SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-20450
Swing-N-Slide Corp.
(Exact name of registrant as specified in its charter.)
Delaware 36-3808989
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1212 Barberry Drive, Janesville, Wisconsin 53545
(Address of principal executive office)
Registrant's telephone number, including area code (608) 755-4777.
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 twelve 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 ninety days. YES X NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: as of May 6, 1996
there were 6,004,000 shares of common stock, par value, $.01 per share,
outstanding.
<PAGE>
SWING-N-SLIDE CORP.
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1996
INDEX
Part I. Financial Information: Page
Unaudited Consolidated Balance Sheets -
December 31, 1995, and March 31, 1996 3
Unaudited Consolidated Interim Statements of Operations
and Retained Earnings -
Three Months Ended March 31, 1995 and 1996 4
Unaudited Consolidated Interim Statements of Cash Flows-
Three Months Ended March 31, 1995 and 1996 5
Notes to Unaudited Interim Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-9
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K 10
Signature 11
<PAGE>
SWING-N-SLIDE CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share data)
December 31, March 31,
ASSETS 1995 1996
Current assets:
Cash $ 7 $ 7
Accounts receivable, less allowance
for doubtful accounts of $91 and $119 4,569 10,138
Other receivables 165 224
Refundable income taxes - 447
Inventories 6,405 9,933
Prepaid expenses 967 1,356
Deferred income taxes 50 50
------- ------
Total current assets 12,163 22,155
Property, plant and equipment, net 6,302 6,071
Deferred financing and other costs, net
of accumulated amortization of $425 and 1,504 2,646
Patent cost, net of accumulated
amortization of $136 and $165 1,264 1,235
Goodwill, net of accumulated amortization
of $2,429 and $2,584 22,322 22,167
Deferred income taxes 1,030 870
------- ------
$44,585 $55,144
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving loan $ 1,700 $ 6,940
Accounts payable 2,252 4,978
Accrued income taxes 49 -
Accrued expenses 1,342 3,570
Current portion of long-term debt 6,901 6,038
------- ------
Total current liabilities 12,244 21,526
Long-term debt, net of current portion 33,137 35,550
Commitments and contingent liability
Stockholders' equity(deficit):
Preferred stock, $.01 par value,
5,000,000 shares authorized, no
shares issued or outstanding - -
Common stock, $.01 par value,
25,000,000 shares authorized,
9,604,000 shares issued 96 96
Class B common stock, $.01 par value,
1,750,000 shares authorized, no
shares issued or outstanding - -
Additional paid-in capital 27,631 27,646
Excess purchase price over
predecessor basis (5,627) (5,627)
Retained earnings 17,452 16,301
Less 3,600,000 common shares held in
treasury, at cost (40,348) (40,348)
------- ------
Total stockholders' equity(deficit) (796) (1,932)
------- ------
$44,585 $55,144
======= =======
Note: The consolidated balance sheet at December 31, 1995 has
been derived from the audited consolidated balance sheet
at that date.
See notes to interim consolidated financial statements
<PAGE>
SWING-N-SLIDE CORP.
CONSOLIDATED INTERIM STATEMENTS OF
OPERATIONS AND RETAINED EARNINGS
(unaudited)
(in thousands, except per share amounts)
Three months Three months
ended ended
March 31, March 31,
1995 1996
------------ ------------
Net sales $13,863 $ 9,602
Cost of goods sold 7,259 4,583
------- -------
Gross profit 6,604 5,019
Operating expenses:
Selling 1,887 1,309
General and administrative 1,249 1,235
Amortization of intangible assets 261 266
------- -------
3,397 2,810
------- -------
Operating income 3,207 2,209
Other expense:
Interest expense 1,161 1,014
Other, net 38 2,609
------- -------
Total other expense 1,199 3,623
------- -------
Income(loss) before income taxes 2,008 (1,414)
Income tax expense(credit) 775 (263)
------- -------
Net income(loss) 1,233 (1,151)
Retained earnings at beginning of period 13,325 17,452
------- -------
Retained earnings at end of period $14,558 $16,301
======= =======
Net income (loss) per share $0.18 ($0.19)
======= =======
Weighted average number of common
shares outstanding 6,720 6,002
See notes to interim consolidated financial statements
<PAGE>
SWING-N-SLIDE CORP.
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three months Three months
ended ended
March 31, March 31,
1995 1996
Operating activities:
Net income (loss) $ 1,233 ($1,151)
Adjustments to reconcile net income
(loss) to net cash used by operating
activities:
Deferred income taxes 160 160
Depreciation 307 295
Amortization 261 266
Changes in operating assets and
liabilities (7,103) (5,086)
------- ------
Net cash used by operating activities (5,142) (5,516)
Investing activity:
Purchase of property, plant and equipment (391) (64)
Financing activities:
Increase in revolving loan 2,360 5,240
Issuances of long-term debt 45,000 4,300
Debt costs incurred (1,499) (1,225)
Purchase of treasury stock (40,308) -
Proceeds from issuance of common stock - 15
Payments of long-term debt (20) (2,750)
------- ------
Net cash provided by financing activities 5,533 5,580
------- ------
Increase in cash - -
Cash at beginning of period 7 7
------- ------
Cash at end of period $ 7 $ 7
======= ======
Supplemental disclosure of cash flows information-
cash paid(received) during period for:
Interest $ 1,123 $ 67
Income taxes, net of refunds received (610) 70
See notes to interim consolidated financial statements
<PAGE>
Notes to Interim Consolidated Financial Statements
(Unaudited)
(in thousands)
March 31, 1996
1. Basis of presentation of unaudited consolidated financial statements
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by
generally accepted accounting priniciples for year end financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals considered necessary for a
fair presentation) have been included. Operating results for the
three months ended March 31, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31,
1996. For further information refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
2. Inventories
Inventories consist of the following: December 31, March 31,
1995 1996
Finished goods and work in process $2,137 $4,930
Raw materials 4,268 5,003
------- ------
$6,405 $9,933
====== ======
<PAGE>
Management's Discussion and Analysis
of
Financial Condition and Results of Operations
Results of Operations:
The following table shows, for the periods indicated, information derived
from the consolidated statements of operations of the Company expressed as
a percentage of net sales for such periods.
As a Percentage of Net Sales
Three Months ended
March 31, March 31,
1995 1996
Net sales 100.0% 100.0%
Cost of goods sold 52.4 47.7
----- -----
Gross profit 47.6 52.3
Operating expenses:
Selling 13.6 13.6
General and administrative 9.0 12.9
Amortization of intangible assets 1.9 2.8
----- -----
Total operating expenses 24.5 29.3
----- -----
Operating income 23.1 23.0
Income (loss) before income taxes 14.5 (14.7)
Three months ended March 31, 1996 compared to the three months ended
March 31, 1995.
Net Sales. Net sales decreased by $4.3 million, or 30.7 percent, for the
three months ended March 31, 1996 as compared to the same period a year
ago. Sales of the core product line (swing sets, slides, accessories and
climbing units) were down 33.9 percent in 1996 versus the first quarter of
1995. The first quarter sales decline is primarily attributable to the
continued trend of retailers carrying less inventory, competition in the
market and poor spring weather.
Gross Profit. Gross profit decreased $1.6 million, or 24.0 percent, but
increased as a percentage of net sales to 52.3 percent for the three
months ended March 31, 1996 as compared to 47.6 percent for the same
period a year ago. The primary reasons for the increase in gross profit
margin were lower high density polyethylene costs and the effects of
changes implemented in the second quarter of 1995 which reduced indirect
labor costs and improved manufacturing efficiencies.
Selling Expense. Selling and marketing expenses decreased $0.6 million,
or 30.6 percent and remained the same as a percentage of net sales at 13.6
percent for the three months ended March 31, 1996 as compared to the same
period a year ago. The dollar decrease was mainly attributable to a
decrease in commission expense ($0.2 million), a decrease in advertising
and promotion costs ($0.1 million) and a decrease in display building
costs ($0.2 million).
General and Administrative Expenses. General and administrative expenses
decreased $14,000, or 1.1 percent, but increased as a percentage of net
sales to 12.9 percent for the three months ended March 31, 1996 as
compared to 9.0 percent for the same period a year ago. The dollar
decrease is primarily due to a decrease in compensation costs and related
benefits. The increase as a percentage of net sales is due to the impact
of the allocation of fixed general and administrative expenses to lower
sales volume.
Amortization of Intangible Assets. Amortization of financing fees,
goodwill and other intangibles was $0.3 million for the quarter ended
March 31, 1996. Amortization for the quarter ended March 31, 1995 was
also $0.3 million.
Other Expense. Interest expense decreased $0.1 million to $1.0 million
for the three months ended March 31, 1996 as compared to the same period a
year ago. This decrease is primarily due to the pay down of $5.0 million
on the Company's term note in 1995 and a reduction in revolver borrowings
in 1996 versus 1995 ($0.2 million). However, this decrease was partially
offset by the issuance of $4.3 million of 10% Convertible Subordinated
Debentures on February 15, 1996 of which $1.7 million was used to pay down
the Company's term loan ($54,000).
Other expenses increased to $2.6 million for the first quarter of 1996.
Included in other expenses are the fees and expenses paid by the Company
related to the tender offer by GreenGrass Holdings on February 15, 1996.
Income Taxes. The tax benefit recorded in the first quarter of 1996 was
at an effective rate of 18.6 percent. This differs from the effective tax
rate of 38.6 percent used in the first quarter of 1995 because certain
costs related to the tender offer completed on February 15, 1996 are not
deductible for tax purposes.
Seasonality
The Company experiences significant quarterly fluctuations in its
operations. Sales of the Swing-N-Slide core product lines are
concentrated in the period from January 1 through June 30 (approximately
70-75 percent). The timing of initial stocking orders and fluctuations in
customer demand through the spring and summer months contribute to this
pattern.
Liquidity and Capital Resources
On January 4, 1996, the Company entered into an agreement with an
unrelated general partnership of which one of the partners is a group of
the Company's senior management, pursuant to which the general partnership
commenced a tender offer for up to 3,510,000 shares of Common Stock of the
Company at a purchase price of $6.50 per share. This tender offer was
completed on February 15, 1996. The agreement also provided that the
general partnership would invest additional funds through the purchase of
the Company's newly authorized convertible debentures. On February 15,
1996, the general partnership invested $4.3 million through the purchase
of 10 percent convertible debentures. The debentures are convertible at
the rate of one share of Common Stock for each $4.80 principal amount of
debentures. On April 25, 1996, the partnership invested an additional
$0.7 million through the purchase of additional debentures. The proceeds
from issuance of debentures on February 15, 1996 were used to pay down
approximately $1.7 million of the Company's term loan and to pay fees
associated with the tender offer and issuance of the debentures. The
proceeds from the issuance of debentures on April 25, 1996 will be used to
pay down $0.7 million of the Company's term loan.
The Company's primary sources of working capital are cash flows from
operations and borrowings under the credit agreement entered into on
January 19, 1995. This credit agreement includes a revolving loan
facility of $10.0 million and a term loan facility of $45.0 million. At
March 31, 1996, the outstanding amounts of the revolving loan facility and
the term facility were approximately $6.9 million and $37.3 million,
respectively.
Borrowings under the revolving loan facility are limited to specified
percentages of inventories, and accounts receivable, not to exceed $10.0
million. Under the credit agreement, interest on borrowings is payable
quarterly, at either (i) the greater of 1.5 percent over the bank's prime
rate or 2.0 percent over the federal funds rate, or (ii) 2.75 percent over
the LIBOR rate, at the Company's option. The Company is subject to an
annual commitment fee of 0.5 percent of the daily unused portion of the
commitment. The borrowings under the credit agreement are secured by
substantially all of the assets of the Company. The Company is subject to
certain restrictive covenants which include, among other things,
restrictions on the payments of dividends or issuance of capital stock and
a limitation on additional indebtedness.
Total indebtedness on the revolving loan facility increased by
approximately $5.2 million during the three months ended March 31, 1996,
primarily as a result of increased levels of working capital to meet the
seasonal increase in production. The Company offers a first order dating
program to its major customers which results in March and April being the
peak months for borrowing. Payments for initial orders placed between
January 1 and March 31 are typically due during April.
Swing-N-Slide made capital expenditures totaling approximately $0.1
million in the three months ended March 31, 1996. The Company expects
that its level of total capital expenditures for 1996 will be similar to
1995. Swing-N-Slide believes that funds generated from operations and its
capacity for borrowing will be sufficient to fund current business
operations as well as future capital expenditures.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated February 16, 1996 was filed on March 1, 1996.
Items Reported:
On February 16, 1996, GreenGrass Holdings, a Delaware
general partnership ("Holdings"), purchased 3,510,000
shares of Common Stock, $.01 par value("Shares"), of the
registrant under a cash tender offer for all of the Shares
made to all of the stockholders of the registrant at $6.50
per Share (the "Offer").
In addition to shares purchased in the Offer, on
February 16, 1996, Holdings purchased from the registrant
at par $4.3 million principal amount of the registrant's
10% Convertible Subordinated Debentures due 2004 which are
convertible into 895,833 Shares.
Including Shares issuable on conversion of the Debentures,
Holdings beneficially owns approximately 65.0% of the
outstanding Shares.
<PAGE>
SIGNATURE
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.
Swing-N-Slide Corp.
Date: May 13, 1996 /s/ Richard E. Ruegger
Richard E. Ruegger,
Vice President-Finance
and Chief Financial Officer
(Duly authorized officer and Principal
Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SWING-N-SLIDE CORP. AS OF AND FOR
THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 10,138
<ALLOWANCES> 119
<INVENTORY> 9,933
<CURRENT-ASSETS> 22,155
<PP&E> 9,965
<DEPRECIATION> 3,894
<TOTAL-ASSETS> 55,144
<CURRENT-LIABILITIES> 21,526
<BONDS> 35,550
0
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<COMMON> 96
<OTHER-SE> (2,028)
<TOTAL-LIABILITY-AND-EQUITY> 55,144
<SALES> 9,602
<TOTAL-REVENUES> 9,602
<CGS> 4,583
<TOTAL-COSTS> 7,393
<OTHER-EXPENSES> 2,609
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<INTEREST-EXPENSE> 1,014
<INCOME-PRETAX> (1,414)
<INCOME-TAX> (263)
<INCOME-CONTINUING> (1,151)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,151)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
