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 June 30, 1998
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
PlayCore, Inc.
(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) 755-4768.
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 August 7, 1998
there were 7,908,964 shares of Common Stock, par value, $.01 per share,
outstanding.
<PAGE>
PLAYCORE, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 1998
INDEX
Part I. Financial Information: Page
Unaudited Consolidated Balance Sheets -
December 31, 1997 and June 30, 1998 3
Unaudited Consolidated Interim Statements of Operations
and Retained Earnings -
Three Months Ended June 30, 1997 4
Six Months Ended June 30, 1997
Three Months Ended June 30, 1998 and
Six Months Ended June 30, 1998
Unaudited Consolidated Interim Statements of Cash Flows-
Six Months Ended June 30, 1997 and 5
Six Months Ended June 30, 1998
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 4 Submissions of Matters to Vote
Item 6 Exhibits and Reports on Form 8-K 11
Signature 12
<PAGE>
PlayCore, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share data)
December 31, June 30,
ASSETS 1997 1998
Current assets:
Cash $ 677 $ 1,226
Accounts receivable, less allowance for
doubtful accounts of $407 and $469 13,295 23,902
Other receivables 162 2,559
Inventories 12,533 11,793
Refundable income taxes 1,157 -
Prepaid expenses 1,586 2,445
Deferred income taxes 765 765
------- -------
Total current assets 30,175 42,690
Property, plant and equipment, net 20,535 20,645
Deferred financing and other costs, net of
accumulated amortization of $868 and
$1,201 3,639 3,356
Identifiable intangible assets, net of
accumulated amortization of $527 and $686 6,909 6,752
Goodwill, net of accumulated amortization
of $4,049 and $4,598 39,907 39,978
-------- --------
$ 101,165 $ 113,421
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan $ 7,615 $ 15,160
Accounts payable 5,949 6,529
Accrued income taxes - 1,643
Accrued expenses 9,396 10,771
Current portion of long-term debt 9,457 6,847
-------- --------
Total current liabilities 32,417 40,950
Long-term debt, net of current portion 49,590 47,170
Convertible subordinated debentures
payable to stockholders 5,869 6,161
Deferred income taxes 1,595 2,395
Stockholders' equity:
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, 11,542,268 and
11,543,349 shares issued 115 115
Class B common stock, $.01 par value,
1,750,000 shares authorized,
no shares issued or outstanding - -
Additional paid-in capital 37,518 37,524
Excess purchase price over predecessor
basis (5,627) (5,627)
Retained earnings 20,199 25,244
Less 3,634,385 common shares held in
treasury, at cost (40,511) (40,511)
-------- --------
Total stockholders' equity 11,694 16,745
-------- --------
$ 101,165 $ 113,421
Note: The consolidated balance sheet at
December 31, 1997 has been derived
from the audited consolidated
balance sheet at that date.
See notes to interim consolidated financial statements
<PAGE>
<TABLE>
PlayCore, Inc.
Consolidated Interim Statements of Operations and Retained Earnings
(unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three months Six months Three months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
1997 1997 1998 1998
<S> <C> <C> <C> <C>
Net sales $ 34,923 $ 45,772 $ 36,856 $ 62,113
Cost of goods sold 17,187 23,066 17,880 31,547
-------- -------- -------- --------
Gross profit 17,736 22,706 18,976 30,566
Operating expenses:
Selling 5,630 7,746 6,193 12,138
General and
administrative 2,339 4,061 2,197 5,157
Amortization of
intangible assets 527 871 518 1,037
------- -------- -------- --------
8,496 12,678 8,908 18,332
Operating income 9,240 10,028 10,068 12,234
Other expense:
Interest expense 2,277 3,502 2,023 3,948
Other, net 39 55 64 136
------- ------- -------- -------
Total other expense 2,316 3,557 2,087 4,084
------- ------- -------- -------
Income before income
taxes and extraordinary
item 6,924 6,471 7,981 8,150
Income tax expense 2,633 2,462 3,045 3,105
------- -------- -------- ---------
Income before
extraordinary item 4,291 4,009 4,936 5,045
Extraordinary item, net
of income tax benefit
of $540 - 860 - -
------- ------- -------- --------
Net income 4,291 3,149 4,936 5,045
Retained earnings at
beginning of period 17,880 19,022 20,308 20,199
------- -------- -------- --------
Retained earnings at end
of period $ 22,171 $ 22,171 $ 25,244 $ 25,244
======= ======== ======== ========
Basic earnings per
share:
Income before
extraordinary item $ 0.61 $ 0.60 $ 0.62 $ 0.64
Extraordinary loss - (0.13) - -
------- -------- -------- --------
Net income $ 0.61 $ 0.47 $ 0.62 $ 0.64
======= ======== ======== ========
Diluted earnings per
share:
Income before
extraordinary item $ 0.49 $ 0.50 $ 0.51 $ 0.53
Extraordinary loss - (0.10) - -
-------- -------- -------- --------
Net income $ 0.49 $ 0.40 $ 0.51 $ 0.53
======== ======== ======== ========
</TABLE>
See notes to interim consolidated financial statements
<PAGE>
PlayCore, Inc.
