1
THIS DOCUMENT IS A COPY OF THE FORM 10-Q
FILED ON NOVEMBER 15, 1995 PURSUANT TO A
TEMPORARY HARDSHIP EXEMPTION
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
September 30, 1995 0-10737
Stuart Entertainment, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-0402207
- ------------------------ ----------------------
(State of incorporation) (I.R.S. Employer
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 November 13, 1995 there were 6,694,715 shares of the Registrant's common
stock, $.01 par value, outstanding.
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STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION:
Item 1:
Consolidated Statements of Operations for the
Three And Nine Months Ended September 30, 1995 and 1994.... 3
Consolidated Balance Sheets as of September 30, 1995 and
December 31, 1994......................................... 4- 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1995 and 1994........... 6- 7
Notes to Consolidated Financial Statements................. 8-13
Item 2:
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 14-20
PART II. OTHER INFORMATION.................................. 21-22
Signatures................................................. 23
Exhibit Index.............................................. 24
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Amounts In Thousands, Except Per Share Amounts)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -----------------------
1995 1994 1995 1994
------- ------- ------- -------
NET SALES $27,031 $13,660 $83,916 $43,939
COST OF GOODS SOLD 17,825 9,856 57,142 31,485
------- ------ ------- -------
GROSS MARGIN 9,206 3,804 26,774 12,454
OTHER EXPENSES AND INCOME:
Selling, general and
administrative expenses 6,752 2,946 20,101 9,202
Equity in (earnings) losses
of joint ventures 29 282 (15) 644
Amortization of goodwill 211 15 630 46
Interest expense, net 1,050 224 3,365 659
United Kingdom charge (Note 6) 0 0 800 0
------- ------- ------- -------
Other expenses and income - net 8,042 3,467 24,881 10,551
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 1,164 337 1,893 1,903
INCOME TAX PROVISION 645 126 1,657 697
------- ------- ------- -------
NET EARNINGS $ 519 $ 211 $ 236 $ 1,206
======= ======= ======= =======
EARNINGS PER SHARE $ 0.08 $ 0.06 $ 0.04 $ 0.34
======= ======= ======= =======
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 6,717 3,491 6,682 3,491
======= ======= ======= =======
Note: No dividends were paid or declared during the nine months
ended September 30, 1995 and September 30, 1994.
See accompanying Notes to Consolidated Financial Statements.
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STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(Amounts In Thousands)
September 30, December 31,
ASSETS 1995 1994
- ------ -------- --------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 1,178 $ 2,116
Trade and notes receivables, less allowances
for doubtful accounts of $1,998 and $1,797,
respectively 19,392 15,762
Inventories (Note 3) 20,722 16,103
Refundable income taxes 0 225
Deferred income taxes 1,913 1,513
Prepaid expenses and other 760 388
-------- --------
Total Current Assets 43,965 36,107
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 4,892 4,710
Equipment 29,254 24,520
-------- --------
Total 34,146 29,230
Less accumulated depreciation 12,317 9,387
-------- --------
Property, Plant And Equipment - Net 21,829 19,843
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $1,024 and $426, respectively 29,815 28,958
Deferred financing costs, net of accumulated
amortization of $280 and $16, respectively 1,617 1,613
Notes receivable, less allowance for doubtful
accounts of $423 and $423, respectively 1,387 1,366
Other assets 1,362 938
-------- --------
Total Other Assets 34,181 32,875
-------- --------
TOTAL ASSETS $ 99,975 $ 88,825
======== ========
See accompanying Notes to Consolidated Financial Statements.
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STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(Amounts In Thousands)
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------ -------- --------
(UNAUDITED)
CURRENT LIABILITIES:
Current portion of long-term debt (Note 5) $ 6,289 $ 6,482
Trade payables 12,767 10,456
Accrued liabilities and others 5,900 4,715
-------- --------
Total Current Liabilities 24,956 21,653
LONG-TERM DEBT (Note 5)
Related party 5,000 5,000
Other 35,054 29,416
-------- --------
Total Long-Term Debt 40,054 34,416
DEFERRED INCOME TAXES 2,835 2,270
DEFERRED INCOME 391 333
-------- --------
TOTAL LIABILITIES 68,236 58,672
STOCKHOLDERS' EQUITY:
Common stock 68 66
Additional paid-in capital 26,329 25,776
Retained earnings 4,975 4,739
Treasury stock (At cost) (189) (189)
Cumulative translation adjustment,
net of deferred taxes 556 (239)
-------- --------
Total Stockholders' Equity 31,739 30,153
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 99,975 $ 88,825
======== ========
See accompanying Notes to Consolidated Financial Statements.
