ITEM 1. BUSINESS.
Stevens International, Inc. (formerly Stevens Graphics Corporation) was incorporated in Delaware in November 1986. (All references to the "Company" or "Stevens" include Stevens International, Inc. and its subsidiaries and predecessors, unless the context otherwise requires.)
GENERAL
Stevens 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's technological and engineering capabilities allow it to combine the four major printing technologies in its systems. The Company combines its various types of equipment, including printing presses, platen die cutting equipment and delivery systems, into complete integrated systems, which are capable of providing finished products in a single press pass. These systems sell for prices ranging from $1 million to over $10 million. The Company also manufactures auxiliary and replacement parts and provides service for its equipment which represented 50%, 30% and 27% of the Company's net sales for 1996, 1995 and 1994, respectively. Stevens' equipment is used by its customers to produce hundreds of end-products, including food and beverage containers, banknotes, postage stamps, lottery tickets, direct mail inserts, personal checks and business forms. The Company has an installed base of more than 5,000 machines in over 50 countries.
All of the Company's presses are "web-fed" presses, which print on paper or other substrate that is fed continuously from a roll (the "web"), as distinct from traditional "sheet-fed" presses, which print on pre-cut sheets of paper or other substrate. Although sheet-fed equipment is still dominant in the segments of the packaging industry and the banknote and securities segment of the printing industry that are served by the Company, the Company believes that significant opportunities exist to convert users of sheet-fed equipment to its web-fed packaging and printing systems because of the greater efficiencies inherent in the web-fed process.
OVERVIEW OF 1996
The Company experienced a severe decrease in sales during 1996, which reflected a continuation of the slowdown in orders that the Company initially experienced in the fourth quarter of 1995. Orders fell to 48% of the previous year, primarily in the packaging systems and specialty web products divisions. While the decline in orders may be attributable to general economic conditions affecting the printing and packaging industry and related industry-wide purchase delays, the Company believes the decline in orders is primarily attributable to a loss of orders to its competition due in part to certain product performance issues and in part to liquidity problems faced by the Company. In response to the continued order slowdown, the Company implemented a restructuring plan which includes significant work force and cost reductions and the consolidation of certain facilities and operating functions. As part of the restructuring plan, and in an effort to cut costs and improve cash flow, the Company intends to improve its productivity by improving or eliminating certain product lines and consolidating manufacturing and assembly at its most productive facilities. In addition, the Company expects that a significant material cost reduction should result through standardized module designs, enabling more competitive procurement. The Company believes this restructuring plan will help in its efforts to return to profitability.
RESULTS OF OPERATIONS
The Company experienced continuing operating losses throughout 1996, including a loss of $25.3 million or ($2.68) per share for the fourth quarter of 1996 on sales of $11.5 million; for the year the net loss was $34.2 million or ($3.62) per share on 1996 sales of $65.6 million. During the fourth quarter of 1996, the Company continued to experience a decrease in sales primarily in the packaging systems and specialty web product divisions. In addition, the Company continued to experience high product development costs related to a series of new products, including its banknote and securities operations. Further, the absorption of fixed costs over a lower volume of sales, an increased restructuring charge for continued reduction of personnel and consolidation
of operating functions, changes in product mix and certain increased product performance and warranty expenses together with the recognition of a $3.5 million loss at the sale of its Bernal Division--all negatively impacted the Company's results of operations. Also, as previously reported, the Company continued to respond to product performance issues with respect to certain of these newer products which have negatively impacted the Company's liquidity, the collection of accounts receivable and the booking of new orders. While the Company believes it is making significant progress in resolving the product performance issues, they have not all been resolved.
DEFAULTS ON SENIOR AND SENIOR SUBORDINATED DEBT AGREEMENTS
During 1996, the Company has been in default of certain covenants contained in its bank credit facility agreement and the agreement governing Stevens' Senior Subordinated Notes. The Company's liquidity difficulties and continuing losses required the Company to fully draw upon its bank credit facility and contributed to the failure to make a $3.6 million principal payment due June 30, 1996 to the holders of the Senior Subordinated Notes. In addition, the losses incurred by the Company in the third and fourth quarters of 1996 resulted in non-compliance with a debt coverage ratio in the Company's bank credit facility agreement and a net worth covenant in the agreement governing Stevens' Senior Subordinated Notes. The reduced liquidity has also impacted the Company's ability to make timely payment with respect to its accounts payable. As a result, the Company has experienced delays in its ability to obtain raw materials and inventory and has had difficulty obtaining new orders.
As a result of negotiations with its bank and the holders of the Senior Subordinated Notes, the Company obtained a series of temporary default waivers through November 30, 1996. The Company modified its bank credit facility agreement in January 1997 providing for a $2 million principal payment and a bridge loan arrangement of the Company's bank indebtedness through May 1, 1997. To date, no permanent agreement has been reached with the Company's bank or the holders of the Senior Subordinated Notes. Accordingly, all of the Company's bank debt and the entire principal amount of the Senior Subordinated Notes, together with accrued and unpaid interest has been classified as a current liability at December 31, 1996. Pursuant to the terms of an intercreditor agreement entered into by the Company, the bank and the holders of the Senior Subordinated Notes, a standstill letter was issued by the bank on January 10, 1997 preventing any payments to the holders of the Senior Subordinated Notes for a 180 day period. Accordingly, the Company did not make its scheduled interest payment to the holders of the Senior Subordinated Notes due December 31, 1996.
SALE OF BERNAL DIVISION
In March 1997, the Company consummated the sale of substantially all of the assets of its Bernal Division including the product technology and related intangibles to Bernal International, Inc., a new company formed for the asset purchase. The sale price was approximately $20 million, which consisted of cash proceeds of approximately $15 million, and the purchaser's assumption of approximately $5 million of certain liabilities of Bernal including the accounts payable. This transaction resulted in a $12 million permanent reduction of the Company's senior debt. In 1996, Bernal contributed sales of approximately $17.8 million and approximately $0.7 million income before interest, corporate charges and taxes.
Stevens experienced a loss of $3.5 million on the sale of Bernal assets which is reflected in the 1996 results of operations. This asset sale resulted in a tax charge of $1.2 million from a taxable gain due to the non-deductible Bernal goodwill expensed upon the sale of Bernal's technology.
RESTRUCTURING
The Company is expanding its restructuring plan, first initiated in the second quarter of 1996, which it believes will help return the Company to a stable financial base. The plan includes:
. adopting a marginally profitable 1997 annual plan with a positive cash flow and emphasizing the long-term stability of the Company;
. aggressively reducing operating expenses to reflect reduced volume in an attempt to improve cash flow and profit margins;
. the sale of the Bernal Division, (completed on March 18, 1997);
. evaluating the potential sale of other operating units or asset groups;
. re-examining product lines for competitiveness, to improve gross profit and to narrow corporate focus;
. restructuring long-term debt to provide needed liquidity;
. resolving field problems to allow collection of final amounts due;
. converting inventory to cash; and
. collecting money due from prior deliveries.
The Company is consolidating its U.S. manufacturing operations by eliminating redundant operations at Hamilton, Ohio and elsewhere. The Company expects to lay-off 60% of the 250 employees who were employed in Ohio at December 31, 1996. The Company laid-off approximately 50% of the Company-wide work force during 1996.
The Company expects the implementation of its restructuring plan to be completed during 1997 and to result in significant annual savings. The Company believes these adjustments should combine to improve its productivity, increase profit margins and help the Company to return to profitability and stability. The Company anticipates the restructuring, if successful, will help to restore its traditional competitive advantage and market position. The Company believes these fundamental requirements must be in place in order to re-build itself into a strong international business.
INDUSTRY OVERVIEW
Stevens markets its systems to its customers in two distinct worldwide industries--the packaging industry and the printing industry. Although both the packaging and printing industries utilize printing in the manufacturing process, the printed products have significantly different applications. In the packaging industry, the printed product functions as the container for the end product, such as medical, food and beverage containers. In the printing industry, the printed product is the end product, such as direct mail inserts, postage stamps, banknotes and personal checks.
The packaging industry consists of several large segments, some of which the Company does not serve. The Company's products are designed to serve the folding carton, and liquid packaging segments of the packaging industry. The printing industry also consists of several large segments in which the Company does not participate--including newspapers, periodicals and book publishing. The Company's products are designed to serve the commercial and specialty and banknote and securities segments of the printing industry.
Economic Forecasts. The Company believes the printing and packaging industries are cyclical in nature, and that a portion of its decline in sales can be attributed to the current "softness" in the market. According to a leading industry trade association report (NPES Economic Forecast No. 37, dated November 1996) "Shipments of total printing equipment, which rose 1.8% in 1995, are expect to fall 0.7% this year, 1.1% in 1997, and 2.9% in 1998. The major factors leading to this continued decline are sluggish growth, excess capacity, and a further decline in industrial production in the printing and publishing industry."
The forecast also states that "Shipments of sheet fed presses, [the Company's principal competition,] fell 2.1% last year (1995) and plunged almost 19% in the first half of 1996. This sharp decline is expected to continue in the second half, followed by a further drop of 9.6% in 1997 and a minuscule gain of 2.8% in 1998." Also, one of the major industry suppliers in reporting its 1996 third quarter net loss of $151 million on revenues of $142 million stated, "The graphic arts market continues to show continued reduction in levels of demand. This is apparently due to the consolidation now under way in the industry, and customer uncertainty stemming from rapidly changing technologies." (Yoav Chelouche, CEO, Scitex Digital Printing).
The Company believes that, in the industry segments which it serves, in addition to the economic considerations cited above, several major market trends exist that are influencing the development and enhancement of packaging and printing equipment systems. These trends include an increasing emphasis on productivity, changing retailing practices--including greater market segmentation--and increasing environmental regulation.
Productivity. Productivity in the printing industry (as measured by output per employee) is one of the lowest among major industries in the United States. The purchasers of packaging and printing equipment continue to seek methods of reducing per unit costs in response to increased labor and raw materials costs, such as paper and paperboard. As a result, purchasers of packaging and printing equipment want to improve efficiency by reducing inventories, "in process" production time, waste and labor costs. Purchasers, therefore, are demanding more versatile equipment including integrated systems capable of running at high speeds and producing finished product in a single press pass. The Company believes its web systems technology meets these demands for higher productivity.
Retailing Practices. Retail shelf space is becoming increasingly expensive and scarce. In order to more effectively utilize shelf space, consumer product manufacturers are placing greater emphasis on the appearance of the package as a selling tool for the product. As a result, purchasers of packaging and printing equipment are being required by their customers to produce packaging with improved graphics through an increased number of colors, improved color quality and application of color enhancing coatings. These requirements have increased the complexity of the packaging and printing processes. The Company believes its products provide a production solution to these requirements.
Market Segmentation. Market segmentation, or target marketing, where products are marketed to specific geographic areas or demographic groups, has resulted in increased product and packaging variety and an increased demand for distinct packaging and more specialized printing. In response to this trend, which has resulted in shorter press runs, purchasers of packaging and printing equipment systems are demanding greater system flexibility and automation to permit quick and less expensive change-over from one product run to another. The Company believes its technology has distinct advantages in meeting these demands.
