-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T2foLV4fIhzsZLSOXokrrKQTyvU6ifOZHr4Z1wyAPm/lvcRnLI6Iu/tF0FmsvRqV GyB57JUBIqPg5GS73MpvcQ== 0000930661-96-000176.txt : 19960321 0000930661-96-000176.hdr.sgml : 19960321 ACCESSION NUMBER: 0000930661-96-000176 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960320 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEVENS INTERNATIONAL INC CENTRAL INDEX KEY: 0000817644 STANDARD INDUSTRIAL CLASSIFICATION: PRINTING TRADES MACHINERY & EQUIPMENT [3555] IRS NUMBER: 752159407 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09603 FILM NUMBER: 96536558 BUSINESS ADDRESS: STREET 1: 5500 AIRPORT FRWY CITY: FORT WORTH STATE: TX ZIP: 76117 BUSINESS PHONE: 8178313911 MAIL ADDRESS: STREET 1: PO BOX 3330 CITY: FORT WORTH STATE: TX ZIP: 76113 FORMER COMPANY: FORMER CONFORMED NAME: STEVENS GRAPHICS CORP DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ---------------- (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-9603 ---------------- STEVENS INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- DELAWARE 75-2159407 (STATE OF OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 5500 AIRPORT FREEWAY FORT WORTH, TEXAS 76117 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) ---------------- Registrant's telephone number, including area code: (817) 831-3911 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ------------------------ Series A Stock, $0.10 Par Value American Stock Exchange Series B Stock, $0.10 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to be the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes [X] No [_] As of March 11, 1996, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $19,213,000 based upon the closing price of the registrant's Common Stock on such date, $2 15/16 and $4 per share for Series A and Series B stock, respectively, as reported by the American Stock Exchange. As of March 11, 1996, there were outstanding 7,313,268 shares of Series A stock and 2,136,834 shares of Series B stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statements for the annual meeting of stockholders of the Company to be held during 1996 are incorporated by reference in Part III. =============================================================================== STEVENS INTERNATIONAL, INC. TABLE OF CONTENTS
FORM 10-K ITEM PAGE -------------- ---- PART I Item 1. Business................................................... 3 Item 2. Properties................................................. 11 Item 3. Legal Proceedings.......................................... 11 Item 4. Submission of Matters to Vote of Security Holders.......... 11 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters....................................... 12 Item 6. Selected Financial Data.................................... 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 14 Item 8. Financial Statements and Supplementary Data................ 19 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 40 PART III Item 10. Directors and Executive Officers of the Registrants........ 40 Item 11. Executive Compensation..................................... 40 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................ 40 Item 13. Certain Relationships and Related Transactions............. 40 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................................. 40
2 PART I 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 is a leading manufacturer of web-fed packaging and printing systems. Stevens designs, manufactures, markets and services packaging and printing systems and related equipment for its customers in the packaging industry and in the specialty/commercial and security and banknote segments of the printing industry. The Company believes that its technological and engineering capabilities, including its ability to utilize and combine the four major printing technologies in its systems, provide it with a competitive advantage over other packaging and printing equipment manufacturers. Stevens is also a leading manufacturer of rotary and platen die cutting and creasing equipment. The Company combines its various types of equipment, including printing presses, die cutting equipment and delivery systems, into complete integrated systems capable of providing finished product in a single press pass. The Company's systems sell for prices ranging from $1 million to in excess of $10 million. The Company also manufactures auxiliary and replacement parts and provides service for its equipment which represented 30% and 27% of the Company's net sales for 1995 and 1994, respectively. The Company has an installed base of more than 5,000 machines in over 50 countries. Stevens' equipment is used by its customers to produce thousands of end- products, including food and beverage containers, banknotes, postage stamps, lottery tickets, direct mail inserts, personal checks and business forms. A growing use of the Company's die cutting equipment is in non-printing applications to produce consumer items such as potato chips, cookies, battery grids, disposable diapers, adhesive bandages and other end products. All of the Company's presses are "web-fed" presses, which print on paper or other substrate that is fed continuously from a roll or "web," as distinct from "sheet-fed" presses, which print on pre-cut sheets of paper or other substrate. Although sheet-fed equipment is dominant in the segments of the packaging industry and the security and banknote 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. 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 food and beverage containers. In the printing industry, the printed product is the end product, such as lottery tickets, postage stamps 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, liquid packaging and flexible packaging segments of the packaging industry. The printing industry also consists of several large segments in which the Company does not participate (newspapers, periodicals and book publishing). The Company's products are designed to serve the specialty/commercial and security and banknote segments of the printing industry. BUSINESS STRATEGY The Company's objective is to strengthen its position as a leading manufacturer of web-fed packaging and printing systems through its strategy of providing complete systems solutions to its customers. The principal elements of this strategy include the following: 3 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 the last three fiscal years, the Company's gross expenditures for research and development (including customer funded projects) have exceeded 5% of net sales. The Company has recently introduced, among others, the System 2000 and 5000 series flexographic and offset lithographic ("offset") printing press systems. The Company has also developed improved high speed rotary and platen die cutting equipment to complement its new packaging and printing equipment systems. In the security and banknote industry, the Company, in 1995, installed the first production model single note on web ("SNOW") banknote printing system at Banque de France. 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 a 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 security and banknote segment of the printing industry. The Company also believes that its web-fed systems can significantly enhance productivity over sheet-fed applications in all segments of the packaging and printing industries including those segments into which the Company markets its products. Increased Penetration of International Markets. The Company plans to accelerate its penetration of international markets 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. The Company has taken a number of initiatives to strengthen its international marketing efforts. In 1991, the Company established an European sales subsidiary and in 1995 acquired a French 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 add to its existing base of sales agents in order to market its products internationally. The Company received five 1994-1995 orders from China, four of which have been delivered, for its new System 9000, narrow web rotogravure printing and packaging press. PRODUCTS The Company markets a broad range of packaging and printing equipment systems to the packaging industry and the specialty/commercial and security and banknote 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 are as follows: Printing Presses. The Company offers all four major printing processes on a worldwide basis for its web-fed packaging and printing systems. The Company's printing presses are capable of flexographic, offset lithographic, rotogravure and intaglio printing processes and combinations thereof. Flexography, which is well 4 suited for printing large areas of solid color, is typically the least expensive printing process. Offset lithography, which is the most widely used printing process, is a process that historically has yielded 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. Die Cutters and Creasers. The Company manufactures and markets both rotary and platen die cutters and creasers. The Company believes that it offers the broadest array of rotary cutting products and technology in the packaging and printing industries. The Company's proprietary rotary die system equipment is now the preferred cutting and creasing system for several of the largest liquid packaging producers. A growing use of the Company's rotary die cutting equipment is in non-printing applications to produce consumer items such as potato chips, cookies, battery grids, disposable diapers, adhesive bandages and other end products. The Company believes its platen die cutters perform faster and more reliably than other similar systems. Product Delivery Systems. The Company manufactures a number of 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. In some instances, the speed of the product delivery system can limit 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 1995 and 1994, 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. In line with its program of strong customer service, the Company provides customers with 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. 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. The Company primarily markets its products internationally through agents. In 1990, the Company opened a sales and service office in France to better serve its European customers and, in 1995, formed Societe Specialisee dans le Materiel d'Imprimerie ("SSMI"), to acquire a French printing press repair and service company, which permits the Company to better service its European customers. 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 conducts market research and analysis to study trends and actively participates in various trade associations. CUSTOMERS The Company's customers include packaging companies, printing companies, paper companies, consumer product companies, check printers, business forms companies and security and banknote 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., M.A.N. Roland, Komori-Chambon, Goebel and 5 Cerutti. The Company believes that the packaging industry is also served by manufacturers of offset sheet-fed equipment such as Heidelberg, M.A.N. Roland and Komori-Chambon. The security and banknote markets are predominately served by sheet-fed equipment made by De La Rue Giori-Koenig and Bauer-Albert Frankenthal (KBA). 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. See "Factors That Could Affect Future Performance -- Competition." 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 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 11, 1996, the Company had approximately 716 employees. Approximately 26% 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 are good and 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 Company's backlog of unfilled orders as of December 31, 1995 was approximately $40.4 million compared to $68.6 million at December 31, 1994, a decrease of 41%. The backlog included a decrease of $20.2 million in packaging, a decrease of $3.2 million in banknote and security related equipment and $4.8 million in specialty/commercial orders. The current decline in backlog is the result of a general slowness in orders. While the slowness may be attributable to general economic conditions, the Company believes it is also attributable to difficulties in resolving certain product performance issues. Although the Company believes that it is making progress in resolving these performance issues, they have not all been resolved and there can be no assurance that they will be. EXECUTIVE OFFICERS The executive officers of the Company are as follows:
NAME AGE PRINCIPAL POSITION WITH THE COMPANY ---- --- ----------------------------------- Paul I. Stevens............. 81 Chairman of the Board, Chief Executive Officer and Director Richard I. Stevens.......... 57 President, Chief Operating Officer and Director Allen J. Prochnow........... 45 Sr. Vice President and General Manager-Zerand Division Kenneth W. Reynolds......... 57 Sr. Vice President--Finance and Administration and Chief Financial Officer*
- -------- * Mr. Reynolds retired from his position as Senior Vice President--Finance and Administration and Chief Financial Officer effective March 31, 1996. 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- 6 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. 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. Allen J. Prochnow has served as Senior Vice President and General Manager- Zerand Division since November 1993 and Vice President of the Company from August 1991 to November 1993. Mr. Prochnow joined Zerand as Treasurer and Controller in the fall of 1979. In 1981, he was promoted to fill the new Zerand position of Vice President, Finance, and in early 1988, he was appointed to Vice President, Operations. Kenneth W. Reynolds has served the Company as Senior Vice President--Finance and Administration and Chief Financial Officer since July 1993. From 1989 to June 1993, Mr. Reynolds served Baldwin Technology Company, Inc. as Vice President--Finance and Administration and Chief Financial Officer. From 1987 to 1989, Mr. Reynolds served as Vice President--Finance and Administration for Modicon Inc., an AEG Company (Germany). From 1974 to 1987, he held various positions with Harris Graphics Corporation and from 1965 to 1974, he held various positions with Moore Business Forms, Inc. 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. 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., M.A.N. Roland, Komori-Chambon, Goebel and Cerutti. The Company believes that the packaging industry is also served by manufacturers of offset sheet-fed equipment, such as Heidelberg, M.A.N. Roland and Komori-Chambon. The security and banknote markets are predominately served by sheet-fed equipment made 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 expectations in manufacturing certain new products, including certain System 2000 presses. The Company believes these difficulties have hampered its marketing and accounts receivable collection efforts and has made it a high priority to satisfy these 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. The Company's business and results of operations may be adversely affected by inflation, interest rates, unemployment 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 1990 and 1991 of $7.8 and $13.5 million, respectively; these losses were caused by changing printing technology that affected demand for the Company's business 7 forms printing systems, which at the time 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. As a result, the Company restructured its operations, which involved a plan that included the closure of some facilities, the combination of operating units, personnel reassignments, headcount reductions and asset sales. This restructuring necessitated recording pre-tax restructuring charges in 1990 and 1991 of $5.0 and $4.0 million, respectively. The plan was designed to bring the Company's operating costs in line with anticipated order rates and to reposition the Company in growing markets such as packaging systems and to de-emphasize declining markets such as business forms. 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 Packaging and 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 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 have been 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 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 which contributed to the slowness in orders experienced in the fourth quarter of 1995. 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 1995, international sales represented 26.2% of net sales, and 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. Acquisitions. The Company may from time to time acquire or enter into strategic alliances concerning technologies, product lines or businesses that are complementary to those of the Company. Although the Company believes that integration of acquired technologies, product lines and businesses should result in long-term growth and profitability, there can be no assurance that the Company will be able to successfully identify, finance or integrate such technologies, product lines or businesses. Furthermore, the integration of an acquired 8 company product line or business may cause a diversion of management time and resources. The Company also may need to obtain additional equity or debt financing to complete an acquisition and in some instances must obtain the approval of its existing lenders in order to either incur additional debt or complete the acquisition. There can be no assurance that the Company will be able to conclude any acquisitions in the future on terms favorable to it or that, once consummated, such acquisitions will be advantageous to the Company. Manufacturing Risks. 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. 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 in excess of $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 and certain officers and directors are defendants in a class action lawsuit filed in 1990. Prior to commencement of trial, the parties agreed in principle to a settlement of the dispute. In the event the settlement is not approved by the Court, the Company will continue to vigorously pursue all available defenses. Without regard to the outcome, a trial would result in a significant diversion of management time and attention. A negative outcome in excess of insurance coverage could have a material adverse effect on the Company's business, operating results and financial condition. 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. Paul I. Stevens, Stevens Industries, Inc. and members of the immediate family of Paul I. Stevens beneficially own approximately 31.5% of the combined outstanding Series A and Series B Common Stock of the Company, representing 70.3% of the 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, 9 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 $2 3/4 per share in the first quarter of 1996. 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 continuing 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. 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. This 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 recently curtailed many expenditures in light of the slowness of new orders which has been due, in part, to certain product performance issues related to the new products. In addition, the Company has reduced capital expenditures and implemented certain other cost reduction measures. As a result, sales and operating results for 1996 are not anticipated to equal 1995 results. 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.
APPROX. OWNED LOCATION USE SQ. FT. OR LEASED -------- --- ------- --------- Fort Worth, Texas....... Executive Offices 12,400 Leased Hamilton, Ohio.......... Research facilities and manufacturing of 252,000 Owned printing presses, and collators, administration offices and sales facilities New Berlin, Wisconsin... Research facilities and manufacturing of 67,000 Owned printing presses and reciprocating cutter-creasers, and administration offices and sales facilities New Berlin, Wisconsin... Warehouse and manufacturing facilities 43,200 Leased Rochester Hills, Manufacturing of rotary pressure dies, 42,000 Leased Michigan............... cutter-creasers, and related equipment, research facilities, administration offices and sales facilities Fort Worth, Texas....... Manufacturing facility and 74,000 Owned administration offices Villers sous St. Leu, Repair and service facility and 13,000 Owned France................. administrative offices
10 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. LEGAL PROCEEDINGS. On December 5, 1990, Howard Lasker, as the representative of an alleged class consisting of purchasers of the Company's common stock between October 18, 1989 and October 31, 1990, filed a lawsuit against the Company and certain officers and directors of the Company. The suit was certified as a class action in March 1992. On February 26, 1993, notice of the pendency of the class action was mailed to stockholders of record of the Company and was published in the national edition of the Wall Street Journal. The action, which was filed in the United States District Court for the Northern District of Texas (Dallas Division), alleges that the defendants, during the class period, engaged in a course of action that deceived the investing public regarding the financial condition and prospects of the Company, that as a consequence, the market value of the Company's common stock was artificially inflated, and that the plaintiff and other members of the class purchased Company common stock during the class period at inflated prices. After extensive discovery and trial preparation, the case was scheduled to go to trial in January 1996. Prior to commencement of trial, the parties agreed in principle to a settlement of the dispute. The Company, its officers' and directors' liability insurance carrier, and the Plaintiff are in the process of negotiating a written settlement of the dispute that, if approved by the court, would result in the dismissal of the litigation. As part of the settlement, the Company has agreed to issue to the class warrants to purchase Series A Common Stock with an aggregate value of $700,000. When issued, the value of the warrants will be charged to the Company's earnings. The court took the January 1996 trial setting off of its docket. In the event the settlement agreement is not approved by the court, the Company will continue to vigorously pursue all available defenses. 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, its costs in connection with the Coakley matter. No assurance can be given regarding the outcome of any pending case; however, 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 financial condition or its results of operation; however, a negative outcome in excess of insurance coverage could have a material adverse effect on the Company's business, operating results and financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's security holders during the last quarter of its fiscal year ended December 31, 1995. 11 PART II 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.