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STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
(Amounts In Thousands)
(UNAUDITED)
Nine Months Ended
September 30,
--------------------
1995 1994
------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 236 $ 1,206
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Payment on termination of Consulting Agreement (1,150) 0
United Kingdom charge 800 0
Depreciation and amortization 3,155 1,460
Provision for doubtful accounts 432 325
Equity in (earnings) losses of joint ventures (15) 644
Deferred income taxes (550) (422)
Other noncash expenses - net 1,232 321
Change in operating working capital items, net (4,095) (1,571)
------- --------
Net cash provided by (used in) operating activities 45 1,963
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,815) (449)
Payments received on notes receivable 711 739
Investment in joint ventures (128) (615)
Costs of acquisition of LSA (324) (441)
Investment in distributor (116) 0
Acquisition of Reliable (295) 0
------- --------
Net cash used in investing activities (2,967) (766)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Revolving Facility 6,169 0
Net borrowings on previous line of credit 0 528
Payments on Term Facility (2,261) 0
Payments on other long-term debt (2,189) (1,669)
Payments on LSA Purchase Price Adjustment (929) 0
Proceeds from issuance of long-term debt 1,140 0
Cost of debt financing paid (200) 0
Proceeds from exercise of stock options 238 0
Costs on issuance of stock (17) 0
Proceeds from sale of stock 0 9
------- --------
Net cash provided by (used in) financing activities 1,951 (1,132)
Effect of currency exchange rate changes on cash
of foreign subsidiaries 33 0
------- --------
NET CHANGE IN CASH (938) 65
CASH AT BEGINNING OF PERIOD 2,116 512
------- --------
CASH AT END OF PERIOD $ 1,178 $ 577
======= ========
See accompanying Notes to Consolidated Financial Statements.
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STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30,1994
(Amounts In Thousands)
(UNAUDITED)
Nine Months Ended
September 30,
---------------------
1995 1994
-------- --------
CHANGE IN OPERATING WORKING CAPITAL ITEMS:
Trade receivables $ (3,372) $ (1,244)
Inventories (4,379) (1,565)
Trade payables 1,523 360
Other, net 2,133 878
-------- --------
Total $ (4,095) $ (1,571)
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ (3,486) $ (741)
Income taxes paid $ (1,440) $ (1,087)
Income tax refunds received 63 412
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the first nine months of 1995 and 1994, the Company financed
the acquisition of equipment totalling $106,000 and $416,000,
respectively, through the assumption of obligations under capital
leases.
In connection with the Reliable Acquisition, the Company i) assumed
Reliable's line of credit and term loan credit facility with a
Michigan bank, which totalled $1,237,000, ii) assumed another note
payable of $250,000, iii) issued a note payable to the shareholders'
of Reliable for $780,000 and iv) issued 55,652 shares of the Company's
common stock, which was valued at $320,000 or $5.75 per share.
See accompanying Notes to Consolidated Financial Statements.
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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 nine months ended
September 30, 1995 and 1994 are not necessarily indicative of the
results that may be expected for the full year ending December 31,
1995. These financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for
the year ended December 31, 1994, filed with the Securities and
Exchange Commission on the Company's Annual Report on Form 10-K.
Certain reclassifications have been made to the 1994 financial
statements to conform to those classifications used in 1995.
2. EARNINGS PER SHARE:
The number of shares used in earnings per share calculations for the
three month and nine month periods ended September 30, 1995 and 1994
are based on the weighted average number of shares of common stock
outstanding and, if dilutive, common stock equivalents (stock options
and warrants) of the Company using the treasury stock method.
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3. INVENTORIES:
Inventories consisted of the following:
September 30, December 31,
1995 1994
----------- -----------
Raw Materials $ 5,636,000 $ 4,380,000
Work-In-Process 3,112,000 2,418,000
Finished Goods 11,974,000 9,305,000
----------- -----------
Total $20,722,000 $16,103,000
=========== ===========
4. ACQUISITIONS AND FINANCING:
On December 13, 1994, the Company completed the acquisition (the "LSA
Acquisition") of Len Stuart & Associates Limited ("LSA") for a total
purchase price of $36,786,000, which includes a subsequent purchase
price adjustment of $1,642,000. LSA was the holding company for (i)
Bingo Press & Specialty Limited, an Ontario, Canada corporation and a
major manufacturer of bingo supplies and related products in Canada,
which operates under the trade name Bazaar & Novelty ("Bazaar"), and
(ii) Niagara Bazaar and Novelty Limited, an Ontario, Canada
corporation and a retailer of bingo supplies and related products.
