UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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.
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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.)
5700 E. Belknap, 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 _____
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 8, 2000
------------------------------- -------------------------------
Series A Stock, $0.10 Par Value 7,466,447
Series B Stock, $0.10 Par Value 2,035,686
<PAGE>
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 3
December 31, 1999 and September 30, 2000
(unaudited)
Consolidated Condensed Statements of Operations 4
Three and Nine months ended September 30, 2000 and 1999
(unaudited)
Consolidated Condensed Statements of 5
Stockholders' Equity December 31, 1999 and
Nine months ended September 30, 2000 (unaudited)
Consolidated Condensed Statements of Cash Flows 6
Nine months ended September 30, 2000 and 1999
(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 6. Exhibits and Reports on Form 8-K 14
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, 1999.
<PAGE>
<TABLE>
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except share data)
<CAPTION>
September 30, 2000 December 31, 1999
------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 11 $ 6
Trade accounts receivable, less allowance
for losses of $92 at September 30, 2000
and $70 at December 31, 1999 441 936
Costs and estimated earnings in excess of
billings on long-term contracts - 109
Inventories (Note 3). 4,865 6,303
Other current assets 306 93
Assets held for sale (Note 6) - 363
------- --------
Total current assets 5,623 7,810
Property, plant and equipment, net 1,615 1,795
Other assets, net 495 657
------- --------
$ 7,733 $ 10,262
======= ========
<PAGE>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable $ 1,355 $ 2,120
Other current liabilities 944 1,691
Income taxes payable 110 110
Customer deposits 158 641
Current portion of long-term debt (Note 4) 1,996 2,070
------- --------
Total current liabilities 4,563 6,632
10% convertible subordinated notes payable 1,050 -
Note payable - stockholder 7,595 6,158
Accrued pension costs (Note 10) 632 3,110
Commitments and contingencies - -
Stockholders' deficit:
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, 7,467,000 and
7,459,000 shares issued and outstanding at
September 30, 2000 and December 31, 1999 746 745
Series B common stock, $0.10 par value,
6,000,000 shares authorized, 2,036,000 and
2,044,000 shares issued and outstanding at
September 30, 2000 and December 31, 1999 204 205
Additional paid-in-capital 40,961 39,961
Accumulated other comprehensive
loss (Note 10) - (2,549)
Accumulated deficit (48,018) (44,000)
------- --------
Total stockholders' deficit (6,107) (5,638)
------- --------
$ 7,733 $ 10,262
======= ========
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,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $ 1,008 $ 2,415 $ 3,049 $8,304
Cost of sales 789 1,930 3,000 4,856
------ ------ ------ ------
Gross profit 219 485 49 3,448
Loss on impairment of asset values - 200 - 200
Selling, general and administrative
expenses 674 1,115 2,377 3,511
------ ------ ------ ------
Operating loss (455) (830) (2,328) (263)
Other income (expense):
Interest income - 30 6 31
Interest expense (245) (220) (1,631) (577)
Other, net 336 26 208 (89)
Loss on sale of assets (Note 6) - (3) (273) (48)
------ ------ ------ ------
91 (167) (1,690) (683)
------ ------ ------ ------
Loss before income taxes (364) (997) (4,018) (946)
Income tax benefit - 3 - -
------ ------ ------ ------
Net loss $ (364) $ (994) $(4,018) $(946)
====== ====== ====== ======
Loss per share - basic and
diluted (Note 8):
Net loss - basic and diluted $ (0.04) $ (0.10) $ (0.42) $ (0.10)
====== ====== ====== ======
Weighted average number of shares of
common stock outstanding during the
periods - basic and diluted (Note 8) 9,502 9,492 9,502 9,492
====== ====== ====== ======
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 Comprehensive
Shares Amount Shares Amount Capital (Deficit) Loss Total
------ ------ ------ ------ -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 7,459 $745 2,044 $205 $39,961 $(44,000) $ (2,549) $ (5,638)
Net (loss) - - - - - (4,018) - (4,018)
Beneficial conversion
feature on convertible
subordinated notes
(Note 4) - - - - 1,000 - - 1,000
Termination of Pension
Plans - - - - - - 2,549 2,549
Conversion of Series B
stock to Series A stock 8 1 (8) (1) - - - -
----- ---- ----- ---- ------- -------- -------- --------
Balance,
