<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
June 30, 1995 0-10737
Stuart Entertainment, Inc.
(Exact name of registrant as specified in its charter)
Delaware 84-0402207
(State of incorporation) (I.R.S. Employer
3211 Nebraska Avenue, Council Bluffs, IA 51501
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (712) 323-1488
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 / /
As of August 1, 1995 there were 6,694,715 shares of the Registrant's common
stock, $.01 par value, outstanding.
<PAGE> 2
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1:
Consolidated Statements of Operations for the
Three And Six Months Ended June 30, 1995 and 1994......... 3
Consolidated Balance Sheets as of June 30, 1995 and
December 31, 1994......................................... 4-5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1995 and 1994................... 6-7
Notes to Consolidated Financial Statements................. 8-13
Item 2:
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 14-21
PART II. OTHER INFORMATION.......................................... 22
Signatures................................................. 23
Exhibit Index.............................................. 24
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Items 1. FINANCIAL STATEMENTS
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(Amounts In Thousands, Except Per Share Amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET SALES $29,421 $14,851 $56,885 $30,279
COST OF GOODS SOLD 20,095 10,550 39,317 21,629
------- ------- ------- -------
GROSS MARGIN 9,326 4,30 17,568 8,650
OTHER EXPENSES AND INCOME:
Selling, general and
administrative expenses 7,036 3,207 13,349 6,256
Equity in (earnings) losses
of joint ventures (29) 137 (44) 362
Amortization of goodwill 216 17 419 31
Interest expense, net 1,283 214 2,315 435
United Kingdom charge (Note 6) 800 0 800 0
------- ------- ------- -------
Other expenses and income - net 9,306 3,575 16,839 7,084
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 20 726 729 1,566
INCOME TAX PROVISION 541 260 1,012 571
------- ------- ------- -------
NET EARNINGS (LOSS) $ (521) $ 466 $ (283) $ 995
======= ======= ======= =======
EARNINGS (LOSS) PER SHARE $ (0.08) $ 0.13 $ (0.04) $ 0.28
======= ======= ======= =======
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 6,676 3,486 6,677 3,492
======= ======= ======= =======
</TABLE>
Note: No dividends were paid or declared during the six months
ended June 30, 1995 and June 30, 1994.
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(Amounts In Thousands)
<TABLE>
<CAPTION>
ASSETS
------ June 30, December 31,
1995 1994
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,768 $ 2,116
Trade and notes receivables, less allowances
for doubtful accounts of $2,041 and $1,797,
respectively 19,165 15,762
Inventories (Note 3) 19,755 16,103
Refundable income taxes 0 225
Deferred income taxes 1,951 1,513
Prepaid expenses and other 552 388
------- -------
Total Current Assets 43,191 36,107
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 4,887 4,710
Equipment 28,591 24,520
------- -------
Total 33,478 29,230
Less accumulated depreciation 11,258 9,387
------- -------
Property, Plant And Equipment - Net 22,220 19,843
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $816 and $426, respectively 29,498 28,958
Deferred financing costs, net of accumulated
amortization of $182 and $16, respectively 1,471 1,613
Notes receivable, less allowance for doubtful
accounts of $423 and $423, respectively 1,163 1,366
Other assets 1,261 938
------- -------
Total Other Assets 33,393 32,875
------- -------
TOTAL ASSETS $98,804 $88,825
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(Amounts In Thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30, December 31,
1995 1994
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt (Note 5) $ 6,716 $ 6,482
Trade payables 12,453 10,456
Accrued liabilities and others 6,233 4,715
------- -------
Total Current Liabilities 25,402 21,653
LONG-TERM DEBT (Note 5)
Related party 5,000 5,000
Other 34,847 29,416
------- -------
Total Long-Term Debt 39,847 34,416
DEFERRED INCOME TAXES 2,504 2,270
DEFERRED INCOME 316 333
------- ------
TOTAL LIABILITIES 68,069 58,672
STOCKHOLDERS' EQUITY:
Common stock 68 66
Additional paid-in capital 26,325 25,776
Retained earnings 4,456 4,739
Treasury stock (At cost) (189) (189)
Cumulative translation adjustment,
net of deferred taxes 75 (239)
------- -------
Total Stockholders' Equity 30,735 30,153
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $98,804 $88,825
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 6
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1994
(Amounts In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (283) $ 995
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Payment on termination of Consulting Agreement (1,100) 0
United Kingdom charge 800 0
Depreciation and amortization 2,167 964
Provision for doubtful accounts 375 224
Equity in (earnings) losses of joint ventures (44) 362
Deferred income taxes (549) (388)
Other noncash expenses - net 1,157 330
Change in operating working capital items, net (2,858) (1,404)
------- -------
Net cash provided by (used in) operating activities (335) 1,083
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,520) (169)
Payments received on notes receivable 486 491
Investment in joint ventures 0 (512)
Costs of acquisition of LSA (324) 0
Investment in distributor (116) 0
Acquisition of Reliable (295) 0
------- -------
Net cash used in investing activities (2,769) (190)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Revolving Facility 5,242 0
Net borrowings on previous line of credit 0 76
Payments on Term Facility (1,499) 0
Payments on other long-term debt (1,452) (1,123)
Payments on LSA Purchase Price Adjustment (929) 0
Proceeds from issuance of long-term debt 1,140 0
Proceeds from exercise of stock options 238 0
Costs on issuance of stock (17) 0
------- -------
Net cash provided by (used in) financing activities 2,723 (1,047)
Effect of currency exchange rate changes on cash
of foreign subsidiaries 33 0
------- -------
NET CHANGE IN CASH (348) (154)
CASH AT BEGINNING OF PERIOD 2,116 512
------- -------
CASH AT END OF PERIOD $ 1,768 $ 358
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE> 7
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1994
(Amounts In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1995 1994
---- ----
<S> <C> <C>
CHANGE IN OPERATING WORKING CAPITAL ITEMS:
Trade receivables $(2,663) $(2,185)
Inventories (3,195) (808)
Trade payables 1,123 497
Other, net 1,877 1,092
------- -------
Total $(2,858) $(1,404)
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $(2,186) $ (494)
Income taxes paid $(1,060) $ (828)
Income tax refunds received 1 412
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the first six months of 1995 and 1994, the Company financed the
acquisition of equipment totalling $95,000 and $247,000, respectively, through
the assumption of obligations under capital leases.