The LSA Acquisition was financed through the sale of equity (the
"Equity Financing") and amounts borrowed under the Company's new
Credit Agreement (the "Credit Agreement") (See Note 5).
In addition, effective January 1, 1995, the Company acquired (i)
substantially all the assets and assumed substantially all of the
existing liabilities (the "Net Assets") of The Reliable Corporation of
America ("Reliable") and (ii) two presses owned by Reliable's
shareholders (collectively, the "Reliable Acquisition") for a total
purchase price of $1,300,000.
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STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
PRO FORMA INFORMATION:
The following pro forma condensed consolidated statements of operations for the
three-month and nine-month periods ended September 30, 1995 and 1994 give
effect to the LSA Acquisition and the Reliable Acquisition, the Equity
Financing and borrowings on the Credit Agreement as if such transactions had
occurred as of January 1, 1994. The pro forma consolidated statements of
operations do not purport to represent what the Company's results of operations
would have been if such transactions had in fact occurred on such dates and
should not be viewed as predictive of the Company's financial results of the
future. Amounts are in thousands, except per share information.
Pro Forma Pro Forma
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
1995 1994 1995 1994
------- ------ ------ ------
Net Sales:
"Core Business" $26,354 $23,165 $81,126 $72,888
Video King 272 309 1,535 2,130
England 405 168 1,255 551
------- ------- ------ -------
Total $27,031 $23,642 $83,916 $75,569
======= ======= ======= =======
Net Earnings (Loss):
"Core Business" $ 1,113 $ 473 $ 2,797 $ 2,274
Video King (189) (219) (486) (245)
England (405) (249) (2,075) (510)
------- ------- ------- -------
Total $ 519 $ 5 $ 236 $ 1,519
======= ======= ======= =======
Earnings per Share:
"Core Business" $ 0.17 $ 0.07 $ 0.42 $ 0.34
Video King (0.03) (0.03) (0.07) (0.04)
England (0.06) (0.04) (0.31) (0.08)
------- ------- ------- -------
Total $ 0.08 $ 0.00 $ 0.04 $ 0.22
======= ======= ======= =======
Average Common and
Common Equivalent
Shares Outstanding 6,717 6,688 6,682 6,688
======= ======= ====== =======
EBITDA
"Core Business" $ 3,808 $ 2,483 $10,906 $ 8,722
Video King (224) (315) (556) (297)
England (364) (217) (1,937) (468)
-------- ------- ------- ------
Total $ 3,220 $ 1,951 $ 8,413 $ 7,957
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STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
"Core Business" includes the operations of Stuart Entertainment, Inc.
(doing business as Bingo King), LSA and Reliable.
"EBITDA" is defined as earnings before interest, taxes, depreciation
and amortization.
The pro forma results above do not include the following non-recurring
charge that was included in the results of operations after the date
of the LSA Acquisition:
i) In accordance with the application of purchase accounting to
the assets of LSA, the finished goods of Bazaar were recorded
at sales value less costs to sell and a reasonable margin on
the costs to sell. This resulted in the write-up of finished
goods inventory of Bazaar which was included in costs of goods
sold in 1994 and 1995 as the finished goods were sold during
the periods. The amount charged to cost of goods sold in the
nine months ended September 30, 1995 was $489,000 and the
reduction of net income, net of taxes of $191,000, was
$298,000.
5. LONG-TERM DEBT
Long-term debt consisted of the following:
September 30, December 31,
1995 1994
------------ -----------
Borrowings under Credit Agreement:
Revolving Facility $19,203,000 $12,601,000
Term Facility 13,039,000 14,840,000
Subordinated note payable
to Mr. Stuart 5,000,000 5,000,000
Other term loans and
mortgages payable to banks 2,161,000 1,208,000
Obligations under
capital leases 4,058,000 4,211,000
Notes payable to others 2,882,000 3,038,000
----------- -----------
Total 46,343,000 40,898,000
Less current portion 6,289,000 6,482,000
----------- -----------
Total long-term debt $40,054,000 $34,416,000
=========== ===========
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STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
CREDIT AGREEMENT:
In connection with the LSA Acquisition, on December 13, 1994, the
Company entered into the Credit Agreement with a national bank
("Bank") for a financing facility of $35,000,000, with a senior
secured revolving line of credit of $20,000,000 (the "Revolving
Facility") and a senior secured term loan facility of $15,000,000 (the
"Term Facility"). On December 13, 1994, i) the Revolving Facility was
separated into a U.S. Facility for $10,000,000 and a Canadian
Revolving Facility for C$13,875,000 ($10,000,000) and ii) the Term
Facility was separated into a U.S. Term Facility for $5,000,000 and a
Canadian Term Facility for C$13,875,000 ($10,000,000).
