-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G2C7KB/FA3AxH3UIcqz3Wo041Hs+43qOyaPGdZVncmhAiMQ33qhbm5jOyJL40X+0 HUiZEQo4IaLB3lUFdMw2BQ== 0000950134-96-004370.txt : 19960816 0000950134-96-004370.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950134-96-004370 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STUART ENTERTAINMENT INC CENTRAL INDEX KEY: 0000355142 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 840402207 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10737 FILM NUMBER: 96615295 BUSINESS ADDRESS: STREET 1: 3211 NEBRASKA AVENUE CITY: COUNCIL BLUFFS STATE: IA ZIP: 51501 BUSINESS PHONE: 7123231488 MAIL ADDRESS: STREET 1: 3211 NEBRASKA AVENUE CITY: COUNCIL BLUFFS STATE: IA ZIP: 51501 FORMER COMPANY: FORMER CONFORMED NAME: BINGO KING CO INC DATE OF NAME CHANGE: 19910725 10-Q 1 FORM 10-Q QUARTER END JUNE 30, 1996 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. 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 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)
Three Months Ended Six Months Ended June 30, June 30, ------------------------ ------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- 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 ======== ======== ======== ========
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 4 STUART ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 (Dollars In Thousands) (UNAUDITED)
ASSETS June 30, December 31, - ------ 1996 1995 ---------- ----------- 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 ======== ========
See accompanying Notes to Consolidated Financial Statements. 4 5 STUART ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 (Dollars In Thousands) (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31, - ------------------------------------ 1996 1995 ---------- ------------ 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 ========== ============
See accompanying Notes to Consolidated Financial Statements 5 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)
Six Months Ended June 30, --------------------- 1996 1995 -------- -------- 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
See accompanying Notes to Consolidated Financial Statements. 6 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 8 4. INVENTORIES: Inventories consisted of the following:
June 30, December 31, (Dollars in thousands) 1996 1995 --------------------- ---------- ----------- Raw Materials $ 3,552 $ 3,517 Work-In-Process 5,106 5,056 Finished Goods 13,544 13,409 ------- ------- Total $22,202 $21,982 ======= =======
5. LONG-TERM DEBT Long-term debt consisted of the following:
June 30, December 31, 1996 1995 -------- ----------- (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 ======= =======
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 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 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 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 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 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 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 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 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 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 EX-10 2 CREDIT AGREEMENT 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 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 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 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 EX-11 3 PER SHARE EARNINGS 1 EXHIBIT NO. 11 STUART ENTERTAINMENT, INC. AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (Amounts In Thousands, Except Per Share Amounts) (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, ----------------- --------------- 1996 1995 1996 1995 ------ ------ ------ ------ 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) ====== ====== ====== ======
(1) This represents total outstanding shares of common stock less treasury shares. See Notes to Consolidated Financial Statements. 22 EX-27 4 FINANCIAL DATA SCHEDULE
5 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. 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1,787 0 22,806 1,705 22,202 48,061 34,476 14,280 100,556 26,320 37,121 69 0 0 34,068 100,556 54,183 54,183 37,319 12,166 0 (329) 2,303 2,724 932 1,792 0 0 0 1,792 .26 .26
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