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
<PAGE>
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.
<PAGE>
<TABLE>
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except share data)
<CAPTION>
September 30, Dececmber 31,
1999 1998
(unaudited)
------ ------
<S> <C> <C>
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
====== ======
<PAGE>
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.
</TABLE>
<PAGE>
<TABLE>
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
----- ----- ----- ------
<S> <C> <C> <C> <C>
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
===== ===== ===== ======
<PAGE>
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.
</TABLE>
<PAGE>
<TABLE>
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
----- --- ----- --- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE>
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
<CAPTION>
Nine Months Ended
September 30,
1999 1998
------ ------
<S> <C> <C>
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
------ ------
<PAGE>
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.
</TABLE>
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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:
<TABLE>
Segments Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
----- ----- ----- ------
<S> <C> <C> <C> <C>
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)
</TABLE>
There were no significant intersegment revenues. The basis of
segmentation has not changed since December 31, 1998.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<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: November 11, 1999 By: /s/ Paul I. Stevens
Paul I. Stevens
Chief Executive Officer
and Acting Chief Financial Officer
EXHIBIT 11.1
<TABLE>
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
----- ----- ----- -----
<S> <C> <C> <C> <C>
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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 1,124
<ALLOWANCES> 181
<INVENTORY> 7,401
<CURRENT-ASSETS> 10,335
<PP&E> 9,928
<DEPRECIATION> 7,677
<TOTAL-ASSETS> 13,891
<CURRENT-LIABILITIES> 8,927
<BONDS> 5,378
0
0
<COMMON> 950
<OTHER-SE> (4,940)
<TOTAL-LIABILITY-AND-EQUITY> 13,891
<SALES> 8,304
<TOTAL-REVENUES> 8,304
<CGS> 4,856
<TOTAL-COSTS> 4,856
<OTHER-EXPENSES> 3,511
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 577
<INCOME-PRETAX> (946)
<INCOME-TAX> 0
<INCOME-CONTINUING> (946)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (946)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