At September 30, 1995, loans outstanding on the U.S. Revolving
Facility totalled $9,590,000 (Offshore and Base Rate Loans at a
weighted average interest rate of 8.27%) and loans outstanding on the
Canadian Revolving Facility totalled C$12,900,000($9,613,000) (an
Offshore Loan at an interest rate of 8.85%). At September 30, 1995,
loans outstanding on the U.S. Term Facility totalled $4,250,000 (an
Offshore Loan at an interest rate of 8.24%) and loans outstanding on
the Canadian Term Facility totalled C$11,794,000 ($8,789,000) (an
Offshore Loan at an interest rate of 8.85%).
The Credit Agreement contains various covenants, such as minimum net
worth, fixed coverage ratio, leverage ratio and restrictions on
additional borrowings, cash dividends and capital expenditures. On
August 14, 1995 a Second Amendment to the Credit Agreement was signed.
The Company was in compliance with the amended covenants as of
September 30, 1995.
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STUART ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
FINANCING ASSUMED WITH THE RELIABLE ACQUISITION
In connection with the Reliable Acquisition, the Company assumed (i) a
line of credit and term loan credit facility with a Michigan bank
which had been the primary bank for Reliable and (ii) a note payable
from an equipment supplier (see Note 4).
6. UNITED KINGDOM CHARGE:
The Company has signed a licensing and marketing agreement with
Playprint Limited, headquartered in Dublin, Ireland. This
relationship has permitted the Company to discontinue its
manufacturing operation in the United Kingdom.
Under the agreement, Playprint Limited will pay royalties to the
Company for use of certain of the Company's 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.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
INTRODUCTION
On December 13, 1994, the Company completed the acquisition (the "LSA
Acquisition") of Len Stuart & Associates Limited ("LSA"). LSA was the holding
company for (i) Bingo Press & Specialty Limited, an Ontario, Canada corporation
and a major manufacturer of bingo supplies and related products in Canada,
which operates under the trade name Bazaar & Novelty ("Bazaar"), and (ii)
Niagara Bazaar and Novelty Limited, an Ontario, Canada corporation and a
retailer of bingo supplies and related products. In addition, effective
January 1, 1995, the Company acquired (i) substantially all the assets and
assumed substantially all of the existing liabilities (the "Net Assets") of The
Reliable Corporation of America ("Reliable") and (ii) two presses owned by
Reliable's shareholders (collectively, the "Reliable Acquisition"). The
results of operations of Bazaar and Reliable have been consolidated since the
date of the LSA Acquisition and the Reliable Acquisition.
Results for the current year include two one-time charges, including (i) a
charge of $489,000 to cost of goods sold related to the application of purchase
accounting to the finished goods of Bazaar that were sold in the first quarter
of 1995 (see Note 4 to the Consolidated Financial Statements) and (ii) a charge
of $800,000 related to the estimated costs to shutdown the manufacturing
facility in the United Kingdom (see Note 6 to the Consolidated Financial
Statements).
The Company's subsidiary, Stuart Entertainment Limited ("Stuart Entertainment
England"), has recorded losses in the current year in the amount of $405,000
and $2,075,000 for the three month and nine months ended September 30, 1995,
respectively, including the $800,000 one-time charge described above. The
manufacturing operations of this subsidiary have been discontinued in
conjunction with a licensing and marketing agreement with Playprint Limited of
Dublin, Ireland and no further losses are anticipated.
On a pro forma basis (see Note 4 to the Consolidated Financial Statements), net
earnings for the Company's "Core Business" for the nine months ended September
30, 1995 increased to $2,797,000 ($0.42 per share) from $2,274,000 ($0.34 per
share) for the nine months ended September 30, 1994.
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COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
NET SALES - Net sales in the third quarter of 1995 increased $13,371,000
(97.8%) to $27,031,000 in the third quarter of 1995 from $13,660,000 in the
third quarter of 1994. The sales growth in the third quarter of 1995 was
primarily attributable to the inclusion of sales from Bazaar, Reliable and
Stuart Entertainment England, which collectively increased sales by
$11,681,000 (87.4% of the total increase). Excluding the effect of sales from
Bazaar, Reliable and Stuart Entertainment England, comparable sales for the
third quarter increased $1,690,000 (12.4% increase over the third quarter of
1994). Sales of bingo paper increased $1,494,000 (21.3%), break-open tickets
sales increased $118,000 (4.1%) and sales of ink products increased slightly.
