SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 (I.R.S. employer
incorporation or organization) identification number)
15 West Milwaukee Street, Suite 204
Janesville, WI 53545
(Address of principal executive offices) (zip code)
Registrant's telephone number including area code (608) 741-7183
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
N/A None
Securities registered pursuant to Section 12(g) of the Act:
Common stock,
par value $.01 per share
Title of class
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates as of March
15, 1999 was $12,862,638 (excludes shares held by directors and officers of
registrant). This is based on the closing price of the common stock on the AMEX
- - American Stock Exchange.
At March 15, 1999, there were 7,911,214 shares of common stock outstanding.
Part III incorporates information by reference from the Proxy Statement for the
annual meeting of stockholders to be held on May 26, 1999.
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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.
PART I
Item 1 - Business
General
PlayCore, Inc. is a leading designer, manufacturer and marketer of commercial
and consumer playground equipment and backyard products. It was incorporated in
Delaware in January 1992, and on January 31 of that year its wholly owned
subsidiary PlayCore Wisconsin, Inc. (formerly Newco, Inc.), a Wisconsin
corporation ("PlayCore Wisconsin"), incorporated in November 1991, acquired
substantially all of the assets and business of a predecessor company. PlayCore,
Inc. and PlayCore Wisconsin, Inc. are sometimes referred to herein as the
"Company" or "PlayCore." In April 1998, the Company changed its name to
PlayCore, Inc. from Swing-N-Slide Corp.
On March 13, 1997, PlayCore Wisconsin acquired all of the issued and outstanding
shares of GameTime, Inc., an Alabama corporation ("GameTime(R)"). Immediately
following the acquisition on March 13, 1997, GameTime(R) merged into PlayCore
Wisconsin.
The Company's commercial playground systems are primarily sold under the brand
name GameTime(R). GameTime(R) is one of the leading manufacturers and marketers
of modular and custom commercial outdoor playground equipment in the world.
GameTime(R) markets its playground systems and components to municipalities,
schools, park districts and other playground equipment users through a network
of independent representatives. The Company's consumer playground systems are
primarily sold under the brand name Swing-N-Slide(R). The Swing-N-Slide(R)
product line is marketed through hardware and home center customers. The
Swing-N-Slide(R) do-it-yourself wooden playground equipment is the market leader
in the U.S. and is sold worldwide through more than 6,000 home center, building
supply and hardware stores.
On February 16, 1999, the Company acquired all of the capital stock of Heartland
Industries, Inc. ("Heartland"), a maker of wooden storage buildings, for
approximately $13.3 million
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(including the repayment of certain indebtedness of Heartland), subject to
certain post-closing adjustments as provided in the Agreement and Plan of
Merger. Heartland has a national network of company-owned sales branches and
independent dealers to sell its products, which include yard barns and
custom-built garages. The acquisition was financed by amending and restating the
Company's existing senior credit facility to increase the revolving loan
facility to $28.0 million, the Term A facility to $38.0 million and the Term B
facility to $9.0 million.
Products and Markets
Commercial Playground Systems
As mentioned previously, on March 13, 1997, PlayCore Wisconsin acquired the
stock and business of GameTime, Inc., a leading manufacturer of commercial
playground equipment.
GameTime(R) manufactures over 4,000 products in a wide variety of colors.
GameTime(R)'s largest product offering is plastic and metal playground systems,
which are custom manufactured using several hundred pre-designed components.
GameTime(R) also manufactures preschool playground equipment such as
mini-playgrounds and sandboxes, sport and fitness products, such as basketball
and soccer equipment, park products, such as picnic tables and picnic benches
and site amenities, such as benches, litter receptacles and bicycle racks.
GameTime(R) also offers replacement parts and accessories for all its playground
systems.
GameTime(R)'s products contain many unique proprietary components. Examples of
these include MegaLoc(R), a clamp which maximizes strength while minimizing
installation error; Bigfoot(TM), a large three-in-one slide; Megarock(TM), a
freeform multiple use climber; and PlayGraphics(TM), graphics which are molded
into GameTime(R)'s products.
The metal commercial playground equipment consists of playground systems built
from plastic and metal components, as well as ancillary playground equipment
such as swings and whirls. Plastic components are rotationally molded using
primarily low-density polyethylene and are used in slides, tubes and roof
components. Metal components include steel and aluminum uprights, steel tubing,
decks and hardware. Nearly all of GameTime(R)'s sales are conducted through a
network of independent sales representatives. These sales representatives have
access to proprietary CAD software, which allows the customer to design in color
a 3-dimensional playground system on-site, while automatically pricing the
design for the customer and developing order entry data for the Company.
In May 1998, PlayCore Wisconsin acquired certain assets and assumed certain
liabilities of Pentes Play, Inc. ("Pentes"), a leading designer and marketer of
soft contained play systems. Pentes is now marketed and sold through GameTime.
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The Pentes product line consists of a wide variety of custom designed soft
contained play systems. These systems can be designed in any array of colors and
sizes. All surfaces of the unit that a person comes in contact with are padded
to prevent injuries. Within a play system, all play events are enclosed with
netting or inside tubes. The Pentes play systems are sold through GameTime's
network of independent sales representatives directly to restaurants, hotels,
resorts, theme parks and health and fitness clubs.
In 1994, Swing-N-Slide introduced a new line of wooden commercial playground
systems sold under the Tuff Kids(TM) brand name. This is a complete playground
system targeted at small to medium-size applications such as day care centers,
churches, campgrounds and schools. Installation options for Tuff Kids(TM)
commercial playgrounds range from do-it-yourself to full installation by a
contractor. The Tuff Kids(TM) line is sold through the same distribution
channels as Swing-N-Slide(R)'s consumer playground systems. There are five basic
models of the Tuff Kids(TM) commercial units. A key feature of the Tuff Kids(TM)
system is the modular design, which simplifies future expansion.
Consumer Playground Systems
The Swing-N-Slide(R) product line consists of a broad line of do-it-yourself
wooden playground kits, plastic slides and accessories for home playground use.
These kits contain well-illustrated instructions to simplify construction by
do-it-yourself consumers. The kits are specifically designed to be assembled by
the consumer, and most of the kits can be combined with each other and with
Swing-N-Slide(R)'s high-density polyethylene slides. The Company estimates that
its playground kits generally can be assembled by two adults in approximately
two to twelve hours depending on the size and complexity of the unit.