SERIES A SERIES B COMMON STOCK COMMON STOCK --------------- ------------ HIGH LOW HIGH LOW ------- ------- ------ ----- Year Ended December 31, 1994: First Quarter................................... 7 1/2 5 1/2 8 5/8 7 3/8 Second Quarter.................................. 6 5/8 5 1/4 7 1/2 7 Third Quarter................................... 6 1/8 5 7 1/8 7 1/8 Fourth Quarter.................................. 8 3/8 5 3/4 9 7 Year Ending December 31, 1995: First Quarter................................... 8 1/8 6 3/4 8 3/8 7 1/2 Second Quarter.................................. 7 13/16 6 8 6 5/8 Third Quarter................................... 8 1/8 6 8 1/16 7 Fourth Quarter.................................. 8 3 15/16 7 7/8 4 1/8 First Quarter 1996 (through March 11, 1996)....... 4 3/8 2 7/8 4 1/4 3 1/4
As of March 11, 1996, approximately 7,313,000 shares of the Series A Common Stock were outstanding and held by approximately 214 holders of record, and 2,136,800 shares of the Series B Common Stock were outstanding and held by approximately 77 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 and expansion 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 "Description of Capital Stock." 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. 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 acquisition of Post Machinery Company, Inc. ("Post") effective as of June 1, 1990, was accounted for as a purchase. As a result, the operations and financial position of Post are included in the financial statements of the Company from June 1990 through 1993. Substantially all assets, operations and product technology of Post were sold to Bobst Group, Inc. in 1993 (see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note B of Notes to Consolidated Financial Statements of the Company). 12 SELECTED FINANCIAL INFORMATION INCOME STATEMENT (IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- Net sales.................... $139,181 $106,694 $103,762 $ 84,160 $ 78,938 Cost of sales................ 108,307 81,009 79,476 67,131 61,937 -------- -------- -------- -------- -------- Gross Profit................. 30,874 25,685 24,286 17,029 17,001 Selling, general and administrative expense...... 21,437 17,211 17,477 16,089 21,619 Restructuring Charge(3)...... -- -- -- -- 4,000 -------- -------- -------- -------- -------- Operating income (loss)...... 9,437 8,474 6,809 940 (8,618) Other income (expense)....... (3,478) (4,139) (3,940) (5,647) (7,742) -------- -------- -------- -------- -------- Income (loss) before income taxes, extraordinary items and cumulative effect of accounting change......... 5,959 4,335 2,869 (4,707) (16,360) Income tax (expense) benefit..................... (1,660) (1,908) (2,098) 1,525 2,825 -------- -------- -------- -------- -------- Income (loss) before extraordinary items and cumulative effect of accounting change......... 4,299 2,427 771 (3,182) (13,535) Extraordinary items(2)....... -- (85) -- 4,033 -- Cumulative effect of change in method of accounting for income taxes(1)............. -- -- 412 -- -- -------- -------- -------- -------- -------- Net income (loss)........ $ 4,299 $ 2,342 $ 1,183 $ 851 $(13,535) ======== ======== ======== ======== ======== Income (loss) per common share before extraordinary items and cumulative effect of accounting change........ $ 0.45 $ 0.26 $ 0.08 $ (0.36) $ (1.50) Extraordinary items per common share(2)............. -- (0.01) -- 0.45 -- Cumulative effect of accounting change per common share(1).................... -- -- 0.05 -- -- -------- -------- -------- -------- -------- Net income (loss) per common share............ $ 0.45 $ 0.25 $ 0.13 $ 0.09 $ (1.50) ======== ======== ======== ======== ======== Weighted average shares outstanding................. 9,553 9,256 9,129 9,017 9,014 ======== ======== ======== ======== ======== BALANCE SHEET DATA (IN THOUSANDS) YEAR ENDED DECEMBER 31, ------------------------------------------------ 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- Cash and temporary investments................. $ 814 $ 1,473 $ 3,768 $ 10,507 $ 30,488 Working capital.............. 38,127 16,692 16,737 25,546 33,268 Total assets................. 117,647 94,041 106,147 108,548 132,756 Long-term debt............... 33,470 15,308 21,567 41,759 47,548 Total stockholders' equity... 45,372 40,965 36,520 35,782 35,184
- -------- (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 the estimated costs of a restructuring plan which included closing some facilities, combinations of operating units, major personnel reassignments, reductions in number of employees, severance compensation, and some asset sales. 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 1992 and 1993 for this restructuring was approximately equal to the restructuring charge. In 1992 and 1993, as expected, the Company realized lower ongoing operating costs and substantial cash from the sales of idle facilities and other assets. 13 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 $78.9 million in 1991. Revenues for the fourth quarter of 1995, however, declined approximately 2.0% from the fourth quarter of 1994. In the early 1990's, several significant events adversely affected the Company's net sales and profitability. First, technological changes, which permitted a rapid increase in automated or electronic transactions and manipulation of information, resulted in a significant decline in the need and demand for business forms equipment, the sales of which represented a substantial portion of the net sales of the Company at that time. At approximately the same time, the general downturn in the economy from 1990-1992, which impacted or delayed capital expenditure decisions by its customers, was more pronounced in the Company's non-packaging markets than in the economy generally. As a result of certain of these events, the Company restructured its operations, which involved a plan that included the closure of some facilities, the combination of operating units, personnel reassignments, headcount reductions and asset sales (including the sale of the Post division assets in 1993). Since the implementation of the Company's restructuring plan, the Company has repositioned itself as an enterprise with multiple product lines serving the packaging industry and the specialty/commercial and security and banknote segments of the printing industry. 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. The Company reported a net loss for the fourth quarter of 1995 of ($482,000) which resulted from a general slowness in orders and greater than expected manufacturing costs, including unexpected warranty costs associated with some of the Company's new products. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain income statement data as percentages of net sales:
YEAR ENDED DECEMBER 31, ----------------------------- 1995 1994 1993 1992 ----- ----- ----- ----- Net sales...................................... 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales.................................. 77.8 % 75.9 % 76.6 % 79.8 % ----- ----- ----- ----- Gross profit................................... 22.2 % 24.1 % 23.4 % 20.2 % Selling, general and administrative expenses... 15.4 % 16.1 % 16.8 % 19.1 % ----- ----- ----- ----- Operating income............................... 6.8 % 8.0 % 6.6 % 1.1 % Other income (expense): Interest, net................................ (2.3)% (3.0)% (4.2)% (6.0)% Other, net................................... (0.2)% (0.9)% 0.4 % (0.7)% ----- ----- ----- ----- Income (loss) before income taxes, extraordinary items and cumulative effect of accounting change............................. 4.3 % 4.1 % 2.8 % (5.6)%
14 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 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. Comparison of Years Ended December 31, 1994 and 1993 Net Sales. The Company's net sales for 1994 increased by $2.9 million, or 2.8%, compared to net sales in 1993. This was due to increased sales of specialty/commercial printing systems and packaging systems. Packaging product sales increased $11.3 million, or 21.2%, primarily due to increased sales of the System 2000 flexographic printing system and platen cutters. Specialty/commercial product sales increased $14.8 million, or 64.2%, due to increased sales, which included a lottery ticket press and several check printing systems. These increases were offset by a decrease in security and banknote printing systems of $8.7 million, as the two SNOW banknote printing systems for Banque de France were in the final completion and customer acceptance process, as well as the sale of the Post division assets (in August 1993), which generated sales from the sale of folder gluer systems of $14.5 million in 1993. On a geographic basis, net sales to international customers were $15.0 million, or 14.0%, for 1994 compared with $30.4 million, or 29.3%, for 1993, due to a decrease in revenues from the SNOW project with Banque de France. 15 Gross Profit. The Company's gross profit for 1994 increased by $1.4 million, or 5.8%, compared to gross profit in 1993, primarily due to the increase in volume for packaging systems. Gross profit margin for 1994 increased to 24.1% of net sales as compared to 23.4% of net sales for 1993. This increase in gross profit margin in 1994 was primarily due to changes in product mix. Selling, General and Administrative Expenses. The Company's selling, general and administrative expenses decreased by $0.3 million, or 1.5%, for 1994, compared to selling, general and administrative expenses in 1993, due to small decreases in personnel and related expenses in banknote printing systems operations. Selling, general and administrative expenses for 1994 were 16.1% of net sales compared to 16.8% for 1993, due to increased sales without corresponding expense level increases. Operating Income. Operating income increased $1.7 million, or 24.5% for the year ended December 31, 1994 as compared to operating income in 1993. As a percentage of net sales, operating income was 7.9% for 1994 compared with 6.6% for 1993. Other Income (Expense). The Company's gross interest expense decreased by $1.6 million, or 29.0%, for 1994 compared to interest expense in 1993, due to reduced borrowings as well as a slight decrease in interest rates. The reduced borrowings were the result of debt reductions in August 1993, February 1994, May 1994 and September 1994, through the application of proceeds from the sale of the Post division assets and a manufacturing facility in Grapevine, Texas, the refinancing of existing debt and a private placement of Series A Common Stock in September 1994. Interest income decreased by $0.3 million in 1994 as compared to interest income in 1993, due to the use of cash to reduce borrowings. Other net expense increased in 1994 by $1.4 million as compared to 1993, primarily because a $1.3 million gain on the sale of certain assets of Post was included in other income in 1993, with no such corresponding event in 1994. TAX MATTERS The Company's effective state and federal income tax rate ("effective tax rate") was 27.9% and 45% for the year ended December 31, 1995 and 1994, respectively. This decrease in the effective tax rate was due to certain research and experimental expenditure tax credits of $0.8 million that were recorded in 1995. The Company's effective tax rate for the year ended December 31, 1993 was 73.1%. The unusually high 1993 effective tax rate was primarily due to certain non-deductible charges, including goodwill amortization and non-deductible goodwill expenses upon the sale of Post. The Company's effective tax rate during fiscal 1992 was 0% due to net operating loss and tax credit carryforwards for income tax purposes. The Company adopted the provisions of SFAS 109, "Accounting for Income Taxes", retroactive to January 1, 1993. SFAS 109 requires 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. The cumulative effect of the adoption of SFAS 109 increased the Company's net income by approximately $412,000 ($0.05 per share) in 1993. As a result of applying SFAS 109, $4.8 million of previously unrecorded deferred tax benefits from net operating loss and tax credit carryforwards incurred by the Company were recognized at January 1, 1993. Under prior accounting, a part of these benefits would have been recognized as a reduction of income tax expense from continuing operations for 1993. Accordingly, the adoption of SFAS 109 at the beginning of 1993 had the effect of increasing the federal tax rate applied to operations for 1993 from 0% to 35%. 16 QUARTERLY RESULTS (UNAUDITED) The following table summarizes results for each of the four quarters for the years ended December 31, 1995, 1994 and 1993. 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).