September 30, 2000 7,467 $746 2,036 $204 $40,961 $(48,018) $ 0 $ (6,107)
===== ==== ===== ==== ======= ======== ======== ========
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)
Nine Months Ended
September 30,
--------------------------
2000 1999
------- -------
<S> <C> <C>
Cash provided by operations:
Net (loss) $ (4,018) $ (946)
Adjustments to reconcile net (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 230 599
Interest imputed on 10% convertible notes 1,000 -
Other 71 (88)
Changes in operating assets and liabilities:
Trade accounts receivable 495 769
Contract costs in excess of billings 109 (577)
Inventories 1,438 (1,254)
Other assets (23) 109
Trade accounts payable (765) (464)
Other liabilities (1,229) 616
------- -------
Total cash used in operating activities (2,692) (1,236)
------- -------
Cash provided by (used in) investing activities:
Additions to property, plant and equipment (86) (32)
Disposal of equipment and property 370 987
------- -------
Total cash provided by investing activities 284 955
------- -------
Cash provided by (used in) financing activities:
Proceeds from 10% convertible debt 900 -
Net proceeds from (repayments of) long-term debt 1,587 133
Decrease in current portion of long-term debt (74) (11)
------- -------
Total cash provided by financing activities 2,413 122
------- -------
Increase (decrease) in cash and temporary
investments 5 (159)
Cash and temporary investments at beginning
of period 6 164
------- -------
Cash and temporary investments at end of period $ 11 $ 5
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 226 $ 190
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 September 30, 2000, the
consolidated condensed statement of stockholders' equity for the period
ended September 30, 2000, the consolidated condensed statements of
operations for the three and nine months ended September 30, 2000 and
1999, and the consolidated condensed statements of cash flows for the
nine month periods ended September 30, 2000 and 1999 have been prepared
by the Company without audit. In the opinion of management, all
adjustments necessary to present fairly the financial position as of
September 30, 2000 and the results of operations for the three and nine
months ended September 30, 2000 and 1999 and the cash flows for the
nine months ended September 30, 2000 and 1999 have been made. The
December 31, 1999 consolidated condensed balance sheet is derived from
the audited consolidated balance sheet as of that date. Complete
financial statements for December 31, 1999 and related notes thereto
are included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 (the "1999 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 1999 Form 10-K. The results of operations
for the three and nine months ended September 30, 2000 and 1999 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 image processing systems primarily
for use in the banknote and securities printing industry. The Company
combines various types of equipment capable of converting and printing,
among other items, food and beverage containers, liquid container
cartons, banknotes, postage stamps, lottery tickets, direct mail
inserts, personal checks and business forms. The Company's
technological and engineering capabilities allow it to combine any of
the four major printing technologies (offset, flexography, rotogravure
and intaglio) in its systems. Complete press systems are capable of
multiple color and multiple size printing and perform such related
functions as numbering, punching, perforating, slitting, cutting,
creasing, folding and stacking. The presses can be custom engineered
for non-standard form size and special auxiliary functions.
3. Inventories consist of the following:
September 30, December 31,
2000 1999
------ ------
(Amounts in thousands)
Finished product ............. $ 304 $ 1,396
Work in progress ............. 199 349
Raw materials ................ 4,362 4,558
------ ------
$ 4,865 $ 6,303
====== ======
<PAGE>
4. For a description of the status of the bank credit facility
at September 30, 2000, see "Liquidity and Capital Resources".
Substantially all assets of the Company continue to be pledged as
collateral on the Company's credit facilities.
On March 31, 2000, the Company completed the funding of a private
placement of $1 million of 10% convertible subordinated notes (the
"Notes") due March 31, 2003. Net proceeds of the Notes were used for
working capital. The Notes were issued in increments of $50,000 and
are convertible into 2,000,000 shares of Series A Common Stock
("SVEIA") of the Company at $0.50 per share, subject to adjustment.
The conversion of the Notes is at the holder's option anytime on or
after the fifteenth day following the original issue date of the Notes
and prior to the close of business on their maturity date. Issue costs
for the Notes aggregated approximately $151,000. Accrued interest for
the six months ended September 30, 2000 was paid by issuing $50,000 of
new 10% convertible subordinated notes with identical terms as the
Notes.
The Company has committed to register the shares that would be issuable
upon conversion of the Notes. Dilution to existing shareholders would
occur as a result of the conversion of the Notes to 2,100,000 shares of
Series A common stock. Should all the Notes be converted, these
shareholders would own approximately 17% of the outstanding stock of
the Company. The first quarter of 2000 included a charge for imputed
interest expense of $1 million with a corresponding $1 million increase
in "Paid in Capital in Excess of Par Value" for the excess of the
market value of the common stock over the conversion price.
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 1999
Form 10-K.
6. A description of the Company's divestitures in 2000 and 1999 follows:
Sale of SSMI
In January 2000, the Company sold its French repair and service
company, SSMI, for a net aggregate consideration of $198,200. The
transaction resulted in an aggregate 1999 loss of $1.65 million,
including a 1999 loss on sale of $0.05 million and a related non-cash
foreign currency adjustment of $1.6 million which had been previously
reported as a charge against stockholders equity in accumulated other
comprehensive loss. SSMI had 1999 revenues of $3 million and an
operating loss of $0.13 million. Net proceeds of this transaction were
used to repay a portion of the loans from Paul I. Stevens, which were
partially collateralized by a lien on this subsidiary.
<PAGE>
Sale of Hamilton Production and Storage Facilities in 1999
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 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.
7. The Company's effective tax rate was 0% in 2000 and 6.5% in 1999. Due
to accumulated losses, there were no recoverable income taxes for the
three and nine months ended September 30, 2000.
8. 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.
9. Disclosure of segment data follows:
<TABLE>
Segments Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
----- ----- ------ -----
<S> <C> <C> <C> <C>
Revenues:
Banknote inspection, printing
and packaging equipment $1,008 $1,416 $ 3,049 $6,147
French repair and service - 999 - 2,157
----- ----- ------ -----
Consolidated $1,008 $2,415 $ 3,049 $8,304
Loss before tax:
Banknote inspection, printing
and Packaging equipment $ (364) $ (986) $(4,018) $ (844)
French repair and service - (11) - (102)
----- ----- ------ -----
Consolidated $ (364) $ (997) $(4,018) $ (946)
</TABLE>
There were no significant intersegment revenues. The basis of segmentation
has not changed since December 31, 1999.
<PAGE>
10. In October, 2000, the Pension Benefit Guaranty Corporation approved an
involuntary termination, effective November 15, 1999, of both pension
plans of the Company and agreed to take over all assets and liabilities
of the plans, as well as all future administrative and fiscal
responsibilities for payment of pension benefits to employees. Based
upon the termination of both pension plans of the Company, a net amount
of $0.376 million is reflected as other income during the third quarter
2000, as follows (amounts in 000's)
Impact on statement of operations - income (expense):
Termination of pension plan liabilities $ 3,557
Termination of related "Other comprehensive
loss" for pension plans (2,549)
Revised pension plan liability, at present
value of seven years payments (632)
------
Other income - net $ 376
======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
Stevens International, Inc. is continuing to experience month to month
losses and cash flow difficulties. The Company is exploring various
alternatives to solve these problems, including raising of additional
capital, spin off or sale of assets, recapitalization, mergers, and
aggressive pursuit of all available currency and printing equipment
prospects. There can be no assurance that any of these initiatives will be
successful.
In September, 2000, the Company entered into discussions for a possible
combination with Graphic Systems Services, Inc., a privately held printing
equipment manufacturer located in Springboro, Ohio. The combination would
involve the issuance by Stevens International of shares of its Series A
Common Stock for the Graphics Systems Services business. The Series A
Common Stock has not been and will not be registered under the Securities
Act of 1933 and may not be offered or sold in the United States absent
registration or an applicable exception from registration requirements.
Terms of the potential transaction remain to be determined between the
parties.
RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 2000 and 1999
Sales The Company's sales for the nine months ended September 30, 2000
decreased by $5.3 million (or 63.3%) compared to sales in the same period
in 1999 due primarily to decreases in packaging products ($3.1 million) and
French service and repair sales ($2.2 million).
<PAGE>
Gross Profit The Company's gross profit for the nine months ended
September 30, 2000 decreased by $3.4 million compared to gross profit in the
same period in 1999. The gross profit margin decreased to 1.6% of sales as
compared to 41.5% in the comparable period in 1999 due to continuing high
costs of idle plant and underutilized personnel due to low production volume
in 2000. The margin in 1999 was due, (1) to product mix, shipment of
products at near normal margins, and reduced depreciation and product
development costs; and (2) 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 1999 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 $1.1 million (or 32.3%)
for the nine months ended September 30, 2000 compared to the same period in
1999 due to cost reduction efforts at corporate headquarters and the
manufacturing location in connection with the reduced volume of sales.
Selling, general and administrative expenses for the nine months ended
September 30, 2000 were 78% of sales compared to 42.3% of sales for the same
period in 1999 due to the substantial reduction in sales in 2000. The
reduction in expenses was not proportionate to the reduction in sales
discussed above.
Other Income (Expense) The Company's interest expense increased by $1.1
million for the nine months ended September 30, 2000 compared to the same
period in 1999 due to the $1.0 million in imputed interest recorded on the
issuance of the 10% convertible subordinated notes due March 31, 2000 (see
Note 4) and the interest on the 10% convertible subordinated notes through
September 30, 2000. Interest income was negligible for the nine months
ended September 30, 2000 and 1999. Other income in 2000 resulted from the
termination of the Company's two pension plans and a corresponding reduction
in plan liabilities. The loss on sale of assets of $0.27 million in 2000
was a result of the sale of certain assets and settlement of certain
obligations retained in the sale of Zerand Division in 1998.
Comparison of Three Months Ended September 30, 2000 and 1999
Sales The Company's sales for the three months ended September 30, 2000
decreased by $1.4 million (or 58.3%) compared to sales in the same period
in 1999 due primarily to decreases in packaging systems products ($0.4
million) and to decreased sales resulting from the sale of SSMI in early
January 2000, which contributed $1.0 million in sales in the third quarter
of 1999.
<PAGE>
Gross Profit The Company's gross profit for the three months ended
September 30, 2000 decreased by $0.3 million compared to gross profit in the
same period in 1999 due primarily to decreased sales volume for packaging
systems, increased costs from the absorption of fixed costs over a lower
volume of shipments, all net of reduced depreciation and product
development costs in 2000. Gross profit margin for 2000 increased 21.7% of
sales as compared to 20.1% for 1999. This increase in gross profit margin
in 2000 was due primarily to shipments of parts in 2000 at near normal
profit margin, and certain third quarter positive adjustments in completed
jobs, offset by the high cost of idle plant and underutilized personnel.
Selling, General and Administrative Expenses The Company's selling,
general, and administrative expenses decreased by $0.4 million (or 39.6%)
for the three months ended September 30, 2000 compared to the same period in
1999 due to continuing cost reduction efforts, and the 2000 sale of SSMI.
Selling, general and administrative expenses for the three months ended
September 30, 2000 were 66.9% of sales compared to 46.2% of sales for the
same period in 1999 due to the large decrease in sales in 2000. The
reduction in expenses was not proportionate to the reduction in sales
discussed above.
Other Income (Expense) The Company's interest expense slightly increased
for the three months ended September 30, 2000 compared to the same period in
1999 resulting from increased borrowing and increased interest rates. The
other income in 2000 resulted from the termination of the Company's two
pension plans and a corresponding reduction in plan liabilities.
TAX MATTERS
The Company's effective state and federal income tax rate ("effective tax
rate") was 0% for 2000 and 1999. Due to continuing losses in 2000, there
were no recoverable tax benefits for the three and nine months ended
September 30, 2000.
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 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 printing equipment orders.
Net cash provided by (used in) operating activities (before working capital
requirements) was $(2.72) million in the first nine months of 2000 and
$(0.4) million in the first nine months of 1999. Working capital provided
(used) cash of $0.03 million in 2000 and $(0.8) million in 1999.