These increases were partially offset by slight decreases in sales of Video
King, bingo electrical equipment and general merchandise. Bingo paper units
increased 4.5% in the three-month period ended September 30, 1995 as compared
to the three-month period ended September 30, 1994. Break-open ticket units
decreased 6.2% and ink products experienced unit increases of 17.2% during
these same periods.
Overall sale price levels increased for bingo paper and break-open tickets
while sale price levels for ink products decreased during the three-month
period ended September 30, 1995 compared to the same period in 1994. Bingo
paper sale price increased approximately 14.0%. This increase was the result
of raw material price increases on newsprint paper. Break-open ticket prices
increased 6.8% during the three month period ending September 30, 1995. Ink
product prices decreased 6.4% due primarily to 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
from 72.2% for the three months ended September 30, 1994 to 65.9% for the three
months ended September 30, 1995. The decrease in the cost of goods sold
percentage is due to i) a lower cost of goods sold percentage for Bazaar sales
versus the historical percentage for the Company and ii) improvements in
manufacturing efficiencies. These improvements were partially offset by
increases in raw material, newsprint paper and general labor rates.
During 1994 and the first nine months of 1995, the Company experienced
significant increases in the price of paper products purchased for the
manufacturing of bingo paper and for packaging. The Company initiated sales
price increases on bingo paper during this period that approximated the amount
of the increase in the paper products purchased.
The Company anticipates further increases in the price of paper products
purchased during 1995. Management expects to continue to increase the sales
price on bingo paper during 1995 to largely offset these expected increases in
costs, subject to market conditions at that time. Management does not believe,
but has no assurances, that these increases in the sales price of bingo paper
will place the Company at a competitive disadvantage.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative ("SG&A") expenses increased $3,806,000 from $2,946,000 for the
three months ended September 30, 1994 to $6,752,000 for the three months ended
September 30, 1995. SG&A expenses, as a percent of sales, increased to 25.0%
for the three months ended September 30, 1995 from 21.6% during the same period
of 1994. The increase in SG&A expenses was due primarily to two
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factors. First, approximately $2,935,000 of the increase was a result of the
consolidation of Bazaar, Reliable and Stuart Entertainment England for the
three-month period ended September 30, 1995. Second, excluding the effect of
Bazaar, Reliable and Stuart Entertainment England, the Company experienced
increases in (i) salaries and related costs, due to increases in number of
employees and salary levels, (ii) business-related travel and (iii) marketing
and sales promotion costs.
EQUITY EARNINGS (LOSSES) IN JOINT VENTURES - Equity loss in joint ventures
totalled $29,000 for the third quarter of 1995 compared with a loss of
$282,000 for the same period in 1994. Under the joint venture agreement, the
earnings or loss for Stuart Entertainment Mexico was allocated to the Company
based on the percentage of total production that was sold to the Company. The
Company recognized earnings or losses related to its investment in Stuart
Entertainment Mexico as SG&A expense. The equity income for Stuart
Entertainment England represented 50% of the net operating income of Stuart
Entertainment England for the period April 1, 1994 through September 30, 1994.
With the LSA Acquisition, Stuart Entertainment England and Stuart Entertainment
Mexico became, in effect, wholly owned subsidiaries of the Company.
INTEREST EXPENSE, NET - Interest expense (net of interest income) for the three
month period ended September 30, 1995 totalled $1,050,000 compared with
$224,000 in the same period in 1994. The increase of $826,000 was due to i)
the consolidation of Bazaar, Stuart Entertainment England and Reliable which
increased interest expense by $627,000, ii) higher interest rates experienced
for the three months ended September 30, 1995 compared to the same period in
1994 and iii) significantly higher borrowing levels at September 30, 1995
compared to September 30, 1994, largely related to the LSA and Reliable
acquisitions and higher working capital requirements.
NET INCOME - Net income for the three month period ended September 30,
1995 was $519,000 ($.08 per share) compared with $211,000 ($.06 per share)
for the same period of 1994. The increase in net income and earnings per share
was largely due to consolidation of Bazaar and Reliable.
INFLATION - Other than the increases in the cost of paper products described
above, inflation did not have a material effect on the Company's operations for
the three months and nine months ended September 30, 1995.