The wooden playground kits manufactured and sold by Swing-N-Slide(R) include an
assembly plan, brackets, hardware and various accessories in an attractive box
that illustrates and lists the lumber, nails and tools required to complete the
kit. The Company currently sells twelve basic designs of playground kits.
Swing-N-Slide(R) also designs and manufactures high-density polyethylene slides
for use on its wooden playground kits. In addition, the slides are readily
adaptable for use on pre-cut, do-it-yourself and custom playground units
produced by other manufacturers. The Company currently manufactures and sells
six different high-density polyethylene slides.
Swing-N-Slide(R) sells a broad line of accessories, which complement its wooden
playground kits. Examples of accessories include swing seats, metal and wood
swing hangers, climbing ropes, ladders, nets, merry-go-rounds and replacement
tarps. Swing-N-Slide(R)'s wooden playground kits include between one and four
open spots that the consumer can customize with various accessories. Therefore,
a significant portion of Swing-N-Slide(R)'s accessories are sold in connection
with the purchase of a playground kit or as upgrades or replacement parts for
Swing-N-Slide(R)'s growing
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base of installed units. The Company also believes that a portion of its
accessories are sold as replacement parts for wooden and metal gym sets produced
by other manufacturers.
Backyard Wooden Storage Buildings
As stated previously, on February 16, 1999, the Company acquired all of the
capital stock of Heartland Industries, Inc. ("Heartland"). Heartland is a
manufacturer of wooden storage products such as yard barns, custom-built garages
and weekender cabins. Yard barns are essentially wooden storage sheds commonly
used by homeowners to store items such as lawn and garden equipment and outdoor
furniture. In 1998, yard barns accounted for approximately 85 percent of
Heartland's sales. Heartland offers a wide range of options on each yard barn,
garage and weekender cabin that allows for customization during the building and
design process through the use of over 300 size and style combinations.
Heartland has a national network of company-owned sales branches and independent
dealers to sell its products.
Fabrication and Other Products
The Company manufactures several metal components that are an integral part of
both its consumer and commercial playground systems. In addition, the Company
designs and manufactures custom fabricated metal and plastic parts that are
unrelated to playground equipment for a small group of original equipment
manufacturer (O.E.M.) customers. The Company's sales to O.E.M. customers enable
it to cost-effectively maintain a core of full-time, highly skilled workers
during the seasonal slower sales periods of the Company's primary business.
In 1996, the Company also began manufacturing and selling the Shape Plastics(TM)
brand of window well covers, composters and utility tubs. The Shape Plastics(TM)
product line is sold through home center stores and building supply retailers.
Customers
GameTime(R)'s commercial playgrounds systems are sold through a network of
independent sales representatives directly to city and county governments,
nursery, elementary and middle schools, and building contractors.
Because the Company's consumer playground systems products are mainly designed
for the do-it-yourself consumer, and because its kits require lumber, almost all
of the Company's consumer playground systems sales are made to home center and
building supply retailers such as 84 Lumber, Home Depot, Hechinger/Home
Quarters/Builders Square, Lowes, and Payless Cashways, and hardware stores which
carry lumber such as Ace Hardware and HWI. The Company estimates the total
number of retail outlets that carry the Company's Swing-N-Slide(R) product line
at approximately 6,000.
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Manufacture and Assembly
The Company's commercial playground systems, with the exception of the Tuff
Kids(TM) product line, are manufactured at two facilities totaling 241,000
square feet located in Fort Payne, Alabama. These facilities are located on a
78-acre parcel of land owned by the Company. Currently, the Company is expanding
one of its Fort Payne facilities by 112,000 square feet. This expansion will
provide the needed additional capacity to meet sales growth and also allow for a
better workflow through the facility. This expansion is expected to be completed
in June 1999. The Company also leases a 3.5-acre parcel of land in Crystal
Springs, Georgia on which a wood-processing facility is located. In addition,
the Company leases a facility totaling approximately 7,000 square feet located
in Charlotte, North Carolina where the Pentes product line is designed.
All of the Company's consumer playground systems and the Tuff Kids(TM)
commercial product line are manufactured, assembled and packaged at two
locations totaling 162,000 square feet located in Janesville, Wisconsin. These
facilities were designed specifically to assemble, package and warehouse the
Swing-N-Slide(R) product line. These facilities and the Company's production
processes are designed to promote maximum production flexibility. The plant has
multiple production lines, which enable the Company to produce varying
quantities of products or change production runs depending on customer demand.
With the completion of the addition to the Fort Payne facility, the Company
anticipates that its various facilities will have sufficient capacity for at
least the next twenty-four months.
The Company typically enters into annual purchase agreements with suppliers of
its primary raw materials such as steel, paint, aluminum and polyethylene.
Management believes that alternate sources of supply are readily available for
substantially all raw materials and components. The Company believes that it
currently has an adequate supply of raw materials and components. Imports
represent an insignificant portion of the Company's raw materials.
Competition
The market for commercial playground systems is highly competitive. GameTime(R)
is one of four major manufacturers of commercial playground systems. Its three
largest competitors are Miracle Recreation Equipment Company, Landscape
Structures, Inc., and Little Tikes Commercial PlaySystems, Inc., a unit of
Newell Rubbermaid, Inc. GameTime(R) competes on the basis of new product design
and innovation, price, safety and unique product characteristics.
The market for consumer playground systems is also highly competitive and the
Company faces competition from manufacturers of metal swing sets and pre-cut and
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custom built wood kits. Hedstrom Corporation is a major manufacturer and
marketer of metal gym sets, plastic and metal slides and accessories. Hedstrom
Corporation also manufactures and sells a competing line of do-it-yourself
wooden playground kits. Several other manufacturers also manufacture and market
kit products which are similar to the Company's consumer kits. The Company
competes on the basis of design, a complete merchandising program, quality, and
timeliness of delivery, service, price, packaging and brand name recognition.
The Company believes that its design capabilities, complete merchandising
programs, marketing activities and reputation for on-time delivery enable it to
compete effectively. Each year customer programs are negotiated with retailers
for the upcoming selling season.
Seasonality and Backlog
The Company's sales pattern is seasonal and is concentrated in the period from
April 1 through September 30. For the years ended December 31, 1997 and 1998,
approximately 67 percent and 58 percent, respectively, of the Company's net
sales occurred between April 1 and September 30. Prior to the acquisition of
GameTime(R), the Company's sales were concentrated in the period from January 1
through June 30. For fiscal year 1996, approximately 69 percent of the Company's
net sales occurred between January 1 through June 30. The amount of backlog
existent at any one time is not a significant factor and normally does not
exceed 10 percent of annual sales.