In connection with the Reliable Acquisition, the Company i) assumed Reliable's
line of credit and term loan credit facility with a Michigan bank, which
totalled $1,237,000, ii) assumed another note payable of $250,000, iii) issued a
note payable to the shareholders' of Reliable for $780,000 and iv) issued 55,652
shares of the Company's common stock, which was valued at $320,000 or $5.75 per
share.
See accompanying Notes to Consolidated Financial Statements.
7
<PAGE> 8
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements of Stuart
Entertainment, Inc. and subsidiaries (collectively, the "Company")
have been prepared in accordance with generally accepted accounting
principles for interim financial statements and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by generally
accepted accounting principles for annual financial statements.
In the opinion of the Company's management, the foregoing consolidated
financial statements reflect all adjustments considered necessary for
a fair presentation of the results of the Company for the periods
shown. Operating results for the three and six months ended June 30,
1995 and 1994 are not necessarily indicative of the results that may
be expected for the full year ending December 31, 1995. These
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended
December 31, 1994, filed with the Securities and Exchange Commission
on the Company's Annual Report on Form 10-K.
Certain reclassifications have been made to the 1994 financial
statements to conform to those classifications used in 1995.
2. EARNINGS PER SHARE:
The number of shares used in earnings per share calculations for the
three month and six month periods ended June 30, 1995 and 1994 are
based on the weighted average number of shares of common stock
outstanding and, if dilutive, common stock equivalents (stock options
and warrants) of the Company using the treasury stock method.
8
<PAGE> 9
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
3. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
<S> <C> <C>
Raw Materials $ 6,624,000 $ 4,380,000
Work-In-Process 4,021,000 2,418,000
Finished Goods 9,110,000 9,305,000
----------- -----------
Total $19,755,000 $16,103,000
=========== ===========
</TABLE>
4. ACQUISITIONS AND FINANCING:
On December 13, 1994, the Company completed the acquisition (the "LSA
Acquisition") of Len Stuart & Associates Limited ("LSA") for a total
purchase price of $36,786,000, which includes a subsequent purchase
price adjustment of $1,642,000. LSA was the holding company for (i)
Bingo Press & Specialty Limited, an Ontario, Canada corporation and a
major manufacturer of bingo supplies and related products in Canada,
which operates under the trade name Bazaar & Novelty ("Bazaar"), and
(ii) Niagara Bazaar and Novelty Limited, an Ontario, Canada
corporation and a retailer of bingo supplies and related products.
The LSA Acquisition was financed through the sale of equity (the
"Equity Financing") and amounts borrowed under the Company's new
Credit Agreement (the "Credit Agreement") (See Note 5).
In addition, effective January 1, 1995, the Company acquired (i)
substantially all the assets and assumed substantially all of the
existing liabilities (the "Net Assets") of The Reliable Corporation of
America ("Reliable") and (ii) two presses owned by Reliable's
shareholders (collectively, the "Reliable Acquisition") for a total
purchase price of $1,300,000.
9
<PAGE> 10
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
PRO FORMA INFORMATION:
The following pro forma condensed consolidated statements of operations for the
three-month and six-month periods ended June 30, 1995 and 1994 give effect to
the LSA Acquisition and the Reliable Acquisition, the Equity Financing and
borrowings on the Credit Agreement as if such transactions had occurred as of
January 1, 1994. The pro forma consolidated statement of operations do not
purport to represent what the Company's results of operations would have been
if such transactions had in fact occurred on such dates and should not be
viewed as predictive of the Company's financial results of the future. Amounts
are in thousands, except per share information.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Sales:
"Core Business" $28,303 $25,070 $54,771 $49,723
Video King 650 724 1,264 1,821
England 468 245 850 383
------- ------- ------- -------
Total $29,421 $26,039 $56,885 $51,927
======= ======= ======= =======
Net Earnings (Loss):
"Core Business" $ 954 $ 1,069 $ 1,982 $ 1,801
Video King (195) (73) (297) (26)
England (1,280) (151) (1,670) (261)
------- ------- ------- -------
Total $ (521) $ 845 $ 15 $ 1,514
======= ======= ======= =======
Earnings per Share:
"Core Business" $ 0.14 $ 0.16 $ 0.29 $ 0.27
Video King (0.03) (0.01) (0.04) 0.00
England (0.19) (0.02) (0.25) (0.04)
------- ------- ------- -------
Total $ (0.08) $ 0.13 $ 0.00 $ 0.23
======= ======= ======= =======
Average Common and
Common Equivalent
Share Outstanding 6,676 6,691 6,677 6,691
======= ======= ======= =======
</TABLE>
10
<PAGE> 11
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
"Core Business" includes the operations of Stuart Entertainment, Inc. (doing
business as Bingo King), LSA and Reliable.
