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, 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
incorporation or organization) Identification No.)
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 May 6, 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 MARCH 31, 1998
INDEX
Part I. Financial Information: Page
Unaudited Consolidated Balance Sheets -
December 31, 1997 and March 31, 1998 3
Unaudited Consolidated Interim Statements of
Operations and Retained Earnings -
Three Months Ended March 31, 1997 and 1998 4
Unaudited Consolidated Interim Statements of
Cash Flows-Three Months Ended March 31, 1997
and 1998 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>
<TABLE>
<CAPTION>
PlayCore, Inc.
Consolidated Balance Sheets
(unaudited)
(in thousands, except share data)
December March
<S> <C> <C>
ASSETS
Current assets:
Cash $677 $551
Accounts receivable, less allowance for doubtful accounts of $407 and $444 13,295 20,083
Other receivables 162 437
Inventories 12,533 13,780
Refundable income taxes 1,157 983
Prepaid expenses 1,586 1,852
Deferred income taxes 765 765
-------- -------
Total current assets 30,175 38,451
Property, plant and equipment, net 20,535 20,642
Deferred financing and other costs, net of accumulated amortization of $868 and $1,034 3,639 3,473
Indentifiable intangible assets, net of accumulated amortization of $527 and $607 6,909 6,829
Goodwill, net of accumulated amortization of $4,049 and $4,323 39,907 39,633
-------- -------
$101,165 $109,028
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan $7,615 $13,400
Accounts payable 5,949 8,195
Accrued expenses 9,396 9,200
Current portion of long-term debt 9,457 9,166
-------- --------
Total current liabilities 32,417 39,961
Long-term debt, net of current portion 49,590 49,435
Convertible subordinated debentures payable to stockholders 5,869 5,869
Deferred income taxes 1,595 1,955
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 37,523
Excess purchase price over predecessor basis (5,627) (5,627)
Retained earnings 20,199 20,308
Less 3,634,385 common shares held in treasury, at cost (40,511) (40,511)
------- --------
Total stockholders' equity 11,694 11,808
------- --------
$101,165 $109,028
======= ========
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
</TABLE>
<PAGE>
<TABLE>
PlayCore, Inc.
Consolidated Interim Statements of Operations and Retained Earnings
(unaudited)
(in thousands, except per share amounts)
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1997 1998
<S> <C> <C>
Net sales $ 10,849 $ 25,257
Cost of goods sold 5,879 13,667
Gross profit 4,970 11,590
Operating expenses:
Selling 2,116 5,945
General and administrative 1,722 2,960
Amortization of intangible assets 344 519
-------- --------
4,182 9,424
-------- --------
Operating income 788 2,166
Other expense:
Interest expense 1,225 1,925
Other, net 16 72
-------- --------
Total other expense 1,241 1,997
-------- --------
Income(loss) before income taxes and extraordinary item (453) 169
Income tax expense(benefit) (171) 60
-------- --------
Income(loss) before extraordinary item (282) 109
Extraordinary item, net of income tax benefit of $540 860 -
-------- --------
Net income(loss) (1,142) 109
Retained earnings at beginning of period 19,022 20,199
-------- --------
Retained earnings at end of period $17,880 $20,308
======== ========
Basic and diluted earnings(loss) per share:
Income(loss) before extraordinary item ($0.04) $0.01
Extraordinary loss (0.14) 0.00
-------- --------
Net income(loss) $(0.18) $ 0.01
======== ========
See notes to interim consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
PlayCore, Inc.
Consolidated Interim Statements of Cash Flows
(unaudited)
(in thousands)
<CAPTION>
Three months Three months
ended ended
March 31 March 31
1997 1998
<S> <C> <C>
Operating activities
Net income(loss) ($1,142) $109
Adjustments to reconcile net income(loss) to
net cash used by operating activities:
Write-off of unamortized deferred financing costs 1,400 -
Amortization of debt discount 15 91
Deferred income taxes 230 360
Depreciation 323 613
Amortization of intangible assets 344 519
------- ------
Changes in operating assets and liabilities (3,526) (6,351)
Net cash used by operating activities (2,356) (4,659)
Investing activity
Purchase of property, plant and equipment (172) (720)
Acquisition of GameTime, Inc. (42,544) -
------- ------
Net cash used by investing activities (42,716) (720)
Financing activities
Increase in revolving loan 7,875 5,785
Issuances of long-term debt 63,777 -
Debt issuance costs incurred (2,977) -
Proceeds from issuance of commom stock warrants 2,723 -
Proceeds from issuance of common stock, net of offering costs 4,550 5
Payments of long-term debt (30,555) (537)
------- ------
Net cash provided by financing activities 45,393 5,253
------- ------
Increase(decrease) in cash 321 (126)
Cash at beginning of period 1 677
------- ------
Cash at end of period $322 $551
======= ======
Supplemental disclosure of cash flows information-
cash paid(received) during period for:
Interest $939 $1,998
Income taxes, net of refunds received - (449)
See notes to interim consolidated financial statements
</TABLE>
<PAGE>
Notes to Interim Consolidated Financial Statements
Unaudited
(in thousands)
March 31, 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
three months ended March 31, 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 Three months
ended ended
March 31, March 31,
1997 1998
<S> <C> <C>
Numerator:
Numerator for basic and diluted earnings per share -
income(loss) before extraordinary item ($282) $109
======= ========
Denominator:
Denominator for basic earnings per share -
weighted average shares 6,234 7,908
Effect of diluted securities:
Employee stock options(treasury stock
method) - 18
Warrants - 619
------- -------
Denominator for diluted earnings per share 6,234 8,545
======= =======
3. Inventories
Inventories consist of the following:
December 31, March 31,
1997 1998
Finished goods and work in process $7,112 $7,927
Raw materials 5,421 5,853
------- -------
$12,533 $13,780
======= =======
</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 ("Newco"), 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 March 31, 1998, compared to the three months ended
March 31, 1997.