Environmental Regulation. Increasingly stringent environmental laws, rules and regulations, both domestically and internationally, have caused purchasers of packaging and printing equipment to focus on consumables, printing inks, coatings and chemicals used for platemaking and equipment maintenance which are environmentally safer. As a result, purchasers of packaging and printing equipment are increasingly seeking ecologically-friendly processes such as the use of flexographic printing with water based inks. The Company is an industry leader in advanced flexo technology.
BUSINESS STRATEGY
The Company's objective is to rebuild the Company into a strong international business as a manufacturer of packaging and printing systems through its strategy of providing complete systems solutions to its customers. The principal elements of this strategy include the following:
Technological Leadership. The Company believes that it is a technological leader in the development of packaging and printing equipment systems. The Company demonstrates its technological leadership through its research and development efforts and new product introductions. The Company works closely with manufacturers of related consumables, i.e., printing plates, anilox rolls, inks, paper and similar products, to create new product enhancements. In 1996, 1995 and 1994, the Company's gross expenditures for research and product development (including customer funded projects) have exceeded 5% of net sales. This included the introduction of the System 2000 and 9000 series flexographic and rotogravure printing press systems and improved high-speed platen die cutting equipment. In 1996, product development costs incurred on these and other new products exceeded $15 million.
Also, in the banknote and securities industry during the first quarter of 1997, two lines of the Company's first production model single-note-on-web ("SNOW") banknote printing system became operational at Banque de France. SNOW is the only complete banknote printing system in the world, producing banknotes that are printed in the intaglio-offset combination on both sides, examined, sorted and banded for shipping in a single press pass. Of equal importance, the Company's Automatic Currency Examination ("ACE") System is expected to become operational at the Bank of England in the near future. The Company believes the acceptances of these state-of-the-art technologies--SNOW and ACE--should enhance its efforts to increase the penetration of these principal markets where it has received indications of interest from several central banks.
Integrated Systems. The Company provides fully integrated web-fed packaging and printing systems which are capable of producing a finished product by taking paper or other substrate through one continuous, uninterrupted process. The Company works closely with its customers in the design and development of its integrated systems to meet their specific manufacturing needs. For many of its customers, the Company is a single-source supplier of their packaging and printing systems. The Company has the technological and engineering expertise to combine any of the four major printing methods (offset, flexography, rotogravure and intaglio) together with die cutters and creasers and product delivery systems into a single system. The Company believes that its ability to provide customized systems solutions provides it with an unusual competitive advantage over other packaging and printing equipment manufacturers.
Conversion to Web-Fed Systems. The Company believes that, because of the increased productivity inherent in the web-fed process, significant opportunities exist to convert users of sheet-fed equipment over to web-fed systems in the segments of the packaging and printing industries that it serves. While web-fed equipment has been successfully utilized for many years in some segments of the printing industry which the Company does not serve (including newspapers and periodicals), sheet-fed equipment is predominant in the folding carton segment of the packaging industry and the banknote and securities segment of the printing industry.
International Marketing. The Company plans to continue its international marketing efforts in order to capitalize on growth opportunities developing in Asia and in Eastern Europe for packaging and printing systems and to further geographically diversify its sales base. In the past several years, the Company has taken a number of initiatives to strengthen its international marketing efforts. In 1991, the Company established a European sales subsidiary and in 1995 acquired a European repair and service company (see "Marketing") to fill an important need and to better service products installed in Europe. In addition, the Company has continued to use sales agents in order to market its products internationally.
PRODUCT DEVELOPMENT COSTS
During 1996, the Company experienced high product development costs related to a series of new products, as well as increased product performance and warranty expenses. Continuing product development costs related to a series of new products in 1995 and 1996 resulted in an aggregate expense of approximately $15 million during 1996. Because of these high product development costs, the Company believes the development of its latest products (the System 2000 flexographic press, the System 9000 rotogravure press, the prototype Series 1500 and perfecter presses, and the Automatic Currency Examination (ACE) system for high-speed banknote inspection) represents the future of the Company and befits its vision to be a technology leader in its industry.
Although some product performance issues with the Company's new machines negatively impacted collection of accounts receivable and the booking of new orders, the Company believes that significant progress is being made regarding the resolution of these issues and in solving field problems. As these field problems are resolved, the Company anticipates it will have a beneficial effect on its cash flow and potential new orders.
PRODUCTS
The Company markets a broad range of packaging and printing equipment systems to the packaging industry and the specialty/commercial and banknote and securities segments of the printing industry. The
Company's complete systems integrate a variety of its equipment, including printing presses, die cutters and creasers and product delivery systems. The Company also sells system components independently of complete systems. The components of these systems include:
Printing Presses. The Company offers all four major printing processes on a worldwide basis for its web-fed packaging and printing systems including flexographic, offset lithographic, rotogravure and intaglio printing and in combinations. Flexography, which historically was well suited for printing large areas of solid color, is typically the least expensive printing process. However, with Stevens' technological advances, certain System 2000s are capable of printing quality that rivals offset lithography, at much lower costs. Offset lithography, which is the most widely used printing process, is a process that until now has typically provided a higher quality printed product than flexography. Rotogravure, which uses etched cylinders in the printing process, is a higher quality, more expensive process than either flexography or offset lithography. Intaglio printing, which is the most technologically complex and expensive printing process, utilizes engraved plates and applies ink under extreme pressure to print banknotes and other security documents.
Die Cutters and Creasers. The Company manufactures and markets platen die cutters and creasers that it believes perform faster and more reliably than other similar systems. The Company believes that it also offers, through a preferential OEM agreement, the broadest array of rotary cutting products and technology in the packaging and printing industries, which are now the preferred cutting and creasing system for several of the largest liquid packaging producers.
Product Delivery Systems. The Company manufactures a number of high-speed product delivery systems such as stackers, collators, strippers, belt askews and delivery tables. These product delivery systems perform a number of automated tasks as the final product exits the printing press. With certain of the Company's competitors, the speed of the product delivery system can limit the throughput and productivity of packaging and printing equipment systems.
Auxiliary Equipment, Parts and Customer Service. The Company manufactures auxiliary equipment and replacement parts and provides service for its presses, collators and die cutters. During 1996, 1995 and 1994, 50%, 30% and 27%, respectively, of the Company's net sales, were attributable to auxiliary equipment, parts and service. Generally, auxiliary equipment allows the customer to expand the capabilities of its existing equipment by increasing production capacity or by providing such additional features as forward numbering, batch delivery and special types of finishing, such as punching, perforating and folding. Auxiliary equipment also includes print towers to add additional colors and additional collating stations.
Customer Service. The Company provides a customer service program including product services and support through trained Company and dealer service representatives. Product services include installation, field repairs, routine maintenance, replacement and repair parts, operator training and technical consulting services. Parts can be delivered the same day or overnight in North America, and within 24-48 hours worldwide. Product services and support programs also are designed to promote the sale of auxiliary equipment.
MARKETING
The Company primarily markets its products domestically through direct sales engineers and managers and internationally through its agent network. In 1990, the Company opened a sales and service office in France to better serve its European customers. In 1995, the Company formed Societe Specialisee dans le Materiel d'Imprimerie ("SSMI"), to acquire a European printing press repair and service company. SSMI not only enables the Company to provide better service to its European customers, but it also operates as an on-going business. The Company's traditional marketing efforts include advertising, participating in major domestic and international trade shows and customer symposiums, and conducting periodic product maintenance seminars. The Company also conducts market research and analyses to reveal and study trends in addition to actively participating in various trade associations.
CUSTOMERS
The Company's customers include packaging companies, printing companies, paper companies, check printers, business forms companies and central bank and private banknote and securities printers.
COMPETITION
The Company encounters substantial competition in marketing its products from manufacturers of both sheet-fed and web-fed presses and related equipment. The Company believes that in its selected segments of the packaging and printing industries its competitors are primarily manufacturers of web-fed equipment. The Company's principal web-fed competitors are Bobst, S.A., Komori-Chambon, Goebel and Cerutti. The Company believes that the packaging industry is also served by manufacturers of offset sheet-fed equipment such as Koening and Bauer-Albert Frankenthal (KBA)-Planeta, Heidelberg, M.A.N. Roland and Komori. The banknote and securities markets are predominately served by sheet-fed equipment made by Koenig and Bauer-Albert Frankenthal (KBA) and marketed by De La Rue Giori. The Company believes that competition for its products is based primarily on product performance, web-fed versus sheet-fed technology, reliability, customer service, price and delivery.
RESEARCH AND DEVELOPMENT
In addition to Company sponsored development programs, projects are funded in varying amounts by customers who are in need of specialized equipment or processes. Research and product development costs are charged to operations as incurred and the total of gross expenditures (including customer-funded projects) has exceeded 5% of net sales in recent years.
EMPLOYEES
As of March 21, 1997, the Company had approximately 290 employees. Approximately 38% of the Company's employees are covered by a separate collective bargaining agreement that expires in December 1997. The Company believes that its employee relations have suffered because of the mass lay- offs that have occurred in 1996 and 1997. The Company has not experienced any strike or material work stoppage since a seven-week strike at its Hamilton, Ohio facilities in the fourth quarter of 1990.
BACKLOG AND ORDERS
The backlog of the Company consists of orders that have met strict criteria, including having a signed contract with appropriate down payments received. Further, to be included in backlog, these orders must also have a reasonable expectation of being manufactured, shipped and paid for within contract terms. Additionally, the backlog does not generally include service and parts orders, which have historically been in excess of 20% of the Company's sales volume.
The absolute value of the backlog varies with the amount of percentage of completion revenue recognized in any one period. This value can fluctuate since the Company experiences an average six to nine month period between the booking of the order and its final shipment. The Company's backlog of unfilled orders as of December 31, 1996 was approximately $20.7 million (excluding the Bernal Division) compared to $32.6 million at December 31, 1995 (excluding the Bernal Division), a decrease of 36.5%. The backlog included a decrease of $9.3 million in packaging, a decrease of $1.6 million in banknote and security related equipment and $1.1 million in specialty/commercial orders. The current decline in backlog is the result of a significant decline in orders. While this decline may be attributable to general economic conditions affecting the printing and packaging industry and related industry-wide purchase delays, the Company believes the decline in orders is primarily attributable to a loss of orders to its competition due in part to certain product performance issues and in part to liquidity problems faced by the Company. Although the Company believes that it is making significant progress in resolving these performance issues, they have not all been resolved.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Paul I. Stevens founded the Company in 1965. He has served the Company as Chairman of the Board and Chief Executive Officer since its inception. In 1974, Mr. Stevens founded Stevens Industries, Inc., a family-owned holding company that is an affiliate of the Company and of which he is the controlling stockholder. Mr. Stevens is the father of Richard I. Stevens and Constance I. Stevens.
Richard I. Stevens is President, Chief Operating Officer and a director of the Company and has served in each of these capacities for at least five years. From May 1992 to December 1993, Mr. Stevens served as President and General Manager of the Company's Hamilton Division. He joined the Company in 1965 and became President in 1969. In 1973 he was elected to the Board of Directors. Mr. Stevens is active in industry professional associations. He has been a director of The Association for Suppliers of Printing and Publishing Technologies (NPES) since 1982. In October 1995, Mr. Stevens was elected Chairman of the Board of NPES for a two-year term. Mr. Stevens is the son of Paul I. Stevens.
