<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, 1996 0-10737
Stuart Entertainment, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-0402207
- ------------------------- -----------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
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, 1996 there were 6,808,129 shares of the Registrant's common
stock, $.01 par value, outstanding.
<PAGE> 2
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1:
Consolidated Statements of Operations for the
Three And Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . 3
Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 4-5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 . . . . .. . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 7-10
Item 2:
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . 11-15
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
<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, 1996 AND 1995
(Amounts In Thousands, Except Per Share Amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 27,360 $ 29,421 $ 54,183 $ 56,885
COST OF GOODS SOLD 18,909 20,095 37,319 39,317
-------- -------- -------- --------
GROSS MARGIN 8,451 9,326 16,864 17,568
OTHER EXPENSES AND INCOME:
Selling, general and
administrative expenses 6,071 7,007 11,459 13,305
Amortization of goodwill 256 216 464 419
Interest expense, net 1,036 1,283 2,217 2,315
United Kingdom charge - 800 - 800
-------- -------- -------- --------
Other expenses and income - net 7,363 9,306 14,140 16,839
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,088 20 2,724 729
INCOME TAX PROVISION 214 541 932 1,012
-------- -------- -------- --------
NET INCOME (LOSS) $ 874 $ (521) $ 1,792 $ (283)
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE $ 0.13 $ (0.08) $ 0.26 $ (0.04)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 6,859 6,676 6,837 6,677
======== ======== ======== ========
</TABLE>
Note: No dividends were paid or declared during the six months
ended June 30, 1996 and June 30, 1995.
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(Dollars In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
- ------ 1996 1995
---------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,787 $ 943
Trade and notes receivables, less allowances
for doubtful accounts of $1,705 and $2,285,
respectively:
Related Parties 976 1,014
Other 20,125 18,355
Inventories (Note 4) 22,202 21,982
Refundable income taxes 723 -
Deferred income taxes 1,493 1,746
Prepaid expenses and other 755 547
-------- --------
Total Current Assets 48,061 44,587
PROPERTY,PLANT AND EQUIPMENT:
Land and buildings 4,993 4,950
Equipment 29,483 29,262
-------- --------
Total 34,476 34,212
Less accumulated depreciation (14,280) (13,095)
-------- --------
Property, Plant And Equipment - Net 20,196 21,117
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $1,563 and $1,209, respectively 28,753 29,194
Deferred financing costs, net of accumulated
amortization of $583 and $375, respectively 1,452 1,660
Notes receivable, less allowance for doubtful
accounts of $124 and $124, respectively 990 1,261
Other assets 1,104 1,175
-------- --------
Total Other Assets 32,299 33,290
-------- --------
TOTAL ASSETS $100,556 $ 98,994
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(Dollars In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31,
- ------------------------------------ 1996 1995
---------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt (Note 5) $ 9,404 $ 7,897
Bazaar purchase price adjustment 710 710
Trade payables 13,562 12,512
Accrued payroll and other liabilities 2,644 2,867
Income taxes payable - 543
Deferred taxes - 40
---------- ------------
Total Current Liabilities 26,320 24,569
LONG-TERM DEBT (Note 5)
Related party 5,000 5,000
Other 32,121 34,586
---------- ------------
Total Long-Term Debt 37,121 39,586
DEFERRED INCOME TAXES 2,678 2,594
COMMITMENTS AND CONTINGENCIES - -
DEFERRED INCOME 300 205
STOCKHOLDERS' EQUITY:
Common stock - $0.01 par value; 20,000,000
shares authorized; 6,864,374 and 6,753,309
shares outstanding, respectively 69 68
Additional paid-in capital 26,772 26,384
Retained earnings 7,317 5,525
Treasury stock (56,260 shares at cost) (189) (189)
Cumulative translation adjustment,
net of deferred taxes 168 252
---------- ------------
Total Stockholders' Equity 34,137 32,040
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 100,556 $ 98,994
========== ============
</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, 1996 AND 1995
(Dollars In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,792 $ (283)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Payment on termination of Consulting Agreement - (1,100)
Depreciation and amortization 2,398 2,167
Provision for doubtful accounts (329) 375
Deferred income taxes (231) (549)
Other noncash expenses - net 428 1,913
Change in operating working capital items, net
Trade receivables (2,115) (2,663)
Inventories (520) (3,195)
Trade Payables 1,050 1,123
Other - net (1,756) 1,877
-------- --------
Net cash provided by (used in) operating activities 717 (335)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (268) (2,520)
Payments received on notes receivable 982 486
Costs of acquisition of LSA - (324)
Investment in distributor - (116)
Acquisition of Reliable - (295)
-------- --------
Net cash provided by (used in)investing activities 714 (2,769)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Revolving Facility 2,046 5,242
Payments on Term Facility (1,518) (1,499)
Payments on other long-term debt (1,596) (1,452)
Payments on LSA Purchase Price Adjustment - (929)
Proceeds from issuance of long-term debt 95 1,140
Proceeds from exercise of stock options 386 238
Costs on issuance of stock - (17)
-------- --------
Net cash provided by (used in) financing activities (587) 2,723
Effect of currency exchange rate changes on cash
of foreign subsidiaries - 33
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 844 (348)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 943 2,116
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,787 $ 1,768
======== ========
Interest paid $ 2,157 $ 2,186
Income tax paid $ 1,872 $ 1,059
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE> 7
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,
1996 and 1995 are not necessarily indicative of the results that may
be expected for the full year ending December 31, 1996. These
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended
December 31, 1995, filed with the Securities and Exchange Commission
on the Company's Annual Report on Form 10-K.