Typically, indebtedness under the Company's revolving credit facility increases
during the first quarter, primarily as a result of increased working capital
needs to meet the seasonal increase in production. The Company offers a first
order-dating program to its larger consumer playground systems customers, which
results in March and April being the peak months for borrowing.
Trade Names and Trademarks
The Company uses numerous trademarks and trade names in its business. While the
Company believes that the products and services underlying such trade names and
trademarks are of importance to the Company and that such trademarks and trade
names as a whole are of material importance to the Company's business in which
they are used, none, besides GameTime(R) and Swing-N-Slide(R), individually is
material to the Company's business.
Regulation
The Company's products are designed and tested to meet the safety guidelines of
the American Society for Testing and Materials (ASTM) for commercial playground
systems and home playground systems. The Company utilizes third-party testing
agencies as well as conducting in-house testing to ensure that they comply with
the ASTM guidelines. Commercial playground systems are also certified by the
International Play Equipment Manufacturers Association (IPEMA), of which the
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Company is an active participant. IPEMA is a member driven international trade
organization that represents and promotes an open market for manufacturers of
playground equipment.
The Company is subject to the environmental laws and regulations of the United
States and the States of Wisconsin and Alabama, as well as local ordinances. The
Company has established procedures for maintaining environmental law compliance,
including procedures for the disposal of limited quantities of hazardous waste,
with United States Environmental Protection Agency ("EPA") licensed haulers and
recyclers. The Company also incurs on-going costs in monitoring compliance with
environmental laws and in connection with disposal of non-hazardous waste
materials. Costs for environmental compliance and waste disposal have not
traditionally been material to the Company. However, environmental laws and
regulations imposed through the EPA and state environmental agencies nationwide
are becoming more stringent and could result in higher costs for the Company and
its competitors in the future.
In general, the Company has not experienced difficulty complying with
governmental regulations, and compliance has not had a material effect on the
Company's business.
Employees
At December 31, 1998, the Company had 569 full-time employees consisting of 26
sales and marketing employees, 154 in administration and 389 engaged in
manufacturing and assembling. During peak production months, such as March, the
Company hires approximately 120 additional temporary employees for manufacture
and assembly. None of the full-time or temporary employees are represented by a
union. The Company has never experienced a work stoppage or slowdown.
Item 2 - Properties
The Company's commercial playground systems manufacturing facilities are located
in Fort Payne, Alabama. The facilities consist of a 216,000 square foot building
and a 25,000 square foot building on approximately 78 acres. All land and
facilities are owned by the Company. The Company is currently expanding the
larger facility by 112,000 square feet, and expects to complete this expansion
in June 1999.
The Company's manufacturing and distribution facilities for consumer playground
systems and its corporate offices are located in Janesville, Wisconsin. The
facilities consist of two buildings, one approximately 132,000 square feet and
the other approximately 30,000 square feet, both located on approximately
twenty-six acres. All land and facilities are owned by the Company.
Substantially all the Company's owned real property is mortgaged to its senior
lenders.
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The Company has a non-cancelable operating lease through 2002 for an
approximately 92,000 square foot building that acts as the distribution center
for the Swing-N-Slide(R) product line. In addition, since March, 1997 the
Company has leased approximately 20,000 square feet of warehouse space pursuant
to a year-to-year lease. These facilities are located in Janesville, Wisconsin,
and are expected to provide sufficient storage space for an adequate supply of
the Company's products to meet demand. In addition, the Company leases a
3.5-acre parcel of land in Crystal Springs, Georgia on which a wood-processing
facility is located.
Item 3 - Legal Proceedings
Due to the nature of its business, the Company, at any particular time, is
typically subject to a number of product liability claims for personal injuries
allegedly relating to its products. The Company has to date been successful in
defending or settling such claims. Thus far, no such claims have resulted in any
material payments on account of defending or settling such claims. The Company's
products are designed to meet applicable ASTM guidelines. However, sales of the
Company's products have increased and several of the Company's products are new
and, therefore, insufficient historical data exists to accurately predict the
expected claims experience of such products. Because of the foregoing factors,
there can be no assurance that the Company will not be subject to material
liabilities on account of product liability claims in the future.
The Company currently maintains an occurrence based product liability insurance
policy with coverage of up to $1.0 million per occurrence and $2.0 million in
the aggregate with a deductible of $50,000 per occurrence. In addition, the
Company maintains excess occurrence based coverage for product liability claims
with a limit of $50.0 million per occurrence and in the aggregate and a
deductible of $10,000 per occurrence.
In addition to product liability proceedings, the Company has, from time to
time, become a party to other claims and lawsuits in the ordinary course of its
business. The Company believes that any such claims and lawsuits to which the
Company may currently be a party will not have a material adverse effect on the
financial condition or results of operations of the Company.
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Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders during the
last quarter of the year ended December 31, 1998.
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Part II
Item 5 - Market for the Registrant's Common Equity and Related Stockholder
Matters
Common Stock Prices and Dividends
PlayCore's stock has been traded on the American Stock Exchange (AMEX) under the
symbol "PCO" since April 28, 1998. From August 10, 1995 to April 27, 1998, the
Company's stock was traded on the American Stock Exchange under the symbol
"SWG". From July 6, 1995 to August 9, 1995, the stock was traded on the
over-the-counter market and prior to July 6, 1995 the stock was traded on the
Nasdaq Stock Market. Set forth below for the calendar quarters indicated are the
high and low sales prices, as applicable.
1997 1998
High Low High Low
1st Quarter 51/2 31/8 43/8 33/8
2nd Quarter 43/8 39/16 415/16 35/8
3rd Quarter 415/16 33/4 41/2 311/16
4th Quarter 43/4 33/4 51/4 31/2
As of March 15, 1999, there were 80 record holders and approximately 1,000
beneficial owners of PlayCore's stock.
There have been no dividends paid to stockholders since the formation of
PlayCore in January 1992. Under the terms of the Company's senior credit
facility, PlayCore and PlayCore Wisconsin are generally prohibited from paying
dividends to stockholders.
