<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
March 31, 1997 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
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(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 May 1, 1997 there were 6,828,116 shares of the Registrant's common stock,
$.01 par value, outstanding.
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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 MONTHS ENDED MARCH 31, 1997 AND 1996 .......................................... 3
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1997 AND
DECEMBER 31, 1996 ................................................................. 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 ........................................... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................ 6-11
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................................... 12-14
PART II. OTHER INFORMATION:.......................................................... 15
SIGNATURES............................................................................ 16
EXHIBIT INDEX......................................................................... 17
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL INFORMATION
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Amounts in thousands, except per share data)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
NET SALES $32,669 $26,823
COST OF GOODS SOLD 22,901 18,410
------- -------
GROSS MARGIN 9,768 8,413
OTHER EXPENSES:
Selling, general and administrative expenses 9,002 5,596
Interest expense, net 3,110 1,181
------- -------
Other expenses, net 12,112 6,777
------- -------
INCOME (LOSS) BEFORE INCOME TAXES (2,344) 1,636
INCOME TAX PROVISION (BENEFIT) (922) 718
------- -------
NET INCOME (LOSS) $(1,422) $ 918
======= =======
EARNINGS (LOSS) PER SHARE $ (0.21) $ 0.13
======= =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 6,828 6,815
======= =======
EBITDA (Note 1) $ 3,858 $ 3,679
======= =======
</TABLE>
Note: No dividends were paid or declared during the three months ended March
31, 1997 and 1996.
See Notes to Consolidated Financial Statements.
3
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STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(Dollars in thousands)
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<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 15,552 $ 13,732
Trade receivables, net of allowance for
doubtful accounts of $2,219 and $2,230 26,870 25,998
Current portion of notes receivable, less
allowance for doubtful accounts of $99 1,376 1,296
Inventories 25,079 28,118
Income taxes recoverable 3,524 2,545
Deferred income taxes 2,581 2,581
Prepaid expenses and other current assets 1,212 989
-------- --------
Total Current Assets 76,194 75,259
PROPERTY, PLANT AND EQUIPMENT, net 29,350 29,760
GOODWILL, net of accumulated amortization
of $2,252 and $1,983 43,201 43,726
OTHER ASSETS, net 5,808 5,850
-------- --------
$154,553 $154,595
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 368 $ 370
Trade payables 11,073 11,834
Accrued payroll and benefits 2,754 2,688
Accrued interest 4,757 1,632
Other accrued liabilities 1,456 1,261
Restructuring charge reserve 2,776 3,280
Deferred income taxes 169 169
-------- --------
Total Current Liabilities 23,353 21,234
LONG-TERM DEBT 100,360 100,396
DEFERRED INCOME TAXES 2,026 2,320
DEFERRED INCOME 216 287
STOCKHOLDERS' EQUITY:
Common stock $.01 par value; 30,000,000 shares
authorized; 6,884,376 shares issued 69 69
Additional paid-in capital 27,368 27,368
Retained earnings 1,872 3,294
Treasury stock (56,260 shares at cost) (189) (189)
Cumulative translation adjustment, net of
deferred income taxes (522) (184)
-------- --------
Total Stockholders' Equity 28,598 30,358
-------- --------
$154,553 $154,595
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Amounts in thousands)
(UNAUDITED)
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<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,422) $ 918
Adjustments to reconcile net income (loss) to net
cash flows from operating activities:
Depreciation and amortization 1,634 862
Provision for doubtful accounts -- (311)
Equity in (earnings) losses of joint ventures (4) 84
Other non-cash expenses - net (69) 43
Change in operating assets and liabilities:
Trade receivables (1,178) (2,300)
Inventories 2,780 402
Trade payables (761) 983
Other - net 1,680 (343)
------- -------
Net cash flows from operating activities 2,660 338
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,000) (77)
Payments received on notes receivable 406 184
Other (83) (64)
------- -------
Net cash flows from investing activities (677) 43
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under credit agreements -- 1,282
Cost of debt financing (152) --
Payments on long-term debt (38) (809)
Proceeds from issuance of long-term debt -- 95
Proceeds from exercise of stock options -- 100
------- -------
Net cash flows from financing activities (190) 668
Effect of currency exchange rate changes on cash of
foreign subsidiaries 27 --