THREE MONTHS ENDED ----------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DECEMBER 31, --------- -------- --------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) 1995: Net sales.......................... $33,042 $37,474 $33,962 $34,703 Operating income (loss)............ $ 3,294 $ 3,648 $ 3,778 ($1,283) Net income (loss).................. $ 1,448 $ 1,552 $ 1,781 ($482) Net income (loss) per common share............................. $ 0.15 $ 0.16 $ 0.19 ($0.05) 1994: Net sales.......................... $20,930 $21,281 $29,085 $35,398 Operating income................... $ 1,362 $ 1,303 $ 2,621 $ 3,188 Income before extraordinary item... $ 72 $ 163 $ 954 $ 1,238 Income per common share before extraordinary item per share...... $ 0.01 $ 0.02 $ 0.10 $ 0.13 1993: Net sales.......................... $25,295 $27,138 $29,033 $22,296 Operating income................... $ 1,289 $ 2,039 $ 1,964 $ 1,517 Income before cumulative effect of accounting change................. $ 18 $ 345 $ 190 $ 218 Income per common share before accounting change................. $ 0.00 $ 0.04 $ 0.02 $ 0.02
The Company attributes the operating and net loss for the fourth quarter of 1995 to (1) a decrease in orders ($45.5 million versus $65.4 million for the last six months of 1995 and 1994 respectively) and (2) greater than expected manufacturing costs, including unexpected warranty costs associated with some of the Company's new products. The Company has taken certain actions to adjust its expected 1996 production to the reduced order flow in 1995. These actions include adjustments to operations and overhead expenses in the short term. Accordingly, sales and operating results for 1996 are not anticipated to equal 1995 results. The Company is implementing cost reduction measures to minimize the impact of the slowness of orders on future earnings. The expected benefits of such cost reduction measures may not be fully realized, however, until the second half of fiscal year 1996. LIQUIDITY AND CAPITAL RESOURCES The Company requires capital primarily to fund working capital for ongoing operations, to provide for the expansion of manufacturing capacity, to service its existing debt and to pursue its strategic objectives, including the development of new products and the penetration of international markets. Historically, the Company has funded its capital requirements with cash provided by operating activities, borrowings under credit facilities, issuances of long-term debt and the sale and private placement of common stock. Net cash provided by (used in) operating activities was $(3.3) million in 1993, $17.4 million in 1994 and $(16.7) million for 1995. Net cash provided by (used in) operating activities (before working capital requirements) has improved from $7.6 million in 1993 to $9.4 million and $9.3 million in 1994 and 1995, respectively. Working capital provided (used) cash of $(10.9) million in 1993, $7.9 million in 1994 and $(26.0) million during 1995. 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. The large increase in working capital requirements during 1995 reflected increasing sales, particularly a growing proportion of international 17 orders, which typically have less favorable cash flow terms, and the introduction of new products. The Company believes that continued sales growth, particularly growth of international orders and the introduction of new products, may further increase the Company's requirements for working capital. 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 1992, 1993, 1994 and 1995 totaled $22.2 million. These expenditures were used 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. Approximately $7.3 million of the capital expenditures were funded by insurance proceeds. In addition, the Company received $6.0 million from the sale of the Post division assets in 1993 and $4.6 million in 1994 from the sale of an idle facility located in Grapevine, Texas. The Company anticipates that its capital expenditures for 1996 will be significantly less than 1995. These capital expenditures are anticipated to be used primarily for continued equipment modernization and for capacity expansion. 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 during 1995. At December 31, 1995, the Company's indebtedness was comprised primarily of a credit facility and the Company's Subordinated Notes due June 30, 2000. As of December 31, 1995, there was outstanding $15.3 million in Subordinated Notes, with principal payments of $3.6 million being due on June 30, 1996 and each June 30 thereafter, and a final payment of $0.9 million at maturity. Under its credit facility, the Company may borrow up to $27.0 million in the form of direct borrowings and letters of credit. As of December 31, 1995, there was $23.0 million in direct borrowings and $3.3 million in standby letters of credit outstanding under the credit facility. As a result of the increased borrowings under the credit facility, the Company's debt to total capital ratio increased to 45% compared to 27% at the beginning of the year. The interest rate on direct borrowings under the credit facility is at the lender's prime rate, or at the Company's option, an offshore rate (generally equivalent to LIBOR) plus 1.5%. At December 31, 1995, $11.0 million of the Company's borrowings were at the lender's prime rate of interest (8.75%) and $12.0 million of the borrowings were at an offshore rate plus 1.5% (7.44%). 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 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 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 Subordinated Notes agreement are subject to various restrictive covenants related to financial ratios as well as limitations on capital expenditures and additional indebtedness. The credit facility permits the Company to borrow up to $5 million for domestic acquisitions without lender consent. The Company is not allowed to pay dividends. In March of 1996, the Company and its lender reached an agreement for a modification of the credit facility. The modification will provide for a reduction in the minimum required debt service coverage ratio during 1996 consistent with the Company's current expectations. The Company anticipates final documentation of the modification to be completed in April 1996. Management believes that cash flow from operations together with existing borrowing capacity under the Company's credit facility will be adequate to fund its existing operations, repay indebtedness, and allow it to 18 pursue its strategic objectives over the next 12 months. In addition, the Company may incur, from time to time, additional short- and long-term bank indebtedness (under its existing credit facility or otherwise) and may issue, in public or private transactions, its equity and debt securities to provide additional funds necessary for the continued pursuit of the Company's growth strategies, including the financing of possible future acquisitions. The availability and terms of any such sources of financing will depend on market and other conditions. There can be no assurance that such additional financing will be available or, if available, will be on terms and conditions acceptable to the Company. In addition to the availability of external financing, management believes that the Company's liquidity will be impacted by its ability to achieve a satisfactory resolution of product performance issues, timely deliveries, acceptance of the ACE system by the Bank of England and final acceptance of the SNOW press by Banque de France, the degree of international orders (which generally have less favorable cash flow terms and require letters of credit that reduce credit availability), terms of domestic orders, and timely implementation of cost reduction measures. There can be no assurance that the Company will be successful in any or all of these areas. ACCOUNTING POLICIES The Financial Accounting Standards Board ("FASB") has issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which establishes methods for determining and measuring asset impairment and the required timing of asset impairment evaluations. In addition, the FASB has issued Statement No. 123, "Accounting for Stock-Based Compensation", which establishes accounting and disclosure guidelines for stock-based compensation. Management has evaluated these statements and believes that they will not have a significant effect on the financial results of the Company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE NUMBER ------ Report of Management................................................... 19 Independent Auditors' Report........................................... 21 Consolidated Balance Sheets--December 31, 1995 and 1994................ 22 Consolidated Statements of Income--Years Ended December 31, 1995, 1994 and 1993.............................................................. 23 Consolidated Statements of Stockholders' Equity--Years Ended December 31, 1995, 1994 and 1993............................................... 24 Consolidated Statements of Cash Flows--Years Ended December 31, 1995, 1994 and 1993......................................................... 25 Notes to Consolidated Financial Statements............................. 26 Schedule II--Valuation and Qualifying Accounts--Years Ended December 31, 1995, 1994 and 1993............................................... 44
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. 19 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 soley 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. 20 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, 1995 and 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 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. As discussed in Note J to the Consolidated Financial Statements, in 1993 the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109. Deloitte & Touche LLP Fort Worth, Texas February 21, 1996 21 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ----------------- 1995 1994 -------- ------- ASSETS ------ Current assets: Cash...................................................... $ 712 $ 396 Temporary investments (Note C)............................ 102 1,077 Trade accounts receivable, less allowance for losses of $655 and $450 in 1995 and 1994, respectively............. 26,079 13,050 Costs and estimated earnings in excess of billings on long-term contracts (Note D)............................. 18,341 12,478 Inventory (Note E)........................................ 23,300 20,198 Deferred and refundable income taxes...................... 832 -- Other current assets...................................... 666 498 -------- ------- Total current assets.................................... 70,032 47,697 Property, plant and equipment, net (Notes F and M).......... 32,017 29,734 Other assets, net (Note G).................................. 15,598 16,610 -------- ------- $117,647 $94,041 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Trade accounts payable.................................... $ 15,117 $11,372 Billings in excess of costs and estimated earnings on long-term contracts (Note D)............................. 219 3,390 Other current liabilities (Note H)........................ 9,019 8,942 Income taxes payable...................................... -- 279 Customer deposits......................................... 3,851 5,929 Advances from affiliates (Note M)......................... -- 932 Current portion of long-term debt (Note I)................ 3,699 161 -------- ------- Total current liabilities............................... 31,905 31,005 Long-term debt (Note I)..................................... 33,470 15,308 Deferred income taxes (Note J).............................. 4,536 5,428 Deferred pension costs (Note L)............................. 2,364 1,335 Commitments and contingencies (Note K) Stockholders' equity (Note O): Preferred stock, $0.10 par value, 2,000,000 shares authorized, none issued and outstanding.................. -- -- Series A Common Stock, $0.10 par value, 20,000,000 shares authorized, 7,312,000 and 7,130,000 issued and outstanding at December 31, 1995 and 1994, respectively.. 731 713 Series B Common Stock, $0.10 par value, 6,000,000 shares authorized, 2,139,000 and 2,236,000 shares issued and outstanding at December 31, 1995 and 1994, respectively.. 214 224 Additional paid-in capital................................ 39,144 38,737 Foreign currency translation adjustment................... 359 68 Excess pension liability adjustment....................... (1,036) (438) Retained earnings......................................... 5,960 1,661 -------- ------- Total stockholders' equity.............................. 45,372 40,965 -------- ------- $117,647 $94,041 ======== =======
See notes to consolidated financial statements. 22 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 -------- -------- -------- Net sales........................................ $139,181 $106,694 $103,762 Cost of sales.................................... 108,307 81,009 79,476 -------- -------- -------- Gross profit..................................... 30,874 25,685 24,286 Selling, general and administrative expenses..... 21,437 17,211 17,477 -------- -------- -------- Operating income................................. 9,437 8,474 6,809 Other income (expense): Interest income................................ 207 647 956 Interest expense............................... (3,421) (3,807) (5,361) Other, net..................................... (264) (979) 465 -------- -------- -------- (3,478) (4,139) (3,940) -------- -------- -------- Income before taxes, extraordinary item and cumulative effect of accounting change.......... 5,959 4,335 2,869 Income tax (expense) (Note J).................... (1,660) (1,908) (2,098) -------- -------- -------- Income before extraordinary item and cumulative effect of accounting change..................... 4,299 2,427 771 Extraordinary item, net of tax (Note I).......... -- (85) -- Cumulative effect of change in method of accounting for income taxes (Note J)............ -- -- 412 -------- -------- -------- Net income................................... $ 4,299 $ 2,342 $ 1,183 ======== ======== ======== Income (loss) per common share: Income (loss) before extraordinary item and cumulative effect of accounting change........ $ 0.45 $ 0.26 $ 0.08 Extraordinary item (Note I).................... -- (0.01) -- Accounting change (Note J)..................... -- -- 0.05 -------- -------- -------- Net income................................... $ 0.45 $ 0.25 $ 0.13 ======== ======== ======== Weighted average number of shares of common and common stock equivalents outstanding during the periods (Note O)................................ 9,553 9,256 9,129 ======== ======== ========
See notes to consolidated financial statements. 23 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (AMOUNTS IN THOUSANDS)
FOREIGN EXCESS SERIES A STOCK SERIES B STOCK ADDITIONAL CURRENCY PENSION RETAINED ---------------- ----------------- PAID-IN TRANSLATION LIABILITY EARNINGS SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT ADJUSTMENT (DEFICIT) TOTAL ------- ------- ------- ------- ---------- ----------- ---------- --------- ------- Balance as of January 1, 1993................... 6,677 $ 667 2,337 $ 234 $36,978 $(78) $ (155) $(1,864) $35,782 Foreign currency translation adjustment............ -- -- -- -- -- 25 -- -- 25 Excess pension liability adjustment.. -- -- -- -- -- -- (509) -- (509) Conversion of Series B stock to Series A stock................. 101 10 (101) (10) -- -- -- -- -- Exercise of stock options............... 9 2 -- -- 37 -- -- -- 39 Net income............. -- -- -- -- -- -- -- 1,183 1,183 ------- ------ ------- ------ ------- ---- ------- ------- ------- Balance, December 31, 1993................... 6,787 679 2,236 224 37,015 (53) (664) (681) 36,520 Sale of stock.......... 300 30 -- -- 1,516 -- -- -- 1,546 Foreign currency translation adjustment............ -- -- -- -- -- 121 -- -- 121 Excess pension liability adjustment.. -- -- -- -- -- -- 226 -- 226 Exercise of stock options............... 43 4 -- -- 206 -- -- -- 210 Net income............. -- -- -- -- -- -- -- 2,342 2,342 ------- ------ ------- ------ ------- ---- ------- ------- ------- Balance, December 31, 1994................... 7,130 713 2,236 224 38,737 68 (438) 1,661 40,965 Foreign currency translation adjustment............ -- -- -- -- -- 291 -- -- 291 Excess pension liability adjustment.. -- -- -- -- -- -- (598) -- (598) Conversion of Series B stock to Series A stock................. 97 10 (97) (10) -- -- -- -- -- Exercise of stock options............... 85 8 -- -- 407 -- -- -- 415 Net income............. -- -- -- -- -- -- -- 4,299 4,299 ------- ------ ------- ------ ------- ---- ------- ------- ------- Balance, December 31 1995................... 7,312 $ 731 2,139 $ 214 $39,144 $359 $(1,036) $ 5,960 $45,372 ======= ====== ======= ====== ======= ==== ======= ======= =======
See notes to consolidated financial statements. 24 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
YEAR ENDED DECEMBER, --------------------------- 1995 1994 1993 -------- -------- ------- Cash provided by operations: Net income....................................... $ 4,299 $ 2,342 $ 1,183 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization.................. 5,215 4,944 4,635 Deferred taxes................................. (892) 525 2,110 Deferred pension costs......................... 1,029 675 169 Other.......................................... (308) 956 (131) Cumulative effect of change in method of accounting for income taxes................... -- -- (412) Changes in operating assets and liabilities net of effects from purchase of subsidiary: Trade accounts receivable...................... (13,029) 2,309 (726) Contract costs in excess of billings........... (9,034) (2,466) (9,328) Inventory...................................... (3,102) 4,105 441 Refundable income taxes........................ (832) -- -- Other assets................................... (615) (541) (1,485) Trade accounts payable......................... 3,744 1,696 (386) Other.......................................... (3,211) 2,844 623 -------- -------- ------- Total cash provided by (used in) operating activities.................................. (16,736) 17,389 (3,307) -------- -------- ------- Cash provided by (used in) investing activities: Additions to property, plant and equipment....... (5,303) (2,356) (7,646) Proceeds from insurance and sale of assets....... (212) 4,630 243 Deposits and other............................... 129 (284) 2,468 Disposal of the net assets of subsidiary......... -- -- 5,941 -------- -------- ------- Total cash provided by (used in) investing activities.................................. (5,386) 1,990 1,006 -------- -------- ------- Cash provided by (used in) financing activities: Net increase in (payments on) long-term debt..... 21,048 (23,430) (4,476) Sale of stock and exercise of stock options...... 415 1,756 38 -------- -------- ------- Total cash provided by (used in) financing activities.................................. 21,463 (21,674) (4,438) -------- -------- ------- Increase (decrease) in cash and temporary investments....................................... (659) (2,295) (6,739) Cash and temporary investments at beginning of year.............................................. 1,473 3,768 10,507 -------- -------- ------- Cash and temporary investments at end of year...... $ 814 $ 1,473 $ 3,768 ======== ======== ======= Supplemental disclosure of cash flow information: Interest......................................... $ 2,622 $ 3,580 $ 4,872 Income taxes..................................... 3,261 1,243 707
See notes to consolidated financial statements. 25 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of Stevens International, Inc. (formerly Stevens Graphics Corporation) 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 49% and 52% of inventory at December 31, 1995 and 1994, 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 a covenant not to compete, patent costs, buildings and improvements held for sale, and goodwill. These are amortized over the noncompete period, the remaining life of the patents, the depreciable useful lives of the buildings, and thirty years, respectively. Income Taxes The Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109) in 1993. 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, when dilutive) outstanding. 26 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. 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 O. B. FORMATION OF SSMI AND SALE OF POST 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. The acquisition did not have a material pro forma impact on operations. In August 1993, the Company sold specific assets of Post including the product technology and related intangibles to Bobst Group, Inc., the U.S. operating unit of Bobst, S.A. of Switzerland. Post contributed sales of approximately $14 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. The gain on assets sold is reflected in the 1993 results of operations as "other income". This gain was entirely offset by the Company's abnormally high tax rate for this transaction, due in part to the non-deductible Post goodwill expensed upon the sale of Post's technology. C. TEMPORARY INVESTMENTS Temporary investments (stated at cost, which approximates market) at December 31, 1995 and 1994 consisted of short term investments in commercial paper, with original maturities within ninety days, and money management accounts. 27 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) D. 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, 1995 and 1994 follows:
DECEMBER 31, ----------------------- 1995 1994 ----------- ----------- (AMOUNTS IN THOUSANDS) Cost incurred on uncompleted contracts.............. $ 28,828 $ 27,097 Estimated earnings.................................. 10,861 11,699 ----------- ----------- Revenue from long-term contracts.................... 39,689 38,796 Less: Billings to date.............................. 21,567 29,708 ----------- ----------- $ 18,122 $ 9,088 =========== ===========
The $18,122,000 and $9,088,000 net differences are included in the accompanying balance sheets under the following captions:
DECEMBER 31, ------------------------ 1995 1994 ----------- ----------- (AMOUNTS IN THOUSANDS) Cost and estimated earnings in excess of billings on long-term contracts.......................... $ 18,341 $ 12,478 Billings in excess of costs and estimated earnings on long-term contracts................. (219) (3,390) ----------- ----------- $ 18,122 $ 9,088 =========== ===========
E. INVENTORIES Inventories consist of the following:
DECEMBER 31, ----------------------- 1995 1994 ----------- ----------- (AMOUNTS IN THOUSANDS) Finished product..................................... $ 7,204 $ 5,332 Work in progress..................................... 9,231 6,670 Raw material......................................... 6,865 8,196 ----------- ----------- $ 23,300 $ 20,198 =========== ===========
As required by Accounting Principles Board Opinion No. 16, inventories of acquired companies were recorded at their estimated fair value at the date of acquisition less costs of disposition including a reasonable selling effort. Accordingly, at December 31, 1995 and 1994 the financial accounting basis for LIFO inventories exceeded the tax basis by approximately $4,479,000 and $4,724,000, respectively. Replacement cost exceeds financial accounting LIFO cost by approximately $3,457,000 and $3,219,000 at December 31, 1995 and 1994, respectively. 28 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) F. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of:
RANGE OF DECEMBER 31, ESTIMATED USEFUL ----------------------- LIVES 1995 1994 ---------------- ----------- ----------- (AMOUNTS IN THOUSANDS) Land.............................. N/A $ 1,985 $ 1,508 Building and improvements......... 15-40 years 11,308 9,570 Machinery and equipment........... 5-18 years 30,105 27,393 Furniture and fixtures............ 3-10 years 10,355 9,441 Leasehold improvements............ 8-20 years 1,703 1,445 ----------- ----------- 55,456 49,357 Less: accumulated depreciation and amortization..................... 23,439 19,623 ----------- ----------- $ 32,017 $ 29,734 =========== ===========
G. OTHER ASSETS Other assets consist of:
DECEMBER 31, ----------------------- 1995 1994 ----------- ----------- (AMOUNTS IN THOUSANDS) Goodwill, net of amortization of $3,513 and $3,088, respectively............................. $ 9,493 $ 9,897 Patents, net of amortization of $2,132 and $1,904, respectively..................................... 1,760 1,981 Buildings and improvements held for sale.......... -- 450 Performance bond deposits......................... 1,504 1,504 Intangible pension asset.......................... 941 944 Other............................................. 1,900 1,834 ----------- ----------- $ 15,598 $ 16,610 =========== ===========
H. OTHER CURRENT LIABILITIES Other current liabilities consist of:
DECEMBER 31, ----------------------- 1995 1994 ----------- ----------- (AMOUNTS IN THOUSANDS) Salaries and wages.................................. $ 1,602 $ 1,635 Taxes other than income taxes....................... 979 806 Employee benefits................................... 1,512 1,208 Accrued interest.................................... 416 464 Other accrued expenses.............................. 4,510 4,829 ----------- ----------- $ 9,019 $ 8,942 =========== ===========
29 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) I. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ----------------------- 1995 1994 ----------- ----------- (AMOUNTS IN THOUSANDS) Senior subordinated notes, interest at 10.5% (Net of unamortized origination fees of $780 and $798)... $ 14,481 $ 14,463 Notes payable to banks, interest at prime rate, or an offshore rate plus 1.5% at December 31, 1995 (Net of unamortized origination fees of $469 and $726)................... 22,531 768 Capital lease obligations due in varying installments............. 108 238 Other..................... 49 -- ----------- ----------- 37,169 15,469 Less: current portion..... 3,699 161 ----------- ----------- $ 33,470 $ 15,308 =========== ===========
The interest rate on direct borrowings under the Company's Bank Credit Facility is at the lender's prime rate, or at the Company's option, an offshore rate (generally equivalent to LIBOR) plus 1.5%. 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 interest rate on the Company's Bank Credit Facility was at prime plus 1.25% or 9.75% at December 31, 1994. At December 31, 1995, the Company's indebtedness was comprised primarily of a bank credit facility due April 30, 1998 and Senior Subordinated Notes due June 30, 2000 (the "Subordinated Notes"). As of December 31, 1995, there was outstanding $15.3 million under the 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 until a final payment of $0.86 million on June 30, 2000. Under its credit facility, the Company may borrow up to $27.0 million in the form of direct borrowings and letters of credit. As of December 31, 1995, there was $23.0 million in direct borrowings and $3.3 million in standby letters of credit outstanding under the credit facility. As of December 31, 1995 the unused line of credit was $0.7 million. 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. 30 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Principal maturities of the outstanding long-term debt at December 31, 1995, are as follows (Amounts in thousands): Year ending December 31, 1996....................................... $ 3,699 1997................................................................ 3,631 1998................................................................ 26,620 1999................................................................ 3,606 2000................................................................ 862 2001 and thereafter................................................. 0 ------- 38,418 Less unamortized loan origination fees............................ 1,249 ------- $37,169 =======
Both the agreement concerning the credit facility and the agreement with the holders of the 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 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 Subordinated Notes agreement are subject to various restrictive covenants related to financial ratios as well as limitations on capital expenditures and additional indebtedness. The credit facility permits the Company to borrow up to $5 million for domestic acquisitions without lender consent. The Company is not allowed to pay dividends. In March of 1996, the Company reached an agreement with its lender for a modification of the credit facility. The modification will provide for a reduction in the minimum required debt coverage ratio during 1996 consistent with the Company's current expectations. The Company anticipates final documentation of the modification to be completed in April 1996. J. INCOME TAXES The Company and its domestic subsidiaries file consolidated income tax returns. At December 31, 1995, the Company had the following losses and credits available for carryforward for federal income tax purposes: General business credit--expiring in 2005, 2009 and 2010......... $ 897,000 Minimum tax credit--not subject to expiration.................... 1,612,000
SFAS No. 109 was adopted by the Company in 1993. The cumulative effect of the adoption of SFAS No. 109 increased the company's net income by approximately $412,000 ($0.05 per share) in 1993. 31 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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, 1995 and 1994 are as follows:
DECEMBER 31, ----------------------- 1995 1994 ----------- ----------- (AMOUNTS IN THOUSANDS) Deferred tax liabilities: Difference between book and tax basis of property........................................ $ 6,097 $ 6,224 Difference between book and tax basis of intangibles..................................... 674 753 Excess of tax over book pension cost............. 270 536 Differences between book and tax LIFO inventory reserves........................................ 2,723 2,723 Other............................................ 241 183 ----------- ----------- 10,005 10,419 ----------- ----------- Deferred tax assets: Difference between book and tax basis of pension liability....................................... 557 -- Reserves not currently deductible................ 2,403 2,497 Net operating loss, credit and other carryforwards................................... 2,509 2,494 ----------- ----------- 5,469 4,991 ----------- ----------- Net deferred tax liability......................... $ 4,536 $ 5,428 =========== ===========
The effective state income tax rate for 1993 and certain non-deductible charges, including goodwill amortization, comprise the principal reasons for the abnormally high 1993 effective federal income tax rate of 73%. As a result of applying SFAS No. 109, $4,799,000 of previously unrecognized deferred tax benefits from net operating loss and tax credit carryforwards were recognized at January 1, 1993. Under prior accounting, a part of these benefits would have been recognized as a reduction of income tax expense from continuing operations in 1993. Accordingly, the adoption of SFAS No. 109 at the beginning of 1993 had the effect of increasing the effective tax rate applied to continuing operations for 1993 from 0% to 34%. The provisions for income taxes consists of the following:
YEAR ENDED DECEMBER 31, ------------------------ 1995 1994 1993 ------- ------- ------- (AMOUNTS IN THOUSANDS) Current provision for income taxes................. $ 1,995 $ 1,383 $ 785 Deferred provision for income taxes................ (335) 525 1,313 ------- ------- ------- $ 1,660 $ 1,908 $ 2,098 ======= ======= =======
32 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Deferred tax expense 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:
YEAR ENDED DECEMBER 31, -------------------------- 1995 1994 1993 ------- ------- -------- (AMOUNTS IN THOUSANDS) Excess of tax over book depreciation/amortization (book over tax)...... $ (129) $ 95 $ (143) Excess of tax over book pension cost (book over tax)........................................... (145) (20) 77 Warranty cost and inventory reserves charged to expense on books, but not deductible until paid for tax purposes (tax over book)............... (229) 191 (241) Employee benefits accrued but not paid currently (tax over book)................................ 14 (112) (61) Restructuring charge............................ 8 103 388 Gain on involuntary conversion.................. -- -- 196 Excess of book over tax loss on sale of intangible and fixed assets.................... (37) (261) (961) Utilization of tax loss carryforward and other.. 183 529 2,058 ------- ------- -------- $ (335) $ 525 $ 1,313 ======= ======= ========
The Company's effective tax rate varies from the statutory federal income tax rate for the following reasons:
DECEMBER 31, ------------------------- 1995 1994 1993 ------- ------- ------- (AMOUNTS IN THOUSANDS) Tax expense (benefit), at statutory rate*....... $ 2,026 $ 1,474 $ 975 Foreign sales corporation earnings.............. (384) (174) -- Goodwill expense, not deductible for tax purposes....................................... 140 140 1,037 Other, net...................................... 189 196 (174) State and local taxes........................... 338 257 237 Foreign taxes................................... 13 15 23 General business credit......................... (662) -- -- ------- ------- ------- Actual tax expense.............................. $ 1,660 $ 1,908 $ 2,098 ======= ======= =======
- -------- * Calculated from income before income tax excluding extraordinary item and cumulative effect of accounting change. K. COMMITMENTS AND CONTINGENCIES The Company leases equipment, office and manufacturing 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, 1995, 1994, and 1993 was approximately $703,000, $520,000, and $566,000, 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, 1995:
OPERATING ----------- (AMOUNTS IN THOUSANDS) Year ending December 31, 1996.................................... $381 1997............................................................. 263 1998............................................................. 26 1999............................................................. 17 2000............................................................. 17 2001 and thereafter.............................................. 7 ---- Total minimum lease payments................................... $711 ====
33 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1995, the Company had no major capital equipment leases and $288,000 of outstanding capital expenditure purchase commitments. The Company is contingently liable for approximately $0.9 million at December 31, 1995, 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 or results of operations of the Company as a result of these agreements is remote. The Company is a party to a number of legal actions arising in the ordinary course of its business. 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. Included as part of the Company's agreement in principle to a settlement of the Lasker class action lawsuit is an offer of $700,000 of warrants to purchase Series A stock. This possible settlement action, if approved by the court and the shareholders in 1996, could result in a $700,000 pre-tax non- cash charge to operations in 1996. L. 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. With the institution of this plan, the assets of existing profit sharing plans were vested in participant accounts and merged into the 401(k) savings retirement 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 ($9,240 in 1995 and 1994) and a discretionary matching contribution by the Company for non-union employees. For the years, 1995, 1994 and 1993, the Company agreed to match 25% of non- union employee elective contributions up to 4% of employee 1994 and 1993 annual compensation. Company contributions to profit sharing plans were $104,000 in 1995, $106,000 in 1994, and $44,000 in 1993. The Company has defined benefit pension plans covering its employees at December 31, 1995. Such 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. The assets of the pension plans are maintained in trusts and consist primarily of equity and fixed income securities. Pension expense was $607,000 in 1995, $630,000 in 1994 and $468,000 in 1993. 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, 1995, the Company has recorded a pension liability of $2.9 million and a corresponding intangible asset of $0.9 million and reduction of equity of approximately $1.6 million before adjustment for tax effects. 34 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 1995 and 1994.
1995 STATUS OF PLANS 1994 STATUS OF PLANS -------------------- ----------------------------- PLANS WHERE PLANS WHERE PLANS WHERE BENEFITS EXCEED ASSETS EXCEED BENEFITS EXCEED ASSETS BENEFITS ASSETS -------------------- ------------- --------------- (AMOUNTS IN THOUSANDS) Actuarial present value of benefit obligations: Vested................ $6,425 $1,543 $2,603 Non-vested............ 505 175 168 ------ ------ ------ Accumulated benefit obligation............. $6,930 $1,718 $2,771 ====== ====== ====== Plan assets at fair value.................. $4,194 $2,195 $1,863 Projected benefit obligation............. 7,933 2,167 2,771 ------ ------ ------ Projected benefit obligation in excess of (less than) plan assets................. 3,739 (28) 908 Unrecognized prior service cost........... 28 960 (944) Unrecognized net gain (loss)................. (2,960) (17) (438) Unrecognized net asset (liability) at January 1, 1987........ (343) (387) -- Adjustment required to recognize minimum liability.............. 2,456 -- 1,382 ------ ------ ------ Pension liability recognized in balance sheet.................. $2,920 $ 528 $ 908 ====== ====== ======
Net periodic pension cost was composed of the following elements:
DECEMBER 31, ------------------------ 1995 1994 ----------- ----------- (AMOUNTS IN THOUSANDS) Service cost....................................... $ 388 $ 490 Interest cost...................................... 496 494 Actual return on plan assets: Loss (gain)...................................... (720) 157 Deferred (loss) gain............................. -- (611) Net amortization and deferral...................... 443 100 ----------- ----------- Net periodic pension cost........................ $ 607 $ 630 =========== ===========
DECEMBER 31, ------------------------- 1995 1994 1993 ------- ------- ------- (AMOUNTS IN THOUSANDS) Major assumptions used: Discount rate.................................. 6.95% 8.60% 7.50% Expected long-term rate of return on assets.... 8.50% 8.50% 8.50% Rate of increase in compensation levels........ 4.00% 4.00% 4.00%
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 aggregating $497,000, $723,000 and $75,000 were paid or charged to expense pursuant to the plans in 1995, 1994 and 1993, respectively. 35 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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." M. 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 of $1.2 million as a subcontractor on a major contract. During 1995 and 1994, the Company paid approximately $784,000 and $287,000 to Xytec on this contract. In addition, Xytec previously provided certain computer hardware and software to the Company. The Company's payments for Xytec computer hardware and software during 1993 of approximately $113,000 are included in net property, plant and equipment. 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 1995, 1994 and 1993, respectively. 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. N. RESEARCH AND DEVELOPMENT, SALES TO MAJOR CUSTOMERS AND FOREIGN SALES For the years ended December 31, 1995, 1994 and 1993, the Company incurred research and development expenses of approximately $1,976,000, $2,162,000 and $1,489,000, respectively. Net sales to customers outside of the United States in 1995, 1994 and 1993 were approximately $36,479,000, $14,957,000 and $30,414,000, respectively. In 1995, 1994 and 1993, no single customer accounted for more than 10% of total sales, except for a $26 million project with the Banque de France. This contract resulted in sales of approximately $2 million in 1995, $3 million in 1994, and $13 million in 1993. O. STOCK TRANSACTIONS AND VOTING RIGHTS 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 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 36 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 three years follows:
SERIES A OPTION PRICE STOCK OPTION PER SHARE ------------ ------------ Stock Option Plan: Balance, January 1, 1993.......................... 402,000 $ 4.56 Granted.......................................... 30,000 5.50 Exercised........................................ (8,500) 4.56 Cancelled........................................ (19,000) 4.56 ------- ----------- Balance, December 31, 1993........................ 404,500 $4.56-$5.50 Granted.......................................... 256,000 3.50- 6.50 Exercised........................................ (43,000) 4.56- 5.50 Cancelled........................................ (5,000) 4.56 ------- ----------- Balance, December 31, 1994........................ 612,500 $4.56-$6.50 Granted.......................................... 257,000 7.13 Exercised........................................ (65,600) 4.56 Cancelled........................................ (41,000) 4.56- 7.13 ------- ----------- Balance, December 31, 1995........................ 762,900 $4.56-$7.13 ======= ===========
Options for 536,900 shares are exercisable at December 31, 1995.