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<TABLE>
<CAPTION>
Item 6 - Selected Financial Data
Year Ended December 31
1994 1995 1996 1997 1998
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of income data:
Net sales................................... $51,816 $45,077 $41,872 $89,494 $114,792
Gross profit................................ 25,500 21,902 20,544 40,901 53,374
Operating income............................ 7,909 11,131 9,618 11,573 15,574
Income before income taxes and
extraordinary item....................... 7,378 6,727 3,050 3,307 7,696
Extraordinary item.......................... - - - (860) -
Net income.................................. 4,591 4,127 1,570 1,177 4,676
Per common share:
Basic:
Income before extraordinary item......... $0.48 $0.67 $0.26 $0.29 $0.59
Extraordinary item....................... - - - (0.12) -
Net income............................... $0.48 $0.67 $0.26 $0.17 $0.59
Diluted:
Income before extraordinary item......... $0.48 $0.67 $0.26 $0.28 $0.51
Extraordinary Item....................... - - - (0.10) -
Net Income............................... $0.48 $0.67 $0.26 $0.18 $0.51
Balance sheet data(at period end):
Working capital (deficit)................... $2,178 ($81) ($1,525) ($2,242) ($723)
Total assets................................ 47,610 44,585 46,264 101,165 103,440
Total debt (1)............................ 7,588 41,738 41,498 72,531 66,951
Total stockholders' equity (deficit)........ 35,425 (796) 789 11,694 16,376
(1) Includes revolving loan and current and long-term portions of debt and capital leases
</TABLE>
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Item 7- Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a comparison of the results of operations of the Company for
the year ended December 31, 1998, with the results of operations for the year
ended December 31, 1997, and of the results of operations for the year ended
December 31, 1997, with the results of operations for the year ended December
31, 1996.
On March 13, 1997, the Company acquired GameTime(R), Inc., a leading
manufacturer of modular and custom commercial outdoor playground equipment for
schools, parks, and municipalities. GameTime(R) was merged into PlayCore
Wisconsin, Inc., the Company's wholly owned operating subsidiary, as an
independent business unit. The acquisition of Gametime(R) was accounted for
using the purchase method. Therefore, the results of operations for GameTime(R)
are included with those of the Company beginning with the date of the
acquisition.
Results of Operations:
Year ended December 31, 1998, compared to the year ended December 31, 1997.
Net Sales. Net sales increased $25.3 million, or 28.3 percent, to $114.8 million
for the year ended December 31, 1998 as compared to $89.5 million for the year
ended December 31, 1997. The primary reasons for the increase in sales were the
inclusion of GameTime sales for the entire twelve months of 1998 versus the
inclusion of GameTime sales from the date of acquisition, March 13, 1997,
through December 31, 1997, and the growth in sales of commercial playground
equipment. The growth in commercial playground sales was mainly attributable to
the impact of new playground equipment safety standards. Sales of the Company's
consumer products also increased by $3.9 million, or 10.8 percent, to $40.3
million for the year ended December 31, 1998 as compared to $36.4 million for
the same period a year ago. This sales increase was driven by new product
introductions, expanded sales with major retailers and enhanced marketing
programs.
Gross Profit. Gross profit increased $12.5 million, or 30.5 percent, to $53.4
million and increased as a percentage of net sales to 46.5 percent for the year
ended December 31, 1998 as compared to $40.9 million and 45.7 percent for the
same period a year ago. The main reasons for the increase in gross profit margin
were the impact of higher sales volume on fixed costs and improved manufacturing
efficiencies. Gross profit for the Company's commercial products segment
increased $11.0 million, or 44.5 percent, to $35.8 million for the year ended
December 31, 1998 as compared to $24.8 million for the period March 13, 1997 to
December 31, 1997. Gross profit for the Company's consumer products segment
increased $1.5 million, or 9.0 percent, to $17.6 million ended December 31, 1998
as compared to $16.1 million for the twelve months ended December 31, 1997.
Selling Expenses. Selling and marketing expenses increased $7.3 million, or 41.0
percent, to $25.1 million and increased as a percentage of net sales to 21.9
percent for the year ended December 31, 1998 as compared to $17.8 million and
19.9 percent for the
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year ended December 31, 1997. The dollar increase was primarily due to the
inclusion of GameTime's selling and marketing expenses for the entire 12 months
in 1998. The increase as a percentage of net sales was mainly due to the higher
selling costs as a percent of net sales inherent in commercial playground
equipment sales. Selling expenses for the Company's commercial products
increased $5.0 million, or 41.1 percent, to $17.2 million for the year ended
December 31, 1998 as compared to $12.2 million for the period March 13, 1997 to
December 31, 1997. Selling expenses for the Company's consumer products
increased $2.3 million, or 40.8 percent, to $7.9 million for the year ended
December 31, 1998 as compared to $5.6 million for the same period a year ago.
This increase was mainly due to the additional selling costs associated with
increased sales and enhanced marketing programs.
General and Administrative Expenses. General and administrative expenses
increased $1.0 million, or 10.0 percent, to $10.6 million but decreased as a
percentage of net sales to 9.2 percent for the year ended December 31, 1998 as
compared to $9.6 million and 10.7 percent for the same period a year ago. The
dollar increase was primarily due to the inclusion of GameTime's general and
administrative expenses for the full twelve months in 1998. The decrease as a
percentage of net sales was primarily due to 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 $2.1 million for the year ended
December 31, 1998 as compared to $1.9 million for the year ended December 31,
1997. Additional amortization resulted from goodwill, identifiable intangible
assets and financing fees associated with the GameTime acquisition for a full
twelve months in 1998.
Other Expenses. Interest expense increased $49,000 to $7.5 million for the
twelve months ended December 31, 1998. The increase in interest expense was due
to the additional debt that was incurred in connection with the GameTime
acquisition on March 13, 1997.
Other expense decreased to $0.3 million for the year ended December 31, 1998
from $0.8 million for the same period a year ago. In 1997, other expense
included costs related to the settlement of stockholder lawsuits.
Year ended December 31, 1997, compared to the year ended December 31, 1996.
Net Sales. Net sales increased by $47.6 million, or 113.7 percent, to $89.5
million for the year ended December 31, 1997, as compared to $41.9 million for
the year ended December 31, 1996. The reason for the increase in sales for 1997
was the growth in sales of commercial playground systems driven by the
GameTime(R) acquisition on March 13, 1997. Sales of the Company's consumer
products decreased $5.5 million, or 13.1 percent, for the twelve months ended
December 31, 1997 as compared to the same period in 1996. This sales decline was
primarily due to poor weather in some of the strongest sales areas during the
critical spring selling season and a change in the timing of year-end orders
reflecting retailers increased focus on reducing their inventory levels.
