
<SALES> 41,345
<TOTAL-REVENUES> 41,345
<CGS> 35,474
<TOTAL-COSTS> 35,474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,957
<INCOME-PRETAX> (7,354)
<INCOME-TAX> (2,528)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,826)
<EPS-PRIMARY> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