------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,820 1,049
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,732 943
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $15,552 $ 1,992
======= =======
Interest paid $ 60 $ 1,091
Income taxes paid $ 132 $ 864
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Columnar amounts in thousands, except per share data)
1. SUMMARY OF ACCOUNTING POLICIES
NATURE OF OPERATIONS - Stuart Entertainment, Inc. and its subsidiaries
(collectively, the "Company") are primarily engaged in the manufacture
and distribution of a full line of bingo and bingo-related products,
including disposable bingo paper, pulltab tickets, ink dabbers,
electronic bingo systems and related equipment and supplies. The
Company's products are sold primarily in the United States and Canada to
distributors, who resell them to non- profit organizations which use such
products for fund-raising purposes and to commercial entities such as
Indian gaming enterprises, casinos and government sponsored entities
which operate bingo games for profit. The Company is also engaged in the
manufacture and distribution of electronic gaming equipment, primarily
for the Company's bingo markets. The Company does not believe there are
any significant concentrations of credit risk.
BASIS OF PRESENTATION - The accompanying unaudited consolidated financial
statements of 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 unaudited
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 months ended March 31,
1997 and 1996 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 1997. These financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended December 31,
1996, filed with the Securities and Exchange Commission on the Company's
Annual Report on Form 10-K.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include Stuart Entertainment, Inc., 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.
USE OF ESTIMATES - The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
FINANCIAL INSTRUMENTS - The carrying values of certain identified notes
receivable and long-term debt are deemed to be reasonable estimates of
their fair values. Interest rates that are
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currently available to the Company for the reissuance of debt with
similar terms and remaining maturities are used to estimate fair values
of the notes receivable and long-term debt.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
financial instruments purchased with a maturity of three months or less
to be cash equivalents. The Company utilizes a cash management system
that includes zero balance accounts. Negative cash balances for such
accounts, resulting from outstanding checks, are reclassified to accounts
payable in the consolidated financial statements.
EARNINGS PER SHARE - The number of shares used in the computation of
earnings per share for the three months ended March 31, 1997 and 1996 is
based upon the weighted average number of shares outstanding and, if
dilutive, common stock equivalents (stock options and warrants) of the
Company using the treasury stock method.
EBITDA - EBITDA is defined herein as earnings before interest, taxes,
depreciation, amortization, purchase accounting adjustments,
restructuring charge and extraordinary item. EBITDA is presented because
it is a measure of a company's ability to service its indebtedness
commonly used by investors. However, items excluded from EBITDA, such as
depreciation and amortization, are significant components in
understanding and assessing financial performance; EBITDA should not be
considered as an alternative to net income as a measure of operating
results or to cash flows or as a substitute for measures of performance
in accordance with generally accepted accounting principles. For more
detailed information regarding cash flows from operating, investing and
financing activities, see the Consolidated Statements of Cash Flows.
EBITDA measures presented herein may not be comparable to other similarly
titled measures of other companies.
FOREIGN CURRENCY TRANSLATION AND REMEASUREMENT - The financial statements
and transactions of Bingo Press & Specialty Limited and Stuart
Entertainment Limited are maintained in their functional currency,
Canadian dollars and British pounds, respectively. Assets and
liabilities are translated at current exchange rates at the balance sheet
date and stockholders' equity is translated at historical exchange rates.
Revenues and expenses are translated at the average exchange rate for
each period. Translation adjustments, which result from the process of
translating Canadian dollar and British pound financial statements into
U.S. dollar financial statements, are accumulated as a separate component
of stockholders' equity. The financial statements and transactions of
Stuart Entertainment S.A. de C.V. are maintained in Mexican pesos and
have been remeasured into U.S. dollars. Assets and liabilities are
remeasured at the end of period exchange rates, except for property and
stockholders' equity which are remeasured at historical exchange rates.