The pro forma results above do not include the following non-recurring charge
that was included in the results of operations after the date of the LSA
Acquisition:
i) In accordance with the application of purchase accounting to the
assets of LSA, the finished goods of Bazaar were recorded at sales value
less costs to sell and a reasonable margin on the costs to sell. This
resulted in the write-up of finished goods inventory of Bazaar which was
included in costs of goods sold in 1994 and 1995 as the finished goods
were sold during the periods. The amount charged to cost of goods sold
in the six months ended June 30, 1995 was $489,000 and the reduction of
net income, net of taxes of $191,000, was $298,000.
5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- -----------
<S> <C> <C>
Borrowings under Credit Agreement:
Revolving Facility $18,046,000 $12,601,000
Term Facility 13,578,000 14,840,000
Subordinated note payable
to Mr. Stuart 5,000,000 5,000,000
Other term loans and
mortgages payable to banks 2,260,000 1,208,000
Obligations under
capital leases 4,501,000 4,211,000
Notes payable to others 3,178,000 3,038,000
----------- -----------
Total 46,563,000 40,898,000
Less current portion 6,716,000 6,482,000
----------- -----------
Total long-term debt $39,847,000 $34,416,000
=========== ===========
</TABLE>
11
<PAGE> 12
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
CREDIT AGREEMENT:
In connection with the LSA Acquisition, on December 13, 1994, the
Company entered into the Credit Agreement with a national bank
("Bank") for a financing facility of $35,000,000, with a senior
secured revolving line of credit of $20,000,000 (the "Revolving
Facility") and a senior secured term loan facility of $15,000,000 (the
"Term Facility"). On December 13, 1994, i) the Revolving Facility was
separated into a U.S. Facility for $10,000,000 and a Canadian
Revolving Facility for C$13,875,000 ($10,000,000) and ii) the Term
Facility was separated into a U.S. Term Facility for $5,000,000 and a
Canadian Term Facility for C$13,875,000 ($10,000,000).
At June 30, 1995, loans outstanding on the U.S. Revolving Facility
totaled $9,250,000 (Offshore and Base Rate Loans at a weighted average
interest rate of 7.87%) and loans outstanding on the Canadian
Revolving Facility totaled C$12,100,000($8,796,000) (an Offshore Loan
at an interest rate of 8.90%). At June 30, 1995, loans outstanding on
the U.S. Term Facility totaled $4,500,000 (an Offshore Loan at an
interest rate of 7.81%) and loans outstanding on the Canadian Term
Facility totaled C$12,488,000 ($9,078,000) (an Offshore Loan at an
interest rate of 8.90%).
The Credit Agreement contains various covenants, such as minimum net
worth, fixed coverage ratio, leverage ratio and restrictions on
additional borrowings, cash dividends and capital expenditures. On
August 14, 1995, a Waiver and Second Amendment to the Credit Agreement
was signed. The Company was in compliance with the amended covenants
as of June 30, 1995.
12
<PAGE> 13
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
FINANCING ASSUMED WITH THE RELIABLE ACQUISITION
In connection with the Reliable Acquisition, the Company assumed (i) a
line of credit and term loan credit facility with a Michigan bank
which had been the primary bank for Reliable and (ii) a note payable
from an equipment supplier (see Note 7).
6. UNITED KINGDOM CHARGE:
The Company has signed a licensing and marketing agreement with
Playprint Limited, headquartered in Dublin, Ireland. This
relationship will permit the Company to discontinue its manufacturing
operation in the United Kingdom.
Under the agreement, Playprint Limited will pay royalties to the
Company for use of certain of the Company's trademarks, technologies
and equipment for the production of bingo paper and ink markers.
The Company recorded a one-time pre-tax charge of $800,000 in the
second quarter related to the estimated costs to shutdown the
manufacturing facility in the United Kingdom and consolidate its
activities with Playprint Limited.