Net Sales. Net sales increased $14.4 million, or 132.8 percent, for the
three months ended March 31, 1998 as compared to the same period a year
ago. The main reason for the increase is the inclusion of GameTime sales
for the entire first quarter of 1998 versus the inclusion of GameTime
sales from March 13 through March 31 in 1997. In addition, sales of the
Company's consumer products increased $4.3 million for the three months
ended March 31, 1998 as compared to the same period in 1997. This sales
increase was driven by new product introductions and an enhanced direct
marketing campaign.
Gross Profit. Gross profit increased $6.6 million, or 133.2 percent, and
increased slightly as a percentage of net sales to 45.9 percent for the
three months ended March 31, 1998 as compared to 45.8 percent for the same
period a year ago. The dollar increase is primarily due to the inclusion
of GameTime sales for all of the first quarter of 1998 and the increase in
sales of the Company's consumer products. The main reason for the
increase in gross profit margin is the impact of higher sales volume on
fixed overhead costs.
Selling Expense. Selling expense increased $3.8 million, or 181.0
percent, and increased as a percentage of net sales to 23.5 percent for
the three months ended March 31, 1998 as compared to 19.5 percent for the
three months ended March 31, 1997. The dollar increase is mainly due to
the inclusion of GameTime's selling and marketing expenses for the full
three 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 $1.2 million, or 71.9 percent, but decreased as percentage of
net sales to 11.7 percent for the three months ended March 31, 1998 as
compared to 15.9 percent for the same period a year ago. The dollar
increase is primarily due to the inclusion of GameTime general and
administrative expenses for the entire first quarter 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 $0.5 million for the
three months ended March 31, 1998 as compared to $0.3 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 $0.7 million to $1.9 million for
the three months ended March 31, 1998. This increase in interest expense
is 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 three months ended March 31, 1998, total indebtedness increased
$5.3 million to $77.9 million primarily as a result of increased levels of
working capital to meet the seasonal increase in production levels. The
Company offers a first order-dating program to its largest consumer
playground systems customers, which result in March through May being the
peak months for borrowing.
The Company's primary sources of working capital are cash flows 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 or issuance of capital stock and a limitation on
additional indebtedness.
Borrowings under the revolving loan facility are limited to specified
percentage of inventories and accounts receivable, not to exceed $20.0
million. At March 31, 1998, the outstanding amount of the revolving loan
facility was $13.4 million.
The Company made capital expenditures totaling approximately $0.7 million
in the three months ended March 31, 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.
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
A Form 8-K dated April 28, 1998 was filed on April 29, 1998 with
respect to stockholder approval of the Company's name change.
<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.
PlayCore, Inc.
Date: May 13, 1998 /s/ Richard E. Ruegger
Richard E. Ruegger,
Vice President-Finance
and Chief Financial Officer
(Duly authorized officer and
Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 551
<SECURITIES> 0
<RECEIVABLES> 20,083
<ALLOWANCES> 444
<INVENTORY> 13,780
<CURRENT-ASSETS> 38,451
<PP&E> 27,734
<DEPRECIATION> 7,092
<TOTAL-ASSETS> 109,028
<CURRENT-LIABILITIES> 39,961
<BONDS> 55,304
0
0
<COMMON> 115
<OTHER-SE> 11,693
<TOTAL-LIABILITY-AND-EQUITY> 109,028
<SALES> 25,257
<TOTAL-REVENUES> 25,257
<CGS> 13,667
<TOTAL-COSTS> 13,667
<OTHER-EXPENSES> 72
<LOSS-PROVISION> 42
<INTEREST-EXPENSE> 1,925
<INCOME-PRETAX> 169
<INCOME-TAX> 60
<INCOME-CONTINUING> 109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
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