The statements of operations have been remeasured at average exchange
rates for the periods, except for depreciation which has been remeasured
at historical exchange rates. Gains and losses from remeasurement are
recognized currently in operations.
INVENTORIES - Inventories are stated at the lower of cost or market, with
cost determined using the first-in, first-out method.
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PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried
at cost, less accumulated depreciation. Depreciation is generally
provided on the straight-line method over the estimated useful lives of
the respective assets, as follows:
Buildings and improvements 10-20 years
Equipment 3-10 years
INVESTMENTS - Investments in the common stock of certain affiliated
companies are accounted for using the equity method if the Company has
the ability to exercise significant influence over the investee's
operations and financial policies. Otherwise, the cost method is used.
DEFERRED FINANCING FEES - Deferred financing fees are being amortized to
interest expense using the straight-line method over the respective terms
of the credit agreements; five years for the New Credit Agreement and
eight years for the Senior Subordinated Notes.
GOODWILL - Goodwill is amortized on a straight-line basis over periods
ranging from ten to forty years.
INCOME TAXES - The Company uses the balance sheet approach of accounting
for income taxes, whereby deferred assets and liabilities are recorded at
the tax rate currently enacted. The Company's future results may be
affected by changes in the corporate income tax rate.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are
charged to expense as incurred.
REVENUE RECOGNITION - The Company records revenue as products are
shipped.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1996
financial statements and supporting footnote disclosures in order to
present them in conformity with the 1997 financial statement
presentation.
2. ACQUISITIONS
TRADE PRODUCTS, INC.:
On November 13, 1996, the Company acquired substantially all of the
assets and assumed certain liabilities of Trade Products, Inc. ("Trade")
(the "Trade Acquisition") for a purchase price of $37.2 million, subject
to certain post-closing adjustments, plus the issuance of warrants to
acquire 300,000 shares of the Company's common stock, with an exercise
price of $7.75 per share.
The Trade Acquisition has been accounted for using the purchase method of
accounting. The purchase price has been allocated to the fair value of
the acquired assets and liabilities, resulting in the recording of
goodwill of $15.5 million. The results of operations of Trade have been
consolidated since the date of the Trade Acquisition.
8
<PAGE> 9
The pro forma results presented below give effect to the Trade Acquisition,
as if such transaction occurred as of the beginning of each period presented.
The unaudited pro forma information does not purport to represent the
Company's results of operations if such transaction had, in fact, occurred on
such dates and should not be viewed as predictive of the Company's financial
results in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
<S> <C> <C>
Net sales $32,669 $36,166
Net income (loss) $(1,422) $ 371
Income (loss) per share $ (.21) $ 0.05
Average common and common equivalent
shares outstanding 6,828 6,815
EBITDA $ 3,858 $ 5,344
</TABLE>
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
<S> <C> <C>
Raw materials $ 3,709 $ 3,975
Work-in-process 3,950 4,316
Finished goods 17,420 19,827
------- -------
$25,079 $28,118
======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
<S> <C> <C>
Land and buildings $ 5,686 $ 5,739
Equipment 40,526 39,759
------- -------
46,212 45,498
Less accumulated depreciation 16,862 15,738
------- -------
$29,350 $29,760
======= =======
</TABLE>
9
<PAGE> 10
5. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
Deferred financing fees, net of accumulated
amortization of $201 and $104 $3,823 $3,768
Notes receivable, net of allowance for doubtful
accounts of $124 838 919
Other investments and assets 896 916
Investments in joint ventures 251 247
------ ------
$5,808 $5,850
====== ======
</TABLE>
6. LONG-TERM DEBT
On November 13, 1996, the Company completed a private placement in
reliance on Rule 144A of the Securities Act of 1933, as amended, of $100
million aggregate principal amount of 12.5% Senior Subordinated Notes due
November 15, 2004 (the "Original Notes"). Pursuant to a registration
rights agreement, on March 28, 1997, the Company completed an exchange
offer in which the Original Notes were exchanged for the Company's Series
B 12.5% Senior Subordinated Notes due November 15, 2004 (the "Notes").