13
<PAGE> 14
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Introduction
On December 13, 1994, the Company completed the acquisition (the "LSA
Acquisition") of Len Stuart & Associates Limited ("LSA"). LSA was the holding
company for (i) Bingo Press & Specialty Limited, an Ontario, Canada corporation
and a major manufacturer of bingo supplies and related products in Canada,
which operates under the trade name Bazaar & Novelty ("Bazaar"), and (ii)
Niagara Bazaar and Novelty Limited, an Ontario, Canada corporation and a
retailer of bingo supplies and related products. In addition, effective
January 1, 1995, the Company acquired (i) substantially all the assets and
assumed substantially all of the existing liabilities (the "Net Assets") of The
Reliable Corporation of America ("Reliable") and (ii) two presses owned by
Reliable's shareholders (collectively, the "Reliable Acquisition"). The
results of operations of Bazaar and Reliable have been consolidated since the
date of the LSA Acquisition and the Reliable Acquisition.
Results for the current year include two one-time charges, including (i) a
charge of $489,000 to cost of goods sold related to the application of purchase
accounting to the finished goods of Bazaar that were sold in the first quarter
of 1995 (see Note 4 to the Consolidated Financial Statements) and (ii) a charge
of $800,000 related to the estimated costs to shutdown the manufacturing
facility in the United Kingdom (see Note 6 to the Consolidated Financial
Statements).
The Company's subsidiary, Stuart Entertainment Limited ("Stuart Entertainment
England"), has recorded losses in the current year in the amount of $1,280,000
and $1,670,000 for the three month and six months ended June 30, 1995,
respectively, including the $800,000 one-time charge described above.
On a pro forma basis (see Note 4 to the Consolidated Financial Statements), net
earnings for the Company's "Core Business" for the six months ended June 30,
1995 increased to $1,982,000 ($0.29 per share) from $1,801,000 ($0.27 per
share) for the six months ended June 30, 1994.
14
<PAGE> 15
Comparison of Three Months Ended June 30, 1995 And 1994
Net Sales - Net sales in the second quarter of 1995 increased $14,570,000
(98.1%) to $29,421,000 from $14,851,000 in the second quarter of 1994. The
sales growth in the second quarter of 1995 was primarily attributable to the
inclusion of sales from Bazaar, Reliable and Stuart Entertainment England,
which collectively increased sales by $12,882,000 (88.4% of the total
increase). Excluding the effect of sales from Bazaar, Reliable and Stuart
Entertainment England, comparable sales for the second quarter increased
$1,688,000 (11.4% increase over second quarter of 1994). Sales of bingo paper
increased $1,407,000 (19.2%), break-open tickets sales increased $366,000
(13.0%) and sales of ink products increased slightly. These increases were
partially offset by slight decreased in sales of Video King, bingo electrical
equipment and general merchandise. Bingo paper units increased 6.3% in the
three-month period ended June 30, 1995 as compared to the three-month period
ended June 30, 1994. Break-open tickets and ink products experienced unit
increases of 7.2% and 1.4% respectively during these same periods.
Overall sale price levels increased for bingo paper and break-open tickets
while sale price levels for ink products decreased slightly during the
three-month period ended June 30, 1995 compared to the same period in 1994.
Bingo paper sale prices increased approximately 12.2%. This increase was the
result of raw material price increases on newsprint paper. Break-open ticket
prices increased 5.4% during the three month period of 1995. Ink product
prices decreased approximately 0.3% due primarily from a shift in the mix of
ink products sold to lower priced products from higher priced ink products.
Cost Of Goods Sold - Cost of goods sold, as a percentage of sales, decreased
from 71.0% for the three months ended June 30, 1994 to 68.3% for the three
months ended June 30, 1995. The decrease in the cost of goods sold percentage
is due to i) a lower cost of goods sold percentage for Bazaar sales versus the
historical percentage for the Company and ii) improvements in manufacturing
efficiencies. These improvements were partially offset by increases in raw
material, newsprint paper and general labor rates.
During 1994 and the first six months of 1995, the Company experienced
significant increases in the price of paper products purchased for the
manufacturing of bingo paper and for packaging. The Company initiated sales
price increases on bingo paper during this period that approximated the amount
of the increase in the paper products purchased.
15
<PAGE> 16
The Company anticipates further increases in the price of paper products
purchased during 1995. Management expects to continue to increase the sales
price on bingo paper during 1995 to offset these expected increases in costs,
subject to market conditions at that time. Management does not believe, but
has no assurances, that these increases in the sales price of bingo paper will
place the Company at a competitive disadvantage.
Selling, General and Administrative Expenses - Selling, general and
administrative ("SG&A") expenses increased $3,829,000 from $3,207,000 for the
three months ended June 30, 1994 to $7,036,000 for the three months ended June
30, 1995. SG&A expenses, as a percent of sales, increased to 23.9% for the
three months ended June 30, 1995 from 21.6% during the same period of 1994.
The increase in SG&A expenses was due primarily to two factors. First,
approximately $2,629,000 of the increase was a result of the consolidation of
Bazaar, Reliable and Stuart Entertainment England for the three-month period
ended June 30, 1995. Second, excluding the effect of Bazaar, Reliable and
Stuart Entertainment England, the Company experienced increases in (i) salaries
and related costs, due to increases in number of employees, salary levels and
incentive compensation accruals, (ii) travel and (iii) marketing and sales
promotion costs.