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<PAGE>
Gross Profit. Gross profit increased $20.4 million, or 99.1 percent, to $40.9
million, but decreased as a percentage of net sales to 45.7 percent for the year
ended December 31, 1997, as compared to $20.5 million and 49.1 percent for the
same period a year ago. The main reasons for the decrease in gross profit margin
were a greater percentage of sales of the Company's lower margin product
categories and the impact of lower sales volume on fixed overhead costs for
consumer playground systems.
Selling Expenses. Selling and marketing expenses increased $12.8 million, or
256.9 percent, to $17.8 million and increased as a percentage of net sales to
19.9 percent for the year ended December 31, 1997 as compared to $5.0 million
and 11.9 percent for the year ended December 31, 1996. The dollar increase was
mainly due to the inclusion of GameTime's selling and marketing expenses. The
increase as a percentage of net sales was mainly due to the higher selling costs
as a percentage of net sales inherent in commercial playground equipment sales.
General and Administrative Expenses. General and administrative expenses
increased $4.9 million, or 104.2 percent, to $9.6 million, but decreased as a
percentage of net sales to 10.7 percent for the year ended December 31, 1997 as
compared to $4.7 million and 11.2 percent for the same period in 1996. The
dollar increase is primarily due to the inclusion of GameTime's general and
administrative expenses since March 13, 1997. The decrease as a percentage of
net sales was primarily due to 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 $1.9 million for the year ended
December 31, 1997 as compared to $1.2 million for the same period a year ago.
Additional amortization resulted from the goodwill, identifiable intangible
assets and financing fees associated with the GameTime acquisition.
Other Expenses. Interest expense increased $3.6 million to $7.5 million for the
twelve months ended December 31, 1997. This increase in interest expense was due
to the additional debt that was incurred in connection with the GameTime(R)
acquisition.
Other expense decreased to $0.8 million for the year ended December 31, 1997,
from $2.6 million for the same period a year ago. Included in other expenses in
1996 were the fees and expenses paid by the Company related to the tender offer
by GreenGrass Holdings in February 1996.
Extraordinary Item. For the year ended December 31, 1997, the Company recorded
an extraordinary loss of approximately $0.9 million (net of a tax benefit of
approximately $0.5 million) for the write-off of unamortized deferred financing
fees. These costs were written-off in connection with the repayment in full of
the indebtedness under the Company's previous credit agreement.
Liquidity and Capital Resources
During the year ended December 31, 1998, total indebtedness decreased
approximately $5.6 million. Cash generated from operations was used to pay down
borrowings under the Company's senior credit facility.
15
<PAGE>
The Company's primary sources of working capital are cash flows from operations
and borrowings under PlayCore Wisconsin's senior credit facility, which was
entered into in March 1997, amended in February 1999, and runs through June
2003. The facility consists of (a) a $28.0 million revolving credit facility;
(b) a $38.0 million Term A facility and (c) a $9.0 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 PlayCore Wisconsin's tangible and
intangible assets, as well as the pledge of all of the outstanding shares of
PlayCore Wisconsin Common Stock. In addition, the Company and PlayCore Wisconsin
are subject to certain restrictive covenants which include, among other things,
a general restriction on the payment of dividends and a limitation on additional
indebtedness.
Borrowing availability under the revolving credit facility is limited to
specified percentages of qualified inventories and accounts receivable, not to
exceed $20.0 million. At December 31, 1998, the availability under the revolving
credit facility was approximately $16.9 million and the outstanding amount of
the revolving loan facility was $9.9 million. Upon consummation of the Heartland
Industries, Inc. acquisition on February 16, 1999, the availability was
approximately $20.5 million and the outstanding amount under the revolving loan
facility was $17.5 million.
Accounts receivable at December 31, 1998 increased $4.7 million to $18.0 million
as compared to prior year. This increase was primarily due to increased net
sales of $4.3 million in the last quarter of 1998 compared to that same time
period in 1997.
The Company made capital expenditures totaling approximately $2.8 million in the
year ended December 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 anticipated future capacity for borrowing will be
sufficient to fund current business operations as well as anticipated 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. If not corrected, many computer applications with this defect could
fail or create erroneous results.
The Company's Year 2000 compliance is directed by senior management and includes
four main projects.
1. Information technology;
2. Operating equipment with embedded chips or software;
3. Products; and
4. Third party suppliers and customers.
16
<PAGE>
These projects generally include four phases:
1. Assessment - assessing equipment and systems for potential Year
2000 non-compliance;
2. Remediation - developing solutions to correct Year 2000
non-compliance;
3. Testing - testing the developed solutions for effectiveness; and
4. Implementation - implementing the fully tested solutions.
The following chart is a summary of our Year 2000 compliance schedule target
dates:
<TABLE>
<CAPTION>
Resolution Phases
Assessment Remediation Testing Implementation
<S> <C> <C> <C> <C> <C>
E Information 100% Complete 100% Complete 80% Complete 75% Complete
X Technology
P Expected completion Expected completion
O date, June 1999 date, August 1999
S -----------------------------------------------------------------------------------------------------------
U Operating 100% Complete 80% Complete 75% Complete 75% Complete
R Equipment with
E Embedded Chips
or Software
Expected completion Expected completion Expected completion
T Date, April 1999 date, May 1999 Date, June 1999
Y -----------------------------------------------------------------------------------------------------------
P Products 100% Complete 100% Complete 100% Complete 100% Complete
E -----------------------------------------------------------------------------------------------------------
3rd Party 75% Complete 10% Complete for 10% Complete for 10% Completion for
Suppliers and for system system interface system interface system interface
Customers interface
Expected Develop contingency Expected completion Implement contingency
completion for plans date for system Plans or alternatives as
surveying vendors, as appropriate, Interface work, Necessary, June 1999
April 1999 April 1999 June 1999
</TABLE>
We believe our Year 2000 compliance will be completed on schedule, but the
schedule is based on a number of factors and assumptions. These assumptions
include the accuracy and completeness of responses by third parties to our
inquires and the availability of skilled personnel to complete the compliance
work. The compliance schedule could be
17
<PAGE>
adversely impacted if any of the factors and assumptions are incorrect. We
cannot give assurance that our Year 2000 compliance projects will be completed
on schedule or that we will not uncover Year 2000 issues that could create a
material impact on the operation of the Company. In addition, disruptions in the
economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The Company could be subject to litigation for
computer system failures, equipment shutdowns or improperly dated business
records. The amount of such potential liability and lost revenue cannot be
reasonably estimated at this time.