SERIES A OPTION PRICE STOCK OPTION PER SHARE ------------ ------------ Directors and Others: Balance, December 31, 1992 and December 31, 1993........................................... 39,500 $4.56-$15.00 Granted........................................ 70,000 5.65- 6.00 ------- ------------ Balance, December 31, 1994...................... 109,500 $4.56-$15.00 Granted........................................ 35,000 7.19 Exercised...................................... (20,000) 5.65- 6.00 Cancelled...................................... (15,000) 5.65- 15.00 ------- ------------ Balance, December 31, 1995...................... 109,500 $4.56-$ 7.19 ======= ============
Options for 109,500 shares are exercisable at December 31, 1995. 37 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) P. QUARTERLY RESULTS (UNAUDITED) The following table summarizes results for each of the four quarters for the years ended December 31, 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).
THREE MONTHS ENDED --------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, --------- -------- ------------- ------------ (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 1995: Net sales.................. $33,042 $37,474 $33,962 $34,703 Gross profit (loss)........ 8,149 8,567 9,538 (1,283) Net income (loss).......... 1,448 1,552 1,781 (482) Net income (loss) per share..................... 0.15 0.16 0.19 (0.05) 1994: Net sales.................. $20,930 $21,281 $29,085 $35,398 Gross profit............... 5,561 5,214 6,750 8,160 Income before extraordinary loss...................... 72 163 954 1,238 Income before extraordinary loss per share............ 0.01 0.02 0.10 0.13 Net income................. 72 163 869 1,238 Net income per share....... 0.01 0.02 0.09 0.13
Q. 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. 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. 38 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Concentrations of Credit Risk Financial instruments which potentially subject the Company to significant concentrations of credit risk consist primarily of cash and 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, 1995, the Company had no significant concentrations of credit risk. The carrying amounts and fair values of the Company's financial instruments at December 31, 1995 are as follows:
CARRYING AMOUNT FAIR VALUE --------------- ---------- (AMOUNTS IN THOUSANDS) Cash and temporary investments.................... $ 814 $ 814 Performance bond deposits......................... 1,504 1,425 Long-term debt.................................... 33,470 33,500 Off-Balance Sheet Financial Instruments: Letters of credit............................... -0- 3,322
39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None PART III 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 1996 (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. 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. 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. 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. 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 1995 fiscal year. 40 (c) Exhibits:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ----------------------------- 4.1 Second Amended and Restated Certificate of Incorporation of the Company.(1) 4.2 Bylaws of the Company, as amended.(2) 4.3 Specimen of Series A Common Stock Certificate.(3) 4.4 Specimen of Series B Common Stock Certificate.(4) 10.1 Form of Indemnity Agreement.(2) 10.3 Second Amended and Restated Stock Option Plan of the Company.(5) 10.4 Description of Stevens Graphics Incentive Plan.(3) 10.5 Description of Hamilton Life Insurance Payroll Deduction Plan.(2) 10.6 Labor Agreement, dated July 2, 1994, between Hamilton-Stevens Group, Inc. and the International Union United Automobile, Aerospace and Agricultural Implement Workers of America.(9) 10.9 Chem-Dyne Site Trust Fund Agreement, dated September 23, 1985.(2) 10.10 Lease Agreement between Space Unlimited Joint Venture #3 and Stevens Corporation ("Stevens"), dated September 11, 1981 and related lease addendum.(2) 10.11 First Extension Agreement dated January 19, 1987 between Stevens and Space Unlimited Joint Venture #3.(3) 10.12 First Amended Joint Venture Agreement of Space Unlimited Joint Venture #3, dated June 26, 1980 and related Assignment of Joint Interest and Loan Modification, Assumption Agreement and Release.(2) 10.13 Second Extension Agreement between the Company and Space Unlimited Joint Venture #3.(6) 10.14 Stevens Graphics Corporation Pension Plan and Trust.(6) 10.15 Stevens Graphics Corporation Profit Sharing and 401(k) Savings Retirement Plan.(6) 10.17 Lease Agreement between Rochester Hills Executive Park and Zerand-Bernal Group, Inc.(8) 10.18 Severance Agreement among the Company, Post and Robert F. Hopkins.(6) 10.19 Restated and Amended Subordinated Debt Agreement dated March 27, 1992, together with forms of Subordinated Notes and Subordinated Guaranties.(6) 10.20 Amended and Restated Intercreditor and Subordination Agreement dated April 26, 1994.(11) 10.21 Contract of Sale between the Company and Banque de France.(6) 10.23 Asset Purchase Agreement dated July 20, 1993 among Post Machinery Company, Inc., the Company and Bobst Group, Inc. and Bobst, S.A.(10) 10.24 Letter Agreement dated August 5, 1993 amending Asset Purchase Agreement among the Company, Post Machinery Company, Inc., Bobst Group, Inc. and Bobst, S.A.(10) 10.25 Intellectual Property Purchase Agreement dated August 5, 1993 among the Company, Post Machinery Company, Inc. and Bobst S.A.(10) 10.27 Fourth Amendment to Amended and Restated Senior Subordinated Note Agreement dated April 29, 1994.(11) 10.28 Form of Stock Purchase Agreement dated as of September 16, 1994 between the Company and certain investors.(12) 10.29 Credit Agreement, dated May 16, 1995, between the Company and Bank of America, Texas, N.A.(13)
41
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ----------------------------- 10.30 First Amendment to Amended and Restated Subordination and Intercreditor Agreement dated August 1995.(*) 10.31 Fifth Amendment to Amended and Restated Senior Subordinated Note Agreement dated August 1995.(*) 10.32 First Amendment to Credit Agreement effective August 15, 1995 between the Company and Bank of America Texas, N.A.(*) 10.33 Second Amended and Restated Master Note: Reference Rate Related dated August 15, 1995, executed by the Company and payable to the order of Bank of America Texas, N.A. in the original principal amount of $27 million.(*) 10.34 Second Amendment to Credit Agreement effective December 1995 between the Company and Bank of America Texas, N.A.(*) 11.1 Computation of Net Income per Common Share.(*) 23.1 Consent of Deloitte & Touche LLP.(*)
- -------- * 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. 42 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. By __________________________________ KENNETH W. REYNOLDS CHIEF FINANCIAL OFFICER AND SR. VICE PRESIDENT FINANCE AND ADMINISTRATION Date: March 20, 1996 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 Chairman of the March 20, 1996 - ------------------------------------- Board and Chief PAUL I. STEVENS Executive Officer President, Chief March 20, 1996 - ------------------------------------- Operating Officer RICHARD I. STEVENS and Director Vice President, March 20, 1996 - ------------------------------------- Assistant Secretary CONSTANCE I. STEVENS and Director Director March 20, 1996 - ------------------------------------- ROBERT H. BROWN, JR. Director March 20, 1996 - ------------------------------------- JAMES D. CAVANAUGH Director March 20, 1996 - ------------------------------------- ROBERT B. HOLLAND, III Director March 20, 1996 - ------------------------------------- EDGAR H. SCHOLLMAIER Director March 20, 1996 - ------------------------------------- JOHN W. STODDER 43 SCHEDULE II STEVENS INTERNATIONAL, INC. VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ------------ ---------- ---------- ---------- ---------- Year Ended December 31, 1995 Allowance for doubtful accounts.............. $450,000 $256,000 $ 105,000(2) $156,000(1) $655,000 Year Ended December 31, 1994 Allowance for doubtful accounts.............. $625,000 $ 11,000 $(173,000) $ 13,000(1) $450,000 Year Ended December 31, 1993 Allowance for doubtful accounts.............. $816,000 $258,000 $(220,000) $229,000(1) $625,000
- -------- (1) Write off of uncollectible accounts. (2) Reclassification of accrued interest on customer account. 44 INDEX TO EXHIBITS
SEQUENTIALLY NUMBERED EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGES ------- ----------------------------- ------------ 4.1 Second Amended and Restated Certificate of Incorporation of the Company.(1) 4.2 Bylaws of the Company, as amended.(2) 4.3 Specimen of Series A Common Stock Certificate.(3) 4.4 Specimen of Series B Common Stock Certificate.(4) 10.1 Form of Indemnity Agreement.(2) 10.3 Second Amended and Restated Stock Option Plan of the Company.(5) 10.4 Description of Stevens Graphics Incentive Plan.(3) 10.5 Description of Hamilton Life Insurance Payroll Deduction Plan.(2) 10.6 Labor Agreement, dated July 2, 1994, between Hamilton- Stevens Group, Inc. and the International Union United Automobile, Aerospace and Agricultural Implement Workers of America.(9) 10.9 Chem-Dyne Site Trust Fund Agreement, dated September 23, 1985.(2) 10.10 Lease Agreement between Space Unlimited Joint Venture #3 and Stevens Corporation ("Stevens"), dated September 11, 1981 and related lease addendum.(2) 10.11 First Extension Agreement dated January 19, 1987 between Stevens and Space Unlimited Joint Venture #3.(3) 10.12 First Amended Joint Venture Agreement of Space Unlimited Joint Venture #3, dated June 26, 1980 and related Assignment of Joint Interest and Loan Modification, Assumption Agreement and Release.(2) 10.13 Second Extension Agreement between the Company and Space Unlimited Joint Venture #3.(6) 10.14 Stevens Graphics Corporation Pension Plan and Trust.(6) 10.15 Stevens Graphics Corporation Profit Sharing and 401(k) Savings Retirement Plan.(6) 10.17 Lease Agreement between Rochester Hills Executive Park and Zerand-Bernal Group, Inc.(8) 10.18 Severance Agreement among the Company, Post and Robert F. Hopkins.(6) 10.19 Restated and Amended Subordinated Debt Agreement dated March 27, 1992, together with forms of Subordinated Notes and Subordinated Guaranties.(6) 10.20 Amended and Restated Intercreditor and Subordination Agreement dated April 26, 1994.(11) 10.21 Contract of Sale between the Company and Banque de France.(6) 10.23 Asset Purchase Agreement dated July 20, 1993 among Post Machinery Company, Inc., the Company and Bobst Group, Inc. and Bobst, S.A.(10) 10.24 Letter Agreement dated August 5, 1993 amending Asset Purchase Agreement among the Company, Post Machinery Company, Inc., Bobst Group, Inc. and Bobst, S.A.(10) 10.25 Intellectual Property Purchase Agreement dated August 5, 1993 among the Company, Post Machinery Company, Inc. and Bobst S.A.(10) 10.27 Fourth Amendment to Amended and Restated Senior Subordinated Note Agreement dated April 29, 1994.(11)
SEQUENTIALLY NUMBERED EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGES ------- ----------------------------- ------------ 10.28 Form of Stock Purchase Agreement dated as of September 16, 1994 between the Company and certain investors.(12) 10.29 Credit Agreement, dated May 16, 1995, between the Company and Bank of America, Texas, N.A.(13) 10.30 First Amendment to Amended and Restated Subordination and Intercreditor Agreement dated August 1995.(*) 10.31 Fifth Amendment to Amended and Restated Senior Subordinated Note Agreement dated August 1995.(*) 10.32 First Amendment to Credit Agreement effective August 15, 1995 between the Company and Bank of America Texas, N.A.(*) 10.33 Second Amended and Restated Master Note: Reference Rate Related dated August 15, 1995, executed by the Company and payable to the order of Bank of America Texas, N.A. in the original principal amount of $27 million.(*) 10.34 Second Amendment to Credit Agreement effective December 1995 between the Company and Bank of America Texas, N.A.(*) 11.1 Computation of Net Income per Common Share.(*) 23.1 Consent of Deloitte & Touche LLP.(*)
- -------- * 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. EX-10.30 2 AMENDMENT TO INTERCREDITOR AGREEMENT EXHIBIT 10.30 FIRST AMENDMENT TO AMENDED AND RESTATED --------------------------------------- SUBORDINATION AND INTERCREDITOR AGREEMENT ----------------------------------------- THIS FIRST AMENDMENT TO AMENDED AND RESTATED SUBORDINATION AND INTERCREDITOR AGREEMENT (the "Amendment"), dated as of August ___, 1995, is by and among STEVENS INTERNATIONAL, INC. f/k/a Stevens Graphics Corporation (the "Company"), HAMILTON-STEVENS GROUP, INC., PMC LIQUIDATION, INC. f/k/a POST MACHINERY CO., INC., ZERAND-BERNAL GROUP, INC., PRINTING & PACKAGING EQUIPMENT FINANCE CORPORATION, STEVENS SECURITIES SYSTEMS INTERNATIONAL, INC. (collectively, "Guarantors"), BANK OF AMERICA TEXAS, N.A. ("Bank of America"), as assignee of Bank One, Milwaukee, National Association ("Bank One"), AETNA LIFE INSURANCE COMPANY, THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, MONY LIFE INSURANCE COMPANY OF AMERICA (collectively, "Purchasers") and NATIONSBANK OF TEXAS, N.A. ("NationsBank") (in its capacity as Collateral Agent for the holders of the Subordinated Debt). R E C I T A L S: A. The Company, the Purchasers, the Guarantors, NationsBank and Bank One heretofore entered into that certain Amended and Restated Subordination and Intercreditor Agreement (as amended, the "Intercreditor Agreement") dated as of April 26, 1994. B. Bank One assigned all of its, right, title and interest in the Intercreditor Agreement to Bank of America. C. The Company, the Guarantors, the Purchasers, NationsBank and Bank of America now desire to amend the Intercreditor Agreement as herein set forth. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I --------- Definitions ----------- Section 1.1. Definitions. Capitalized terms used in this Amendment, ----------- to the extent not otherwise defined herein, shall have the same meanings as in the Intercreditor Agreement, as amended hereby. ARTICLE II ---------- Amendments ---------- Section 2.1. Amendment to Definition of Bank Credit Agreement. ------------------------------------------------ Effective as of the date hereof, subsection (i) of the definition of "Bank Credit Agreement" in Section 1 of the Intercreditor Agreement is hereby amended to read as follows: (i) that certain Credit Agreement dated as of May 16, 1995, among the Company and Senior Lender (as the same may be amended and restated from time to time, the "Bank Credit Agreement"). Section 2.2. Amendment to Definition of Permitted Refinancing. Effective ------------------------------------------------ as of the date hereof, subsection (a) of the definition of "Permitted Refinancing" in Section 1 of the Intercreditor Agreement is hereby amended to read as follows: (a) the maximum credit available to the Company and the Guarantors under any Permitted Refinancing shall not exceed $27,000,000.00, Section 2.3. Amendment to Definition of Senior Debt. Effective as of the -------------------------------------- date hereof, the definition of Senior Debt in Section 1 of the Intercreditor Agreement is hereby amended to read as follows: Senior Debt means all present and future obligations, indebtedness and ----------- liabilities of the Company or to any Guarantor arising under or pursuant to the Bank Credit Agreement, any Permitted Refinancing, all other agreements or financing arrangements with Senior Lender, all interest accruing pursuant to the aforementioned agreements and arrangements, all attorneys' fees, costs, expenses or other fees incurred in the enforcement and collection thereof and any and all renewals, extensions, increases, and amendments thereto; provided that, the aggregate principal amount of such Senior Debt (excluding attorneys' fees, costs, expenses, other fees or any indemnified amounts) shall not exceed the sum of $27,000,000. Section 2.4. Amendment to Definition of Senior Lender. The definition of ---------------------------------------- "Senior Lender" in Section 1 of the Intercreditor Agreement is hereby amended to read as follows: Senior Lender means Bank of America Texas, N.A. and any assignee or ------------- participant, in whole or in part, of the Senior Debt. Section 2.5. References in the other Senior Documents and Subordinated --------------------------------------------------------- Documents. All references in the other Senior Documents and Subordinated - --------- Documents are hereby modified and amended wherever necessary to reflect the modifications to the Intercreditor Agreement referenced in Sections 2.1 through 2.4 above. -2- ARTICLE III ----------- Conditions Precedent -------------------- Section 3.1. Conditions. The