Equity Earnings (Losses) In Joint Ventures - Equity income in joint ventures
totalled $29,000 for the second quarter of 1995 compared with a loss of
$137,000 for the same period in 1994. Under the joint venture agreement, the
earnings or loss for Stuart Entertainment Mexico was allocated to the Company
based on the percentage of total production that was sold to the Company.
During the second quarter of 1994, the Company recognized losses related to its
investment in Stuart Entertainment Mexico of $142,000 which represented SG&A
expenses. The equity income for Stuart Entertainment England of $5,000
represents 50% of the net operating income of Stuart Entertainment England for
the period April 1, 1994 through June 30, 1994. With the LSA Acquisition,
Stuart Entertainment England and Stuart Entertainment Mexico became, in effect,
wholly owned subsidiaries of the Company.
16
<PAGE> 17
Interest Expense, net - Interest expense (net of interest income) for the three
month period ended June 30, 1995 totaled $1,283,000 compared with $214,000 in
the same period in 1994. The increase of $1,069,000 was due to i) the
consolidation of Bazaar, Stuart Entertainment England and Reliable which
increased interest expense by $805,000, ii) higher interest rates experienced
for the three months ended June 30, 1995 compared to the same period in 1994
and iii) significantly higher borrowing levels at June 30, 1995 compared to
June 30, 1994, largely related to the LSA and Reliable acquisitions.
United Kingdom Charge - As discussed in Note 6 to the Consolidated Financial
Statements, the Company recorded a one-time pre-tax charge of $800,000 in the
second quarter of 1995 related to the estimated costs to shutdown the
manufacturing facility in the United Kingdom and consolidate its activities
with Playprint Limited.
Net Income (Loss) - Net loss for the three month period ended June 30, 1995 was
$521,000 ($.08 per share) compared with net income of $466,000 ($.13 per
share) for the same period of 1994. The decrease in net income and earnings
per share was largely due to increased losses (including the $800,000 one-time
charge described above) of Stuart Entertainment England of $1,129,000 ($.17 per
share).
Inflation - Other than the increases in the cost of paper products described
above, inflation did not have a material effect on the Company's operations for
the three months and six months ended June 30, 1995.
17
<PAGE> 18
Comparison of Six Months Ended June 30, 1995 And 1994
Net Sales - Net sales for the first six months of 1995 increased $26,606,000
(87.9%) to $56,885,000 from $30,279,000 in the first six months of 1994. The
sales growth for the first six months of 1995 was primarily attributable to the
inclusion of sales from Bazaar, Reliable and Stuart Entertainment England which
collectively increased sales by $24,527,000 (92.2% of the total increase).
Excluding the effect of sales from Bazaar, Reliable and Stuart Entertainment
England, comparable sales for the first six months of 1995 increased $2,079,000
(6.9% increase over first six months of 1994). Sales of bingo paper increased
$2,327,000 (15.7%), break-open tickets sales increased $283,000 (4.9%) and
sales of ink products increased $262,000 (7.5%). These increases were partially
offset by decrease in sales of Video King $(546,000) and electrical bingo
equipment $(308,000) and a slight decrease in sales of general merchandise.
Bingo paper units increased 5.6% in the six month period ended June 30, 1995 as
compared to the six month period ended June 30, 1994. Break-open tickets and
ink products experienced unit increases of 0.8% and 10.2% respectively during
these same periods.
Overall sale price levels increased for bingo paper and break-open tickets
while sale price levels for ink products decreased slightly during the six
month period of 1995 compared to the same period in 1994. Bingo paper sale
prices increased approximately 9.6%. This increase was the result of raw
material price increases on newsprint paper. Break-open ticket prices
increased 4.1% during the six month period of 1995. Ink product prices
decreased approximately 2.4% due primarily from a shift in the mix of ink
products sold to lower priced products from higher priced ink products.
Cost Of Goods Sold - Cost of goods sold, as a percentage of sales, decreased
from 71.4% for the six months ended June 30, 1994 to 69.1% for the six months
ended June 30, 1995. The decrease in the cost of goods sold percentage is due
to i) a lower cost of goods sold percentage for Bazaar sales versus the
historical percentage for the Company and ii) improvements in manufacturing
efficiencies. These improvements were partially offset by increases in raw
material, newsprint paper and general labor rates. Additionally, the Company
recorded an adjustment to cost of goods sold of $489,000 (0.9%) to record the
effect of purchase accounting on the finished goods inventory of Bazaar at the
date of the LSA Acquisition which was sold during the first quarter of 1995.
The total adjustment to the Bazaar finished goods inventory ($870,000) has been
reflected in cost of goods sold during the fourth quarter of 1994 ($381,000)
and the first quarter of 1995 ($489,000).
18
<PAGE> 19
Selling, General and Administrative Expenses - Selling, general and
administrative ("SG&A") expenses increased $7,093,000 from $6,256,000 for the
six months ended June 30, 1994 to $13,349,000 for the six months ended June 30,
1995. SG&A expenses, as a percent of sales, increased to 23.5% for the six
months ended June 30, 1995 from 20.7% during the same period of 1994. The
increase in SG&A expenses was due primarily to two factors. First,
approximately $5,595,000 of the increase was a result of the consolidation of
Bazaar, Reliable and Stuart Entertainment England for the six months ended June
30, 1995. Second, excluding the effect of Bazaar, Reliable and Stuart
Entertainment England, the Company experienced increases in (i) salaries and
related costs, due to increases in number of employees, salary levels and
incentive compensation accruals, (ii) travel and (iii) marketing and sales
promotion costs.