Certain reclassifications have been made to the 1995 financial
statements to conform to those classifications used in 1996. The
consolidated financial statements of the Company include estimates and
assumptions related to certain assets, liabilities, revenues and
expenses and the disclosure of certain contingent assets and
liabilities. Actual future results may differ from such estimates.
2. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the Company, its
wholly-owned subsidiaries and its indirectly wholly-owned subsidiaries
(from the date they became indirectly wholly-owned). All significant
intercompany transactions and balances have been eliminated in
consolidation.
3. EARNINGS PER SHARE:
The number of shares used in earnings per share calculations for the
three month and six month periods ended June 30, 1996 and 1995 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.
7
<PAGE> 8
4. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands) 1996 1995
--------------------- ---------- -----------
<S> <C> <C>
Raw Materials $ 3,552 $ 3,517
Work-In-Process 5,106 5,056
Finished Goods 13,544 13,409
------- -------
Total $22,202 $21,982
======= =======
</TABLE>
5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- -----------
<S> <C> <C>
(Dollars in the Thousands)
--------------------------
Borrowings under Credit Agreement:
Revolving Facility $22,973 $20,921
Term Facility 10,622 12,135
Subordinated note payable
to Mr. Stuart 5,000 5,000
Other term loans and
mortgages payable to banks 1,959 2,064
Obligations under
capital leases 3,752 4,669
Notes payable to others 2,219 2,694
------- -------
Total 46,525 47,483
Less current portion 9,404 7,897
------- -------
Total long-term debt $37,121 $39,586
======= =======
</TABLE>
BORROWINGS UNDER CREDIT AGREEMENT:
The Company's bank credit facility is for an aggregate principal
amount of up to $38,000,000, with a senior secured revolving line of
credit of $23,000,000 (the "Revolving Facility") and a senior secured
term loan facility of $15,000,000 (the "Term Facility"). The Revolving
Facility and Term Facility are separated into U.S. and Canadian
facilities, respectively. The maximum available under the Revolving
Facility was increased by $3,000,000 during 1995 to a total of
$23,000,000 at December 31, 1995. Any amount outstanding under this
$3,000,000 additional amount shall be paid in full at December 31,
1996. The Credit Agreement expires and all other remaining amounts
outstanding are due on December 12, 1999.
At June 30, 1996 and December 31, 1995, loans outstanding on the U.S.
Revolving
8
<PAGE> 9
Facility totaled $11,900,000 and $11,540,000 respectively, and loans
outstanding on the Canadian Revolving Facility totaled C$15,100,000
($11,073,000) and C$12,800,000 ($9,381,000), respectively. Weighted
average interest rates on the U.S. Revolving Facility and Canadian
Revolving Facility at June 30, 1996 and December 31, 1995 were 7.94%
and 8.42% respectively. At June 30, 1996 and December 31, 1995, loans
outstanding on the U.S. Term facility totaled $3,500,000 and
$4,000,000, respectively, and loans outstanding on the Canadian Term
Facility totaled C$9,713,000 ($7,122,000) and C$11,100,000
($8,135,000) respectively. Interest rates on the U.S. Term Facility
and the Canadian Term Facility at June 30, 1996 and December 31, 1995
were 7.93% and 8.44%, respectively.
