-----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, J5HtEaVcBRNRJ7T6rogRQWJsDipo3C7ZXcUQ3mjCI1gp5KNMnbcf0js2ezednFU7 /ywlzEeL/uEXAX9FLsUKKQ== 0000950134-97-004055.txt : 19970520 0000950134-97-004055.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950134-97-004055 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 97609171 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 FOR QUARTER ENDED MARCH 31, 1997 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 - -------------------------------------------------------------------------------- (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. 2 STUART ENTERTAINMENT, INC. AND SUBSIDIARIES INDEX
PAGE NO. -------- 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
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) - --------------------------------------------------------------------------------
1997 1996 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 ======= =======
Note: No dividends were paid or declared during the three months ended March 31, 1997 and 1996. See Notes to Consolidated Financial Statements. 3 4 STUART ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1997 AND DECEMBER 31, 1996 (Dollars in thousands) - -------------------------------------------------------------------------------
MARCH 31, DECEMBER 31, ASSETS 1997 1996 (UNAUDITED) 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 ======== ========
See Notes to Consolidated Financial Statements. 4 5 STUART ENTERTAINMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (Amounts in thousands) (UNAUDITED) - --------------------------------------------------------------------------------
1997 1996 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
See Notes to Consolidated Financial Statements. 5 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 6 7 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. 7 8 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 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.
THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 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
3. INVENTORIES Inventories consisted of the following:
MARCH 31, DECEMBER 31, 1997 1996 Raw materials $ 3,709 $ 3,975 Work-in-process 3,950 4,316 Finished goods 17,420 19,827 ------- ------- $25,079 $28,118 ======= =======
4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following:
MARCH 31, DECEMBER 31, 1997 1996 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 ======= =======
9 10 5. OTHER ASSETS Other assets consisted of the following:
March 31, December 31, 1997 1996 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 ====== ======
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 10 11 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: March 31, December 31, 1997 1996 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
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. 11 12 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. 12 13 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 13 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. 14 15 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 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 17 EXHIBIT INDEX The following Exhibits are filed herewith.
Exhibit No. Description - ----------- ----------- 11 Statements Regarding Computation of Per Share Earnings 27 Financial Data Schedule
17 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT NO. 11 STUART ENTERTAINMENT, INC. AND SUBSIDIARIES STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS (Amounts In Thousands, Except Per Share Amounts) (UNAUDITED)
Three Months Ended March 31, ------------------ 1997 1996 -------- -------- 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 ======= ======
(1) This represents total outstanding shares of common stock less treasury shares. See Notes to Consolidated Financial Statements. EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 15,552 0 30,564 2,318 25,079 76,194 46,212 16,862 154,553 23,353 100,360 0 0 69 28,529 154,553 32,669 32,669 22,901 22,901 9,002 0 3,110 (2,344) (922) (1,422) 0 0 0 (1,422) (.21) (.21)
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