Equity Earnings (Losses) In Joint Ventures - Equity income in joint ventures
totalled $44,000 for the first six months of 1995 compared with a loss of
$362,000 for the same period in 1994. Under the joint venture agreement, the
earnings or loss for Stuart Entertainment Mexico was allocated to the Company
based on the percentage of total production that was sold to the Company. During
the first six months of 1994, the Company recognized losses related to its
investment in Stuart Entertainment Mexico of $271,000 which represented SG&A
expenses. The equity loss for Stuart Entertainment England of $91,000
represents 50% of the net operating loss of Stuart Entertainment England for the
period January 1, 1994 through June 30, 1994. With the LSA Acquisition, Stuart
Entertainment England and Stuart Entertainment Mexico became, in effect, wholly
owned subsidiaries of the Company.
Interest Expense, net - Interest expense (net of interest income) for the six
month period ended June 30, 1995 totaled $2,315,000 compared with $435,000 in
the same period in 1994. The increase of $1,880,000 was due to i) the
consolidation of Bazaar, Stuart Entertainment England and Reliable which
increased interest expense by $1,473,000, ii) higher interest rates experienced
for the six months ended June, 1995 compared to the same period in 1994 and
iii) significantly higher borrowing levels at June 30, 1995 compared to June
30, 1994, largely related to the LSA and Reliable Acquisition.
19
<PAGE> 20
Net Income (Loss) - Net loss for the six month period ended June 30, 1995 was
$283,000 ($.04 per share) compared with net income of $995,000 ($.28 per
share) for the same period of 1994. The decrease in net income and earnings
per share was largely due to i) increased losses (including the $800,000
one-time charge described above) of Stuart Entertainment England of $1,409,000
($.21 per share), and ii) the purchase accounting adjustment required for
Bazaar's finished good inventory of $298,000 ($.04 per share).
LIQUIDITY AND CAPITAL RESOURCES
The Company completed the LSA Acquisition during the fourth quarter of 1994.
As a result of a subsequent purchase price adjustment (the "Purchase Price
Adjustment"), the Company was obligated to pay Mr. Stuart an additional
$1,642,000. The Company made payments to and on behalf of Mr. Stuart of
$929,000 of the Purchase Price Adjustment in April, 1995, and the remaining
balance will accrue interest payable monthly at 2.25% over the prime rate shown
in The Wall Street Journal beginning March 6, 1995.
The Company's long-term debt at June 30, 1995, including the current portion
thereof, totaled $46,563,000 compared to $40,898,000 at December 31, 1994 (see
Note 5 to the Consolidated Financial Statements). Cash payments on long-term
debt during the first six months of 1995 totaled approximately $2,951,000
compared to $1,123,000 for the same period in 1994. Additions to long-term
debt in 1995 were related to the Reliable Acquisition, new capital lease
financing and additional borrowings under the Revolving Facility to finance
normal operations.
The Credit Agreement contains various covenants, such as minimum net worth,
fixed coverage ratio, leverage ratio and restrictions on additional borrowings,
cash dividends and capital expenditures. On August 14, 1995, a Waiver and
Second Amendment to the Credit Agreement was signed. The Company was in
compliance with the amended covenants as of June 30, 1995.
In the Reliable Acquisition, the Company assumed a line of credit and term loan
credit facility with a Michigan bank which had been the primary bank for
Reliable (see Note 5 of the Notes to Consolidated Financial Statements).
Capital expenditures during the first six months of 1995 totaled $2,520,000.
During the second quarter of 1995, the Company received funding from lease
finance companies totalling approximately $1,140,000. The Company currently
expects to receive
20
<PAGE> 21
an additional $1,501,000 from lease finance companies that relate primarily to
expenditures in the first six months of 1995 and the fourth quarter of 1994.
As of June 30, 1995, the Company had outstanding capital expenditure
commitments of $461,000. Capital expenditures for fiscal 1995 are projected to
be $4,000,000.
The Company is currently in negotiations with financial institutions to lease
specific pieces of equipment as well as to obtain new lease lines of credit.
The Company believes, but has no assurances, that it will be able to obtain
additional financing to fund the Company's future financial requirements.
CHANGE IN BALANCE SHEET ACCOUNTS
Total trade receivables increased $3,537,000 from $15,001,000 at December 31,
1994 to $18,538,000 at June 30, 1995. The increase is due primarily to the
consolidation of Reliable ($1,340,000) at June 30, 1995 and normal seasonal
fluctuations. Total notes receivable (including current and long-term
portions) decreased $338,000 from a balance of $2,127,000 at December 31, 1994,
to $1,789,000 at June 30, 1995. During the six months ended June 30, 1995,
trade receivables totaling $109,000 were converted to notes receivable from
non-related parties. The conversion was made to assist a customer in resolving
cash flow deficiencies and to aid the customer in accomplishing their long term
growth plans.