OBLIGATIONS UNDER CAPITAL LEASES
In 1995, the Company completed a lease line of credit with its primary
bank. The facility provides lease financing on capitalized equipment
purchased through December 31, 1996. The maximum available under this
facility is $5,000,000. At June 30, 1996, $3,813,000 remained
available under this facility.
6. UNITED KINGDOM CHARGE
During the second quarter of 1995, the Company signed a licensing and
marketing agreement with Playprint Limited, headquartered in Dublin,
Ireland. This agreement gave the Company the opportunity to redeploy
its assets in the United Kingdom, and discontinue its manufacturing
operation. Under the agreement, Playprint Limited, pays royalties to
S.E. International Inc. for use of certain of the Company's trademark,
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 of 1995 related to the estimated costs to
shutdown the manufacturing facility in the United Kingdom and
consolidate its activities with Playprint Limited.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, which is effective for the Company beginning January 1,
1996. SFAS No. 123 requires expanded disclosure of stock-based
compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on the fair value of
the equity instrument awarded. Companies are permitted, however, to
continue to apply Accounting Principles Board (APB) Opinion No. 25,
which recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company will continue to apply APB No.
25 to its stock-based compensation awards to employees and will
disclose the required pro forma effect on net income and earnings per
share in the
9
<PAGE> 10
Annual Report on Form 10-K for its current year.
8. SUBSEQUENT EVENT
On August 6, 1996 the Company signed a definitive agreement to
purchase the assets and assume certain liabilities of Trade for a
purchase price of $36,555,000, subject to certain post-closing
adjustments. The purchase price shall consist of cash paid of
$29,555,000, the issuance of a $7 million subordinated note, and the
issuance of warrants to acquire 300,000 shares of The Company's common
stock at $7.75 per share. Trade, a privately held company based in
Seattle, is the nation's largest maker and marketer of gaming tickets
known as pulltabs, with 1995 sales of approximately $35 million.
The transaction is subject to certain conditions, including the
approval of financing and meeting regulatory gaming requirements. The
Company intends to finance the transaction through a combination of
debt and equity. The Company expects to close the transaction in the
fourth quarter of 1996.
10
<PAGE> 11
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in this report, if not historical, are forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, and involve risks and uncertainties that could cause actual
results to differ materially from the financial results described in such
forward looking statements. These risks and uncertainties include, among others,
the level and rate of growth in the Company's operations, the effect of paper
costs, and the ability of the Company to achieve earnings per share growth
through internal investment, strategic alliances, joint ventures and other
methods. The success of the Company's business operations is in turn dependent
on factors such as the effectiveness of the Company's marketing strategies to
grow its customer base and improve customer response rates, the appeal of the
Company's mix of products, the Company's success at entering into and
collaborating with others to conduct effective strategic alliances and joint
ventures, general competitive conditions within the gaming industry and general
economic conditions. Further, any forward-looking statement speaks only as of
the date on which such statement is made, and the Company undertakes no
obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1996 And 1995
Net Sales - Net sales in the second quarter of 1996 decreased $2,061,000 (7.0%)
to $27,360,000 from $29,421,000 for the comparable period of 1995. The sales
decline was partially attributable to; i)the shut down of the Company's
operations in England, which accounted for approximately $450,000 of the total
decrease; ii)sales of ink products decreased $528,000 (16.1%) despite a unit
volume increase due to a shift in mix of ink products sold to lower priced
products and; iii)Video King sales decreased $413,000 (59.8%).
Overall, selling price levels increased for bingo paper and break-open tickets
reflecting several raw material price increases in 1995 which the Company was
able to pass on to customers while sale price levels for ink products decreased
due to a mix change. Bingo paper prices increased approximately 5.6% and
break-open ticket prices increased 3.2% during the three-month period of 1996
compared to 1995.
Cost Of Goods Sold - Cost of goods sold, as a percentage of sales, increased
from 68.3% for the three months ended June 30, 1995 to 69.1% for the three
months ended June 30, 1996. The increase in cost of goods sold percentage is
primarily due to increases in raw material, newsprint and general labor rates.