The Company is in the process of working with third party vendors and customers
to ensure that the Company's systems that interface directly with third parties
are Year 2000 compliant by April 1999. Although management believes a
significant interruption in our suppliers and customers activities (due to Year
2000 issues) is unlikely, such as interruption could have a material impact on
our financial results.
We do not believe that the cost of our Year 2000 compliance will be material to
our financial condition or results of operations. The cost of Year 2000
compliance is not expected to exceed $0.5 million and is being funded through
operating cash flows. To date, we have spent approximately $0.2 million on Year
2000 compliance.
The Company currently has no contingency plans in place in the event it does not
complete all phases of the Year 2000 program. The Company plans to evaluate the
status of completion in May 1999 and determine whether such a plan is necessary.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk related to changes in interest rates. The
Company's earnings are affected by changes in the interest rate as a result of
its borrowings under the senior credit facility. However, at December 31, 1998
the Company had a swap agreement that effectively converted $20.0 million of the
Company's debt to a fixed rate. If market interest rates for the remaining
borrowings under the senior credit facility average 1% more during the year
ended December 31, 1999 than they did during 1998, the Company's interest
expense would increase, and income before taxes would decrease by approximately
$0.5 million. This analysis does not consider the effects of the reduced level
of overall economic activity that could exist in such an environment. Further,
in the event of a change of such magnitude, management could take actions to
further mitigate its exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no changes in the Company's financial structure.
The Company's swap agreement in place at December 31, 1998 had a notional amount
of $20.0 million and ran through June 11, 2000. The agreement required the
Company to pay interest at a defined fixed rate of 6.11% while receiving
interest at a defined variable rate of three-month LIBOR (5.24% at December 31,
1998). This swap effectively converted $20.0 million of the Company's Term Loan
A to a fixed rate. The additional net interest expense recorded in both 1997 and
1998 as a result of the swap agreement was not material. At December 31, 1998,
the swap agreement had a negative fair market
18
<PAGE>
value of approximately $0.3 million as determined by the lender. In connection
with the amendment of the Company's senior credit facility in February 1999, the
swap agreement was terminated. The Company expects to enter into a new swap
agreement with a $20.0 million notional amount during the second quarter of
1999.
Item 8 - Financial Statements and Supplementary Data
Index to Financial Statements:
Form 10-K
PlayCore, Inc.: Page Number
Report of Independent Auditors...........................................20
Consolidated Balance Sheets at December 31, 1997
and 1998.............................................................21
For the years ended December 31, 1996, 1997 and 1998:
- Consolidated Statements of Income..................................23
- Consolidated Statements of Stockholders' Equity....................24
- Consolidated Statements of Cash Flows..............................25
Notes to Consolidated Financial Statements...........................27
19
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Stockholders
PlayCore, Inc.
We have audited the accompanying consolidated balance sheets of PlayCore, Inc.
(the Company) as of December 31, 1997 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1997 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Milwaukee, Wisconsin ERNST & YOUNG LLP
January 29, 1999, except for
Note 12, as to which the date
is February 16, 1999
20
<PAGE>
PlayCore, Inc.
Consolidated Balance Sheets
December 31
1997 1998
---------------------------------
housands, Except Shares and Per
Share Data)
Assets
Current assets:
Cash $ 677 $ 487
Accounts receivable, less allowance
for doubtful accounts of $407
and $801 13,295 18,036
Other receivables 162 551
Refundable income taxes 1,157 -
Inventories 12,533 11,754
Prepaid expenses 1,586 1,869
Deferred income taxes 765 890
------------ ------------
Total current assets 30,175 33,587
Property, plant and equipment, net 20,535 20,871
Deferred financing and other costs,
net of accumulated amortization
of $868 and $1,557 3,639 3,194
Identifiable intangible assets, net
of accumulated amortization of
$527 and $843 6,909 6,593
Goodwill, net of accumulated
amortization of $4,049 and $5,156 39,907 39,195
------------ ------------
$101,165 $103,440
============ ============
See accompanying notes
21
<PAGE>
December 31
1997 1998
---------------------------------
(In Thousands, Except Shares and
Per Share Data)
Liabilities and stockholders' equity
Current liabilities:
Revolving loan $ 7,615 $ 9,940
Accounts payable 5,949 5,346
Accrued income taxes - 216
Accrued expenses 9,396 11,106
Current portion of long-term debt 9,457 7,702
------------ -----------
Total current liabilities 32,417 34,310
Long-term debt 49,590 42,288
Convertible subordinated debentures 5,869 7,021
Deferred income taxes 1,595 3,445
Commitments and contingent liability
(Notes 4 and 10)
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 24,875
Cost of 3,634,385 shares of common
stock in treasury (40,511) (40,511)
------------ -----------
Total stockholders' equity 11,694 16,376
------------ -----------
$101,165 $103,440
============ ===========
See accompanying notes
22
<PAGE>
PlayCore, Inc.
Consolidated Statements of Income
Year ended December 31
1996 1997 1998
----------------------------------------------
(In Thousands, Except Per
Share Data)
Net sales $41,872 $89,494 $114,792
Cost of goods sold 21,328 48,593 61,418
---------------------------------------------
Gross profit 20,544 40,901 53,374
Operating expenses:
Selling 4,991 17,813 25,113
General and administrative 4,710 9,616 10,575
Amortization of intangible
assets 1,225 1,899 2,112
---------------------------------------------
10,926 29,328 37,800
---------------------------------------------
Operating income 9,618 11,573 15,574
Other expense:
Interest expense 3,931 7,485 7,534
Other, net 2,637 781 344
---------------------------------------------
Total other expense 6,568 8,266 7,878
---------------------------------------------
Income before income taxes
and extraordinary item 3,050 3,307 7,696
Provision (credit) for
income taxes:
Current 625 (235) 1,070
Deferred 630 1,280 1,725
Benefit applied to reduce
goodwill 225 225 225
---------------------------------------------
1,480 1,270 3,020
---------------------------------------------
Income before extraordinary
item 1,570 2,037 4,676
Extraordinary loss, net of
income tax benefit of $540 - 860 -
---------------------------------------------
Net income $ 1,570 $ 1,177 $ 4,676
=============================================
Basic earnings per share:
Income before extraordinary
item $.26 $ .29 $.59
Extraordinary item - (.12) -
---------------------------------------------
Net income $.26 $ .17 $.59
=============================================
Diluted earnings per share:
Income before extraordinary
item $.26 $ .28 $.51
Extraordinary item - (.10) -
---------------------------------------------
Net income $.26 $ .18 $.51
=============================================
See accompanying notes
23
<PAGE>
<TABLE>
<CAPTION>
PlayCore, Inc.
Consolidated Statements of Stockholders' Equity
Excess Purchase
Common Stock Additional Price Over Treasury Stock
------------------------ Paid-In Predecessor Retained -----------------------
Shares Amount Capital Basis Earnings Shares Amount Total
---------------------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995 9,600,000 $ 96 $27,631 $(5,627) $17,452 3,600,000 $(40,348) $ (796)
Exercise of stock
options 4,000 - 15 - - - - 15
Net income - - - - 1,570 - - 1,570
---------------------------------------------------------------------------------------------------------
Balance at December 31,
1996 9,604,000 96 27,646 (5,627) 19,022 3,600,000 (40,348) 789
Issuance of common
stock, net of
offering costs of
$617 1,381,238 13 4,918 - - - - 4,931
Issuance of common
stock warrant - - 2,723 - - - - 2,723
Purchase of common
stock for treasury - - - - - 34,385 (163) (163)
Issuance of common
stock in repayment
of Junior
Subordinated
Bridge Note 488,382 5 1,956 - - - - 1,961
Interest on Junior
Subordinated Bridge
Note converted to
common stock 68,648 1 275 - - - - 276
Net income - - - - 1,177 - - 1,177
---------------------------------------------------------------------------------------------------------
Balance at December 31,
1997 11,542,268 115 37,518 (5,627) 20,199 3,634,385 (40,511) 11,694
Issuance of common
stock 1,081 - 6 - - - - 6
Net income - - - - 4,676 - - 4,676
---------------------------------------------------------------------------------------------------------
Balance at December 31,
1998 11,543,349 $115 $37,524 $(5,627) $24,875 3,634,385 $(40,511) $ 16,376
=========================================================================================================
</TABLE>
See accompanying notes.
24
<PAGE>
<TABLE>
<CAPTION>
PlayCore, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
1996 1997 1998
----------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Operating activities
Net income $ 1,570 $ 1,177 $ 4,676
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes 630 1,280 1,725
Benefit applied to reduce goodwill 225 225 225
Write-off of unamortized deferred financing costs - 1,400 -
Depreciation 1,219 1,666 2,484
Amortization of deferred financing costs, intangible
assets and goodwill 1,225 1,899 2,112
Amortization of debt discount - 289 365
Interest converted to convertible subordinated
debentures and common stock 323 822 617
Other 7 - -
Changes in operating assets and liabilities:
Accounts receivable (1,068) (2,692) (4,712)
Other receivables (385) 529 (380)
Income taxes (48) (1,158) 1,373
Inventories (830) (1,129) 867
Prepaid expenses (687) 681 (275)
Accounts payable 459 (567) (759)
Accrued expenses (187) 4,699 1,609
--------- --------- ----------
Net cash provided by operating activities 2,453 9,121 9,927
Investing activities
Purchase of property, plant and equipment (448) (1,640) (2,777)
Acquisitions of businesses, net of cash acquired - (42,614) (590)
Other - (141) -
--------- --------- ----------
Net cash used in investing activities (448) (44,395) (3,367)
</TABLE>
See accompanying notes.
25
<PAGE>
<TABLE>
<CAPTION>
PlayCore, Inc.
Consolidated Statements of Cash Flows (continued)
Year ended December 31
1996 1997 1998
----------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Financing activities
Net change in revolving loan $ 3,925 $ 1,990 $ 2,325
Issuance of long-term debt - 63,777 535
Payments of long-term debt (9,488) (34,264) (9,422)
Issuance of convertible subordinated
debentures payable to stockholder 5,000 - -
Debt issuance costs incurred (1,463) (3,044) (194)
Proceeds from issuance of common stock - 4,931 6
Proceeds from issuance of common stock warrant - 2,723 -
Proceeds from exercise of stock options 15 - -
Purchase of common stock for treasury - (163) -
-------- --------- --------
Net cash provided by (used in) financing activities (2,011) 35,950 (6,750)
-------- --------- --------
Net increase (decrease) in cash (6) 676 (190)
Cash at beginning of year 7 1 677
-------- --------- --------
Cash at end of year $ 1 $ 677 $ 487
======== ========= ========
Supplemental disclosure of cash flows information
Cash paid during the year for:
Interest $ 3,513 $ 5,619 $ 6,627
Income taxes (refunds), net 661 384 (369)
</TABLE>
See accompanying notes.
26
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
1. Significant Accounting Policies
Consolidation
PlayCore, Inc.'s (the Company) consolidated financial statements include the
accounts of PlayCore, Inc. and its wholly owned subsidiary, PlayCore Wisconsin,
Inc. (PlayCore Wisconsin), formerly Newco, Inc.
Nature of Business
The Company designs and manufactures consumer and commercial outdoor playground
equipment. The consumer division markets its primary product lines, kits for
wooden swing sets and climbing units, plastic slides and related accessories,
nationwide through home improvement retail centers. The commercial division
markets its modular and custom playground systems and components to
municipalities, schools, park districts and other playground equipment users
through a network of independent representatives. The Company performs periodic
credit evaluations of its customers and generally does not require collateral.
Revenue Recognition
Revenue is recognized when product is shipped to customers.
Inventories
Inventories are valued at the lower of cost or market using the first-in,
first-out method.
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets for financial reporting purposes and accelerated methods for income tax
purposes.
Deferred Financing Costs
Costs incurred to obtain long-term financing are amortized using the interest
method over the term of the related debt.
27
<PAGE>
1. Significant Accounting Policies (continued)
Identifiable Intangible Assets and Goodwill
Identifiable intangible assets and goodwill, representing the excess of the cost
of acquisition over the fair value of net assets acquired, are amortized on a
straight-line basis over their estimated useful lives, ranging from 5 to 40
years.