Inventories increased $3,652,000 from $16,103,000 at December 31, 1994, to
$19,755,000 at June 30, 1995. The increase was due to (i) the consolidation of
Reliable at June 30, 1995 ($1,395,000), (ii) increased cost of paper products
used to manufacture bingo paper and (iii) increased inventory quantities on
hand.
Trade payable and accrued liabilities increased a combined $3,515,000 from
$15,171,000 at December 31, 1994 to $18,686,000 at June 30, 1995. The increase
was due to (i) the consolidation of Reliable at June 30, 1995 ($967,000), (ii)
the $800,000 one-time charge for operations in the United Kingdom (see Note 6)
and (iii) increased accounts payable from increased cost of paper products
purchased.
21
<PAGE> 22
PART II. OTHER INFORMATION
Item 5. Other Information:
On May 11, 1995, the Company filed a Registration Statement on Form S-3
for the 55,652 shares of common stock that were issued in connection
with the Reliable Acquisition.
Item 6. Exhibits and Reports on Form 8-K:
a. Exhibits:
Exhibit 10 Waiver and First Amendment to Credit Agreement,
dated as of April 14, 1995.
Exhibit 11 Statement Regarding Computation of Per Share
Earnings
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K:
1. The Company filed a Current Report on Form 8-K, dated August 2,
1995, under Item 5 regarding the signing of the agreement with
Playprint Limited.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements 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.
STUART ENTERTAINMENT, INC.
Date: August 14, 1995 /s/ Timothy R. Stuart
----------------------------
Timothy R. Stuart
President
Date: August 14, 1995 /s/ Paul C. Tunink
----------------------------
Paul C. Tunink
Vice President and Chief
Financial Officer
23
<PAGE> 24
EXHIBIT INDEX
The following Exhibits are filed herewith.
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<S> <C> <C>
10 Waiver and First Amendment to
Credit Agreement, dated as of
April 14, 1995
11 Statement Regarding Computation
of Per Share Earnings
27 Financial Data Schedule
</TABLE>
24
<PAGE> 1
EXHIBIT 10
WAIVER AND FIRST AMENDMENT TO CREDIT AGREEMENT
This Waiver and First Amendment to Credit Agreement, dated as of April
14, 1995 (the "Agreement") is among Stuart Entertainment, Inc., a Delaware
corporation (the "U.S. Company"), Bingo Press & Specialty Limited (formerly
known as 1089350 Ontario Inc.), an Ontario Corporation (the "Canadian Company"),
Bank of America National Trust and Savings Association, as U.S. Agent, Bank of
America Illinois, as U.S. Lender, and Bank of America Canada, as Canadian Agent
and Canadian Lender.
W I T N E S S E T H:
WHEREAS, the U.S. Company, the Canadian Company, the U.S. Agent, the
U.S. Lender, the Canadian Agent and the Canadian Lender are parties to that
certain Credit Agreement dated as of December 13, 1994 (the "Credit Agreement")
and to certain other documents executed in connection with the Credit Agreement;
WHEREAS, the U.S. Company and the Canadian Company have requested
certain waivers and amendments and the U.S. Lender and Canadian Lender have
agreed to such waivers and amendments as provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
shall have the meanings given to such terms in the Credit Agreement.
2. Waiver. The Lenders hereby waive any Event of Default arising under
Section 8.01(c) solely as a result of a breach of Section 7.15 of the Credit
Agreement for the periods ending December 31, 1994 and March 31, 1995. The
foregoing waiver shall not constitute a waiver of any other Event of Default now
or hereafter existing, including any Event of Default arising under Section
8.01(c) as a result of a breach of Section 7.15 for any period ending after
March 31, 1995.
3. Amendment to the Credit Agreement.
a. The definition of "Leverage Ratio" set forth in Section 1.01 of the
Credit Agreement is amended and restated in its entirety as follows:
"Leverage Ratio" means, for any 12 month period, the ratio of (a) total
consolidated Indebtedness of the U.S. Company outstanding on the last day of
such period (excluding the Indebtedness described in clause (g) and (to the
extent it applies to Indebtedness of another Person of the type described
in such clause (g)) (h) and (i) of the definition of "Indebtedness"); to (b) the
sum<PAGE> 2
of (i) EBITDA for such period, less (ii) the Consolidated Capital
Expenditures of the U.S. Company for such period (excluding consolidated
Capital Expenditures of the U.S. Company for such period financed with
Capital Leases); provided; that for the twelve month periods ending on June
30, 1995 and September 30, 1995, Leverage Ratio means the ratio of (a) total
consolidated Indebtedness of the U.S. Company outstanding on the last day of
such period (excluding the Indebtedness described in clause (g) and (to the
extent it applies to Indebtedness of another Person of the type described in
such clause (g)) (h) and (i) of the definition of "Indebtedness"); to (b)
the sum of (i) EBITDA for the period from January 1, 1995 through the last
day of such period, multiplied by the "Multiple" (as defined below), less
(iii) the consolidated Capital Expenditures of the U.S. Company for the
period from January 1, 1995 through the last day of such period, multiplied
by the Multiple (excluding consolidated Capital Expenditures of the U.S.