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COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
NET SALES - Net sales for the first nine months of 1995 increased $39,977,000
(91.0%) to $83,916,000 for the first nine months of 1995 from $43,939,000 in
the first nine months of 1994. The sales growth for the first nine months of
1995 was primarily attributable to the inclusion of sales from Bazaar, Reliable
and Stuart Entertainment England which collectively increased sales by
$36,208,000 (90.5% of the total increase). Excluding the effect of sales
from Bazaar, Reliable and Stuart Entertainment England, comparable sales for
the first nine months of 1995 increased $3,769,000 (8.6% increase over the
first nine months of 1994). Sales of bingo paper increased $3,764,000 (17.2%),
break-open tickets sales increased $400,000 (4.6%) and sales of ink products
increased $362,000 (7.2%). These increases were partially offset by decreases
in sales of both Video King of $581,000 and electrical bingo equipment of
$514,000. A modest decrease in the sales of general merchandise also occurred.
Bingo paper units increased 5.2% in the nine month period ending September 30,
1995 as compared to the nine month period ended September 30, 1994. Break-open
ticket units decreased 1.7% and ink products increased 12.4% during these same
periods.
Overall sale price levels increased for bingo paper and break-open tickets
while sale price levels for ink products decreased slightly during the nine
month period of 1995 compared to the same period in 1994. Bingo paper sale
price increased approximately 10.7%. This increase was the result of raw
material price increases on newsprint paper. Break-open ticket prices
increased 5.9% during the nine month period of 1995. Ink product prices
decreased 4.7% due primarily to 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
from 71.7% for the nine months ended September 30, 1994 to 68.1% for the nine
months ended September 30, 1995. The decrease in the cost of goods sold
percentage is due to i) a lower cost of goods sold percentage for Bazaar sales
versus the historical percentage for the Company and ii) improvements in
manufacturing efficiencies. These improvements were partially offset by
increases in raw material, newsprint paper and general labor rates.
During 1994 and the first nine months of 1995, the Company experienced
significant increases in the price of paper products purchased for the
manufacturing of bingo paper and for packaging. The Company initiated sales
price increases on bingo paper during this period that approximated the amount
of the increase in the paper products purchased.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative ("SG&A") expenses increased $10,899,000 from $9,202,000 for the
nine months ended September 30, 1994 to $20,101,000 for the nine months ended
September 30, 1995. SG&A expenses, as a percent of sales, increased to 24.0%
for the nine months ended September 30, 1995 from 20.9% during the same
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period of 1994. The increase in SG&A expenses was due primarily to two
factors. First, approximately $8,530,000 of the increase was a result of the
consolidation of Bazaar, Reliable and Stuart Entertainment England for the nine
months ended September 30, 1995. Second, excluding the effect of Bazaar,
Reliable and Stuart Entertainment England, the Company experienced increases in
(i) salaries and related costs, due to increases in number of employees and
salary levels,(ii) business-related travel (iii) marketing and sales
promotion costs and (iv) approximately $700,000 in expenses largely related to
the consolidation of Bazaar, Reliable and Stuart Entertainment England. SG&A
cost reductions have been implemented through the consolidation of these
companies which are anticipated to result in annualized improvement in excess
of $1,000,000.
EQUITY EARNINGS (LOSSES) IN JOINT VENTURES - Equity earnings in joint
ventures totalled $15,000 for the first nine months of 1995 compared with a
loss of $644,000 for the same period in 1994. Under the joint venture
agreement, the earnings or loss for Stuart Entertainment Mexico was allocated
to the Company based on the percentage of total production that was sold to the
Company. The Company recognized earnings or losses related to its investment in
Stuart Entertainment Mexico as SG&A expenses. The equity loss for Stuart
Entertainment England represented 50% of the net operating loss of Stuart
Entertainment England for the period January 1, 1994 through September 30,
1994. With the LSA Acquisition, Stuart Entertainment England and Stuart
Entertainment Mexico became, in effect, wholly owned subsidiaries of the
Company.
INTEREST EXPENSE, NET - Interest expense (net of interest income) for the nine
month period ended September 30, 1995 totalled $3,365,000 compared with
$659,000 in the same period in 1994. The increase of $2,706,000 was due to i)
the consolidation of Bazaar, Stuart Entertainment England and Reliable which
increased interest expense by $2,100,000, ii) higher interest rates experienced
for the nine months ended September 30, 1995 compared to the same period in
1994 and iii) significantly higher borrowing levels at September 30, 1995
compared to September 30, 1994, largely related to the LSA Acquisition and
Reliable Acquisition and higher working capital requirements.
NET INCOME - Net income for the nine month period ended September 30,
1995 was $236,000 ($.04 per share) compared with $1,206,000 ($.34 per share)
for the same period of 1994. The decrease in net income and earnings per share
was largely due to i) increased losses (including the $800,000 one-time charge
described above) of Stuart Entertainment England of $2,075,000 ($.31 per
share), and ii) the purchase accounting adjustment required for Bazaar's
finished goods inventory of $298,000 ($.04 per share).