effectiveness of this Amendment is subject ---------- to the satisfaction of the following conditions precedent: (a) Purchasers and Bank of America shall have received all of the following, each dated (unless otherwise indicated) the date of this Amendment, in form and substance satisfactory to them: (1) Resolutions. Resolutions of the Board of Directors of the ----------- Company and each Guarantor certified by the Secretary or an Assistant Secretary which authorize the execution, delivery and performance by such Person of this Amendment; (2) Incumbency. A certificate of incumbency certify by the ---------- Secretary or an Assistant Secretary of the Company and each Guarantor certifying the names of the officers of such Person authorized to sign this Amendment together with specimen signatures of such officers; (3) Articles of Incorporation. The articles of incorporation for ------------------------- the Company and each Guarantor certified by the appropriate government official of the state of incorporation for such Person within thirty (30) days prior to the date of this Amendment; (4) Bylaws. The bylaws of the Company and each Guarantor ------ certified by the Secretary or an Assistant Secretary of such Person; and (5) Government Certificates. Certificates of the appropriate ----------------------- government officials of the state of incorporation of the Company and each Guarantor as to the existence and good standing of such Person, each dated within thirty (30) days prior to the date of this Amendment. ARTICLE IV ---------- Ratification ------------- Section 4.1. Ratification. The terms and provisions set forth in this ------------ Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Intercreditor Agreement and except as expressly modified and superseded by this Amendment, the terms and provisions of the Intercreditor Agreement and the other Senior Documents and Subordinated Documents are ratified and confirmed and shall continue in full force and effect. The Company, the Guarantors, the Purchasers, NationsBank and Senior Lender agree that the Intercreditor -3- Agreement as amended hereby shall continue to be legal, valid, binding and enforceable in accordance with its terms. ARTICLE V --------- Miscellaneous ------------- Section 5.1. Reference to Agreement. Each of the Senior Documents and ---------------------- Subordinated Documents, including the Intercreditor Agreement and any and all other agreements, documents, or instruments now or hereafter executed and delivered pursuant to the terms hereof or thereof, are hereby amended so that any reference in such Senior Documents, Subordinated Documents or Intercreditor Agreement to the Intercreditor Agreement shall mean a reference to the Intercreditor Agreement as amended hereby. Section 5.2 Severability. Any provision of this Amendment held by a court ------------ of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. Section 5.3 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER SUBORDINATED -------------- DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN TEXAS, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. Section 5.6 Successors and Assigns. This Amendment is binding upon and ---------------------- shall inure to the benefit of the Purchasers, the Company, the Guarantors, NationsBank and Senior Lender and their respective successors and assigns. Section 5.7 Counterparts. This Amendment may be executed in one or more ------------ counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. Telecopies of signatures shall be binding and effective as originals. Section 5.8 Effect of Waiver. No consent or waiver, express or implied, ---------------- by Purchasers to or for any breach of or deviation from any covenant, condition or duty by the Company or any Guarantor shall be deemed a consent or waiver to or of any other breach of the same or any other covenant, condition or duty. Section 5.9 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER INSTRUMENTS, ---------------- DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR -4- COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. STEVENS INTERNATIONAL, INC., a Delaware corporation By: /s/ Paul I. Stevens ------------------------------------ Name: Paul I. Stevens ---------------------------------- Title: --------------------------------- HAMILTON-STEVENS GROUP, INC., a Delaware corporation By: /s/ Richard I. Stevens ------------------------------------ Name: Richard I. Stevens ---------------------------------- Title: --------------------------------- PMC LIQUIDATION, INC., a Delaware corporation By: /s/ Richard I. Stevens ------------------------------------ Name: Richard I. Stevens ---------------------------------- Title: --------------------------------- ZERAND-BERNAL GROUP, INC., a Delaware corporation By: /s/ Richard I. Stevens ------------------------------------ Name: Richard I. Stevens ---------------------------------- Title: --------------------------------- -5- PRINTING & PACKAGING EQUIPMENT FINANCE CORPORATION, a Texas corporation By: /s/ W. Scott Mclain ---------------------------------------- Name: W. SCOTT MCLAIN -------------------------------------- Title: Treasurer ------------------------------------- STEVENS SECURITIES SYSTEMS INTERNATIONAL, INC., a Delaware corporation By: /s/ Richard I. Stevens ------------------------------------ Name: Richard I. Stevens ---------------------------------- Title: --------------------------------- AETNA LIFE INSURANCE COMPANY By: /s/ Teresa H. Lawton ----------------------------------------- Title: Investment Manager --------------------------------- THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK By: /s/ Frank G. Simunek ----------------------------------------- Title: FRANK G. SIMUNEK -------------------------------------- Managing Director MONY LIFE INSURANCE COMPANY OF AMERICA By: /s/ Frank G. Simunek ----------------------------------------- Title: FRANK G. SIMUNEK -------------------------------------- Authorized Agent -6- BANK OF AMERICA TEXAS, N.A., a national banking association By: /s/ Donald P. Hellman --------------------------------------- Title: Vice President ------------------------------------ NATIONSBANK OF TEXAS, N.A., as Collateral Agent By: ^[SIGNATURE APPEARS HERE]^ --------------------------------------- Title: Vice President ------------------------------------ -7- EX-10.31 3 AMENDMENT TO NOTE AGREEMENT EXHIBIT 10.31 FIFTH AMENDMENT TO ------------------ AMENDED AND RESTATED SENIOR SUBORDINATED NOTE AGREEMENT ------------------------------------------------------- THIS FIFTH AMENDMENT TO AMENDED AND RESTATED SENIOR SUBORDINATED NOTE AGREEMENT (the "Amendment"), dated as of August ___, 1995, is by and among STEVENS INTERNATIONAL, INC., a Delaware corporation f/k/a Stevens Graphics Corporation ("Company"), and AETNA LIFE INSURANCE COMPANY ("Aetna"), THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, AND MONY LIFE INSURANCE COMPANY OF AMERICA ("MONY") (each such insurance company, together with its successors and assigns, being hereinafter referred to individually as a "Purchaser," and collectively as the "Purchasers"), and each corporation listed on the signature pages hereof under the heading "Guarantors" (each such corporation, together with any other person or entity that guarantees payment of the hereinafter defined Notes being hereinafter referred to individually as a "Guarantor," and collectively as the "Guarantors"). R E C I T A L S: A. The Company, the Purchasers and the Guarantors heretofore entered into that certain Amended and Restated Senior Subordinated Note Agreement (as amended, the "Note Agreement") dated as of March 27, 1993, as amended by that certain First Amendment and Waiver dated as of July 8, 1992, Second Amendment and Waiver dated as of June 30, 1993, Third Amendment and Waiver dated as of August 5, 1993 and Fourth Amendment to Amended and Restated Senior Subordinated Note Agreement dated as of April 26, 1994, pursuant to which the Purchasers purchased from the Company 12% Senior Subordinated Notes of the Company in an aggregate principal amount of $26,000,000.00 due December 31, 2000 (such notes, together with all extensions, renewals and modifications thereof, and all replacements and substitutions therefor, being hereinafter referred to as the "Notes"). B. Pursuant to the Note Agreement, the Guarantors guaranteed to the Purchasers the payment and performance of the Notes and all other amounts payable by the Company under the Note Agreement. C. The Company, the Guarantors and the Purchasers now desire to amend the Note Agreement as herein set forth. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I --------- Definitions ----------- Section 1.1. Definitions. Capitalized terms used in this Amendment, ----------- to the extent not otherwise defined herein, shall have the same meanings as in the Note Agreement, as amended hereby. ARTICLE II ---------- Amendments ---------- Section 2.1. Amendment to Funded Debt Covenant. Effective as of the --------------------------------- date hereof, Section 4.2(d) of the Note Agreement is hereby amended to delete from the end thereof the following paragraph: On and after April 26, 1996, if the Purchasers have released their Liens on the Collateral pursuant to Section 9.3 hereof, then the Company will not, and will not permit any Operating Subsidiary to, incur, assume or otherwise become or remain liable with respect to any unsecured Funded Debt in an amount greater than the remainder of $25,000,000.00, minus the ----- principal balance of the Notes outstanding from time to time. Section 2.2. Amendment to Security Covenant. Effective as of the date ------------------------------ hereof, Section 9.3 of the Note Agreement is hereby deleted. Section 2.3. References in Subordinated Documents. All references in the ------------------------------------ other Subordinated Documents are hereby modified and amended wherever necessary to reflect the purpose and intent of the modifications to the Note Agreement referenced in Sections 2.1 and 2.2 above. ARTICLE III ----------- Conditions Precedent -------------------- Section 3.1. Conditions. The effectiveness of this Amendment is subject ---------- to the satisfaction of the following conditions precedent: (a) Purchasers shall have received all of the following, each dated (unless otherwise indicated) the date of this Amendment, in form and substance satisfactory to Purchasers: (1) Resolutions. Resolutions of the Board of Directors of the ----------- Company and each Guarantor certified by the Secretary or an Assistant Secretary of the Company - 2 - and each Guarantor which authorize the execution, delivery and performance by such Person of this Amendment; (2) Incumbency. A certificate of incumbency certified by the ---------- Secretary or an Assistant Secretary of the Company and each Guarantor certifying the names of the officers of such Person authorized to sign this Amendment together with specimen signatures of such officers; (3) Articles of Incorporation. The articles of incorporation for ------------------------- the Company and each Guarantor certified by the appropriate government official of the state of incorporation for such Person within thirty (30) days prior to the date of this Amendment; (4) Bylaws. The bylaws of the Company and each Guarantor ------ certified by the Secretary or an Assistant Secretary of such Person; (5) Government Certificates. Certificates of the appropriate ----------------------- government officials of the state of incorporation of the Company and each Guarantor as to the existence and good standing of such Person, each dated within thirty (30) days prior to the date of this Amendment. (b) The Company, the Senior Agent, the Purchasers and others shall have entered into a First Amendment to the Amended and Restated Subordination and Intercreditor Agreement. (c) The representations and warranties contained herein and in all other Subordinated Documents, as amended, shall be true and correct as of the date hereof as if made on the date hereof. (d) No Event of Default shall have occurred and be continuing and no event or condition shall have occurred that with the giving of notice or lapse of time or both would be an Event of Default. (e) As compensation for the agreements contained herein, Aetna shall have received the sum of $25,000.00 and MONY shall have received the sum of $25,000.00. (f) The Purchasers shall have received copies of the documents evidencing the Senior Debt. ARTICLE IV ---------- Ratifications, Representations and Warranties --------------------------------------------- Section 4.1. Ratification. The terms and provisions set forth in this ------------ Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Note Agreement and - 3 - except as expressly modified and superseded by this Amendment, the terms and provisions of the Note Agreement and the other Subordinated Documents are ratified and confirmed and shall continue in full force and effect. The Company, the Guarantors and the Purchasers agree that the Note Agreement as amended hereby and the other Subordinated Documents shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. Section 4.2. Representations and Warranties. The Company hereby ------------------------------ represents and warrants to the Purchasers that (i) the execution, delivery and performance of this Amendment and any and all other Subordinated Documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of the Company and will not violate the articles of incorporation or bylaws of the Company, (ii) the representations and warranties contained in the Note Agreement, as amended hereby, and any other Subordinated Document are true and correct on and as of the date hereof as though made on and as of the date hereof, (iii) no Event of Default has occurred and is continuing and no event or condition has occurred that with the giving of notice or lapse of time or both would be an Event of Default, and (iv) the Company is in compliance with all covenants and agreements contained in the Note Agreement as amended hereby. ARTICLE V --------- Miscellaneous ------------- Section 5.1. Reference to Agreement. Each of the Subordinated Documents, ---------------------- including the Note Agreement and any and all other agreements, documents, or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Note Agreement as amended hereby, are hereby amended so that any reference in such Subordinated Documents to the Note Agreement shall mean a reference to the Note Agreement as amended hereby. Section 5.2 Severability. Any provision of this Amendment held by a court ------------ of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. Section 5.3 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER SUBORDINATED -------------- DOCUMENTS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN NEW YORK, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 5.6 Successors and Assigns. This Amendment is binding upon and ---------------------- shall inure to the benefit of the Purchasers, the Company, and the Guarantors and their respective successors and assigns, except neither the Company nor any Guarantor may assign or transfer - 4 - any of their respective rights or obligations hereunder without the prior written consent of the Purchasers. Section 5.7 Counterparts. This Amendment may be executed in one or more ------------ counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. Telecopies of signatures shall be binding and effective as originals. Section 5.8 Effect of Waiver. No consent or waiver, express or implied, ---------------- by the Purchasers to or for any breach of or deviation from any covenant, condition or duty by Company or any Guarantor shall be deemed a consent or waiver to or of any other breach of the same or any other covenant, condition or duty. Section 5.9 Non-Application of Chapter 15 of Texas Credit Code. The -------------------------------------------------- provisions of Chapter 15 of the Texas Credit Code (Vernon's Annotated Texas Statutes, Article 5069-15) are specifically declared by the parties not to be applicable to this Amendment or any of the Subordinated Documents or the transactions contemplated hereby. Section 5.10 ENTIRE AGREEMENT. THIS AMENDMENT AND ALL OTHER INSTRUMENTS, ---------------- DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. STEVENS INTERNATIONAL, INC.: --------------------------- By: /s/ Paul I. Stevens --------------------------------------- Name: Paul I. Stevens ------------------------------------- Title: ------------------------------------ GUARANTORS: ---------- HAMILTON-STEVENS GROUP, INC. By: /s/ Richard I. Stevens --------------------------------------- Name: Richard I. Stevens ------------------------------------- Title: ------------------------------------ ZERAND-BERNAL GROUP, INC. By: /s/ Richard I. Stevens --------------------------------------- Name: Richard I. Stevens ------------------------------------- Title: ------------------------------------ - 5 - PMC LIQUIDATION, INC. By: /s/ Richard I. Stevens --------------------------------------- Name: Richard I. Stevens ------------------------------------- Title: ------------------------------------ PRINTING & PACKAGING EQUIPMENT FINANCE CORPORATION By: /s/ W. Scott McLain --------------------------------------- Name: W. Scott McLain ------------------------------------- Title: Treasurer ------------------------------------ STEVENS SECURITIES SYSTEMS INTERNATIONAL, INC. By: /s/ Richard I. Stevens --------------------------------------- Name: Richard I. Stevens ------------------------------------- Title: ------------------------------------ PURCHASERS: ---------- AETNA LIFE INSURANCE COMPANY By: /s/ Teresa H. Lawton --------------------------------------- Name: Teresa H. Lawton ------------------------------------- Title: Investment Manager ------------------------------------ - 6 - THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK By: /s/ Frank G. Simunek --------------------------------------- Name: Frank G. Simunek ------------------------------------- Title: Managing Director ------------------------------------ MONY LIFE INSURANCE COMPANY OF AMERICA By: /s/ Frank G. Simunek --------------------------------------- Name: Frank G. Simunek ------------------------------------- Title: Authorized Agent ------------------------------------ -7- EX-10.32 4 FIRST AGREEMENT TO CREDIT AGREEMENT EXHIBIT 10.32 FIRST AMENDMENT --------------- TO -- CREDIT AGREEMENT ---------------- This First Amendment to Credit Agreement (this "Amendment") is entered into --------- effective as of the 15th of August, 1995, by and between Bank of America Texas, N.A. (the "Bank") and Stevens International, Inc., formerly known as to Stevens Graphics Corporation, a Delaware corporation (the "Borrower"). -------- REFERENCE: ---------- Reference is made to the Credit Agreement (the "Credit Agreement") dated as ---------------- of May 16, 1995 by and between Bank and Borrower. RECITAL: -------- Bank and Borrower desire to increase the Commitment (as such term is defined in the Credit Agreement) from $22,000,000.00 to $27,000,000.00. AGREEMENTS: ----------- NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. Capitalized terms used in this Amendment and not otherwise ----------- defined in this Amendment shall have the meanings given them in the Credit Agreement. 