Selling, General and Administrative Expenses - Selling, general and
administrative ("SG&A") expenses decreased $936,000 from $7,007,000 for the
three months ended June 30, 1995 to $6,071,000 for the three months ended June
30, 1996. The decrease in SG&A expenses was primarily due to four factors:
(i)the discontinued operation of Stuart Entertainment England during 1995;
(ii)the consolidation synergies related to the acquisition of Bazaar and
Reliable; (iii)lower bad debt expense; and iv)the impact of a cost reduction
program first implemented in 1995.
Interest Expense, net - Interest expense (net of interest income)decreased
$247,000 from $1,283,000 for the three month period ended June 30, 1995 to
$1,036,000 for the three months ended June 30, 1996. The decrease in interest
expense is primarily due to lower interest rates on comparable borrowing levels
in the current quarter.
Income Tax Provision - The Company's effective tax rate decreased in the second
quarter of 1996 due to the partial recognition of losses previously generated
by Stuart Entertainment England.
11
<PAGE> 12
Net Income - Net income for the three month period ended June 30, 1996 was
$874,000 ($.13 per share) compared with a net loss of $521,000 (($.08) per
share) for the same period in 1995.
The results for the comparable period in 1995 were adversely affected by a loss
of $1,129,000 for Stuart Entertainment England. Included in the loss for
Stuart Entertainment England was a reserve of $800,000 to close the operation.
Comparison of Six Months Ended June 30, 1996 And 1995
Net Sales - Net sales in the first six months of 1996 decreased $2,702,000
(4.7%) to $54,183,000 compared to $56,885,000 for the first six months of 1995.
Excluding the effect of the discontinuance of sales from Stuart Entertainment
England ($758,000), comparable sales for the six month period decreased
$1,944,000 or 3.5%.
The overall decline in sales is primarily attributed to the severe winter
weather in the first quarter which adversely affected all retail sales, the
high volume of paper sales in the prior year related to increased customer
orders prior to price increases and the shift in the mix of ink products to
lower priced products.
Overall selling price levels increased for bingo paper and break-open tickets
reflecting several raw materials price increases in 1995 which the Company was
able to pass on to customers. In addition sale price levels for ink products
decreased. Bingo paper sale prices increased approximately 8.1% and break-open
ticket prices increased slightly during the first six-months of 1996. Ink
product prices decreased approximately 15.3% due primarily from a shift in the
mix of ink products sold to lower priced products.
Cost Of Goods Sold - Cost of goods sold, as a percentage of sales, decreased
slightly from 69.1% for the six months ended June 30, 1995 to 68.9% for the six
months ended June 30, 1996. The decrease was primarily the result of the
application of purchase accounting to the finished goods of Bingo Press and
Specialty Limited ("Bazaar") which resulted in a charge of $489,000 in the
first quarter of 1995. The decrease was partially offset by increases in raw
material and general labor rates.
During 1995, the Company experienced significant increases in the price of
bingo paper and packaging. The Company initiated selling price increases on
bingo paper during this period. During the first six months of 1996, the price
of paper products has stabilized.
Selling, General and Administrative Expenses - SG&A expenses decreased
$1,846,000 from $13,305,000 for the six months ended June 30, 1995 to
$11,459,000 for the six months ended June 30, 1996. SG&A expenses, as a
percent of sales, decreased to 21.1% in the first half of 1996 from 23.4%
during the same period of 1995. The decrease in SG&A expenses was due
primarily to four factors: i)the discontinued operation of Stuart
Entertainment England during
12
<PAGE> 13
1995; ii)the consolidation synergies related to the acquisition of Bazaar and
Reliable; iii)lower bad debt expense; and iv)the impact of a cost reduction
program implemented in 1995.
Income Tax Provision - The Company's effective tax rate decreased in the first
half of 1996 due to the partial recognition of losses previously generated by
Stuart Entertainment England.
Net Income - Net income for the six month period ended June 30, 1996 was
$1,792,000 ($.26 per share) compared with a net loss of $283,000 (($.04) per
share) for the same period.
Results for the prior period include operations of Stuart Entertainment England
which recorded a loss of $1,409,000. The manufacturing operations of the
subsidiary were discontinued in 1995. In addition, results for the prior year
include 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's long-term debt at June 30, 1996, including the current portion
thereof, totaled $46,525,000 compared to $47,483,000 at December 31, 1995 (see
Note 5 to the Consolidated Financial Statements). Cash payments on long-term
debt during the first six months of 1996 totaled approximately $3,114,000
compared to $2,951,000 for the same period in 1995.