LIQUIDITY AND CAPITAL RESOURCES
The Company completed the LSA Acquisition during the fourth quarter of 1994.
As a result of a subsequent purchase price adjustment (the "Purchase Price
Adjustment"), the Company was obligated to pay Mr. Stuart an additional
$1,642,000. The Company made payments to and on behalf of Mr. Stuart of
$929,000 of the Purchase Price Adjustment in April, 1995, and the remaining
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balance will accrue interest payable monthly at 2.25% over the prime rate shown
in The Wall Street Journal beginning March 6, 1995.
The Company's long-term debt at September 30, 1995, including the current
portion thereof, totalled $46,343,000 compared to $40,898,000 at December 31,
1994 (see Note 5 to the Consolidated Financial Statements). Cash payments on
long-term debt during the first nine months of 1995 totalled approximately
$4,500,000 compared to $1,669,000 for the same period in 1994. Additions to
long-term debt in 1995 were related to the Reliable Acquisition, new capital
lease financing and additional borrowings under the Revolving Facility to
finance normal operations.
The Credit Agreement contains various covenants, such as minimum net
worth, fixed coverage ratio, leverage ratio and restrictions on additional
Waiver and borrowings, cash dividends and capital expenditures. On August 14,
1995, a Second Amendment to the Credit Agreement was signed. The Company was in
compliance with the amended covenants as of September 30, 1995. On August 31,
1995, a Third Amendment to the Credit Agreement was signed which assigned 50%
of the Revolving Commitment and Term Commitment under the Credit Agreement to
a second national bank.
In the Reliable Acquisition, the Company assumed a line of credit and term loan
credit facility with a Michigan bank which had been the primary bank for
Reliable (see Note 5 of the Notes to Consolidated Financial Statements).
Capital expenditures during the first nine months of 1995 totalled
$2,815,000. In October 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 million. Capital expenditures for fiscal 1995 are
projected to be $3,600,000.
The $2,075,000 in losses recorded by the Company's United Kingdom subsidiary
in the current year, higher working capital requirements (see Change in Balance
Sheet Accounts) and other one-time cash transactions not anticipated when the
Credit Agreement was completed in December 1994 have resulted in the Company
utilizing the maximum available under its revolving facility. The Company
holds regular discussions with its banks and others regarding working capital
needs to maintain its flexibility.
The Company core business continues to be profitable with nine month
net earnings of $2,797,000. The Company believes the large ongoing losses in
the United Kingdom subsidiary will be eliminated beginning in the fourth
quarter of 1995 (see Note 6) which they anticipate will improve the Company's
cash flow position. In addition, the Company is continuing to work with its
banks to provide additional financing alternatives in order to maintain its
flexibility. The Company believes, but has no assurances, that it will be able
to obtain additional financing to fund the Company's future financial
requirements.
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CHANGE IN BALANCE SHEET ACCOUNTS
Total trade receivables increased $5,346,000 from $15,001,000 at
December 31, 1994 to $20,347,000 at September 30, 1995. The increase is due
primarily to the consolidation of Reliable ($1,340,000), normal seasonal
fluctuations, price increases and overall sales increases. Total notes
receivable (including current and long-term portions) increased $726,000 from a
balance of $2,127,000 at December 31, 1994, to $2,853,000 at September 30,
1995. During the nine months ended September 30, 1995, trade receivables
totaling $696,000 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.
Inventories increased $4,619,000 from $16,103,000 at December 31, 1994, to
$20,722,000 at September 30, 1995. The increase was due to (i) the
consolidation of Reliable ($1,395,000), (ii) increased cost of paper products
used to manufacture bingo paper and (iii) increased inventory quantities on
hand.
Trade payable and accrued liabilities increased a combined $3,496,000 from
$15,171,000 at December 31, 1994 to $18,667,000 at September 30, 1995. The
increase was due to (i) the consolidation of Reliable ($967,000), (ii)
increased accounts payable from inventory levels related to increased cost of
paper products purchased and (iii) price increases and overall sales increases.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
a. Exhibits:
Exhibit 10.1 Waiver and Second Amendment to Credit Agreement, dated as of
August 14, 1995.
Exhibit 10.2 Third Amendment to Credit Agreement, dated as of August 31,
1995.
Exhibit 10.3 Assignment and Assumption Agreement dated August 31, 1995
between Stuart Entertainment, Inc., Bank of America Illinois,
The Chase Manhattan Bank (National Association) and Bank of
America National Trust and Savings Association.