Hans W. Kossler has served the Company as Senior Vice President--Operations since May 1996. From December 1995 to May 1996 he served the Company as Vice President--Manufacturing after joining the Company in October 1995 as Manufacturing Assistant to the President. From January 1994 to October 1995, Mr. Kossler served North American Consulting as a Managing Partner. From August 1989 to January 1994, he served Gemini Consulting, Inc. as a Senior Consultant. Prior to this, from August 1979 to August 1989, Mr. Kossler served Bell Helicopter-Textron in several capacities, including Production Manager for the V-22 Osprey Project.
Constance I. Stevens has served as a director of the Company since April 1987. Ms. Stevens has served as Vice President--Administration and Assistant Secretary to the Company since July 1995. From July 1989 to July 1995, Ms. Stevens served as the President of a project management consulting firm in Carmel, California. From May 1980 until July 1989, Ms. Stevens served as the managing partner of Merritt Associates of Carmel, California, an architectural design and real estate development firm. Ms. Stevens is the daughter of Paul I. Stevens.
William A. Kist has served the Company as its Vice President and Corporate Controller since May 1996. He has been a Vice President of the Company since July 1993 and served as Controller from August 1989 to July 1993. Mr. Kist joined Hamilton in 1975. In April 1977, he became the Controller and Chief Financial Officer of Hamilton, and in April 1985, he became its Vice President--Finance. He has also served as Hamilton's Assistant Treasurer from 1987 to 1990. From 1969 to 1975, Mr. Kist was employed by Arthur Young & Company in Cincinnati, Ohio in the auditing and business consulting areas.
George A. Wiederaenders has served as Vice President, Treasurer and Chief Accounting Officer since May 1996. He has been Chief Accounting Officer of the Company since July 1993, was Treasurer of the Company from September 1987 to August 1993 and had served Stevens as it Vice President--Finance from December 1985 to April 1988. From January 1981 to December 1985, Mr. Wiederaenders was Executive Vice President and Treasurer of Manufactured Energy Products, Inc., a manufacturer of wireline trucks and skids for oilfield exploration. Mr. Wiederaenders served in various capacities with the public accounting firm of Coopers &
Lybrand in Texas from 1967 to 1978, including general practice audit partner from 1976 to 1978 and managing partner of the Austin, Texas office from June 1977 to 1978.
Except as otherwise noted, no family relationships exist among the executive officers of the Company.
FACTORS THAT COULD AFFECT FUTURE PERFORMANCE
This report contains certain forward looking statements about the business and financial condition of the Company, including various statements contained in "Management's Discussions and Analysis of Financial Condition and Results of Operations." The actual results of the Company could differ materially from those forward looking statements. The following information sets forth certain factors that could cause the actual results to differ materially from those contained in the forward looking statements.
Liquidity Concerns. The Company's viability as a going concern is dependent upon the restructuring of its operations and its obligations to the senior and senior subordinated lenders, and, ultimately, a return to profitability. There is a negative working capital of $11.5 million at December 31, 1996, and negative cash flows from operating activities (before working capital changes) of $31.1 million for 1996. Negative cash flows from operating activities and other commitments are anticipated to continue in the first half of 1997. The Company was successful in its sale of substantially all assets of its Bernal Division in March 1997 (see Note C of Notes to the Consolidated Financial Statements). The cash generated from this sale enabled a $12 million permanent reduction in the Company's bank credit facility. In addition, the Company is contemplating additional asset sales to further reduce its indebtedness.
There can be no assurance that the Company's restructuring efforts will be successful, or that the Company's bank or the holders of the Senior Subordinated Notes, who hold first and second liens on all assets of the Company, will agree to restructured obligations consistent with the Company's anticipated cash availability. Even if such agreement is reached, it may require agreements of other creditors and shareholders of the Company, none of which is assured. Furthermore, there can be no assurance that future sales of assets, if any, can be successfully accomplished on terms acceptable to the Company. Under current circumstances, the Company's ability to continue as a going concern depends upon the successful restructuring of its agreement with its bank and the agreement with the holders of its Senior Subordinated Notes, the further redeployment of assets, and a return to profitable operations. If the Company is unsuccessful it its efforts, it may continue to be unable to meet its obligations or fulfill the covenants in its debt agreements, as well as other obligations, making it necessary to undertake such other actions as may be appropriate to preserve asset values.
Competition. The packaging and printing equipment industry is highly competitive, and many of the industry participants possess greater management, financial and other resources than those possessed by the Company. The Company encounters substantial competition in marketing its products from manufacturers of both sheet-fed and web-fed presses and related equipment. The Company believes that in selected segments of the packaging and printing industries its competitors are primarily manufacturers of web-fed equipment. The Company's principal web-fed competitors are Bobst S.A., Komori-Chambon, Goebel and Cerutti. The Company believes that the packaging industry is also served by manufacturers of offset sheet-fed equipment, such as Koenig and Bauer-Albert Frankenthal (KBA)-Planeta, Heidelberg, M.A.N. Roland and Komori. The security and banknote markets are predominately served by sheet-fed equipment marketed by De La Rue Giori. The Company believes that competition for its products is based primarily on product performance, web-fed versus sheet-fed technology, reliability, customer service, price and delivery. The Company has recently experienced difficulties in meeting customers specifications in manufacturing certain new products, including certain System 2000 presses. The Company believes these difficulties have hampered its marketing and accounts receivable collection efforts. The Company is working diligently to satisfy customer expectations as soon as practicable.
Economic Downturn. Sales of the Company's packaging and printing products may be adversely affected by general economic and industry conditions and downturns, and particularly by the price of paper and paperboard. The Company's business and results of operations may be adversely affected by inflation, interest rates, unemployment, paper prices, and other general economic conditions reflecting a downturn in the economy,
which may cause customers to defer or delay capital expenditure decisions. The Company incurred significant losses in 1996 of $34.2 million and in 1990 and 1991 of $7.8 and $13.5 million, respectively; these losses were caused by many factors, including a continuation of the slowdown in its customers' orders that the Company initially experienced in the fourth quarter of 1995; changing printing technology that affected demand for the Company's business forms printing systems, which prior to 1990 represented a substantial portion of the Company's revenues, and by a general economic downturn which impacted or delayed capital expenditure decisions by its customers. Sales of business forms and specialty web printing press systems have historically been subject to cyclical variation based upon specific and general economic conditions, and there can be no assurance that the Company will maintain profitability during downturns.
Technological Advances in the Printing Industry. The packaging and printing industry has experienced many technological advances over the last decade, and the Company expects such advances to continue. Packaging and printing companies generally want more efficient packaging and printing press systems in order to reduce inventories, "in process" production time, waste and labor costs. These technological advancements could result in the development of additional competition for all or a portion of the Company's products and could adversely affect the competitive position of the Company's products. Although the Company has rights in a significant number of issued patents in the United States and elsewhere, management believes that patent protection is less significant to the Company's competitive position than certain other factors. These factors include the Company's in-depth knowledge of the industry and the skills, know-how and technological expertise of the Company's personnel.
Dependence Upon New Technologies and Product Development. Technological leadership, enhanced by the introduction and development of new products, is an important objective of the Company's business strategy. In accordance with this business strategy, the Company's newly developed products were a significant factor in the Company's growth in 1994 and 1995. In the last three fiscal years, the Company's gross expenditures for research and product development exceeded 5% of net sales. The Company believes that its continued success will be dependent, in part, upon its ability to develop, introduce and market new products and enhancements. Many difficulties and delays are encountered in connection with the development of new technologies and related products. The Company experienced some product performance issues related to new products in 1995 and 1996 which contributed to the slowness in orders experienced in the fourth quarter of 1995 and in 1996. There can be no assurance, therefore, that the Company will be able to continue to design, develop and introduce new products that will meet with market acceptance.
International Business Risks. In 1996 and 1995, international sales represented 34.5% and 26.2% of net sales, respectively. The Company expects that international sales will continue to represent a significant portion of its total sales. Sales to customers outside the United States are subject to risks, including the imposition of governmental controls, the need to comply with a wide variety of foreign and United States export laws, political and economic instability, trade restrictions, changes in tariffs and taxes, longer payment cycles typically associated with international sales, and the greater difficulty of administering business overseas as well as general economic conditions. Although substantially all of the Company's international orders are denominated in United States dollars, some orders are denominated in foreign currencies and, accordingly, the Company's business and results of operations may be affected by fluctuations in interest and currency exchange rates. Fluctuations in foreign currencies may also affect the Company's foreign sales, and, since many of the Company's competitors are foreign, fluctuations in foreign currencies may also affect the Company's competitive position in the United States markets. The Company periodically enters into foreign exchange contracts to hedge the risk that eventual net cash flows will be adversely affected by changes in exchange rates. In addition, the laws of certain foreign countries may not protect the Company's intellectual property to the same extent as do the laws of the United States.
Manufacturing Risks and Availability of Raw Materials. Disruption of operations at any of the Company's primary manufacturing facilities or any of its subcontractors for any reason, including work stoppages, fire, earthquake or other natural disasters, would cause delays in shipments of the Company's products. There can be no assurance that alternate manufacturing capacity would be available, or if available, that it could be obtained
on favorable terms or on a timely basis. The principal raw materials used in the manufacturing of printing press systems are high grade steel and alloys used in the making of gears, rollers and side frames. Steel is in very available supply throughout the world.
Impact of Accounting Methods and Estimates Upon Quarterly Earnings. The Company derives the majority of its revenues from the sale of packaging and printing press systems, with prices for each system and most orders ranging from $1 million to over $10 million. The Company's policy is to record revenues and earnings for orders in excess of $1 million on the percentage of completion basis of accounting, while revenues for orders of less than $1 million are recognized upon shipment or when completed units are accepted by the customer. The percentage of completion method of accounting recognizes revenues and earnings over the build cycle of the press system as work is being performed based upon the cost incurred to date versus total estimated contract cost and management's estimate of the overall profit in each order. In the event that the Company determines it will experience a loss on an order, the entire amount of the loss is charged to operations in the period that the loss is identified. The Company believes that the percentage of completion method of accounting properly reflects the earnings process for major orders. The informed management judgments inherent in this accounting method may cause fluctuations within a given accounting period, which could be significant. During each accounting period, other management assessments include estimates of warranty expense, allowances for losses on trade receivables and many other similar informed judgments.
Litigation. The Company, its officers and directors liability insurance carrier and the plaintiff of a class action lawsuit negotiated a written settlement of the dispute which was approved by the court by order dated June 18, 1996. The settlement resulted in the dismissal of the litigation and the issuance to the class and the plaintiff's counsel of warrants to purchase Series A Common Stock of the Company. Also, as a result of the Company's continuous liquidity problems, the Company has been the subject of lawsuits, from time to time, with respect to the Company's inability to pay certain vendors on a timely basis. To date, most of such actions have been settled, but there can be no assurance that all of the actions can be settled, or if named a defendant in such actions in the future, the Company will be able to settle such claims in the future. In addition, 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. See "Legal Proceedings."