As of June 30, 1996 the Company had drawn all amounts available under its
revolving facility, $23,000,000, of which approximately $510,000 was invested
short-term and available for working capital purposes.
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. In addition, the Company must
complete a Borrowing Base Certificate on a monthly basis beginning June 30,
1996 with amounts outstanding in revolving loans in excess of the borrowing
base repaid.
Capital expenditures during the first six months of 1996 totaled $238,000. At
June 30,1996, $3,813,000 remained available under the Company's lease line of
credit. Capital expenditures for fiscal 1996 are currently projected to be
$2,500,000. The Company's capital expenditure program will continue to focus
on the purchase of equipment designed to increase production capacity and
improve manufacturing efficiency. The Company expects a larger portion of its
capital expenditure requirements will be allocated to the upgrading and
development of computerized hardware systems.
Management believes that under the current operating plan, its existing capital
resources and available financing will be sufficient to meet its operating
expenses and capital expenditure
13
<PAGE> 14
requirements. However, the Company currently anticipates raising additional
capital to fund the acquisition of Trade (See Note 8 to Notes to Consolidated
Financial Statements). Management currently has no commitments for such
financing activities and there can be no assurance that such funds will be
available to the Company on favorable terms, if at all.
CHANGE IN BALANCE SHEET ACCOUNTS
Total trade receivables increased $1,505,000 from $20,302,000 at December 31,
1995 to $21,807,000 at June 30, 1996. The increase is due to normal seasonal
fluctuations and price increases. During the six months ended June 30, 1996,
trade receivables totaling $358,000 were converted to notes receivable from
non-related parties. The conversions were made to assist customers in
resolving cash flow deficiencies and to aid customers in accomplishing their
long term growth plans.
Trade payables and accrued liabilities increased a combined $284,000 from
$16,632,000 at December 31, 1995 to $16,916,000 at June 30, 1996. The increase
is due to higher working capital requirements largely related to the
seasonality of trade receivables resulting in higher trade payables, partially
offset by the elimination of income taxes payable.
14
<PAGE> 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
a. Exhibits:
Exhibit 10 Fifth Amendment to Credit Agreement dated as of
May 13, 1996.
Exhibit 11 Statement Regarding Computation of Per Share
Earnings
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K:
The Company filed a current Report on Form
8-K, dated April 18, 1996, under Item 5 regarding
the press release announcing the Letter of Intent
to acquire Trade Products, Inc.
15
<PAGE> 16
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, 1996 /s/ Timothy R. Stuart
--------------------------
Timothy R. Stuart
President
Date: August 14, 1996 /s/ Paul C. Tunink
--------------------------
Paul C. Tunink
Vice President and Chief
Financial Officer
16
<PAGE> 17
EXHIBIT INDEX
The following Exhibits are filed herewith.
Exhibit No. Description Page
- ----------- ----------- ----
10 Fifth Amendment to Credit 18
Agreement dated as of May 13,
1996.
11 Statement Regarding Computation 22
of Per Share Earnings
27 Financial Data Schedule 33
17
<PAGE> 1
FIFTH AMENDMENT TO CREDIT AGREEMENT
This Fifth Amendment to Credit Agreement, dated as of May 13,
1996 (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 a U.S. Lender, The Chase Manhattan Bank
(National Association), as a U.S. Lender, Bank of America Canada, as Canadian
Agent and a Canadian Lender, and The Chase Manhattan Bank of Canada, as a
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. Lenders, the Canadian Agent and the Canadian Lenders are
parties to that certain Credit Agreement dated as of December 13, 1994 (as
amended, 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 amendments to the Credit Agreement, and the Agents and
Lenders have agreed to such 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. Amendments to the Credit Agreement. Subject to the
satisfaction of the conditions precedent set forth in Section 3 below, the
Credit Agreement is hereby amended as follows:
(a) The definition of "Borrowing Base" in Section 1.01 of
the Credit Agreement is amended to replace the date "February 28, 1996" with
the date "May 31, 1996".