Company for such period financed with Capital Leases). For purposes hereof,
"Multiple" means, with respect to the Leverage Ratio for the period ending
June 30, 1995, 2.0, and with respect to the Leverage Ratio for the period
ending September 30, 1995, 1.33.
4. No Waiver of Past Defaults. Nothing contained herein shall be deemed
to constitute a waiver of any Event of Default that may heretofore or hereafter
occur or have occurred and be continuing, or to modify any provision of the
Credit Agreement except as expressly provided herein.
5. Representations and Warranties. To induce Lenders to enter into this
Agreement, each Company represents and warrants to Lenders that the execution,
delivery and performance by such Company of this Agreement are within its
corporate powers, have been duly authorized by all necessary corporate action
(including, without limitation, shareholder approval), have received all
necessary governmental approval (if any shall be required), and do not and will
not contravene or conflict with any provision of law applicable to such
Company, the Organization Documents of such Company, or any order, judgment or
decree of any court or other agency of government or any contractual obligation
binding upon such Company; and the Credit Agreement as amended as of the date
hereof is the legal, valid and binding obligation of such Company enforceable
against such Company in accordance with its terms.
6. Miscellaneous.
a. Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this Agreement.
-2-<PAGE> 3
b. Governing Law. This Agreement shall be a contract made under and
governed by the laws of the State of Illinois, without regard to conflict of
laws principles. Whenever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
c. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Agreement.
d. Successors and Assigns. This Agreement shall be binding upon the
Companies, Agents and Lenders and their respective successors and assigns; and
shall inure to the sole benefit the Companies, Agents and Lenders and the
successors and assigns of the Companies, Agents and Lenders.
e. References. Any reference to the Credit Agreement contained in any
notice, request, certificate, or other document executed concurrently with or
after the execution and delivery of this Agreement shall be deemed to include
this Agreement unless the context shall otherwise require.
f. Continued Effectiveness. Notwithstanding anything contained
herein, the terms of this Agreement are not intended to and do not serve to
effect a novation as to the Credit Agreement. The parties hereby expressly do
not intend to extinguish the Credit Agreement. Instead, it is the express
intention of the parties hereto to reaffirm the indebtedness created under the
Credit Agreement and secured by the Collateral. The Credit Agreement is hereby
amended hereby and each of the Loan Documents remain in full force and effect.
g. Costs, Expenses and Taxes. Each Company affirms and acknowledges
that Section 10.04 of the Credit Agreement applies to this Agreement and the
transactions and agreements and documents contemplated hereunder.
[SIGNATURES APPEAR ON NEXT PAGE]
-3-<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
STUART ENTERTAINMENT, INC.
By /s/ John A. McCray
-----------------------------
Title Director of Finance
-----------------------
BINGO PRESS & SPECIALTY LIMITED
By /s/ Frank Fish
-----------------------------
Title V.P. Finance
-----------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
U.S. Agent
By /s/ Matthew A. Gabel
-----------------------------
Title Vice President
-----------------------
BANK OF AMERICA ILLINOIS, as
U.S. Lender
By /s/ David McLeese
-----------------------------
Title Vice President
-----------------------
BANK OF AMERICA CANADA, as
Canadian Agent
By /s/ Robert S. Kizell
-----------------------------
Title Vice President
-----------------------
BANK OF AMERICA CANADA, as
Canadian Lender
By /s/ Robert S. Kizell
-----------------------------
Title Vice President
-----------------------
-4-
<PAGE> 1
EXHIBIT NO. 11
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(Amounts In Thousands, Except Per Share Amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares of common stock outstanding
at beginning of period (1) 6,594 3,405 6,539 3,405
Weighted-average shares issued
during the period 37 0 74 0
Weighted-average shares assumed
issued under stock option plans
and exercise of warrants during
the period (assuming the treasury
stock method) 45 81 64 87
------ ------ ------ ------
Average common and common equivalent
shares outstanding 6,676 3,486 6,677 3,492
====== ====== ====== ======
Net earnings (loss) $ (521) $ 466 $ (283) $ 995
====== ====== ====== ======
Earnings (loss) per share $(0.08) $ 0.13 $(0.04) $ 0.28
====== ====== ====== ======
</TABLE>
(1) This represents total outstanding shares of common stock less treasury
shares. See Note 2 of Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements in Part I.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 1,738
<SECURITIES> 0
<RECEIVABLES> 21,206
<ALLOWANCES> 2,041
<INVENTORY> 19,755
<CURRENT-ASSETS> 43,191
<PP&E> 33,478
<DEPRECIATION> 11,258
<TOTAL-ASSETS> 98,804
<CURRENT-LIABILITIES> 25,402
<BONDS> 39,847
<COMMON> 68
0
0
<OTHER-SE> 30,667
<TOTAL-LIABILITY-AND-EQUITY> 98,804
<SALES> 56,885
<TOTAL-REVENUES> 56,885
<CGS> 39,317
<TOTAL-COSTS> 14,149
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 375
<INTEREST-EXPENSE> 2,315
<INCOME-PRETAX> 729
<INCOME-TAX> 1,012
<INCOME-CONTINUING> (283)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (283)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