Environmental Costs, Liabilities and Related Matters. The Company's production facilities and operations are subject to a variety of federal, state, local and foreign environmental, health and job safety laws and regulations. The Company is not aware of any conditions or circumstances that, under applicable environmental, health or safety regulations or requirements, will require expenditures by the Company that management believes would have a material adverse effect on its businesses. However, environmental liabilities (especially those relating to discontinued production or waste disposal practices) are very difficult to quantify, and it is possible that environmental litigation or regulatory action may require significant unanticipated expenditures or otherwise adversely affect the Company. See "Legal Proceedings."
Control by Principal Stockholders. As of March 21, 1997, Paul I. Stevens, Stevens Industries, Inc. and members of the immediate family of Paul I. Stevens beneficially own approximately 14% and 89% of the outstanding Series A and Series B Common Stock of the Company, respectively, representing 69.7% of the combined voting power. As a result, the Stevens family alone is able to elect a majority of the Board of Directors and otherwise continue to influence the direction and policies of the Company and the outcome of any other matter requiring shareholder approval, including mergers, consolidations and the sale of all or substantially all of the assets of the Company, and, together with others, to prevent or cause a change in control of the Company.
Volatility of Stock Price. The Company's Series A Common Stock market price has ranged from a high of $19 5/8 per share in the first quarter of 1990 to a low of $ 9/16 per share in the first quarter of 1997. The market price of the Company's Series A Common Stock may be subject to substantial fluctuations related to the
announcement of financial results, new product introductions, new orders or order cancellations by the Company or by its competitors or by announcements of other matters related to the Company's business. In addition, there can be no assurance that the price of the Series A Common Stock will not fluctuate in the future due to a multiplicity of factors outside of the Company's control. These factors include general economic and stock market conditions, investor perceptions and mood swings, levels of interest rates and the value of the dollar.
Dependence On Key Personnel. The Company's success depends, to a significant extent, on the Company's Chairman of the Board and Chief Executive Officer, Paul I. Stevens, on its President and Chief Operating Officer, Richard I. Stevens and on other members of its senior management. The loss of the services of Paul or Richard Stevens, or any of its other key employees, could have a material adverse effect on the Company. The Company maintains a key man life insurance policy on Paul I. Stevens in the amount of $2,000,000. The Company's future success will also depend in part upon its ability to attract and retain highly qualified personnel. There can be no assurance that the Company will be successful in attracting and retaining such personnel.
Rapid Growth and Decline of Revenues. The Company's annual revenue growth rate which was 19.5% in fiscal 1994 (exclusive of the discontinued Post operations), accelerated to 30.4% in fiscal 1995 and decreased by 52.5% in fiscal 1996. The growth was largely attributable to the development and sale of new products. In light of this growth, the Company increased the amount of expenditures on its research and development programs, particularly in conjunction with the development of these new products. The Company continued to incur substantial expenditures in 1996 which has been due, in large part, to certain product performance issues related to the new products. These performance issues also severely impacted the Company's liquidity, necessitating large lay offs of personnel, a restructuring of operations to lower operating levels, and consolidation of functions and facilities. In addition, the Company has reduced capital expenditures and implemented certain other cost reduction measures.
ITEM 2.

ITEM 2. PROPERTIES.
The following are the locations of the Company's executive and principal manufacturing and research facilities. In addition, the Company leases a small sales office in Europe on a month-to-month basis. The Company believes its facilities are adequate for its present needs.
See notes F, K and M of the notes to consolidated financial statements of the Company for information relating to property, plant and equipment and leases. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources."
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
In 1997, the Company filed a suit seeking damages and injunctive relief against Paul W. Bergland, a former vice-president, for, among other things, theft of trade secrets, fraud, breach of contract, and breach of a confidential relationship. Discovery is ongoing. On March 3, 1997, Bergland filed his original answer and a
counterclaim. ConverTek, Inc., a corporation in which Bergland claims an ownership interest, has joined the suit as a counterclaimant against the Company. The counterclaim alleges claims for defamation, tortious interference with prospective business relationships and breach of contract. It also seeks a declaratory judgment declaring that the confidential information agreement and agreement not to compete signed by Bergland are unenforceable. The Company denies all liability and intends to prosecute its claims and defend the counterclaims vigorously.
In addition, as a result of the Company's continuing liquidity problems, the Company has been the subject of lawsuits, from time to time, with respect to the Company's inability to pay certain vendors on a timely basis. To date, most of such actions have been settled, but there can be no assurance that all of these actions can be settled or that the Company, if named a defendant in such actions in the future, will be able to settle such claims in the future.
In February 1990, the Environmental Protection Agency ("EPA") issued a Notice of Potential Liability and Request for Participation in Cleanup Activities to approximately 60 parties, including Post Machinery Company, Inc., a subsidiary of the Company, in relation to the disposition of certain substances that could be characterized as "hazardous wastes" which purportedly were taken to the Coakley Landfill Site ("Coakley Site") in North Hampton, New Hampshire prior to 1982. A committee representing the potentially responsible parties ("PRPs") negotiated a settlement in the form of consent decrees (the "Consent Decrees") with EPA and the State of New Hampshire covering the closure and capping of the Coakley Site. The PRPs also agreed that certain of the PRPs, including Post, would no longer be obligated to participate in the cleanup at the Coakley Site in return for a contribution of a fixed amount into escrow, and such PRPs would be indemnified by certain of the remaining PRPs from further liability under the EPA's current action. Post contributed $86,719 under this agreement. EPA is currently conducting an investigation of ground water conditions under a wetlands area adjacent to the site. EPA has not given notice to any parties of potential liability for ground water under the wetlands. There can be no assurances that no further claims will be brought related to the Coakley Site, or sites affected by contamination from the Coakley Site, or that any claims which might be brought would be covered by the Consent Decrees or the agreement described above. In connection with the aforementioned environmental claim, the Company was indemnified and reimbursed by Post's predecessor, PXL Holdings Corporation, for its costs in connection with the Coakley matter.
No assurance can be given regarding the outcome of any pending 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during the last quarter of its fiscal year ended December 31, 1996.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's Series A Common Stock and Series B Common Stock are traded on the American Stock Exchange under the symbols SVGA and SVGB, respectively. The following table sets forth for the periods indicated the range of the high and the low closing sale prices per share for the Series A Common Stock and the Series B Common Stock, all as reported on the Composite Tape of the American Stock Exchange Listed Issues.
As of March 21, 1997, approximately 7,339,000 shares of the Series A Common Stock were outstanding and held by approximately 201 holders of record, and 2,110,600 shares of the Series B Common Stock were outstanding and held by approximately 69 holders of record.
The Company has not paid cash dividends on its capital stock. The current policy of the Company's Board of Directors is to retain any future earnings to provide funds for the operation of the Company's business. Consequently, the Company does not anticipate that cash dividends will be paid on the Company's capital stock in the foreseeable future. If, however, cash dividends are paid, such dividends will be paid equally to holders of the Series A Common Stock and the Series B Common Stock on a share-for-share basis. See Note P of notes to the consolidated financial statements. In addition, the Company's current credit facility restricts the Company's ability to pay dividends. For a discussion of restrictions of the Company's ability to pay dividends, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources."
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
The following tables set forth selected historical financial information for the indicated periods for the Company. The historical information is derived from the Consolidated Financial Statements of the Company.
The Company's twelve-month pre-tax loss of $41.2 million was primarily due to the changes in operations necessitated from the $73.5 million (or 52.8%) decrease in sales from 1995 to 1996. In addition, this drop in sales was combined with the following factors, all of which materially impacted the 1996 operating results: product development costs charged to cost of sales of $15.1 million; warranty costs incurred of $5.5 million; provision for bad debts of $4.0 million; loss on sale of Bernal Division net assets of $3.5 million; a restructuring charge of $1.3 million; Lasker warrants expense of $0.7 million; pension expense of $1.2 million; and the reduction of other selling, general and administrative costs by $2 million.
In March 1997, the Company consummated the sale of substantially all of the assets of its Bernal Division including the product technology and related intangibles to Bernal International, Inc., a new company formed for the asset purchase. The sale price was approximately $20 million, which consisted of cash proceeds of
approximately $15 million, and the purchaser's assumption of approximately $5 million of certain liabilities of Bernal including the accounts payable. This transaction resulted in a $12 million permanent reduction of the Company's senior debt. In 1996, Bernal contributed sales of approximately $17.8 million and approximately $0.7 million income before interest, corporate charges and taxes.
Stevens experienced a loss of $3.5 million on the sale of Bernal assets which is reflected in the 1996 results of operations. This asset sale resulted in a tax charge of $1.2 million from a taxable gain due to the non-deductible Bernal goodwill expensed upon the sale of Bernal's technology.
SELECTED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA)
BALANCE SHEET DATA (IN THOUSANDS)
- -------- (1) Beginning January 1, 1993, income taxes were determined in accordance with SFAS No. 109. Accordingly, the cumulative effect of this accounting change in 1993 was a benefit of $412,000. (2) Gain on involuntary conversion of assets in the 1992 Bernal fire and resulting benefit of utilization of a net operating loss for income taxes. Debt extinguishment costs incurred in 1994 related to the refinancing of long-term debt. See Note I of Notes to the Consolidated Financial Statements of the Company. (3) The restructuring charge reflected certain of the estimated costs of a restructuring plan which included closing some facilities, combinations of operating units, major personnel reassignments, reductions in number of employees, and severance compensation. The plan was designed to bring the Company's operating costs in line with the current order rates and the recession in the capital goods industry. The cash outlay in 1996 and 1997 for this restructuring was approximately equal to the restructuring charge.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
GENERAL
Stevens derives its revenues from the sale of packaging and printing equipment systems and related equipment to customers in the packaging industry and the specialty/commercial and security and banknote segments of the printing industry. The Company's net sales have fluctuated from a high of $139.2 million in 1995 to a low of $65.7 million in 1996.
The Company experienced a severe decrease in sales during 1996, which reflected a continuation of the slowdown in its customers' orders that the Company initially experienced in the fourth quarter of 1995. Orders fell to 48% of the previous year, primarily in the packaging systems and specialty web products divisions. While the decline in orders may be attributable to general economic conditions affecting the printing and packaging industry and related industry-wide purchase delays, the Company believes the decline in orders is primarily attributable to a loss of orders to its competition due in part to product performance issues and in part to liquidity problems faced by the Company. In response to the continued order slowdown, the Company implemented significant work force and cost reductions and consolidated certain facilities and operating functions, which necessitated $1.3 million in restructuring charges.
The Company experienced continuing operating losses throughout 1996, including a loss of $25.3 million or ($2.68) per share for the fourth quarter of 1996 on sales of $11.5 million; for the year the net loss was $34.2 million or ($3.62) per share on 1996 sales of $65.6 million.
During the fourth quarter of 1996, the Company evaluated its operations and ability to realize asset values in light of its liquidity difficulties, the expiration of waivers from its bank and the holders of its Senior Subordinated Notes on November 30, 1996, and its deficit in working capital. The Company continued to experience a decrease in sales primarily in the packaging systems and specialty web product divisions. In addition, the Company continued to experience high product development costs related to a series of new products, including its banknote and securities operations. The absorption of fixed costs over a lower volume of sales, an increased restructuring charge for continued reduction of personnel and consolidation of operating functions, changes in product mix and certain increased product performance and warranty expenses and the recognition of a $3.5 million loss on the sale of its Bernal Division all negatively impacted the Company's results of operations. The Company continued to respond to product performance issues with respect to certain of these newer products which have negatively impacted the Company's liquidity, the collection of accounts receivable and the booking of new orders. Although the Company believes it is making significant progress in resolving the product performance issues, they have not all been resolved.