Interest on the Notes will be payable semi-annually on each May 15 and
November 15, commencing May 15, 1997. The indenture governing the Notes
imposes certain limitations on the Company's ability to, among other
things, incur additional indebtedness, pay dividends or make certain
other restricted payments and consummate certain asset sales. The
Company used the proceeds of the private placement to finance the Trade
Acquisition, to repay certain existing indebtedness and for general
corporate purposes.
On November 13, 1996, the Company amended and restated its credit
agreement (the "New Credit Agreement"). The New Credit Agreement
consists of a revolving credit facility in the aggregate principal amount
of $30 million, bearing interest with reference to the base rate or the
LIBOR rate, at the Company's option, plus the applicable interest margin,
as defined in the New Credit Agreement. The New Credit Agreement also
charges a quarterly non-use fee on any unborrowed funds.
The Company may draw amounts under the New Credit Agreement, subject to
availability pursuant to a borrowing base requirement, in order to meet
its working capital requirements, including issuing letters of credit. The
loans are secured by substantially all of the Company's otherwise
unencumbered assets, including a pledge of the stock the Company holds in
its subsidiaries, except as specifically excluded under the New Credit
Agreement.
The New Credit Agreement imposes certain covenants and other requirements
on the Company that, among other things, restricts i) the incurrence and
existence of indebtedness or contingent obligations; ii) consolidations,
mergers and sales of assets; iii) the incurrence and existence of liens;
iv) the sale or disposition of assets; v) investments, loans and
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advances; vi) capital expenditures; vii) the payment of dividends and
repurchase of common stock; and viii) acquisitions of the Company. The
Company is also required to meet certain consolidated financial tests,
including minimum level of net worth, minimum level of consolidated
interest coverage, maximum consolidated leverage ratio and minimum
consolidated fixed charge coverage ratio. The Company was in violation of
certain covenants at March 31, 1997 and such violations have been waived
by the Company's principal banks. At March 31, 1997, the Company had not
yet drawn any amounts under the New Credit Agreement. The Company expects
to renegotiate the New Credit Agreement during the second quarter and
until that time, the Company may not draw amounts under the New Credit
Agreement.
Long-term debt consisted of the following:
<TABLE>
March 31, December 31,
1997 1996
<S> <C> <C>
Senior Subordinated Notes $100,000 $100,000
Notes payable to others 728 766
-------- --------
100,728 100,766
Less current portion 368 370
-------- --------
$100,360 $100,396
</TABLE>
NOTES PAYABLE TO OTHERS:
The Company has notes payable related to i) obligations to former owners
of companies and/or assets that were acquired by the Company; ii)
mortgages; and iii) installment notes relating to the purchase of
property, plant and equipment. Remaining payment terms at March 31, 1997
range from approximately one year to five years. At March 31, 1997,
these notes bear interest at fixed and variable rates ranging from 6% to
11.25%.
7. NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS 128). This statement established standards for computing
and presenting earnings per share (EPS). It requires dual presentation
of basic and diluted EPS on the face of the income statement for all
entities with complex capital structures. The standard is effective for
financial statements for both interim and annual periods ending after
December 15, 1997. Based on information currently available to
management, the Company does not expect SFAS 128 to have a material
effect on the Company's EPS computation.
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Item 2. MANAGEMENT'S 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 entertainment and gaming industries and
general economic conditions. Further, any forward looking statements or
statements speak only as of the date on which such statement was 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.