Exhibit 10.4 Assignment and Assumption Agreement dated August 31, 1995
between Bingo Press & Specialty Limited, Bank of America
Canada, The Chase Manhattan Bank of Canada and Bank of America
Canada, as agent.
Exhibit 10.5 Revolving Note dated August 31, 1995 in the principal amount
of U.S. $5,000,000 issued by Stuart Entertainment, Inc. to The
Chase Manhattan Bank (National Association).
Exhibit 10.6 Term Note dated August 31, 1995 in the principal amount of
U.S. $2,250,000 issued by Stuart Entertainment, Inc. to The
Chase Manhattan Bank (National Association).
Exhibit 10.7 Revolving Note dated August 31, 1995 in the principal amount
of U.S. $5,000,000 issued by Stuart Entertainment, Inc. to
Bank of America Illinois.
Exhibit 10.8 Term Note dated August 31, 1995 in the principal amount of
U.S. $2,250,000 issued by Stuart Entertainment, Inc. to Bank
of America Illinois.
Exhibit 10.9 Revolving Note dated August 31, 1995 in the principal amount
of Cdn. $6,937,500 issued by Bingo Press & Specialty Limited
to The Chase Manhattan Bank of Canada.
Exhibit 10.10 Term Note dated August 31, 1995 in the principal amount of
Cdn. $6,243,750 issued by Bingo Press & Specialty Limited to
The Chase Manhattan Bank of Canada.
Exhibit 10.11 Revolving Note dated August 31, 1995 in the principal amount
of Cdn. $6,937,500 issued by Bingo Press & Specialty Limited
to Bank of America Canada.
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Exhibit 10.12 Term Note dated August 31, 1995 in the principal amount of
U.S. $2,250,000 issued by Bingo Press & Specialty Limited to
Bank of America Canada.
Exhibit 11 Statement Regarding Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K:
The Company did not file any reports on Form
8-K for the quarter ended September 30, 1995.
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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: November 13, 1995 /s/ Timothy R. Stuart
----------------------------
Timothy R. Stuart
President
Date: November 13, 1995 /s/ Paul C. Tunink
----------------------------
Paul C. Tunink
Vice President and Chief
Financial Officer
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EXHIBIT INDEX
Exhibit Description
- ------- -----------
Exhibit 10.1 Waiver and Second Amendment to Credit Agreement, dated as of
August 14, 1995.
Exhibit 10.2 Third Amendment to Credit Agreement, dated as of August 31,
1995.
Exhibit 10.3 Assignment and Assumption Agreement dated August 31, 1995
between Stuart Entertainment, Inc., Bank of America Illinois,
The Chase Manhattan Bank (National Association) and Bank of
America National Trust and Savings Association.
Exhibit 10.4 Assignment and Assumption Agreement dated August 31, 1995
between Bingo Press & Specialty Limited, Bank of America
Canada, The Chase Manhattan Bank of Canada and Bank of America
Canada, as agent.
Exhibit 10.5 Revolving Note dated August 31, 1995 in the principal amount
of U.S. $5,000,000 issued by Stuart Entertainment, Inc. to The
Chase Manhattan Bank (National Association).
Exhibit 10.6 Term Note dated August 31, 1995 in the principal amount of
U.S. $2,250,000 issued by Stuart Entertainment, Inc. to The
Chase Manhattan Bank (National Association).
Exhibit 10.7 Revolving Note dated August 31, 1995 in the principal amount
of U.S. $5,000,000 issued by Stuart Entertainment, Inc. to
Bank of America Illinois.
Exhibit 10.8 Term Note dated August 31, 1995 in the principal amount of
U.S. $2,250,000 issued by Stuart Entertainment, Inc. to Bank
of America Illinois.
Exhibit 10.9 Revolving Note dated August 31, 1995 in the principal amount
of Cdn. $6,937,500 issued by Bingo Press & Specialty Limited
to The Chase Manhattan Bank of Canada.
Exhibit 10.10 Term Note dated August 31, 1995 in the principal amount of
Cdn. $6,243,750 issued by Bingo Press & Specialty Limited to
The Chase Manhattan Bank of Canada.
Exhibit 10.11 Revolving Note dated August 31, 1995 in the principal amount
of Cdn. $6,937,500 issued by Bingo Press & Specialty Limited
to Bank of America Canada.
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Exhibit 10.12 Term Note dated August 31, 1995 in the principal amount of
U.S. $2,250,000 issued by Bingo Press & Specialty Limited to
Bank of America Canada.
Exhibit 11 Statement Regarding Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule