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 June 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 August 6, 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 June 30, 1999
(unaudited)
Consolidated Condensed Statements of Operations 4
Three and Six months ended June 30, 1999 and 1998
(unaudited)
Consolidated Condensed Statements of 5
Stockholders' Equity December 31, 1998 and
Six months ended June 30, 1999 (unaudited)
Consolidated Condensed Statements of Cash Flows 6
Six months ended June 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 14
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>
June 30, 1999 December 31, 1998
(unaudited)
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash ............................. $ 129 $ 164
Trade accounts receivable, less
allowance for losses of $392 and
$138 in 1999 and 1998, respectively 1,091 1,711
Costs and estimated earnings in excess
of billings on long-term contracts 586 665
Inventory (Note 3). ............. 6,667 6,146
Other current assets ............. 962 1,076
Assets held for sale (Note 6) ... 263 988
-------- -------
Total current assets ...... 9,698 10,750
Property, plant and equipment ...... 2,340 2,600
Other assets, net .................. 1,369 1,301
-------- -------
$ 13,407 $ 14,651
======== =======
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ........... $ 2,212 $ 3,035
Billings in excess of costs and estimated
earnigs on long-term contracts -- --
Other current liabilities ........ 2,824 3,780
Customer deposits ................ 499 310
Advances from stockholder ........ 1,965 1,645
Current portion of long-term debt 8 15
-------- -------
Total current liabilities . 7,508 8,785
Long-term debt ..................... 2,413 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 June 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) (4,284) (4,150)
Retained (deficit) ............... (39,668) (39,716)
-------- -------
Total stockholders' equity (deficit) (3,041) (2,955)
-------- -------
$ 13,407 $ 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)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
----- ------ ----- ------
<S> <C> <C> <C> <C>
Net sales ..................... $2,575 $ 5,343 $5,889 $15,040
Cost of sales ................. 1,015 5,163 2,926 12,075
----- ------ ----- ------
Gross profit .................. 1,560 180 2,963 2,965
Selling, general and
administrative expenses ...... 1,263 1,993 2,396 4,221
----- ------ ----- ------
Operating income (loss) ....... 297 (1,813) 567 (1,256)
Other income (expense):
Interest income ............ -- -- -- --
Interest expense ............ (180) (376) (356) (1,201)
Other, net .................. (67) (103) (115) (251)
Gain (loss) on sale of
assets (Note 6) (45) 2,702 (45) 2,702
----- ------ ----- ------
(292) 2,223 (516) 1,250
----- ------ ----- ------
Income (loss) before income
taxes and extraordinary item.. 5 410 51 (6)
Income tax (expense) benefit .. -- (75) (3) (75)
----- ------ ----- ------
Income (loss) before
extraordinary item 5 335 48 (81)
Extraordinary item (Note 8): ..
Gain on early extinguishment
of debt, net of tax effect.. -- 11,221 -- 11,221
----- ------ ----- ------
Net income (loss) $ 5 $11,556 $ 48 $11,140
===== ====== ===== ======
<PAGE>
Earnings (loss) per share -
basic (Note 9):
Income (loss) before
extraordinary item $ 0.00 $ 0.04 $ 0.01 $ (0.01)
Gain on early extinguishment
of debt -- 1.18 -- 1.18
----- ------ ----- ------
Net income (loss) - basic $ 0.00 $ 1.22 $ 0.01 $ 1.17
===== ====== ===== ======
Earnings (loss) per share -
diluted (Note 9):
Income (loss) before
extraordinary item $ 0.00 $ 0.03 $ 0.01 $ (0.01)
Gain on early extinguishment
of debt -- 1.10 -- 1.10
----- ------ ----- ------
Net income (loss) - diluted $ 0.00 $ 1.13 $ 0.01 $ 1.09
===== ====== ===== ======
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 10,190 9,492 10,190
===== ====== ===== ======
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 -- -- -- -- -- 48 -- 48
Foreign currency
translation adjustment -- -- -- -- -- -- (134) (134)
Excess pension
liability adjustment -- -- -- -- -- -- -- --
Comprehensive loss (86)
Conversion of Series B
stock to Series A stock 41 4 (41) (4) -- -- -- --
----- --- ----- --- ------ ------- ------ ------
Balance, June 30, 1999 7,459 $745 2,044 $205 $39,961 $(39,668) $(4,284) $(3,041)
===== === ===== === ====== ======= ====== ======
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)
Six Months Ended
June 30,
1999 1998
------- ------
<S> <C> <C>
Cash provided by operations:
Net income ............................ $ 48 $11,140
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization ....... 412 557
Other ............................... (134) (314)
Changes in operating assets and liabilities:
Trade accounts receivable ......... 620 1,120
Contract costs in excess of billings 79 (651)
Inventory ......................... (521) 1,142
Other assets ...................... (104) (780)
Trade accounts payable ............ (823) (64)
Other liabilities ................. (447) (1,399)
------- ------
Total cash (used in) provided by
operating activities ................... (870) 10,751
------- ------
Cash provided by (used in) investing activities:
Additions to property, plant and equipment (32) (203)
Disposal of Zerand Division in 1998 -- 8,200
Disposal of Ohio production facility 755 --
------- ------
Total cash provided by (used in)
investing activities ................... 724 7,997
------- ------
Cash provided by (used in) financing activities:
Net proceeds from (repayments of) long-
term debt ............................... 118 4,327
(Decrease) in current portion of long-term debt (7) (20,391)
------- ------
Total cash provided by (used in)