2. Amendment. The Credit Agreement is hereby amended to the extent --------- specified below: Section 2.1(a) of the Credit Agreement is hereby amended by deleting the -------------- reference to "Twenty-Two Million Dollars ($22,000,000.00)" and substituting therefor "Twenty-Seven Million Dollars ($27,000,000.00)." 3. Representations. Borrower represents and warrants that the execution, --------------- delivery and performance by Borrower of this Amendment and the Credit Agreement as amended hereby have been duly authorized by all necessary corporate action and that this Amendment and the Credit Agreement as amended hereby are legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally, or by general principles of equity limiting the availability of certain remedies. FIRST AMENDMENT - Page 1 4. Conditions Precedent. -------------------- A. Borrower will pay Bank $25,000.00 as a fee for Bank's agreement to increase the Commitment under the Credit Agreement from $22,000,000.00 to $27,000,000.00; B. Bank shall have received a First Amendment to Amended and Restated Subordination and Intercreditor Agreement, in form and substance reasonably satisfactory to the Bank, duly executed by Borrower, Hamilton-Stevens Group, Inc., PMC Liquidation, Inc., Zerand-Bernal Group, Inc., Printing & Packaging Equipment Finance Corporation, Stevens Securities Systems International, Inc., Aetna Life Insurance Company, The Mutual Life Insurance Company of New York, Mony Life Insurance Company of America and NationsBank of Texas, N.A.; C. Bank shall have received a Consent and Ratification, duly executed by Hamilton-Stevens Group, Inc., PMC Liquidation, Inc., Zerand-Bernal Group, Inc., Stevens Securities Systems International, Inc. and Printing & Packaging Equipment Finance Corporation; and D. Bank shall have received such other documents, certificates and other materials as the Bank reasonably may require in connection with this Amendment. 5. Miscellaneous. ------------- A. Ratifications. The terms and provisions set forth in this ------------- Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Credit Agreement, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement are ratified and confirmed and shall continue in full force and effect. Borrower and Bank agree that the Credit Agreement as amended hereby shall continue to be legal, valid, binding and enforceable in accordance with its terms. B. Governing Law. This Amendment shall be governed by and ------------- construed in accordance with the laws of the State of Texas. C. Counterparts. This Amendment may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. FIRST AMENDMENT -- Page 2 - --------------- IN WITNESS WHEREOF, Borrower and Bank have caused this Amendment to be duly executed as of the day and year first above written. Bank of America Texas, N.A. Stevens International, Inc., formerly known as Stevens Graphics Corporation By: /s/ Donald P. Hellman By: /s/ Kenneth W. Reynolds ----------------------- ----------------------------- Donald P. Hellman Name: Kenneth W. Reynolds Vice President ----------------------------- Title: Senior Vice President Finance and Administration ----------------------------- FIRST AMENDMENT - Page 3 - --------------- EX-10.33 5 SECOND AMENDED AND RESTATED MASTER NOTE EXHIBIT 10.33 SECOND AMENDED AND RESTATED MASTER NOTE: REFERENCE RATE RELATED [N-312(TX)] CHECK APPROPRIATE BLOCK ________________________________________________________ ACCOUNT (5) CLASS (3) LOAN(5) ____________________________________________________ - -------------------------------------------------------------------------------- $27,000,000.00 August 15, 1995 FOR VALUE RECEIVED STEVENS INTERNATIONAL, INC., formerly known as Stevens Graphics Corporation, a Delaware corporation (hereafter referred to as "Borrower"), promises to pay to the order of BANK OF AMERICA TEXAS, N.A. ("Bank") on April 30, 1998, at Bank's office at 1925 W. John Carpenter Freeway, Irving, Texas 75063-3224, the total unpaid principal amount advanced by Bank from time to time to or for the benefit of or at the request of Borrower from and after the date of this Note through April 30, 1998, together with interest thereon at the times and at the rates specified in this Note. This Note evidences Borrower's obligation to the Bank under the line of credit and letter of credit facility provided to Borrower by Bank pursuant to that certain Credit Agreement, dated May 16, 1995, as amended by that certain First Amendment to Credit Agreement, dated August 15, 1995 (collectively along with any and all other amendments, modifications and restatements thereof, the "Credit Agreement"), executed by and between Borrower and Bank, and is entitled to all the benefits as set forth therein. Capitalized terms used in this Note and not otherwise defined in this Note shall have the meanings given them in the Credit Agreement. No advance shall be made under this Note if, as a result of such advance, the total principal amount outstanding under this Note, together with the undrawn face amount of all letters of credit issued and outstanding under the Credit Agreement would exceed TWENTY-SEVEN MILLION AND NO/100 DOLLARS ($27,000,000.00). All advances and all payments made on account of principal shall be recorded from time to time by the holder of this Note on the reverse side of this Note or on an attachment hereto. Each such record of any advance hereunder shall be conclusive evidence that the advance was made by Bank to Borrower, unless Borrower objects to such record or accounting within thirty (30) days after receipt of the same from Bank. Each advance under this Note shall bear interest from the date of such advance until payment in full at a rate per year equal to the lesser of (a) either (i) the Basic Rate, which is equal to MASTER NOTE--PAGE 1 - ----------- the sum of the Bank's Reference Rate plus zero percentage points, or (ii) the Offshore Rate plus one and one-half (1.5) percentage points, or (b) the Maximum Rate, all as more fully provided in, and in accordance with the terms of, the Credit Agreement. Notwithstanding the foregoing, if at any time the Basic Rate or the Offshore Rate plus one and one-half (1.5) percentage points, as applicable in accordance with the terms of the Credit Agreement (each, as applicable, being referred to as the "Contract Rate") shall exceed the Maximum Rate and thereafter the Contract Rate shall become less than the Maximum Rate, the rate of interest payable under this Note shall be the Maximum Rate until the Bank shall have received the amount of interest it otherwise would have received if the interest payable hereunder had not been limited by the Maximum Rate during the period of time the Contract Rate exceeded the Maximum Rate. The Basic Rate of interest shall be computed on the basis of a three hundred sixty (360) day year and actual days elapsed, which results in more interest than if a three hundred sixty-five (365) day year were used. Accrued interest for borrowings subject to the Basic Rate shall be payable quarterly, on each June 30, September 30, December 31, and March 31 during the term hereof, beginning September 30, 1995, and upon payment in full of principal of this Note. Accrued interest for borrowings subject to the Offshore Rate shall be payable, to the extent applicable, on the 90th, 180th, and 270th day of every interest period and on the last day of each interest period. Each advance under this Note shall be made in such manner as Bank and Borrower may agree in writing. The occurrence of any "Event of Default", as such term is defined in the Credit Agreement shall, at the option of the holder of this Note, make all sums of accrued unpaid interest and principal of this Note immediately due and payable without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character. If suit is commenced to enforce payment of this Note, Borrower agrees to pay to Bank such additional sums as attorneys' fees as the court may adjudge reasonable, unless Borrower is the prevailing party, in which event Bank will be required to pay the Borrower's attorneys' fees. This Note is a master revolving credit note; it being expressly contemplated that, by reason of prepayments hereon, there may be times when no indebtedness is owing hereunder, but, notwithstanding such occurrences, this Note shall remain valid and shall be in full force and effect as to loans or advances made subsequent to such occurrences. MASTER NOTE--PAGE 2 - ----------- Borrower and any and all sureties, guarantors and endorsers of this Note and all other parties now or hereafter liable hereon, severally waive grace, demand, presentment for payment, protest, notice of any kind (including, but not limited to, notice of dishonor, notice of protest, notice of intention to accelerate and notice of acceleration) and diligence in collecting and bringing suit against any party hereto, and agree (i) to all extensions and partial payments, with or without notice, before or after maturity, (ii) to any substitution, exchange or release of any security now or hereafter given for this Note, (iii) to the release of any party primarily or secondarily liable hereon, and (iv) that it will not be necessary for Bank, in order to enforce payment of this Note, to first institute or exhaust Banks's remedies against Borrower or any other party liable therefor or against any security for this Note. It is the intention of the parties hereto to comply strictly with applicable usury laws; accordingly, notwithstanding any provision to the contrary in this Note or in any of the documents securing the payment hereof or otherwise relating hereto, in no event shall this Note or such documents require or permit the payment, charging, taking, reserving, or receiving of any sums constituting interest under applicable laws which exceed the maximum amount permitted by such laws. If any such excess interest is contracted for, charged, taken, reserved, or received in connection with the loan evidenced by this Note or in any of the documents securing the payment hereof or otherwise relating hereto, or in any communication by Bank or any other person to Borrower or any other party liable for payment of this Note, or in the event all or part of the principal or interest hereof shall be prepaid or accelerated, so that under any of such circumstances or under any other circumstance whatsoever the amount of interest contracted for, charged, taken, reserved, or received on the amount of principal actually outstanding from time to time under this Note shall exceed the maximum amount of interest permitted by applicable usury laws, then in any such event it is agreed as follows: (i) the provisions of this paragraph shall govern and control, (ii) any such excess shall be cancelled automatically to the extent of such excess, and shall not be collected or collectible, (iii) any such excess which is or has been received shall be credited against the then unpaid principal balance hereof or refunded to Borrower, at Bank's option, and (iv) the effective rate of interest shall be automatically reduced to the maximum lawful rate allowed under applicable laws as construed by courts having jurisdiction hereof or thereof. Without limiting the foregoing, all calculations of the rate of interest contracted for, charged, taken, reserved, or received in connection herewith which are made for the purpose of determining whether such rate exceeds the maximum lawful rate shall be made to the extent permitted by applicable laws by amortizing, prorating, allocating and spreading during the period of the full term of the loan, including all prior and subsequent renewals and extensions, all interest at any time contracted for, charged, taken, reserved, or received. The terms of this paragraph shall be deemed to be incorporated in every loan document, security instrument, and communication relating to this note and loan. The term "applicable usury laws" shall mean such laws of the State of Texas or the laws of the United States, whichever laws allow the higher rate of interest, as such laws now exist; provided, however, that if such laws shall hereafter allow higher rates of interest, then the applicable usury laws shall be the laws allowing the higher rates, to be effective as of the effective date of such laws. MASTER NOTE--PAGE 3 - ----------- Borrower and Bank agree that Tex. Rev. Civ. Stat. Ann. art. 5069 Ch. 15 (which regulates certain revolving loan accounts and revolving tri-party accounts) shall not apply to any revolving loan accounts created under this Note or maintained in connection therewith. To the extent that this Note is deemed an open end account as such term is defined in Article 5069-1.01(f) of the Texas Revised Civil Statutes, as amended, the Bank retains the right to modify the interest rate in accordance with applicable law. Borrower represents and warrants to Bank and to all other owners and holders of any indebtedness evidenced hereby that all loans evidenced by this Note are for business, commercial or other similar purpose and not primarily for personal, family, household or agricultural use, as such terms are used or defined in Texas Revised Civil Statutes, Article 5069-1.04, Texas Credit Code and Regulation Z promulgated by the Board of Governors of the Federal Reserve System and under Titles I and V of the Consumer Credit Protection Act. In no event shall the provisions of Tex. Rev. Civ. Stat. Ann. arts. 5069-2.01 through 5069-8.06, or 5069-15.01 through 5069-15.11, be applicable to the loan evidenced hereby. To the extent that Texas law determines the maximum lawful rate of interest, such rate shall be determined by utilizing the indicated rate (weekly) ceiling from time to time in effect pursuant to Tex. Rev. Civ. Stat. Ann. art. 5069-1.04, as amended. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. This Note is a renewal, amendment, modification, and restatement of that certain Amended and Restated Master Note, dated May 16, 1995, executed by Borrower and payable to the order of Bank, in the amount of $22,000,000.00, which was a renewal, amendment, modification and restatement of that certain Revolving Credit Note dated April 26, 1994 executed by Borrower payable to the order of Bank One, Milwaukee, National Association ("Bank One"), in the original principal amount of $20,000,000.00, which was assigned to Bank pursuant to that certain Master Assignment of Note and Security Documents executed by Bank One in favor of Bank, dated May 22, 1995. MASTER NOTE--PAGE 4 - ----------- IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by its officers thereunder duly authorized and directed by a resolution of its Board of Directors duly passed and adopted by a majority of said Board at a meeting thereof duly called, noticed, and held. STEVENS INTERNATIONAL, INC., Telephone No.: 817-838-4332 formerly known as Stevens Graphics Corporation Present Mail Address: -------------------- 5500 Airport Freeway Fort Worth, Texas 76117 Attn: W. Scott McLain By: /s/ Ken Reynolds ------------------------------------- Name: Kenneth W. Reynolds ----------------------------------- Senior Vice President --Finance & Admin. Title: ----------------------------------- MASTER NOTE--PAGE 5 - ----------- EX-10.34 6 SECOND AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.34 SECOND AMENDMENT TO CREDIT AGREEMENT ---------------- THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made effective for all purposes as of the __th day of December, 1995, by and between Bank of America Texas, N.A. (the "Bank") and Stevens International, Inc., formerly known as Stevens Graphics Corporation, a Delaware corporation (the "Borrower"). REFERENCES: ---------- Reference is made to the Credit Agreement (as amended, the "Credit Agreement") dated as of May 16, 1995 by and between Bank and Borrower, as by amended First Amendment to Credit Agreement dated as of August 15, 1995 by and between Bank and Borrower. RECITALS: -------- Borrower has requested that the Bank amend certain of the covenants of the Credit Agreement; specifically, (1) to increase the limitation on Borrower's dispositions of assets during Borrower's 1995 fiscal year from $500,000 to $585,000; and (2) to increase the limitation on Borrower's capital expenditures during Borrower's 1995 fiscal year from $5,000,000 to $5,500,000 Subject to the terms and conditions set forth below, Bank has agreed to amend the Credit Agreement. AGREEMENTS: ---------- NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECOND AMENDMENT-Page 1 - ---------------- ARTICLE I Definitions ----------- 1.1 Capitalized terms used in this Amendment are defined in the Credit Agreement, as amended hereby, unless otherwise stated. ARTICLE II Amendments ---------- 2.1 Asset Dispositions. Section 8.18(d) of the Credit Agreement is hereby ------------------ amended and restated to read as follows: "(d) lease or dispose of all or a substantial part of the Borrower's business or assets, except for leases or dispositions of assets having a fair market value in an aggregate amount not exceeding: (1) Five Hundred Eighty-Five Thousand Dollars ($585,000) in Borrower's 1995 fiscal year, and (2) Five Hundred Thousand Dollars ($500,000) in any fiscal year thereafter, (in which events the Bank will agree to release its lien on such assets, and the Borrower may retain the proceeds of such lease or disposition, so long as no Event of Default has occurred and is continuing);" 2.2 Capital Expenditures. Section 9.4, Capital Expenditures, of the Credit -------------------- -------------------- Agreement is hereby amended and restated to read as follows: 9.4 Capital Expenditures. Not to spend or incur obligations -------------------- (including the total amount of any capital leases) to acquire fixed or capital assets for more than: (1) Five Million Five Hundred Thousand Dollars ($5,500,000) in Borrower's 1995 fiscal year, and (2) Five Million Dollars ($5,000,000) in any fiscal year thereafter. For purposes of this Section 9.4, capital expenditures shall not include amounts spent or obligations incurred in connection with the purchase of certain assets of Societe Specialisee dans le Materiel d'Imprimerie Offset. SECOND AMENDMENT--Page 2 - ---------------- ARTICLE III Conditions ---------- 3.1 Conditions to Amendment. The effectiveness of his Amendment is ----------------------- conditioned upon and subject to the satisfaction of the following requirements: (a) The Guarantors shall have consented to this Amendment and ratified their Guaranties; and (b) The Borrower shall have paid an amendment fee in the amount of Two Thousand Five Hundred Dollars ($2,500.00) on or before January 5, 1996. ARTICLE IV No Waiver --------- 4.1 Except as otherwise specifically provided for in this Amendment, nothing contained herein shall be construed as a waiver by the Bank of any covenant or provision of this Amendment, or of any other contract or instrument between Borrower and the Bank; and the Bank's failure at any time or times hereafter to require strict performance by Borrower of any provision thereof shall not waive, affect or diminish any right of the Bank to thereafter demand strict compliance therewith. The Bank hereby reserves all rights granted under the Credit Agreement, as amended, and any other contract or instrument between Borrower and the Bank. ARTICLE V Ratifications, Representations and Warranties ------------- --------------- ---------- 5.1 Ratifications. The terms and provisions set forth in this Amendment ------------- shall modify and supersede all inconsistent terms and provisions set forth in the Credit Agreement, and, except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement are ratified and confirmed and shall continue in full force and effect. Borrower and the Bank agree that the Credit Agreement, as amended hereby, shall continue to be legal, valid, binding and enforceable in accordance with its terms. 5.2 Representations and Warranties of Borrower. Borrower hereby ------------------------------------------ represents and warrants to the Bank that (a) the execution, delivery and performance of this Amendment have been authorized by all requisite corporate action on the part of Borrower and will not violate the certificate of incorporation or bylaws of Borrower; and (b) Borrower is in full compliance with all covenants and agreements contained in the Credit Agreement, as amended hereby. SECOND AMENDMENT-Page 3 - ---------------- ARTICLE VI Miscellaneous Provisions ------------------------ 6.1 Amendment Fee. Subject to the provisions of Section 12.14 of the ------------- Credit Agreement, in consideration of the Bank agreeing to amend the terms of the Credit Agreement, as set forth above, the Borrower will pay the Bank a Two Thousand Five Hundred Dollar ($2,500) fee for such amendment, as provided by Section 3.1(d) of the Credit Agreement and by Section 3.1(b) of this Amendment. 6.2 Severability. Any provision of this Amendment held by a court of ------------ competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 6.3 Binding Effect. This Amendment shall be binding upon Borrower and -------------- the Bank and their respective successors and assigns. 6.4 Counterparts. This Amendment may be executed in one or more ------------ counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. 6.5 Effect of Waiver. No consent or waiver, express or implied, by the ---------------- Bank to or for any breach of or deviation from any covenant or condition by Borrower shall be deemed a consent to or waiver of any other breach of the same or any other covenant, condition or duty. 6.6 Headings. The headings, captions, and arrangements used in this -------- Amendment are for convenience only and shall not affect the interpretation of this Amendment. 6.7 Applicable Law. THIS AMENDMENT AND ALL OTHER AGREEMENTS EXECUTED -------------- PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 6.8 Final Agreement. THE CREDIT AGREEMENT, AS AMENDED HEREBY, REPRESENTS --------------- THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE CREDIT AGREEMENT, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES, THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE SECOND AMENDMENT-Page 4 - ---------------- PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER AND THE BANK. This Amendment is executed as of the date stated at the top of the first page. Bank of America Texas,N.A. Stevens International, Inc. formerly known as Stevens Graphics Corporation By By /s/ W. Scott Mclain ------------------------- -------------------- Donald P. Hellman Name W. Scott Mclain Vice President ------------------ Title Treasurer ------------------ SECOND AMENDMENT-Page 5 - ---------------- CONSENT AND RATIFICATION ------------------------ The undersigned, Hamilton-Stevens Group, Inc., PMC Liquidation, Inc., Zerand-Bernal Group, Inc., Printing & Packaging Equipment Finance Corporation and Stevens Securities Systems International, Inc. (together and individually, the "Guarantors") have executed a Business Loan Continuing Guaranty, dated May 16, 1995 ("Guaranty"), in favor of Bank of America Texas, N.A., a national -------- banking association ("Bank"), covering obligations of Stevens Graphics ---- Corporation (presently known as Stevens International, Inc.). The Guarantors hereby consent and agree to the terms of the Second Amendment to Credit Agreement dated to be effective as of December __, 1995 (the "Amendment") executed by Stevens International, Inc., formerly known as Stevens --------- Graphics Corporation, a Delaware corporation (the "Borrower"), and Bank. The -------- Guarantors agree that the Guaranty shall remain in full force and effect and shall continue to be the legal, valid and binding obligation of the Guarantors enforceable against Guarantors in accordance with its terms. Furthermore, the Guarantors hereby agree and acknowledge that (a) the obligations, indebtedness and liabilities arising in connection with the Amendment constitute "Debt," as such term is defined in the Guaranty, (b) as of the date hereof, the Guaranty is not subject to any claims, defenses or offsets, (c) nothing contained in the Amendment shall adversely affect any right or remedy of Bank under the Guaranty, and (d) the execution and delivery of the Amendment shall in no way reduce, impair or discharge any obligations of the Guarantors pursuant to the Guaranty. GUARANTORS. HAMILTON-STEVENS GROUP, INC. By: /s/ George A. Wiederaenders ----------------------------- Name: George A. Wiederaenders --------------------------- Title: Treasurer -------------------------- PMC LIQUIDATION, INC. By: /s/ George A. Wiederaenders ----------------------------- Name: George A. Wiederaenders --------------------------- Title: Treasurer -------------------------- CONSENT AND RATIFICATION-Page 1 - ------------------------ ZERAND-BERNAL GROUP, INC. By: /s/ George A. Wiederaenders --------------------------------- Name: GEORGE A. WIEDERAENDERS ------------------------------- Title: TREASURER ------------------------------ PRINTING & PACKAGING EQUIPMENT FINANCE CORPORATION By: /s/ W. Scott McLain --------------------------------- Name: W. SCOTT MCLAIN ------------------------------- Title: VICE-PRESIDENT ------------------------------ STEVENS SECURITIES SYSTEMS INTERNATIONAL, INC. By: /s/ W. Scott McLain --------------------------------- Name: W. SCOTT MCLAIN ------------------------------- Title: VICE-PRESIDENT ------------------------------ CONSENT AND RATIFICATION-Page 2 - ------------------------------- December 1995 ------------------ Date of Notice NOTICE OF FINAL AGREEMENT To: Borrower and All Other Obligors with Respect to the Loan Which is Identified below: 1. THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE --------------------------------------------------------------------- PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, ------------------------------------------------------------------------- OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. -------------------------------------------- THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. ---------------------------------------------------------- 2. As used in this Notice: "Borrower" means the Borrower identified in the signature blocks below in this Notice. "Lender" means Bank of America Texas, N.A. "Loan" means the loan by Lender which is evidenced by the Second Amended and Restated Master Note: Reference Rate Related or other evidence of indebtedness dated August 15, 1995 (the "Note") executed by Borrower, payable to the order of Lender, in the principal face amount of $27,000,000.00. "Loan Agreement" means one or more promises, promissory notes, agreements, undertakings, security agreements, deeds of trust or other documents, or commitments, or any combination of those actions or documents, relating to the Loan, including, without limitation, the Credit Agreement dated May 16, 1995, as amended by the First Amendment to Credit Agreement dated August 15, 1995, as further amended by the Second Amendment to Credit Agreement dated December __, 1995. 3. This Notice is given by Lender with respect to the Loan, pursuant to Section 26.02 of the Texas Business and Commerce Code. Borrower and each other obligor with respect to the Loan who signs below acknowledges, represents and warrants to Lender that Lender has given and such party has received and retained a copy of this Notice on the Date of this Notice stated above. NOTICE OF FINAL AGREEMENT--Page 1 - ------------------------- EXECUTED as of the date first above stated. LENDER Bank of America Texas, N.A. By: ------------------------------------- Donald P. Hellman Vice President BORROWER Stevens International, Inc. formerly known as Stevens Graphics Corporation By: /s/ W. Scott McLain ------------------------------------- Name: W. SCOTT MCLAIN ----------------------------------- Title: TREASURER ---------------------------------- GUARANTORS Hamilton-Stevens Group, Inc. By: /s/ George A. Wiederaenders ------------------------------------- Name: GEORGE A. WIEDERAENDERS ----------------------------------- Title: TREASURER ---------------------------------- NOTICE OF FINAL AGREEMENT-Page 2 - ------------------------- PMC Liquidation, Inc. By: /s/ George A. Wiederaenders ------------------------------------ Name: GEORGE A. WIEDERAENDERS ---------------------------------- Title: TREASURER --------------------------------- Zerand-Bernal Group, Inc. By: /s/ George A. Wiederaenders ------------------------------------ Name: GEORGE A. WIEDERAENDERS ---------------------------------- Title: TREASURER --------------------------------- Printing & Packaging Equipment Finance Corporation By: /s/ W. Scott McLain ------------------------------------ Name: W. SCOTT MCLAIN ---------------------------------- Title: VICE PRESIDENT --------------------------------- Stevens Securities Systems International, Inc. By: /s/ W. Scott McLain ------------------------------------ Name: W. SCOTT MCLAIN ---------------------------------- Title: VICE PRESIDENT --------------------------------- NOTICE OF FINAL AGREEMENT-PAGE 3 - ------------------------- EX-11.1 7 COMPUTATIONS NET INCOME EXHIBIT 11.1 STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES COMPUTATIONS OF NET INCOME PER COMMON SHARE (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------ 1995 1994 1993 ------- ------- ------- Primary and fully diluted: Weighted average shares outstanding................ 9,408 9,122 9,015 Assumed exercise of Series A and B stock options (treasury stock method)........................... 145 134 114 ------- ------- ------- Total common share equivalents....................... 9,553 9,256 9,129 ======= ======= ======= Income before extraordinary item and cumulative effect on accounting change......................... $ 4,299 $ 2,427 $ 771 Extraordinary item................................... -- (85) -- Cumulative effect of accounting change for income tax................................................. -- -- 412 ------- ------- ------- Net Income........................................... $ 4,299 $ 2,342 $ 1,183 ======= ======= ======= Per share amounts-- Primary and fully diluted: Income before extraordinary item................... $ 0.45 $ 0.26 $ 0.08 Extraordinary item................................. -- (0.01) -- Cumulative effect of accounting change............. -- -- 0.05 ------- ------- ------- Net Income......................................... $ 0.45 $ 0.25 $ 0.13 ======= ======= =======
EX-23.1 8 CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-25949 and 33-36852 on Form S-8, and Registration Statement No. 33-84246 on Form S-3 of Stevens International, Inc. and subsidiaries, of our report dated February 21, 1996, appearing in this Annual Report on Form 10-K of Stevens International, Inc. and subsidiaries for the year ended December 31, 1995. Deloitte & Touche LLP Fort Worth, Texas March 20, 1996 EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF STEVENS INTERNATIONAL, INC. AND SUBSIDIARIES AS OF DECEMBER 31, 1995 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1995 DEC-31-1995 814 0 26,734 655 23,300 70,032 55,456 23,439 117,647 31,905 33,470 0 0 945 44,427 117,647 139,181 139,181 108,307 108,307 0 256 3,421 5,959 1,660 4,299 0 0 0 4,299 0.45 0.45
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