The Company's viability as a going concern is dependent upon the restructuring of its operations and its obligations to the senior and senior subordinated lenders, and, ultimately, a return to profitability. There is a negative working capital of $11.5 million at December 31, 1996, and negative cash flows from operating activities (before working capital changes) of $31.1 million for 1996. Negative cash flows from operating activities and other commitments are anticipated to continue in the first half of 1997. The Company was successful in its sale of substantially all assets of its Bernal Division in March 1997 (see Note C of Notes to the Consolidated Financial Statements). The cash generated from this sale enabled a $12 million permanent reduction in the Company's bank credit facility. In addition, the Company is contemplating additional asset sales to further reduce its indebtedness.
In August 1993, the Company sold a part of its packaging products business. Specific assets of Post, including the product technology and related intangibles were sold to Bobst Group, Inc., the U.S. operating unit of Bobst, S.A. of Switzerland. The agreement provided for the transfer of manufacturing operations over a four month transition period. Post retained its accounts receivable (approximately $1.2 million), its work-in-process and finished goods inventories (approximately $1.1 million) and its existing backlog of orders (approximately $5.9 million). Post also retained substantially all of its liabilities (approximately $2.5 million). The cash proceeds were approximately $7.3 million, of which $6 million was used to permanently reduce senior debt. Post contributed sales of approximately $13.5 million and income before interest, corporate charges and taxes of approximately $4.6 million for 1993, including a gain of $1.3 million on the sale of assets to Bobst Group, Inc.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income statement data as percentages of net sales:
Comparison of Years Ended December 31, 1996 and 1995
Net Sales. The Company's net sales for the year ended December 31, 1996 decreased by $73.5 million, or 52.8%, compared to net sales in the same period in 1995, due primarily to decreased sales of packaging products. Packaging product sales decreased $50.0 million, or 56.7%, primarily due to a lack of sales of the System 2000 flexographic printing system, and reduced sales of the new System 9000 rotogravure printing system into China. Specialty/commercial product sales decreased by $20.9 million, due to decreased sales of specialty printing offset systems and business forms equipment. Security and banknote product sales decreased by $5.4 million, reflecting reduced revenues under the contract with Banque de France for the single note on web ("SNOW") currency printing system completed in 1996 and decreased revenues under the contract with The Bank of England for development of the Automated Currency Examination ("ACE") system. Societe Specialisee dans le Materiel d'Imprimerie ("SSMI"), a full service repair and maintenance facility in Europe, contributed $6.0 million in sales for 1996, an increase of $2.8 million over 1995 sales. On a geographic basis, net sales to international customers for the year ended December 31, 1996, were $22.6 million and comprised 34.4% of net sales as compared to $36.5 million, or 26.2%, of net sales for 1995, due primarily to the decrease in System 9000 shipments to China.
Gross Profit. The Company's gross profit for the year ended December 31, 1996 decreased by $39.4 million, or 127.8%, compared to gross profit for the same period in 1995, primarily due to decreased sales volume for packaging systems products and product development and warranty costs for various new press systems. Gross margin loss for 1996 was (13.1%) of net sales as compared to gross profit of 22.2% of net sales for the same period in 1995. The decrease in gross profit margin was primarily due to unexpected development, warranty and start-up costs on the System 2000, the new System 9000 introduced into China, and certain specialty printing systems, and higher costs associated with the installation component of sales.
Selling, General and Administrative Expenses. The Company's selling, general and administrative expenses increased by $1.0 million, or 4.9%, for the year ended December 31, 1996 compared to the same period in 1995. This was due primarily to a $3.8 million increase in bad debt expenses, and a reduction of $2.0 million in advertising, personnel and related costs at operating divisions, and certain reduced corporate administrative and legal costs. Selling, general and administrative expenses for 1996 were 34.2% of net sales compared to 15.4% for 1995, due to the $73.5 million decrease in sales without corresponding expense level decreases.
Other Income (Expense). The Company's gross interest expense increased by $0.6 million, or 16.5%, for 1996 compared to 1995. This was due to borrowings by the Company resulting from the liquidity difficulties experienced in 1996. Interest income decreased by $0.1 million for 1996 compared to 1995, due to the use of cash to minimize the amount borrowed under the Company's credit facility.
Comparison of Years Ended December 31, 1995 and 1994
Net Sales. The Company's net sales for the year ended December 31, 1995 increased by $32.5 million, or 30.4%, compared to net sales in the same period in 1994, due to increased sales of packaging products. Packaging product sales increased $27.7 million, or 48%, primarily due to increased sales of the System 2000 flexographic printing system, sales of the new System 9000 rotogravure printing system into China and sales of both platen and rotary die cutters. Specialty/commercial product sales increased by $1.9 million, due to increased sales of specialty printing offset systems and business forms equipment. Security and banknote product sales decreased by $0.3 million, reflecting reduced revenues under the contract with Banque de France for the single note on web ("SNOW") currency printing system as the project neared completion. This decrease was offset to some degree by increased revenues under the contract with The Bank of England for development of the Automated Currency Examination ("ACE") system. In January 1995, the Company formed Societe Specialisee dans le Materiel d'Imprimerie ("SSMI") and acquired a full service repair and maintenance facility in France, which provides service and support for the Company's European customer base. SSMI contributed $3.2 million in sales for 1995. On a geographic basis, net sales to international customers for the year ended December 31, 1995, were $36.5 million and comprised 26.2% of net sales as compared to $15.0 million, or 14%, of net sales for 1994, due primarily to the System 9000 shipments to China.
Gross Profit. The Company's gross profit for the year ended December 31, 1995 increased by $5.2 million, or 20.2%, compared to gross profit for the same period in 1994, primarily due to increased sales volume for packaging systems products. Gross profit margin for 1995 decreased to 22.2% of net sales as compared to 24.1% of net sales for the same period in 1994. The decrease in gross profit margin was primarily due to higher costs associated with the installation component of sales and lower than average margins on the new System 9000 introduced into China during 1995, and unexpected start-up costs on the System 2000 and certain specialty printing systems.
Selling, General and Administrative Expenses. The Company's selling, general and administrative expenses increased by $4.2 million, or 24.6%, for the year ended December 31, 1995 compared to the same period in 1994. This was due to increased advertising, personnel and related costs at operating divisions, and certain corporate administrative and legal costs. Selling, general and administrative expenses for 1995 were 15.4% of net sales compared to 16.1% for 1994, due to the $32.5 million increase in sales without corresponding expense level increases.
Other Income (Expense). The Company's gross interest expense decreased by $0.4 million, or 10.1%, for 1995 compared to 1994. This was due to reduced borrowings by the Company as a result of debt reductions in 1994, accomplished in part through a private placement of stock in September 1994 and the refinancing of existing debt at a lower interest rate. Interest income decreased by $0.4 million for 1995 compared to 1994, due to the use of cash to minimize the amount borrowed under the Company's credit facility.
TAX MATTERS
The Company's effective state and federal income tax rate ("effective tax rate") was 17% and 27.9% for the year ended December 31, 1996 and 1995, respectively. This decrease in the effective tax rate was due to the uncertainty of future tax benefits from future operations. Certain research and experimental expenditure tax credits of $0.8 million were recorded in 1995 and resulted in a lower than expected effective tax rate.
QUARTERLY RESULTS (UNAUDITED)
The following table summarizes results for each of the four quarters for the years ended December 31, 1996, 1995 and 1994. Income per share for each year does not necessarily equal the sum of the four quarters due to the impact of common stock equivalents (stock options).
The Company attributes the operating and net loss for the fourth quarter of 1996 to (1) a continuing decline in orders ($25.1 million versus $45.5 million for the last six months of 1996 and 1995, respectively); (2) greater than expected manufacturing costs, including unexpected warranty costs and development costs associated with some of the Company's new products; (3) the loss on the sale of the assets of the Bernal Division; (4) provision for bad debt expense of $4 million; and (5) unabsorbed overhead costs due to the low shipment volume in the quarter.
The Company has taken certain continuing restructuring actions to adjust its expected 1997 production to the reduced order flow in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily to fund its ongoing operations, to service its existing debt and to pursue its strategic objectives including new product development and penetration of international markets. The Company's working capital needs typically increase because of a number of factors, including the duration of the manufacturing process and the relatively large size of most orders. During the latter part of 1995 and during 1996, the Company has experienced an increased need for working capital resulting in continued high levels of borrowings under its bank credit facility. The working capital needs are directly related to the slowness in orders in late 1995 and 1996 and certain product performance issues which have delayed deliveries, increased costs and delayed cash collections. Also, the growing international mix of the Company's new orders which typically have less favorable cash flow terms than domestic orders, and the introduction of new products have resulted in increased borrowings.
Net cash provided by (used in) operating activities (before working capital changes) was ($31.1) million in 1996 while in 1994 and 1995 it was $9.4 million and $9.3 million, respectively. Working capital provided (used) cash of $33.7 million in 1996, ($26.0) million in 1995 and ($7.9) million during 1994. The Company's working capital needs increase during periods of sales growth because of a number of factors, including the duration of
the manufacturing process and the relatively large size of most orders. During periods of sales decline such as 1996, the Company's working capital provides cash as receivables are collected and inventory is utilized. The large increase in working capital requirements during 1995 reflected increasing sales, particularly a growing proportion of international orders, which typically have less favorable cash flow terms, and the introduction of new products. Working capital usage also increased during 1995 as a result of more competitive new domestic order terms made necessary by foreign competition, slowing orders and related lower customer deposits during the latter part of the year, and receivables collection delays resulting from new product warranty issues.
Capital expenditures for additions to property, plant and equipment for 1994 and 1995 totaled $7.7 million. These expenditures were used principally to rebuild the Company's rotary die manufacturing facility that was destroyed by a fire in 1992, to modernize equipment at all locations and to expand capacity, including the reopening of the Fort Worth, Texas facility which occurred during 1995. In addition, the Company received $4.6 million in 1994 from the sale of an idle facility located in Grapevine, Texas. The Company's capital expenditures for 1996 were $0.5 million, and were used primarily for certain machinery and equipment modernization.
Positive cash flow from operations, as well as asset sales in 1993 and 1994 and a private placement of Series A Common Stock in 1994, enabled the Company to reduce its long-term debt by $54.8 million during the period from 1992 to 1994. Increases in the Company's net sales necessitated $21.0 million in working capital borrowings in 1995.
The Company continues to experience performance issues with respect to certain of its newer products which has negatively impacted collection of accounts receivable and the booking of new orders. The Company believes, however, that significant progress is being made regarding resolving performance issues.
The reduced liquidity resulting from the order slowdown and collection delays required the Company to fully draw upon its bank credit facility and contributed to the Company's failure to make the payment of a $3.6 million principal payment due June 30, 1996 to its Senior Subordinated Note holders. In addition, the losses incurred by the Company in the three and nine months ended September 30, 1996 and for the year-ended December 31, 1996 resulted in non-compliance with a debt coverage ratio in the Company's bank credit facility agreement and a net worth covenant in the agreement governing the Senior Subordinated Notes. The reduced liquidity has also impacted the Company's ability to make timely payment with respect to its accounts payable. As a result, the Company has experienced delays in its ability to obtain raw materials and inventory.