financing activities .................... 111 (16,064)
------- ------
Increase (decrease) in cash and
temporary investments ................... (35) 2,684
Cash and temporary investments at
beginning of period ..................... 164 211
------- ------
Cash and temporary investments at end of period $ 129 $ 2,895
======= ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................. $ 125 $ 466
Income taxes ......................... -0- -0-
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 June 30, 1999, the
consolidated condensed statement of stockholders' equity for the
period ended June 30, 1999, the consolidated condensed statements
of operations for the three and six months ended June 30, 1999
and 1998, 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,
1999 and the results of operations for the three and six months
ended June 30, 1999 and 1998 and the cash flows for the six
months ended June 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 six months ended June 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:
June 30, December 31,
1999 1998
(Amounts in thousands)
------ ------
Finished product ............. $ 1,109 $ 630
Work in progress ............. 1,451 1,458
Raw materials ................ 4,107 4,058
------ ------
$ 6,667 $ 6,146
====== ======
4. For a description of the status of the bank credit facility at
June 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 Facility
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. Proceeds of the transaction 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 this production facility.
An inventory storage facility at Hamilton, Ohio is under a
contract for sale and is expected to be sold in August 1999.
<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 5.9% in 1999 and 0.0% in
1998. Due to accumulated losses, there were no recoverable
income taxes for the six months ended June 30, 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 certain Ohio
assets that are being held for sale, a $0.5 million escrow hold
back on the sale of Zerand, 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.
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.
<PAGE>
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 Six Months Ended June 30, 1999 and 1998
Sales The Company's sales for the six months ended June 30, 1999
decreased by $9.1 million (or 60.8%) compared to sales in the same
period in 1998 due primarily to decreases in packaging products ($ 3.5
million) and French service and repair sales ($ 1.3 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 six months ended
June 30, 1999 decreased by $2 thousand compared to gross profit in the
same period in 1998. While this decrease was small, the gross profit
margin increased to 50.3% of sales as compared to 19.7% in the
comparable period in 1998 due (1) to product mix, shipment of products
at near normal margins, and reduced depreciation and product
development costs in 1999 (approximately 28.3%); and (2) the Company's
evaluation of its last-in first-out ("LIFO) inventory reserve and
corresponding decrement in the calculated LIFO reserve (approximately
22%). 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 six
months ended June 30, 1999.
Selling, General and Administrative Expenses The Company's selling,
general, and administrative expenses decreased by $1.8 million (or
43.2 %) for the six months ended June 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 six months ended June 30, 1999
were 40.7% of sales compared to 28.1% 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.
<PAGE>
Other Income (Expense) The Company's interest expense decreased by
$0.8 million for the six months ended June 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 six months ended June
30, 1999 and 1998.
Comparison of Three Months Ended June 30, 1999 and 1998
Sales The Company's sales for the three months ended June 30, 1999
decreased by $2.7 million (or 51.8%) compared to sales in the same
period in 1998 due primarily to decreases in packaging systems
products ($0.9 million) and French service and repair sales ($1.1
million). Decreased sales also resulted from the sale of the Zerand
division in April 1998, which contributed $0.7 million in sales in the
second quarter of 1998.
Gross Profit The Company's gross profit for the three months ended
June 30, 1999 increased by $1.3 million compared to gross profit in
the same period in 1998 due primarily to reduced depreciation and
product development costs in 1999 and the impact of the LIFO decrement
in 1999. The Company evaluated its last-in first out ("LIFO")
inventory reserve in conjunction with the 1998 and 1999 sale of its
production facilities in Ohio, necessitating a complete change in
manufacturing philosophy. The financial impact of the decrement in
the LIFO inventory for the three months ended June 30, 1999 was $1.03
million. Accordingly, the gross profit for the three months was
increased $1.03 million ($0.11 per share) and the LIFO reserve was
reduced $1.03 million. Gross profit margin for 1999 increased to
60.6% of sales as compared to 3.4 % for 1998. This increase in gross
profit margin in 1999 was due primarily to normal margins on standard
products in 1999 and the benefit of the reduction of the LIFO reserve
as well as reduced depreciation charges due to assets sold in 1998 and
1999.
Selling, General Administrative Expenses The Company's selling,
general, and administrative expenses decreased by $0.7 million (or
36.6%) for the three months ended June 30, 1999 compared to the same
period in 1998 due to continuing cost reduction efforts, and the 1998
sale of the Zerand and Hamilton Machining Center (HMC) divisions.
Selling, general and administrative expenses for the three months
ended June 30, 1999 were 49% of sales compared to 37.3% of sales for
the same period in 1998 due to the large decrease 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
$0.2 million for the three months ended June 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."
<PAGE>
TAX MATTERS
The Company's effective state and federal income tax rate ("effective
tax rate") was 5.9% for the six months ended June 30, 1999, due to the
alternative minimum tax imposed on corporations. Due to continuing
losses in 1998, there were no recoverable tax benefits for the six
months ended June 30, 1998.
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 $ 3.0 million and
$11.38 million for the six months ended June 30, 1999 and 1988,
respectively. Working capital provided (used) cash of $(1.2) million
and $(0.63) million for the six months ended June 30, 1999 and 1998,
respectively.
The Company's capital expenditures for the first six 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 June
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.
<PAGE>
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 $
4.9 million at June 30, 1999 have first liens on certain assets of the
Company, principally certain Ohio assets that are being held for sale,
the remaining $0.5 million escrow hold back on the sale of the Zerand
division, 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
June 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's pension plans have 1999 minimum payments due of
approximately $0.5 million payable on or before September 15, 1999.
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 June 30, 1999, the Company's Chairman and Chief Executive
Officer has loaned the Company $1.96 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 June 30, 1999, these
amounts have not been repaid, and no interest has been paid to Paul I.
Stevens.
<PAGE>
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 June
30, 1999 was approximately $4.5 million compared to $2.5 million at
December 31, 1998 . The backlog of packaging systems at June 30, 1999
increased $2.1 million as compared to year-end 1998, offset by small
changes in the Company's other product lines. The backlog at June 30
in each of the preceding five years has ranged from a low of $6.3
million in 1998 to a high of $68.0 million in 1995.
Orders for the six months ended June 30, 1999 were $7.9 million
compared to $5.0 million for the comparable period in 1998, an
increase of $2.9 million while shipments decreased $4.8 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.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 1999 Annual Meeting of Stockholders (the
"Meeting") on May 20, 1999. 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 ensuring
year:
Series A Nominees Votes For Votes Against
----------------- --------- -------------
Michel A. Destresse 6,901,173 31,052
Edgar H. Schollmaier 6,901,173 31,052
Series B Nominees
-----------------
Paul I. Stevens 2,055,333 1,175
Richard I. Stevens 2,055,258 1,250
Constance I. Stevens 2,055,333 1,175
James D. Cavanaugh 2,055,333 1,175
<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 expects that a continuing market for the securities of
the Company will develop 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: August 12, 1999 By: /s/ Paul I. Stevens
------------------------
Paul I. Stevens
Chief Executive Officer
and Acting Chief Financial Officer
<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 Six Months Ended
June 30, June 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) -- 185 -- 185
Assumed exercise of warrants -- 517 -- 517
----- ------ ----- ------
Total common share equivalents-diluted 9,492 10,190 9,492 10,190
===== ====== ===== ======
Income (loss) before extraordinary item $ 5 $ 335 $ 48 $ (81)
Extraordinary item (Note 8):
Gain on early extinguishment of
debt, net of tax effect -- 11,221 -- 11,221
----- ------ ----- ------
Net income (loss) $ 5 $11,556 $ 48 $11,140
===== ====== ===== ======
Earnings (loss) per share-basic (Note 9)
Income (loss) before extraordinary item $ 0.00 $0.04 $0.01 $(0.01)
Gain on early extinguishment of debt -- 1.18 -- 1.18
----- ------ ----- ------
Net income (loss)-basic $ 0.00 $ 1.22 $0.01 $1.17
===== ====== ===== ======
Earnings (loss) per share-diluted (Note 9)
Income (loss) before extraordinary item $0.00 $(0.03) $0.01 $(0.01)
Gain on early extinguishment of debt -- 1.10 -- 1.10
----- ------ ----- ------
Net income (loss) - diluted $0.00 $ 1.13 $0.01 $1.09
===== ====== ===== ======
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 JUNE 30, 1999 AND FOR THE SIX MONTHS THEN ENDED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 129
<SECURITIES> 0
<RECEIVABLES> 1,483
<ALLOWANCES> 392
<INVENTORY> 6,667
<CURRENT-ASSETS> 9,698
<PP&E> 6,839
<DEPRECIATION> 4,499
<TOTAL-ASSETS> 13,407
<CURRENT-LIABILITIES> 7,508
<BONDS> 5,363
0
0
<COMMON> 950
<OTHER-SE> (3,991)
<TOTAL-LIABILITY-AND-EQUITY> 13,407
<SALES> 5,889
<TOTAL-REVENUES> 5,889
<CGS> 2,926
<TOTAL-COSTS> 2,926
<OTHER-EXPENSES> 2,396
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 356
<INCOME-PRETAX> 51
<INCOME-TAX> 3
<INCOME-CONTINUING> 48
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