(b) The last sentence of Section 2.07(c) of the Credit
Agreement is amended and restated as follows:
If, at any time after May 31, 1996, the aggregate principal amount of
all outstanding Revolving Loans and the aggregate undrawn face amount
of all Letters of Credit (with the amounts of the Revolving Loans to
the Canadian Company and Letters of Credit issued for the account of
the Canadian Company expressed in U.S. Dollars at the Closing Date
Exchange Rate) exceeds the Borrowing Base, the Companies shall
immediately repay such excess; provided, that if such excess on or
before June 30, 1996, the Companies shall repay such excess in full by
making consecutive equal monthly installments each in the amount of
one-seventh of such excess, commencing on June 30, 1996 and
continuing on the last day of each calendar month thereafter until the
earlier of
18
<PAGE> 2
December 31, 1996 or the date the Companies are in compliance with the
Borrowing Base.
(c) Section 2.18 of the Credit Agreement is amended to
replace the date "February 28, 1996" with the date "May 31, 1996."
(d) Section 6.01(f) of the Credit Agreement is amended to
replace the date "February 28, 1996" with the date "May 31, 1996."
3. Conditions to Effectiveness. This Agreement,
including the amendments and other terms set forth herein, shall become
effective as of the date of this Agreement upon the satisfaction of all of the
following conditions precedent, all of which must be satisfactory to each Agent
and Lender in each of their sole discretion:
(a) Reaffirmation of Guaranty. U.S. Agent and Canadian
Agent shall have each received an originally executed joint and several
reaffirmation of guaranty from MLGAL Partners, Limited Partnership, a
Connecticut limited partnership ("Morgan"), and Leonard A. Stuart ("Stuart").
4. Fees and Expenses
(a) Audit Fees. The U.S. Company and Canadian Company
reaffirm their obligation to pay U.S. Agent for all audit fees incurred by U.S.
Agent in connection with the establishment of a borrowing base as contemplated
by section 2.17 of the Credit Agreement.
(b) 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.
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.
(b) Governing Law. This Agreement shall be a contract
made under and
19
<PAGE> 3
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 of 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 amended hereby and each of the Loan Documents remain in full force and
effect.
20
<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. BINGO PRESS & SPECIALTY LIMITED
By By
------------------------------- ----------------------------
Its Its
------------------------------- ----------------------------
BANK OF AMERICA NATIONAL TRUST BANK OF AMERICA CANADA, as
AND SAVINGS ASSOCIATION, as U.S. Canadian Agent
Agent
By By
------------------------------- ----------------------------
Its Its
------------------------------- ----------------------------
BANK OF AMERICA ILLINOIS, as a U.S. BANK OF AMERICA CANADA, as a
Lender Canadian Lender
By By
------------------------------- ----------------------------
Its Its
------------------------------- ----------------------------
THE CHASE MANHATTAN BANK THE CHASE MANHATTAN BANK OF
(NATIONAL ASSOCIATION), as a U.S. CANADA, as a Canadian Lender
Lender
By By
------------------------------- ----------------------------
Its Its
------------------------------- ----------------------------
21
<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>
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ---------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares of common stock outstanding
at beginning of period (1) 6,717 6,594 6,697 6,539
Weighted-average shares issued
during the period 24 37 32 74
Weighted-average shares assumed
issued under stock option plans
and exercise of warrants during
the period (assuming the treasury
stock method) 118 45 108 64
------ ------ ------ ------
Average common and common equivalent
shares outstanding 6,859 6,676 6,837 6,677
====== ====== ====== ======
Net income (loss) $ 874 $ (521) $1,792 $ (283)
====== ====== ====== ======
Earnings (loss) per share $ 0.13 $(0.08) $ 0.26 $(0.04)
====== ====== ====== ======
</TABLE>
(1) This represents total outstanding shares of common stock less treasury
shares.
See Notes to Consolidated Financial Statements.
22
<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, 1996 AND THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,787
<SECURITIES> 0
<RECEIVABLES> 22,806
<ALLOWANCES> 1,705
<INVENTORY> 22,202
<CURRENT-ASSETS> 48,061
<PP&E> 34,476
<DEPRECIATION> 14,280
<TOTAL-ASSETS> 100,556
<CURRENT-LIABILITIES> 26,320
<BONDS> 37,121
<COMMON> 69
0
0
<OTHER-SE> 34,068
<TOTAL-LIABILITY-AND-EQUITY> 100,556
<SALES> 54,183
<TOTAL-REVENUES> 54,183
<CGS> 37,319
<TOTAL-COSTS> 12,166
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (329)
<INTEREST-EXPENSE> 2,303
<INCOME-PRETAX> 2,724
<INCOME-TAX> 932
<INCOME-CONTINUING> 1,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,792
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