As a result of negotiations with its bank and the holders of its Senior Subordinated Notes, the Company has obtained a series of temporary default waivers through November 30, 1996. The Company modified its bank credit facility agreement in January 1997 providing for a bridge loan arrangement of the Company's bank indebtedness through May 1, 1997. To date, no permanent agreement has been reached with the Company's bank or the holders of the Senior Subordinated Notes. Accordingly, all of the Company's bank debt and the entire principal amount of the Senior Subordinated Notes, together with accrued and unpaid interest has been classified as a current liability at December 31, 1996. Pursuant to the terms of an intercreditor agreement entered into by the Company, the bank and the holders of the Senior Subordinated Notes, a standstill letter was issued by the bank on January 10, 1997 preventing any payments to the holders of the Senior Subordinated Notes for a 180 day period. Accordingly, the Company did not make its scheduled interest payment to the holders of the Senior Subordinated Notes at December 31, 1996.
The Company retained Rauscher Pierce Refsnes, Inc. in 1996 to advise the board of directors on strategic and financial alternatives available to the Company. Possible strategies considered included the addition of capital through a merger or business combination with other companies, raising additional equity, or possible sales of key assets of the Company, all in an effort to maximize shareholder value. In March 1997, the Company sold the assets, operations and certain liabilities of the Bernal Division (see Note C of Notes to the Consolidated Financial Statements).
At December 31, 1996, the Company's indebtedness was comprised primarily of a bank credit facility and the Company's Senior Subordinated Notes due September 30, 2000. In addition, the Company's Chairman has
loaned the Company $950,000 as described below. As of December 31, 1996, there was outstanding $15.3 million in Senior Subordinated Notes, bearing interest at the rate of 10.5% per annum, with principal payments of $3.6 million being due on June 30, 1996 and each June 30 thereafter, and a final payment of $0.86 million at maturity. As previously stated, the June 30, 1996 principal payment was not made.
Under its credit facility at December 31, 1996, the Company could borrow up to $27 million in the form of direct borrowings and letters of credit. After the sale of the Bernal Division in March 1997, the maximum allowed borrowings were reduced to $15 million. As of December 31, 1996 there was $23.1 million in direct borrowings and $2.7 million in standby letters of credit outstanding under the credit facility.
At December 31, 1996, $23.1 million of the Company's borrowings were at the lender's prime rate of interest (8.25%). The amounts borrowed under the credit facility have been used for working capital.
Both the agreement concerning the credit facility and the agreement with the holders of the Senior Subordinated Notes provide for joint and several guaranties by the domestic operating subsidiaries of the Company. To secure the indebtedness and the guaranties, a first lien was granted to the lender, and a second lien was granted to the holders of the Senior Subordinated Notes, on substantially all the assets of the Company and its domestic divisions.
The borrowings under the credit facility and Senior Subordinated Notes agreement are subject to various restrictive covenants related to financial ratios as well as limitations on capital expenditures and additional indebtedness. The credit facility permits the Company to borrow up to $5 million for domestic acquisitions without lender consent. The Company is not allowed to pay dividends.
With the sale of the Bernal Division and assuming that the contemplated restructuring of its indebtedness is completed, and that one of several strategic, financial alternatives, principally 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.
There can be no assurance that the Company's restructuring efforts will be successful, or that the Company's bank or the holders of the Senior Subordinated Notes, who hold first and second liens on all assets of the Company, will agree to restructured obligations consistent with the Company's anticipated cash availability. Even if such agreement is reached, it may require agreements of other creditors and shareholders of the Company, none of which is assured. Furthermore, there can be no assurance that future sales of assets, if any, can be successfully accomplished on terms acceptable to the Company. Under current circumstances, the Company's ability to continue as a going concern depends upon the successful restructuring of its agreement with its bank and the agreement with the holders of its Senior Subordinated Notes, the further redeployment of assets, and a return to profitable operations. If the Company is unsuccessful it its efforts, it may continue to be unable to meet its obligations or fulfill the covenants in its debt agreements, as well as other obligations, making it necessary to undertake such other actions as may be appropriate to preserve asset values.
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 December 31, 1996, the Company's Chairman and Chief Executive Officer has loaned the Company $950,000 for its short-term cash requirements which is to be mandatorily repaid from proceeds of the Banque de France receivable (approximately $1.7 million). As of December 31, 1996, 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 resolution of the product performance and warranty issues, timely deliveries, acceptance of the ACE system by the Bank of England, the degree of international orders (which generally have less favorable cash flow terms and require letters of credit that reduce credit availability), improved terms of domestic orders, and timely implementation of cost reduction measures. 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.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
All other schedules are not submitted because they are not applicable or not required or because the information is included in the consolidated financial statements or notes thereto.
REPORT OF MANAGEMENT
The consolidated financial statements of Stevens International, Inc. have been prepared by management and have been audited by Deloitte & Touche LLP, the Company's independent auditors, whose report follows. The management of the Company is responsible for the financial information and representations contained in the financial statements and other sections of the annual report. Management believes that the consolidated financial statements have been prepared in conformity with generally accepted accounting principles appropriate under the circumstances to reflect, in all material respects, the substance of events and transactions that should be included. In preparing the financial statements, it is necessary that management make informed estimates and judgments based upon currently available information of the effects of certain events and transactions.
In meeting its responsibility for the reliability of the financial statements, management depends on the Company's system of internal accounting control. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization and are properly recorded. In designing control procedures, management recognizes that errors or irregularities may nevertheless occur. Also, estimates and judgments are required to assess and balance the relative cost and expected benefits of the controls. Management believes that the Company's accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period by employees in the normal course of performing their assigned functions.
The Board of Directors pursues its oversight role for the accompanying financial statements through its Audit Committee, which is composed solely of directors who are not officers or employees of the Company. The Committee also meets with the independent auditors, without management present, to discuss internal accounting control, auditing, and financial reporting matters.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders Stevens International, Inc.
We have audited the accompanying consolidated balance sheets of Stevens International, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 8. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Stevens International, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the consolidated financial statements, the Company has sustained large losses from operations and has negative working capital at December 31, 1996. In addition, as discussed in Note J to the consolidated financial statements, at December 31, 1996, the Company would not have been in compliance with certain covenants of its long-term debt agreements had the lenders not temporarily waived the covenants. The Company is attempting to renegotiate the terms and covenants of the debt agreement. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plan concerning these matters are also described in Note B. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Fort Worth, Texas March 24, 1997
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
See notes to consolidated financial statements.
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
See notes to consolidated financial statements.
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (AMOUNTS IN THOUSANDS)
See notes to consolidated financial statements.
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
See notes to consolidated financial statements.
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Stevens International, Inc. and all of its wholly owned subsidiaries (the "Company"). All significant intercompany transactions have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenue on the sale of equipment and parts when units are shipped or when completed units are accepted by the customer. Revenue and cost on certain long-term contracts are recognized as work is performed, based upon the percentage that incurred costs bear to estimated total contract costs (percentage of completion method). In the event of an anticipated loss under the percentage of completion method, the entire amount of the loss is charged to operations during the accounting period in which the amount of the anticipated loss is determined.
Inventory
Approximately 73% and 49% of inventory at December 31, 1996 and 1995, respectively, is valued at the lower of cost, using the last-in, first-out (LIFO) method, or market with the remainder valued using the first-in, first- out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is computed on a straight-line basis over the estimated useful lives of three to forty years for the related assets.
Other Assets
Included in other assets are patent costs and goodwill. These are amortized over the remaining life of the patents, and thirty years, respectively.
Income Taxes
SFAS 109 required income taxes to be accounted for under the liability method rather than in accordance with the deferred method as previously required by Accounting Principles Board Opinion No. 11, "Accounting for Income Taxes" (APB No. 11). SFAS 109 requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company's financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based upon the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
Income Per Common Share
Income per common share is based on the weighted average number of shares of common and common stock equivalents (stock options and warrants, when dilutive) outstanding.
Asset Impairment of Long Lived Tangible and Intangible Assets
Potential impairment of long-lived tangible and intangible assets is assessed annually (unless economic events warrant more frequent reviews) on an asset-by-asset-basis.
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses as of and for the reporting period. Estimates and assumptions are also required in the disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from such estimates.
Stock-Based Compensation
Compensation expense is recorded with respect to stock option grants to employees using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25. This method calculates compensation expense on the measurement date (usually the date of grant) as the excess of the current market price of the underlying Company stock over the amount the employee is required to pay for the shares, if any. The expense is recognized over the vesting period of the grant or award. The Company does not intend to elect the fair value method of accounting for stock-based compensation encouraged, but not required, by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation". See Note P.
Recently Issued Accounting Standards
The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants has adopted Statement of Position 96-1, "Environmental Remediation Liabilities," which provides guidance on the recognition, measurement, display and disclosure of environmental remediation liabilities. The Statement is effective for the Company's 1997 fiscal year.
Management has evaluated such statement and believes that it will not have a material effect on the financial condition, cash flows or results of operations of the Company.
B. LIQUIDITY CONCERNS
The Company's viability as a going concern is dependent upon the restructuring of its operations and its obligations to the senior and senior subordinated lenders, additional asset sales to further reduce indebtedness, and, ultimately, a return to profitability.
There is a negative working capital of $11.5 million at December 31, 1996, and negative cash flows from operating activities (before working capital changes) of $31.1 million for 1996. Negative cash flows from operating activities and other commitments are anticipated to continue in 1997. The Company was successful in its sale of substantially all assets of the Bernal Division in March 1997 (see Note C of Notes to the Consolidated Financial Statements). The cash generated from this sale resulted in a $12 million permanent reduction in the Company's senior bank credit facility. In addition, the Company is contemplating additional asset sales to further reduce its indebtedness.
There can be no assurance that the Company's restructuring efforts will be successful, or that the senior and senior subordinated lenders, who hold first and second liens on all assets of the Company, will agree to restructured obligations consistent with the Company's anticipated cash availability. Even if such agreement is reached, it may require agreements of other creditors and shareholders of the Company, none of which is assured. Furthermore, there can be no assurance that future sales of assets, if any, can be successfully accomplished on terms acceptable to the Company. Under current circumstances, the Company's ability to continue as a going concern depends upon the successful restructuring of its senior and senior subordinated obligations, the further redeployment of assets, and a return to profitable operations. If the Company is unsuccessful it its efforts, it may continue to be unable to meet its obligations and covenants on its senior and senior subordinated debt, as well as other obligations, making it necessary to undertake such other actions as may be appropriate to preserve asset values.
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
C. SALE OF BERNAL DIVISION AND FORMATION OF SSMI
In March 1997, the Company sold substantially all the assets of its Bernal Division including the product technology and related intangibles to Bernal International, Inc., a new company formed for the asset purchase. The cash proceeds were approximately $15 million, and in addition, the purchaser assumed certain liabilities of Bernal, including the accounts payable. This transaction resulted in a $12 million permanent reduction of the Company's senior debt. In 1996, Bernal contributed sales of approximately $17.8 million and approximately $0.7 million income before interest, corporate charges and taxes. The loss on the sale of Bernal net assets of approximately $3.5 million is reflected in the 1996 results of operations. This asset sale resulted in a tax charge of $1.2 million from a taxable gain due to the non-deductible Bernal goodwill expensed upon the sale of Bernal's technology.
