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 September 30, 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 November 4,
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 SEPTEMBER 30, 1996
INDEX
Part I. Financial Information: Page
Unaudited Consolidated Balance Sheets -
December 31, 1995 and September 30, 1996 3
Unaudited Consolidated Interim Statements of Operations
and Retained Earnings -
Three Months Ended September 30, 1995,
Nine Months Ended September 30, 1995,
Three Months Ended September 30, 1996 and
Nine Months Ended September 30, 1996 4
Unaudited Consolidated Interim Statements of Cash Flows-
Nine Months Ended September 30, 1995 and
Nine Months Ended September 30, 1996 5
Notes to Unaudited Interim Consolidated Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K 11
Signature 12
<PAGE>
SWING-N-SLIDE CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share data)
December 31, September 30,
ASSETS 1995 1996
Current assets:
Cash $7 $1
Accounts receivable, less allowance for
doubtful accounts of $91 and $87 4,569 3,976
Other receivables 165 483
Inventories 6,405 6,765
Prepaid expenses 967 1,802
Deferred income taxes 50 50
------- -------
Total current assets 12,163 13,077
Property, plant and equipment, net 6,302 5,557
Deferred financing and other costs, net of
accumulated amortization of $425 and $799 1,504 2,592
Patent cost, net of accumulated amortization of
$136 and $224 1,264 1,176
Goodwill, net of accumulated amortization of
$2,429 and $2,893 22,322 21,858
Deferred income taxes 1,030 525
------- -------
$44,585 $44,785
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Revolving loan $1,700 $1,020
Accounts payable 2,252 1,251
Accrued income taxes 49 676
Accrued expenses 1,342 1,968
Current portion of long-term debt 6,901 6,500
------- -------
Total current liabilities 12,244 11,415
Long-term debt, net of current portion 33,137 32,121
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 2,7631 27,646
Excess purchase price over predecessor basis (5,627) (5,627)
Retained earnings 17,452 19,482
Less 3,600,000 common shares held in
treasury, at cost (40,348) (40,348)
------- -------
Total stockholders' equity(deficit) (796) 1,249
------- -------
$44,585 $44,785
======= =======
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>
<TABLE>
SWING-N-SLIDE CORP.
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three months Nine months Three months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1995 1995 1996 1996
<S> <C> <C> <C> <C>
Net sales $6,763 $40,269 $6,728 $35,543
Cost of goods sold 3,749 20,350 4,106 17,535
----- ------ ------ ------
Gross profit 3,014 19,919 2,622 18,008
Operating expenses:
Selling 787 4,806 887 4,186
General and administrative 859 3,544 833 3,491
Amortization of intangible
assets 268 792 298 926
----- ------ ------ ------
1,914 9,142 2,018 8,603
----- ------ ------ ------
Operating income 1,100 10,777 604 9,405
Other expense:
Interest expense 990 3,359 920 2,995
Other, net 16 82 9 2,627
----- ------ ------ ------
Total other expense 1,006 3,441 929 5,622
----- ------ ------ ------
Income(loss) before income taxes 94 7,336 (325) 3,783
Income tax expense(benefit) 34 2,825 (127) 1,753
----- ------ ------ ------
Net income(loss) 60 4,511 (198) 2,030
Retained earnings at beginning
of period 17,776 13,325 19,680 17,452
------ ------ ------ ------
Retained earnings at end of period $17,836 $17,836 $19,482 $19,482
====== ====== ====== ======
Net income(loss) per share:
Primary $0.01 $0.72 ($0.03) $0.34
====== ====== ===== ======
Fully Diluted $0.01 $0.72 ($0.03) $0.32
====== ====== ===== ======
</TABLE>
See notes to consolidated financial statements
<PAGE>
SWING-N-SLIDE CORP.
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine months Nine months
ended ended
September 30, September 30,
1995 1996
Operating activities:
Net income $4,511 $2,030
Adjustments to reconcile net income to
net cash provided by operating activities:
Deferred income taxes 520 505
Depreciation 951 898
Amortization 792 926
Interest converted to convertible
subordinated debentures - 71
Changes in operating assets and
liabilities 2,546 (668)
----- -----
Net cash provided by operating activities 9,320 3,762
Investing activity:
Purchase of property, plant and equipment (496) (152)
Financing activities:
Decrease in revolving loan (6,745) (680)
Issuances of long-term debt 45,000 5,000
Debt costs incurred (1,637) (1,463)
Purchase of treasury stock (40,348) -
Proceeds from issuance of common stock - 15
Payments of long-term debt (5,094) (6,488)
----- -----
Net cash used by financing activities (8,824) (3,616)
----- -----
Increase(decrease) in cash - (6)
Cash at beginning of period 7 7
----- -----
Cash at end of period $7 $1
===== =====
Supplemental disclosure of cash flows
information- cash paid during period for:
Interest $3,335 $2,552
Income taxes, net of refunds received 930 610
See notes to interim consolidated financial statements
<PAGE>
Notes to Interim Consolidated Financial Statements
(Unaudited)
(in thousands)
September 30, 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 nine months ended September 30, 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, September 30,
1995 1996
Finished goods and work in process $2,137 $2,619
Raw materials 4,268 4,146
----- -----
$6,405 $6,765
===== =====
<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 Nine Three Nine
Months ended Months ended Months ended Months ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1995 1995 1996 1996
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 55.4 50.5 61.0 49.3
---- ---- ---- ----
Gross profit 44.6 49.5 39.0 50.7
Operating expenses:
Selling 11.6 11.9 13.2 11.8
General and adminis-
trative 12.7 8.8 12.4 9.8
Amort. of intangible
assets 4.0 2.0 4.4 2.6
---- ---- ---- ----
Total operating expenses 28.3 22.7 30.0 24.2
---- ---- ---- ----
Operating income 16.3 26.8 9.0 26.5
Income loss before
income taxes 1.4 18.2 (4.8) 10.6
Three months ended September 30, 1996, compared to the three months ended
September 30, 1995.
Net Sales. Net sales decreased by $35,000, or 0.5 percent, for the three
months ended September 30, 1996, as compared to the same period a year
ago. Sales of the core product lines (kits, slides and accessories) were
down 10.2 percent in the third quarter of 1996 versus the same period a
year ago. This decline was primarily due to competition in the market and
overall industry consolidation. Sales of products ($0.9 million) in the
Shape Plastics line, acquired earlier this year, favorably impacted sales
in the third quarter of 1996.
Gross Profit. Gross profit decreased $0.4 million, or 13.0 percent, and
decreased as a percentage of net sales to 39.0 percent for the three
months ended September 30, 1996, as compared to 44.6 percent for the same
period a year ago. The primary reasons for the decrease in gross profit
margin were a change in product mix, as the Shape Plastics line carries a
lower margin than the core product line, and higher costs for high density
polyethylene that began rising during the third quarter.
Selling Expense. Selling and marketing expenses increased $0.1 million,
or 12.7 percent, and increased as a percentage of net sales to 13.2
percent for the three months ended September 30, 1996 as compared to 11.6
percent for the same period a year ago. The dollar increase is primarily
due to an increase in display building costs ($40,000) and an increase in
commission expense ($50,000).
General and Administrative Expenses. General and administrative expenses
decreased $26,000, or 3.0 percent, and decreased as a percentage of net
sales to 12.4 percent as compared to 12.7 percent for the same period a
year ago. The dollar decrease is primarily due to a decrease in
compensation and related benefits.
Amortization of Intangible Assets. Amortization of financing fees,
goodwill and other intangibles was $0.3 million for the quarter ended
September 30, 1996. This is $30,000 more than for the same period a year
ago. Amortization of intangible assets increased due to the amortization
of the financing fees related to the issuance of 10% Convertible
Subordinated Debentures in the first quarter of 1996.
Other Expense. Interest expense decreased $70,000 to $0.9 million for the
three months ended September 30, 1996. This decrease is primarily due to
the pay down of $5.0 million on the Company's term note in 1995 and the
pay down of $2.8 million on the Company's term note in the first quarter
of 1996 ($0.2 million). However, this decrease was partially offset by the
interest related to the issuance of $5.0 million of 10% Convertible
Subordinated Debentures in 1996 ($0.1 million).
Nine months ended September 30, 1996, compared to nine months ended
September 30, 1995.
Net Sales. Net sales for the nine months ended September 30, 1996
decreased $4.7 million, or 11.7 percent, as compared to the same period in
1995. Sales of the core product lines were down 16.2 percent for the nine
months ended September 30, 1996, as compared to the same period a year
ago. The sales decline is primarily attributable to the continued trend of
retailers carrying less inventory, industry consolidation and competition
in the market.
Gross Profit. Gross profit decreased $1.9 million, or 9.6 percent, but
increased as a percentage of net sales to 50.7 percent for the nine months
ended September 30, 1996, as compared to 49.5 percent for the same period
a year ago. The primary reasons for the increase in gross profit margin
were overall lower high density polyethylene costs and improved
manufacturing efficiencies.
Selling Expense. Selling and marketing expenses decreased $0.6 million,
or 12.9 percent, and decreased as a percentage of net sales to 11.8
percent for the nine months ended September 30, 1996, as compared to 11.9
percent for the same period a year ago. The decrease is primarily due to a
decrease in commission expense ($0.2 million), an overall decrease in
display building costs ($0.2 million) and a decrease in advertising and
promotion costs ($0.1 million).
General and Administrative Expenses. General and administrative expenses
decreased $53,000, or 1.5 percent, but increased as a percentage of net
sales to 9.8 percent for the nine months ended September 30, 1996 as
compared to 8.8 percent for the same period in 1995. The dollar decrease
is primarily due to a decrease in compensation costs and related benefits.
The increase as percentage of a net sales is due to the allocation of
fixed general and administrative expenses to lower sales volumes.
Amortization of Intangible Assets. Amortization of financing fees,
goodwill and other intangibles was $0.9 million for the nine months ended
September 30, 1996 as compared to $0.8 million for the same period a year
ago. Additional amortization resulted from the financing fees associated
with the issuance of 10% Convertible Subordinated Debentures in 1996.
Other Expense. Interest expense decreased $0.4 million to $3.0 million
for the nine months ended September 30, 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 the pay down of $2.8
million of the Company's term note in the first quarter of 1996 ($0.6
million). However, the decrease was partially offset by the interest on
the 10% Convertible Subordinated Debentures that were issued in 1996 ($0.3
million).
Other expenses increased from $82,000 to $2.6 million for the nine months
ended September 30, 1996. Included in other expenses are the fees and
expenses paid by the Company related to the tender offer by GreenGrass
Holdings on February 16, 1996 ($2.6 million).
Income Taxes. Income tax expense for the nine months ended September 30,
1996 was at an effective rate of 46.3 percent. This differs from the
effective rate of 38.5 percent used in 1995 because certain costs related
to the tender offer completed on February 16, 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. In partial counterbalance to this, the Shape Plastics line has
its peak selling season in the fall, resulting in higher inventories
(approximately $0.5 million as reflected on the Company's September 1996
balance sheet) and sales (approximately $0.9 million for the three month
period ended September 1996) for that season.
Liquidity and Capital Resources
On January 4, 1996, the Company entered into an agreement with an
unrelated general partnership of which one of the two 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 16, 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 16,
1996, the general partnership invested $4.3 million through the purchase
of 10% Convertible Subordinated 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 pursuant to the
original agreement. The proceeds from issuance of debentures on February
16, 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, was 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 September
30, 1996, the outstanding amounts of the revolving loan facility and the
term facility were approximately $1.0 million and $33.6 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.
Approximately $0.7 million of the Company's prepaid expenses (shown on the
Company's September 1996 balance sheet) represents part of the purchase
price paid for the assets of Shape Plastics and prepaid display and
promotional credits incurred in 1996.
Swing-N-Slide made capital expenditures totalling approximately $0.2
million in the nine months ended September 30, 1996. The Company expects
that its level of total capital expenditures for existing lines of
business for 1996 will be similar to 1995. The Company continues to
evaluate opportunities for both internal and external growth and believes
that funds generated from operations and its current and future capacity
for borrowing will be sufficient to fund current business operations as
well as future capital expenditures and growth opportunities.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Statement Re: Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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: November 12, 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
11 Statement Re: Computation of Earnings Per Share
27 Financial Data Schedule
Exhibit 11 - Statement Re: Computation of Earnings Per Share
<TABLE>
Three months Nine months Three months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1995 1995 1996 1996
(000's omitted, except per share data)
<CAPTION>
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 6,000 6,237 6,004 6,003
===== ===== ===== =====
Net income(loss) $60 $4,511 ($198) $2,030
===== ===== ===== =====
Per share net income(loss) $0.01 $0.72 ($0.03) $0.34
===== ===== ===== =====
Fully diluted:
Weighted average shares outstanding 6,000 6,237 6,004 6,003
===== ===== ===== =====
Assumed conversion of 10% convertible
subordinated debentures 0 0 0 837
----- ----- ----- -----
Totals 6,000 6,237 6,004 6,840
===== ===== ===== =====
Net income(loss) $60 $4,511 ($198) $2,030
Add 10% convertible subordinated
debenture interest, net of tax effect 0 0 0 187
----- ----- ----- -----
Totals $60 $4,511 ($198) $2,217
===== ===== ===== =====
Per share net income(loss) $0.01 $0.72 ($0.03) $0.32
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 3,976
<ALLOWANCES> 87
<INVENTORY> 6,765
<CURRENT-ASSETS> 13,077
<PP&E> 10,063
<DEPRECIATION> 4,506
<TOTAL-ASSETS> 44,785
<CURRENT-LIABILITIES> 11,415
<BONDS> 32,121
0
0
<COMMON> 96
<OTHER-SE> 1,153
<TOTAL-LIABILITY-AND-EQUITY> 44,785
<SALES> 35,543
<TOTAL-REVENUES> 35,543
<CGS> 17,535
<TOTAL-COSTS> 8,603
<OTHER-EXPENSES> 2,627
<LOSS-PROVISION> (2)
<INTEREST-EXPENSE> 2,995
<INCOME-PRETAX> 3,783
<INCOME-TAX> 1,753
<INCOME-CONTINUING> 2,030
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,030
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.32
</TABLE>