<PAGE>
On March 31, 2000, the Company completed the funding of a private placement
of $1 million of 10% convertible subordinated notes ("the Notes") due March
31, 2003. Net proceeds of the Notes were used for working capital. The
Notes were issued in increments of $50,000 and are convertible into shares
of Series A Common Stock ("SVEIA") of the Company at $0.50 per share,
subject to adjustment. On September 30, 2000 the Company elected to pay the
first six months interest on the Notes by issuing $50,000 of additional
notes with terms identical to the Notes. If all convertible notes were
converted to Common SVEIA shares, noteholders would be issued 2,100,000
shares of SVEIA. The conversion of the Notes is at the holder's option
anytime on or after the fifteenth day following the original issue date of
the Notes and prior to the close of business on their maturity date. Issue
costs for the Notes aggregated approximately $151,000.
The Company's capital expenditures were $86,000 in 2000 and were used
primarily for certain equipment modernization.
The company's bank credit facility bears interest at 1 1/4% over prime and
matures June 30, 2001. Under the bank facility, the Company's maximum
borrowings are limited to a borrowing base formula, which cannot exceed $4.0
million and may be in the form of direct borrowings and letters of credit.
As of September 30, 2000 there were $1.996 million in direct borrowings and
no standby letters of credit outstanding, with approximately $0.01 million
additional availability for such borrowings. The Company is not in
compliance with some of the covenants of its senior bank line of credit loan
agreement. The principal default involved the failure to make the required
pension plan payments in 1999 and 2000, which necessitated the filing of a
distress termination request (see below). The Company's senior lender had
declined to grant waivers of the defaults. Although the bank can declare
the full amount of the loan immediately payable at any time, it has not done
so. The senior bank debt is classified as a current obligation at September
30, 2000.
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 $7.6 million at
September 30, 2000 have first liens on certain assets of the Company,
principally the assets of a foreign subsidiary, and certain accounts
receivable for new customer equipment. Mr. Stevens has second liens on
all other assets of the Company. The secured loans from Paul I. Stevens are
due December 31, 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 ("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.
<PAGE>
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. In October 2000, the
PBGC approved an involuntary termination of both pension plans of the
Company and agreed to take over all assets and liabilities of the plans as
well as all future administrative and fiscal responsibilities for the
payment of pension benefits to employees (see Note 10). The PBGC, on behalf
of the Company's pension plan for bargaining unit employees, has filed
federal liens in the aggregate amount of $1.6 million against all property
and rights to property of the Company.
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, 2000, the Company's Chairman and Chief Executive
Officer has loaned the Company $7.6 million for its cash requirements. As
of September 30, 2000, this amount has not been repaid.
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. 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, 2000 was approximately $0.9 million compared to $2.5 million at December
31, 1999 . The backlog of packaging systems at September 30, 2000 decreased
$1.2 million as compared to year-end 1999. The sale of SSMI decreased the
backlog $0.4 million. 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 $27.4
million in 1996.
Orders for the nine months ended September 30, 2000 were $3.0 million
compared to $10.7 million for the comparable period in 1999, a decrease of
$7.7 million while shipments decreased $5.3 million. The decreased order
flow is the result of no major printing and packaging system orders in the
first nine months of 2000.
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 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number Description of Exhibit
3.1 Second Amended and Restated Certificate ofIncorporation 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)
4.3 Specimen of 10% Convertible Subordinated Note due March 31,
2003. (6)
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.
(6) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1999 and incorporated herein by
reference.
(b) Reports on Form 8-K.
The Registrant filed a Current Report on Form 8-K dated August 31, 2000 to
report: 1) A service parts alliance with Graphic Systems Services ("GSS"),
Springboro, OH designed to better serve the parts and service needs of the
combined companies customers; and, 2) Discussions for a possible
combination with GSS involving the issuance by Stevens International of
shares of its Series A Common Stock for the GSS business; all under Item 5.
Other Events.
<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 10, 2000 By: /s/ Paul I. Stevens
----------------------------------
Paul I. Stevens
Chief Executive Officer
and Acting Chief Financial Officer