In January 1995, the Company formed Societe Specialisee dans le Materiel d'Imprimerie ("SSMI"), a French company, and acquired the assets of its predecessor, Societe Specialisee dans le Materiel d'Imprimerie Offset ("SSMIO") for approximately FF1.8 million ($368,000). SSMI is a company engaged in the service and repair of printing presses. Assets acquired were recorded at fair market values; there were no costs in excess of net assets acquired.
D. TEMPORARY INVESTMENTS
Temporary investments (stated at cost, which approximates market) at December 31, 1995 consisted of short term investments in commercial paper, with original maturities within ninety days, and money management accounts.
E. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED LONG-TERM CONTRACTS
Unbilled costs and estimated earnings on uncompleted contracts represent revenue earned but not billable under terms of the related contracts being accounted for using the percentage of completion revenue recognition method. A summary of all costs and related progress billings at December 31, 1996 and 1995 follows:
The $2,719,000 and $18,122,000 net differences are included in the accompanying balance sheets under the following captions:
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
F. INVENTORIES
Inventories consist of the following:
Replacement cost exceeds financial accounting LIFO cost by approximately $3,087,000 and $3,457,000 at December 31, 1996 and 1995, respectively.
G. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
H. OTHER ASSETS
Other assets consist of:
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
I. OTHER CURRENT LIABILITIES
Other current liabilities consist of:
J. LONG-TERM DEBT
Long-term debt consists of the following:
The interest rate on direct borrowings under the Company's Bank Credit Facility at December 31, 1996 is at the lender's prime rate (8.25%). At December 31, 1995, $11.0 million of the Company's borrowings were at the lender's prime rate of interest (8.5%) and $12.0 million of the borrowings were at an offshore rate plus 1.5% (7.44%).
The Company's reduced liquidity resulting from the order slowdown and collection delays required the Company to fully draw upon its bank credit facility and did not allow for the payment of a $3.6 million principal payment due June 30, 1996 to its Senior Subordinated Note holders. In addition, the losses incurred by the Company in the three and nine months ended September 30, 1996 and for the year-ended December 31, 1996 resulted in non-compliance with a debt coverage ratio in the Company's bank credit facility and a net worth covenant in the senior subordinated debt agreement.
As a result of negotiations with its bank and holders of its Senior Subordinated Notes, the Company had obtained a series of temporary default waivers through November 30, 1996. The Company modified its bank credit facility in January 1997 providing for a $2 million principal payment, and a bridge loan arrangement of the Company's bank indebtedness through May 1, 1997; with interest at 1.75% over prime rate. To date, no
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
permanent agreement has been reached with the bank or holders of the Senior Subordinated Notes. Accordingly, all of the Company's bank debt and Senior Subordinated Notes debt have been classified as a current liability at December 31, 1996. A standstill letter was issued by the senior lender on January 10, 1997 preventing any payments to the senior subordinated lenders for a 180 day period. Accordingly, the Company did not make its scheduled interest payment to the senior subordinated lenders at December 31, 1996.
At December 31, 1996, the Company's indebtedness was comprised primarily of a bank credit facility and the Company's Senior Subordinated Notes due September 30, 2000. As of December 31, 1996, there was outstanding $15.3 million in Senior Subordinated Notes, bearing interest at the rate of 10.5% per annum, with principal payments of $3.6 million being due on June 30, 1996 and each June 30 thereafter, and a final payment of $0.86 million at maturity. As previously stated, the June 30, 1996 principal payment and the December 31, 1996 interest payment were not made.
Under its credit facility, the Company may borrow up to $27 million in the form of direct borrowings and letters of credit. After the sale of its Bernal Division in March 1997, the maximum allowed borrowings were reduced to $15 million. As of December 31, 1996 there was $23.1 million in direct borrowings and $2.7 million in standby letters of credit outstanding under the credit facility.
In September 1994, the Company redeemed $2.5 million of the Subordinated Notes (without premium or penalty). Sources for this reduction were the net proceeds from a private placement of 300,000 shares of Series A common stock and bank borrowings. See Note O. Pursuant to the amended subordinated note agreement, this principal payment resulted in a reduction in the interest rate to the minimum defined interest rate of 10.5%.
The early extinguishment of debt in September 1994 resulted in an extraordinary loss of $85,000 (or $0.01 per share), net of income tax benefit of $67,000, as a result of the write-off of loan origination costs which were being amortized over the life of the indebtedness.
Principal maturities of the outstanding long-term debt at December 31, 1996, are as follows (Amounts in thousands):
Both the agreement concerning the credit facility and the agreement with the holders of the Senior Subordinated Notes provide for joint and several guaranties by the domestic operating subsidiaries of the Company. To secure the indebtedness and the guaranties, the first lien was granted to the lender, and a second lien was granted to the holders of the Senior Subordinated Notes, on substantially all the assets of the Company and its domestic subsidiaries. The Company's domestic operating subsidiaries were merged into the Company effective January 1, 1996.
The borrowings under the credit facility and Senior Subordinated Notes agreement are subject to various restrictive covenants related to financial ratios as well as limitations on capital expenditures and additional indebtedness. The credit facility permits the Company to borrow up to $5 million for domestic acquisitions without lender consent. The Company is not allowed to pay dividends.
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Through December 31, 1996, the Company's Chairman and Chief Executive Officer has loaned the Company $950,000 for its short-term cash requirements which is to be mandatorily repaid from proceeds of the Banque de France project. As of December 31, 1996, this amount has not been repaid.
K. INCOME TAXES
The Company and its domestic subsidiaries file consolidated income tax returns. At December 31, 1996, the Company had the following losses and credits available for carryforward for federal income tax purposes:
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. The tax effects of significant items comprising the Company's net deferred tax liability as of December 31, 1996 and 1995 are as follows:
The provisions for income taxes consists of the following:
Deferred tax expense (benefit) results from differences in the basis of assets and liabilities between income tax and financial reporting purposes. The sources of these differences and the tax effect of each were as follows:
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's effective tax rate varies from the statutory federal income tax rate for the following reasons:
- -------- * Calculated from income (loss) before income tax excluding extraordinary item.
L. COMMITMENTS AND CONTINGENCIES
The Company leases equipment and office facilities under operating leases. These leases in some instances include renewal provisions at the option of the Company. Rent expense for the years ended December 31, 1996, 1995, and 1994 was approximately $865,000, 703,000, and $520,000, respectively.
The following is a schedule by year of minimum rental payments due under non-cancelable leases with initial or remaining minimum lease terms in excess of one year as of December 31, 1996:
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996, the Company had no major capital equipment leases and no outstanding capital expenditure purchase commitments.
The Company is contingently liable for approximately $0.7 million at December 31, 1996, under terms of customer financing arrangements. These arrangements provide for a loss sharing formula whereby the Company generally is responsible for 15% of the ultimate net loss, if any, in the event of default by the customers on their financing agreements. Management believes the likelihood of materially adverse effects on the financial position, cash flows or results of operations of the Company as a result of these agreements is remote.
The Company, its officers' and directors' liability insurance carrier and the plaintiff of a class action lawsuit negotiated a written settlement of the dispute which was approved by the court by order dated June 18, 1996. The settlement resulted in the dismissal of the litigation and the issuance to the class and the plaintiff's counsel of warrants to purchase Series A Common Stock of the Company (see Note P of Notes to the Consolidated Financial Statements). Also, as a result of the Company's continuing liquidity problems, the Company has been the subject of lawsuits, from time to time, with respect to the Company's inability to pay certain vendors on a timely basis. To date, most of such actions have been settled, but there can be no assurance that the Company, if named a defendant in such actions in the future, will be able to settle such claims in the future. In addition, 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 regarding each of these actions and does not believe that such actions, either individually or in the aggregate, will materially affect the Company's operations or financial position.
M. EMPLOYEE BENEFIT PLAN
Effective January 1, 1992, the Company adopted a profit sharing and 401(k) savings retirement plan to cover all non-union employees of the Company. In 1994, union employees of the Company were covered under this plan. The 401(k) plan provides for a tax deferred employee elective contribution up to 15% of annual compensation or the maximum amount allowed as determined by the Internal Revenue Code ($9,500 in 1996 and $9,240 in 1995) and a discretionary matching contribution by the Company for non-union employees. In 1995 and 1994, the Company agreed to match 25% of non-union employee elective contributions up to 4% of employee 1995 and 1994 annual compensation. Company matching contributions were $-0- in 1996, $104,000 in 1995 and $106,000 in 1994.
The Company also sponsors defined benefit pension plans covering its employees. The two plans provide for monthly benefits, normally at age 65, after completion of continuous service requirements. The Company's general funding policy is to contribute amounts deductible for federal income tax purposes. Due to significant reductions of employees covered under the union plan, the union plan experienced substantial disbursements during 1996 for lump sum distributions upon participants termination of employment. The magnitude of these disbursements during 1996 has reduced the funded liability of the plan at December 31, 1996 to a level which required a special liquidity shortfall contribution to the plan as of January 15, 1997 of approximately $600,000. The Company has not made this special liquidity shortfall contribution which has, by Federal law, resulted in suspension of lump sum payments to plan participants and has subjected the Company to a 10% excise tax penalty on January 15, 1997 and further penalties if steps are not taken to remedy the shortfall. The assets of the pension plans are maintained in trusts and consist primarily of equity and fixed income securities. Pension expense was $1,183,000 in 1996, $607,000 in 1995, and $630,000 in 1994.
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Beginning January 1, 1989, the Company was required to recognize a liability in the amount of the Company's unfunded accumulated benefit obligation, with an equal amount to be recognized as either an intangible asset or a reduction of equity, net of applicable deferred income taxes. Based upon actuarial and plan asset information as of December 31, 1996, the Company has recorded a pension liability of $3.45 million and a corresponding intangible asset of $782,000.
The following table summarizes the funded status of the Company's defined benefit pension plans and the related amounts recognized in the Company's consolidated financial statements for 1996 and 1995.
Net periodic pension cost was composed of the following elements:
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has executive incentive plans which provide additional compensation for officers and key employees based upon income and attainment of other predetermined goals and objectives. Such incentives aggregated $10,000, $497,000, and $723,000 in 1996, 1995, and 1994, respectively.
In addition to providing certain retirement benefits, the Company has insurance coverage available for certain health care and life insurance benefits for retired personnel on a fully reimbursable basis. Since the cost of these programs is paid for by retired employees, no expenses are recorded in accordance with guidelines in Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
N. RELATED PARTY TRANSACTIONS
The Company and Xytec, a subsidiary of Stevens Industries, Inc. one of the principal shareholders of the Company, entered into an agreement during 1994 for Xytec to provide software and computer related services and equipment as a subcontractor on a major contract. During 1996, 1995 and 1994, the Company paid approximately $671,000, $784,000, and $287,000, respectively, to Xytec on this contract.
Two company directors and officers are partners in a venture that leases office facilities to the Company. Amounts paid to the partnership as rent and maintenance were approximately $111,000 in 1996, 1995 and 1994, respectively.