Therefore, any forward looking statements should not be relied upon as a
prediction of actual results.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1997 and 1996
Net Sales - Net sales were $32.7 million for the three months ended March 31,
1997, an increase of $5.9 million or 22% from $26.8 million for the three
months ended March 31, 1996 . The sales increase was primarily attributable to
the consolidation of Trade Products which was acquired in the fourth quarter of
1996, partially offset by i) a decrease in sales of consumable products,
including pulltab tickets and ink products and ii) a decrease in bingo hall
equipment sales due primarily to a $1.2 million sale of System 12(TM)
electronic bingo and gaming units in the first quarter of 1996 that was not
repeated in 1997.
The Company experienced a continuing softness in the U.S. pulltab ticket market
during the three months ended March 31, 1997 due to competitive pressures from
other sources of gaming and entertainment and continued pressure from
competitors within the pulltab industry. Management believes that the Company
will continue to experience softness in the U.S. pulltab ticket market through
at least the second quarter.
Cost of Goods Sold - Cost of goods sold, as a percentage of sales, was 70.1%
for the three months ended March 31, 1997, an increase of 1.5 percentage points
from 68.6% for the three months ended March 31, 1996. Excluding the
application of purchase accounting adjustments recorded in the first quarter of
1997 to the finished goods inventory of Trade Products, cost of sales, as a
percentage of sales was 65.6%, or a decrease of 3.0 percentage points from the
first quarter of 1996. The decrease is primarily attributable to the
consolidation of Trade Products, which has lower production costs than the
historical results of Stuart. The Company also experienced more favorable raw
materials prices, particularly in newsprint during the first quarter of 1997.
Management believes the price of paper prices will increase during 1997.
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The consolidation of all U.S. pulltab manufacturing operations to the Seattle
area, the home of Trade Products, is expected to be completed during the second
quarter of 1997. The consolidation of U.S. bingo paper manufacturing operations
to the Company's Texas border facilities is underway and is expected to be
completed in early 1998. Production costs are expected to decline beginning in
the second half of 1997 as the Company takes advantage of the manufacturing
consolidation benefits.
Selling, General and Administrative Expenses - Selling, general and
administrative ("SG&A") expenses were $9.0 million for the three months ended
March 31, 1997, an increase of $3.4 million or 60.9% from $5.6 million for the
three months ended March 31, 1996. The increase is primarily attributable to
the consolidation of Trade Products which contributed SG&A expenses of
approximately $2.2 million. Excluding the effect of the consolidation of Trade
Products, the Company experienced increases in i) professional fees, ii)
depreciation and amortization expense, iii) salaries and related costs and iv)
due to a lower bad debt provision in the prior period.
Interest Expense, net - Interest expense, net was $3.1 million for the three
months ended March 31, 1997, an increase of $1.9 million or 163% from $1.2
million for the three months ended March 31, 1997. The increase is
attributable to accrued interest on the Notes and the amortization of the
deferred financing fees on the Notes and the $30 million New Credit Agreement,
partially offset by interest income earned on the excess proceeds from the
Notes.
Net Income (Loss) - Net loss was $547,000, or $0.08 per share, before a purchase
accounting adjustment, compared with net income of $918,000, or $0.13 per share,
the year before. Including a charge in the current year period of $875,000, net
of taxes, or $0.13 per share, for a purchase accounting adjustment to the
finished goods inventory of Trade Products, the Company had a net loss of $1.4
million, or $0.21 per share.
EBITDA - EBITDA was $3.9 million for the three months ended March 31, 1997, a
decrease of $1.4 million or 26% from $5.3 million, on a pro forma basis, for the
three months ended March 31, 1996. The decrease in EBITDA is primarily due to
i) a System 12(TM) electronic bingo sale of over $1 million in the first quarter
of 1996 that was not repeated in the current period, ii) short term production
inefficiencies experienced during the consolidation of U.S. pulltab
manufacturing operations to the Seattle area and iii) a decrease in the sale of
consumable products, including pulltab tickets and ink products.
LIQUIDITY AND CAPITAL RESOURCES
The Company's long-term debt at March 31, 1997, including the current portion
thereof, totaled $100.7 million compared to $100.8 million at December 31, 1996
(see Note 6 of Notes to Consolidated Financial Statements). Cash payments on
long-term debt for the first three months ended March 31, 1997 totaled
approximately $38,000 compared to $1.6 million for the three months ended March
31, 1996 .
As of March 31, 1997, the Company had not drawn any amount available under its
$30.0 million line of credit facility. The Company was in violation of certain
covenants at March 31, 1997 and such violations have been waived by the
Company's principal banks. The Company currently
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<PAGE> 14
expects to renegotiate the New Credit Agreements during the second quarter and
until that time, the Company may not draw amounts under the New Credit
Agreement.
Capital expenditures during the three months ended March 31, 1997 totaled $1.0
million. Capital expenditures for fiscal 1997 are projected to be approximately
$4.0 million. The Company's capital expenditure program will continue to focus
on the purchase of equipment designed to expand its product offerings and/or
improve manufacturing efficiencies. The Company expects a larger portion of its
capital expenditure requirements to be allocated to the upgrade and development
of management information systems.
Management believes that under the Company's current operating plan, the cash
flow from operations, the New Credit Agreement of $30.0 million (of which no
amounts were outstanding at March 31, 1997) and excess cash on hand will be
sufficient to meet its financial obligations including interest on the Notes,
operating expenses, capital expenditures and working capital requirements.
Additionally, part of the Company's long-term plan includes business
acquisitions and strategic alliances. In order to implement its long-term
plan, the Company will utilize the sources of capital discussed above and may
also raise capital through equity or debt offerings. However, there can be no
assurance that such financing will be available to the Company on favorable
terms, if at all.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
a. EXHIBITS:
Exhibit 11 Statement Regarding Computation of
Per Share Earnings
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K:
The Company filed Current Reports on Form 8-K dated
January 22, 1997 and February 26, 1997, under Item 7,
which were amendments to a Form 8-K dated November
13, 1996.
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: May 15, 1997 /s/ Timothy R. Stuart
-------------------------------------------
Timothy R. Stuart
President
Date: May 15, 1997 /s/ Paul C. Tunink
-------------------------------------------
Paul C. Tunink
Vice President and Chief Financial Officer
16
<PAGE> 17
EXHIBIT INDEX
The following Exhibits are filed herewith.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
11 Statements Regarding Computation
of Per Share Earnings
27 Financial Data Schedule
</TABLE>
17
<PAGE> 1
EXHIBIT NO. 11
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
(Amounts In Thousands, Except Per Share Amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
Shares of common stock outstanding at
beginning of period (1) 6,828 6,697
Weighted-average shares issued during the period -- 19
Weighted-average shares assumed issued under
stock option plans and exercise of warrants
during the period (assuming the treasury
stock method) -- 99
------- ------
Average common and common equivalent shares outstanding 6,828 6,815
======= ======
Net income (loss) $(1,422) $ 918
======= ======
Earnings (loss) per share $ (0.21) $ 0.13
======= ======
</TABLE>
(1) This represents total outstanding shares of common stock less treasury
shares.
See Notes to Consolidated Financial Statements.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,552
<SECURITIES> 0
<RECEIVABLES> 30,564
<ALLOWANCES> 2,318
<INVENTORY> 25,079
<CURRENT-ASSETS> 76,194
<PP&E> 46,212
<DEPRECIATION> 16,862
<TOTAL-ASSETS> 154,553
<CURRENT-LIABILITIES> 23,353
<BONDS> 100,360
0
0
<COMMON> 69
<OTHER-SE> 28,529
<TOTAL-LIABILITY-AND-EQUITY> 154,553
<SALES> 32,669
<TOTAL-REVENUES> 32,669
<CGS> 22,901
<TOTAL-COSTS> 22,901
<OTHER-EXPENSES> 9,002
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,110
<INCOME-PRETAX> (2,344)
<INCOME-TAX> (922)
<INCOME-CONTINUING> (1,422)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,422)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