Consolidated Interim Statements of Cash Flows
(unaudited)
(in thousands)
Six months Six months
ended ended
June 30, June 30,
1997 1998
Operating activities
Net income $ 3,149 $ 5,045
Adjustments to reconcile net income
to net cash provided by operating
activities:
Write-off of unamortized deferred
financing costs 1,400 -
Amortization of debt discount 106 182
Deferred income taxes 430 800
Depreciation 847 1,222
Amortization of intangible assets 871 1,037
Interest converted to convertible
subordinated debentures 265 292
Changes in operating assets and
liabilities (6,406) (8,488)
------- --------
Net cash provided by operating
activities 662 90
Investing activities
Purchase of property, plant and
equipment (675) (1,290)
Acquisitions, net of cash acquired (42,566) (590)
-------- --------
Net cash used by investing activities (43,241) (1,880)
Financing activities
Increase in revolving loan 6,695 7,545
Issuances of long-term debt 63,777 -
Debt issuance costs incurred (3,027) -
Proceeds from issuance of commom
stock warrants 2,723 -
Proceeds from issuance of common
stock, net of offering costs 4,550 6
Payments of long-term debt (31,571) (5,212)
-------- ---------
Net cash provided by financing
activities 43,147 2,339
Increase in cash 568 549
Cash at beginning of period 1 677
-------- ---------
Cash at end of period $ 569 $ 1,226
======== =========
Supplemental disclosure of cash flows
information-cash paid (received)
during period for:
Interest $ 1,972 $ 2,754
Income taxes, net of refunds received 369 (520)
See notes to interim consolidated financial statements
<PAGE>
Notes to Interim Consolidated Financial Statements
Unaudited
(in thousands)
June 30, 1998
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
principles 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 six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1998. 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, 1997.
2. Earnings per share
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three months Six months Three months Six months
ended June 30, ended June 30, ended June 30, ended June 30,
1997 1997 1998 1998
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and
diluted earnings per
share - income before
extraordinary item $ 4,291 $ 4,009 $ 4,936 $ 5,045
Effect of diluted
securities - 10% convertible
subordinated debentures 86 167 95 183
--------- --------- --------- ---------
Numerator for diluted earnings
per share $ 4,377 $ 4,176 $ 5,031 $ 5,228
========= ========= ========= =========
Denominator:
Denominator for basic earnings
per share - weighted average
shares 7,091 6,665 7,909 7,909
Effect of diluted securities:
Employee stock options
(treasury stock method) 37 37 87 54
Warrants 592 359 624 622
10% convertible
subordinated debentures 1,155 1,132 1,274 1,248
-------- -------- --------- ---------
Denominator for diluted
earnings per share 8,875 8,193 9,894 9,833
======== ======== ========= =========
Inventories
Inventories consist of the
following:
December 31, June 30,
1997 1998
Finished goods and work in
process $ 7,112 $ 6,477
Raw materials 5,421 5,316
-------- --------
$ 12,533 $ 11,793
======== ========
</TABLE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
Certain matters discussed herein are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company
"believes," "anticipates," "expects" or words of similar import.
Similarly, statements that describe the Company's future plans, objectives
or goals are forward-looking statements. Such forward-looking statements
are subject to certain risks and uncertainties which are described in
close proximity to such statements and which could cause actual results to
differ materially from those currently anticipated. Readers are urged to
consider these factors carefully in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such forward-
looking statements. The forward-looking statements made herein are only
made as of the date of this report and the Company undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
Results of Operations:
On March 13, 1997, the Company acquired GameTime, Inc. (GameTime), a
leading manufacturer of modular and custom commercial outdoor playground
equipment for schools, parks and municipalities. GameTime was merged into
Newco, Inc. the Company's wholly owned operating subsidiary, as an
independent business unit. The acquisition of GameTime was accounted for
using the purchase method. Therefore, the results of GameTime are included
with those of the Company beginning with the date of the acquisition. In
April 1998, the Company changed its name to PlayCore, Inc. from Swing-N-
Slide Corp.
Three Months Ended June 30, 1998, Compared to the Three Months Ended June
30, 1997.
Net Sales. Net sales increased $1.9 million, or 5.5 percent, to $36.8
million for the three months ended June 30, 1998 as compared to $34.9
million for the same period a year ago. The increase is primarily due to
the growth in sales of commercial playground equipment driven by new
safety standards and an expanding economy.
Gross Profit. Gross profit increased $1.3 million, or 7.0 percent, to
$19.0 million and increased as a percentage of net sales to 51.5 percent
for the three months ended June 30, 1998 as compared to $17.7 million and
50.8 percent for the same period a year ago. The impact of higher sales
volume on fixed overhead costs and ongoing efficiency improvements led to
the increase in gross profit margin.
Selling Expense. Selling expense increased $0.6 million, or 10.0 percent,
to $6.2 million and increased as a percentage of net sales to 16.8 percent
for the three months ended June 30, 1998 as compared to $5.6 million and
16.1 percent for the three months ended June 30, 1997. The increase as a
percentage of net sales primarily results from a greater percentage of
commercial sales, which have higher selling costs as a percentage of net
sales.
General and Administrative Expenses. General and administrative expenses
decreased $0.1 million, or 6.1 percent, to $2.2 million and decreased as a
percentage of net sales to 6.0 percent for the three months ended June 30,
1998 as compared to $2.3 million and 6.7 percent for the same period a
year ago. The main reason for the decrease as a percentage of net sales is
the impact of higher sales volume on fixed general and administrative
expenses.
Amortization of Intangible Assets. Amortization of financing fees,
goodwill and other identifiable intangible assets was $0.5 million for the
three months ended June 30, 1998 and for the same period a year ago.
Other Expense. Interest expense decreased $0.3 million to $2.0 million for
the three months ended June 30, 1998. This decrease was primarily due to
the pay down of $3.0 million on the Company's term note in 1997 and the
pay-off of the $2.5 million Junior Subordinated Bridge Note on December
31, 1997.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997.
Net Sales. Net sales for the six months ended June 30, 1998 increased
$16.3 million, or 35.7 percent, to $62.1 million as compared to $45.8
million for the same period in 1997. The main reason for the increase is
the inclusion of GameTime sales for the entire first six months of 1998
versus the inclusion of GameTime sales from March 13 through June 30,
1997.
Gross Profit. Gross profit increased $7.9 million, or 34.6 percent, to
$30.6 million but decreased slightly as a percentage of net sales to 49.2
percent for the six months ended June 30, 1998 as compared to $22.7
million and 49.6 percent for the same period a year ago. The main reason
for the decrease in gross profit margin is a greater percentage of sales
of the Company's lower margin product categories.
Selling Expense. Selling and marketing expenses increased $4.4 million, or
56.7 percent, to $12.1 million and increased as a percentage of net sales
to 19.5 percent for the six months ended June 30, 1998 as compared to $7.7
million and 16.9 percent for the same period a year ago. The dollar
increase is mainly due to the inclusion of GameTime's selling and
marketing expenses for the full six months in 1998. The increase as a
percentage of net sales is primarily due to the higher selling costs as a
percentage of net sales inherent in the commercial playground area.
General and Administrative Expenses. General and administrative expenses
increased $1.1 million, or 27.0 percent, to $5.2 million but decreased as
a percentage of sales to 8.3 percent for the six months ended June 30,
1998 as compared to $4.1 million and 8.9 percent for the six months ended
June 30, 1997. The dollar increase is primarily due to the inclusion of
GameTime general and administrative expenses for the entire first half of
1998. The main reason for the decrease as a percentage of net sales is the
impact of higher sales volume on fixed general and administrative
expenses.
Amortization of Intangible Assets. Amortization of financing fees,
goodwill and other identifiable intangible assets was $1.0 million for the
six months ended June 30, 1998 as compared to $0.9 million for the same
period a year ago. Additional amortization resulted from goodwill,
identifiable intangible assets and financing fees associated with the
GameTime acquisition.
Other Expense. Interest expense increased $0.4 million to $3.9 million for
the six months ended June 30, 1998. This increase in interest expense was
due to the additional debt that was incurred in connection with the
GameTime acquisition on March 13, 1997.
Seasonality
The Company's sales pattern is seasonal and is concentrated in the period
from April 1 through September 30 (approximately 67 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
During the six months ended June 30, 1998, total indebtedness increased
$2.8 million primarily as a result of increased levels of working capital.
The Company expects that debt levels will decline over the second half of
1998 due to the shipment of inventories and collection of receivables.
The Company's primary sources of working capital are cash flow from
operations and borrowings under Newco's senior credit facility that was
entered into in March 1997 and runs through June 2003. The facility
consists of (a) a $20.0 million revolving credit facility; (b) a $45.0
million Term A facility and (c) a $4.5 million Term B facility. The entire
facility is guaranteed by PlayCore, Inc. and secured by a first priority
mortgage or security interest in all of Newco's tangible and intangible
assets, as well as the pledge of all of the outstanding shares of Newco
Common Stock. In addition, the Company and Newco are subject to certain
restrictive covenants which include, among other things, restrictions on
the payment of dividends and a limitation on additional indebtedness.
Borrowings under the revolving loan facility are limited to specified
percentages of inventories and accounts receivable, not to exceed $20.0
million. At June 30, 1998, the outstanding amount of the revolving loan
facility was $15.2 million.
The Company made capital expenditures totaling approximately $1.3 million
in the six months ended June 30, 1998. 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.
Impact of Year 2000
Certain of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, such
older computer programs could misinterpret a date using "00" as the year
1900 rather than the year 2000. The computer software at Swing-N-Slide has
been updated to address year 2000 issues. GameTime is in the process of
updating its computer software and is expected to complete the updating
process by the end of 1998. There is no assurance, however, that the
Company will be successful in addressing all year 2000 issues or that the
year 2000 issues will not cause problems for the Company or its suppliers
or customers.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. SUBMISSIONS OF MATTERS TO VOTE
At the Company's annual meeting of stockholders held on June 4,
1998, Terence S. Malone, Frederic L. Contino, David S. Evans,
George N. Herrera, Timothy R. Kelleher, Gary A. Massel and
Caroline L. Williams were elected as directors of the Company
for terms expiring in 1999. All directors were elected by
6,872,191 shares, with 158,617 shares withholding authority.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<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: August 11, 1998 /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 Page
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,226
<SECURITIES> 0
<RECEIVABLES> 23,902
<ALLOWANCES> 469
<INVENTORY> 11,793
<CURRENT-ASSETS> 42,690
<PP&E> 28,348
<DEPRECIATION> 7,703
<TOTAL-ASSETS> 113,421
<CURRENT-LIABILITIES> 40,950
<BONDS> 53,331
0
0
<COMMON> 115
<OTHER-SE> 16,630
<TOTAL-LIABILITY-AND-EQUITY> 113,421
<SALES> 62,113
<TOTAL-REVENUES> 62,113
<CGS> 31,547
<TOTAL-COSTS> 18,332
<OTHER-EXPENSES> 136
<LOSS-PROVISION> 55
<INTEREST-EXPENSE> 3,948
<INCOME-PRETAX> 8,150
<INCOME-TAX> 3,105
<INCOME-CONTINUING> 5,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,045
<EPS-PRIMARY> .64
<EPS-DILUTED> .53
</TABLE>