Through December 31, 1996, Paul I. Stevens, the Company's Chairman and Chief Executive Officer has loaned the Company $950,000 for its short-term cash requirements which is to be mandatorily repaid from proceeds of the Banque de France project. As of December 31, 1996, this amount has not been repaid.
In January and February 1994, Stevens Industries, Inc. advanced an aggregate of $900,000 to Stevens Security Systems, S.A. in exchange for a Stevens Security Systems, S.A. 6% note due February 1995. These advances were repaid in full in February 1995.
O. RESEARCH AND DEVELOPMENT, SALES TO MAJOR CUSTOMERS AND FOREIGN SALES
For the years ended December 31, 1996, 1995 and 1994, the Company incurred research and development expenses (excluding customer funded projects) of approximately $624,000, $1,976,000, and $2,162,000, respectively.
Net sales to customers outside of the United States in 1996, 1995 and 1994 were approximately $22,659,000, $36,479,000, and $14,957,000, respectively.
In 1996, 1995 and 1994, no single customer accounted for more than 10% of total sales in one year. The Company has no foreign exchange contracts.
P. STOCK TRANSACTIONS AND VOTING RIGHTS
In June 1996, resolution of the Company's class action lawsuit, which had been in litigation for five years, resulted in a one-time $700,000, ($0.07) per share charge to second quarter operations. In this settlement, the Company paid no cash, but agreed to issue warrants valued at $700,000 to purchase the Company's Series A stock. The warrants are exercisable over a one-year period from October 31, 1996 and represent the right to purchase up to 737,619 shares of Series A stock from the Company at an exercise price of $2.672 per share. If exercised, the warrants would result in $1,970,918 of additional equity to the Company.
In September 1994, the Company sold 300,000 shares of Series A common stock at $5.50 per share in a private placement. Net proceeds of $1,546,000 after related expenses of $104,000 were used to extinguish Senior
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subordinated debt. The sale of stock and bank borrowings enabled the reduction of $2,500,000 of Senior Subordinated debt and reduced the interest rate on this indebtedness from 11.25% to 10.5%.
The Series A and Series B stock differ only as to voting and conversion rights. As to matters other than the election of directors, the holders of Series A stock and Series B stock vote together as a class, with each holder of Series A stock having one-tenth of one vote for each share of Series A held and each holder of Series B stock having one vote for each share of Series B stock held. Holders of Series A stock, voting separately as a class, are entitled to elect 25% of the total membership of the board of directors. Holders of Series B stock, voting separately as a class, are entitled to elect the remaining directors.
The shares of Series B stock are convertible, share-for-share, into shares of Series A stock at the election of the holder thereof at any time. Once a share of Series B stock is converted into a share of Series A stock, such share of Series A stock may not be converted into any other security. The Company's certificate of incorporation further provides that the Company may not engage in a merger or consolidation with any other corporation unless each holder of Series A stock and each holder of Series B stock receives identical consideration per share in the merger or consolidation. If a dividend other than a stock dividend is to be paid, it will be paid equally to holders of both series of common stock, share-for-share. If a stock dividend is to be paid to holders of common stock, it must be paid proportionately to the holders of both series of common stock either (a) in Series A stock to holders of both Series A and Series B stock or (b) in Series A stock to holders of Series A stock and in Series B stock to holders of Series B stock.
In 1987, the Company adopted a stock option plan in which incentive and nonqualified stock options may be granted to key employees to purchase shares of common stock at a price not less than the fair market value at the date of grant for each incentive option and at not less than 85% of the fair market value at the date of the grant for each nonqualifed option. The aggregate number of common shares for which options may be granted is 795,000, subject to adjustment for stock splits and other capital adjustments. The plan permits the grant of options for a term of up to ten years. Outstanding options are generally exercisable either immediately or in two installments beginning one year after the date of grant and expire five to seven years after the date of grant.
Options to purchase shares of common stock have also been granted to directors and others who are not eligible to participate in the 1987 employee plan. A summary of stock option activity for the last two years follows:
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Options oustanding as of December 31, 1996 are as follows:
The Company applies the intrinsic value method in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates for awards under the plan, as described above, the Company's net income would have been reduced by $0.5 million in 1995 and $0.01 million in 1996. Earnings per share would have been reduced by $0.06 per share in 1995 and $0.00 in 1996.
Weighted average grant-date fair value of options in 1996 ($0.93) and 1995 ($2.53) were calculated in accordance with the Black-Scholes option pricing model, using the following assumptions:
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Q. QUARTERLY RESULTS (UNAUDITED)
The following table summarizes results for each of the four quarters for the years ended December 31, 1996 and 1995. Income per share for each year does not necessarily equal the sum of the four quarters due to the impact of common stock equivalents (stock options).
The Company attributes the operating and net loss for the fourth quarter of 1996 to (1) a continuing decline in orders ($25.1 million versus $45.5 million for the last six months of 1996 and 1995, respectively); (2) greater than expected manufacturing costs, including unexpected warranty costs and development costs associated with some of the Company's new products; (3) the loss on the sale of the assets of the Bernal Division; (4) provision for bad debt expense of $4 million; and (5) unabsorbed overhead costs due to the low shipment volume in the quarter.
R. FINANCIAL INSTRUMENTS, MARKET AND CREDIT RISK
Financial Accounting Standards Board ("FASB") Statement No. 107, "Disclosure about Fair Value of Financial Instruments", is a part of a continuing process by the FASB to improve information on financial instruments. The following methods and assumptions were used by the Company in estimating its fair value disclosure for such financial instruments as defined by the Statement:
Cash and Temporary Investments
The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value.
Performance bond deposits
The fair values for performance bond deposits are estimated using discounted cash flow analyses based upon U.S. Treasury notes due in 1997.
Long-Term Debt
The carrying amounts of the Company's borrowings under its revolving credit agreements approximate fair value. The fair values of the Company's other long-term debt either approximate fair value or are estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.
STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Letters of Credit
The Company utilizes letters of credit to back certain financing instruments and insurance policies. The letters of credit reflect fair value as a condition of their underlying purpose and are subject to fees competitively determined in the market place.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to significant concentrations of credit risk consist primarily of trade accounts receivable.
The Company maintains cash and cash equivalents and certain other financial instruments with various financial institutions. The Company's policy is designed to limit exposure to any one institution. The Company's periodic evaluations of the relative credit standing of these financial institutions are considered in the Company's investment strategy.
Concentration of credit risk with respect to trade accounts receivable are limited due to the number of entities comprising the Company's customer base and their dispersion across the printing and graphic arts industries. As of December 31, 1996, the Company had no significant concentrations of credit risk.
The carrying amounts and fair values of the Company's financial instruments at December 31, 1996 are as follows:
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the directors of the Company is set forth in the Proxy Statement to be delivered to stockholders in connection with the Company's Annual Meeting of Stockholders to be held during 1997 (the "Proxy Statement") under the heading "Election of Directors", which information is incorporated herein by reference. The name, age and position of each executive officer of the Company is set forth under "Executive Officers of the Registrant" in Item 1 of this report, which information is incorporated herein by reference. The information required by Item 405 of Regulation S-K is set forth in the Proxy Statement under the heading "Section 16 Requirements", which information is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
The information concerning management compensation and transactions with management is set forth in the Proxy Statement under the heading "Management Compensation and Transactions", which information is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information concerning security ownership of certain beneficial owners and management is set forth in the Proxy Statement under the heading "Principal Stockholders and Management Ownership", which information is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information concerning certain relationships and related transactions is set forth in the Proxy Statement under the heading "Management Compensation and Transactions", which information is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
(1) Financial Statements:
The financial statements filed as a part of this report are listed in the "Index to Consolidated Financial Statements and Financial Statement Schedules" at Item 8.
(2) Financial Statement Schedules:
The financial statement schedules filed as a part of this report are listed in the "Index to Consolidated Financial Statements and Financial Statement Schedules" at Item 8.
(3) Exhibits
The exhibits filed as a part of this report are listed under "Exhibits" at subsection (c) of this Item 14.
(b) Reports on Form 8-K:
No report of Form 8-K was filed on behalf of the Registrant during the last quarter of the Company's 1996 fiscal year.
(c) Exhibits:
- -------- * Filed herewith. (1) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1990 and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 33-15279) and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 33-24486) and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's report on Form 8-A filed August 19, 1988 and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1994 and incorporated herein by reference. (6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. (7) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 33-32089) and incorporated herein by reference. (8) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1993 and incorporated herein by reference. (9) Previously filed as an exhibit to the Company's Report on Form 10-Q for the period ended September 30, 1994 and incorporated herein by reference. (10) Previously filed as an exhibit to the Company's Current Report on Form 8- K filed August 12, 1993 and incorporated herein by reference. (11) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1994 and incorporated herein by reference. (12) Previously filed as an exhibit to the Company's Registration Statement on Form S-3 (No. 33-84246) and incorporated herein by reference. (13) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. (14) Previously filed as an exhibit to the Company's Annual Report on Form 10- K for the year ended December 31, 1995 and incorporated herein by reference.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Stevens International, Inc.
/s/ Paul I. Stevens By: _________________________________ CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER, AND ACTING CHIEF FINANCIAL OFFICER
Date: March 24, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ------- ------
/s/ Paul. I. Stevens Chairman of the March 24, 1997 - ------------------------------------- Board and Chief PAUL I. STEVENS Executive Officer
/s/ Richard I. Stevens President, Chief March 24, 1997 - ------------------------------------- Operating Officer RICHARD I. STEVENS and Director
/s/ Constance I. Stevens Vice President, March 24, 1997 - ------------------------------------- Assistant Secretary CONSTANCE I. STEVENS and Director
/s/ Robert H. Brown, Jr. Director March 24, 1997 - ------------------------------------- ROBERT H. BROWN, JR.
/s/ James D. Cavanaugh Director March 24, 1997 - ------------------------------------- JAMES D. CAVANAUGH
/s/ Michel A. Destresse Director March 24, 1997 - ------------------------------------- MICHEL A. DESTRESSE
/s/ Edgar H. Schollmaier Director March 24, 1997 - ------------------------------------- EDGAR H. SCHOLLMAIER
/s/ John W. Stodder Director March 24, 1997 - ------------------------------------- JOHN W. STODDER
SCHEDULE II
STEVENS INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
- -------- (1) Write off of uncollectible accounts. (2) Reclassification of accrued interest on customer account.
INDEX TO EXHIBITS
- -------- * Filed herewith. (1) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1990 and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 33-15279) and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 33-24486) and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's report on Form 8-A filed August 19, 1988 and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1994 and incorporated herein by reference. (6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. (7) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 33-32089) and incorporated herein by reference. (8) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1993 and incorporated herein by reference. (9) Previously filed as an exhibit to the Company's Report on Form 10-Q for the period ended September 30, 1994 and incorporated herein by reference. (10) Previously filed as an exhibit to the Company's Current Report on Form 8-K filed August 12, 1993 and incorporated herein by reference. (11) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1994 and incorporated herein by reference. (12) Previously filed as an exhibit to the Company's Registration Statement on Form S-3 (No. 33-84246) and incorporated herein by reference. (13) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1995 and incorporated herein by reference. (14) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.