Impairment of Long-Lived Assets
Property, plant and equipment, identifiable intangible assets and goodwill are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If the sum of the expected
undiscounted cash flows is less than the carrying value of the related asset or
group of assets, a loss will be recognized for the difference between the fair
value and carrying value of the asset or group of assets.
Such analyses necessarily involve significant judgment.
Income Taxes
Deferred income taxes reflect the impact of temporary basis differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for income tax purposes.
Advertising
Advertising costs are expensed as incurred and totaled $1,728,000, $2,490,000
and $3,297,000 in 1996, 1997 and 1998, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the accompanying consolidated financial
statements and notes. Actual results could differ from those estimates.
28
<PAGE>
1. Significant Accounting Policies (continued)
Earnings Per Share
The numerator and denominator for the calculation of basic and diluted earnings
per share are computed as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---------------- ------------- --------------
<S> <C> <C> <C>
Numerator:
Numerator for basic earnings
per share - income
before extraordinary item $1,570 $2,037 $4,676
Effect of dilutive securities -
10% convertible subordinated
debentures - 343 394
------------------------------------------
Numerator for diluted earnings per share $1,570 $2,380 $5,070
==========================================
Denominator:
Denominator for basic earnings per
share - weighted average shares 6,003 6,942 7,909
Effect of dilutive securities:
Employee stock options - 36 36
Warrants - 485 621
10% convertible subordinated debentures - 1,161 1,338
------------------------------------------
Denominator for diluted earnings per share 6,003 8,624 9,904
==========================================
</TABLE>
Pending Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on results of operations or the
financial position of the Company.
Segment Information
Effective January 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131, which
superseded SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," establishes standards for disclosures about operating segments in
annual and interim financial statements, products and services, geographic areas
and major customers. The adoption of SFAS No. 131 did not affect results of
operations or the financial position of the Company, but did affect the
disclosure of segment information. See Note 9 for additional information.
29
<PAGE>
2. Acquisitions
On March 13, 1997, PlayCore Wisconsin acquired all of the issued and outstanding
shares of capital stock of GameTime, Inc. (GameTime), a leading manufacturer of
modular and custom commercial outdoor playground equipment, for $27,000,000
($25,000,000 in cash and PlayCore Wisconsin's unsecured 10% Subordinated Notes
due March 2005 in the principal amount of $2,000,000) and the assumption of
GameTime indebtedness of approximately $13,179,000. Immediately following the
acquisition, GameTime was merged with and into PlayCore Wisconsin.
On May 5, 1998, PlayCore Wisconsin acquired certain assets and assumed certain
liabilities of Pentes Play, Inc. (Pentes), a leading designer and marketer of
soft contained indoor play equipment, for $590,000 in cash.
Both acquisitions have been accounted for under the purchase method;
accordingly, the results of operations of the acquired businesses have been
included in the consolidated financial statements from the respective
acquisition dates. The acquisition cost of each was allocated based on the
estimated fair values of identifiable tangible and intangible assets acquired
and liabilities assumed. The excess of the purchase price over the net assets
acquired for the GameTime and Pentes acquisitions of $19,655,000 and $620,000,
respectively, has been recorded as goodwill.
The acquisition of Pentes did not have a material impact on the Company's
consolidated results of operations. The following unaudited pro forma results of
operations for the years ended December 31, 1996 and 1997 assume the acquisition
of GameTime occurred on January 1, 1996.
1996 1997
------------------ ------------------
(In Thousands, Except
Per Share Data)
Net sales $92,138 $96,445
Income before extraordinary
item 1,987 1,022
Income before extraordinary
item per share:
Basic $0.25 $0.13
Diluted 0.24 0.12
This pro forma information does not purport to be indicative of the results that
actually would have been obtained if the combined operations had been conducted
during the periods presented and is not intended to be a projection of future
results.
30
<PAGE>
3. Balance Sheet Detail
Inventories consist of the following:
December 31
1997 1998
----------------- -------------------
(In Thousands)
Finished goods and work in process $ 7,112 $ 7,153
Raw materials 5,421 4,602
----------------- -------------------
$12,533 $11,754
================= ===================
Property, plant and equipment consist of the following:
December 31
1997 1998
---------------- -----------------
(In Thousands)
Land and land improvements $ 982 $ 1,093
Buildings 7,581 7,691
Shop equipment 16,253 18,159
Office equipment 1,790 2,313
Vehicles 57 75
---------------- -----------------
26,663 29,331
Less accumulated depreciation 6,479 8,963
---------------- -----------------
20,184 20,368
Construction in progress 351 503
---------------- -----------------
$20,535 $20,871
================ =================
Identifiable intangible assets consist of the following:
December 31
1997 1998
---------------- -----------------
(In Thousands)
Patent cost $1,995 $1,995
Trademarks and trade names 5,441 5,441
---------------- -----------------
7,436 7,436
Less accumulated amortization 527 843
---------------- -----------------
$6,909 $6,593
================ =================
Accrued expenses consist of the following:
December 31
1997 1998
---------------- -----------------
(In Thousands)
Accrued commissions $2,557 $ 3,760
Other accrued expenses 6,839 7,346
---------------- -----------------
$9,396 $11,106
================ =================
31
<PAGE>
4. Revolving Loan, Long-Term Debt, Convertible Subordinated Debentures and Lease
Commitments
Long-term debt and convertible subordinated debentures consist of the following:
December 31
1997 1998
---------------- -----------------
(In Thousands)
Term loans $46,450 $37,177
12% senior subordinated notes,
net of original issue discount
of $2,434 and $2,069 at December
31, 1997 and 1998, respectively,
based on an imputed interest rate
of 14.9% for both years
10,066 10,431
10% convertible subordinated debentures 5,869 7,021
10% subordinated notes payable 2,000 2,000
Other 531 382
---------------- -----------------
Total long-term debt 64,916 57,011
Less amounts due within one year 9,457 7,702
---------------- -----------------
$55,459 $49,309
================ =================
On January 4, 1996, the Company entered into an agreement with GreenGrass
Holdings, a general partnership of which one of the general 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. The tender offer was completed
on February 16, 1996. The agreement also provided that GreenGrass Holdings would
purchase the Company's newly authorized 10% convertible subordinated debentures,
maturing in 2004. The proceeds from the issuance of the debentures was used to
pay down approximately $2.5 million of the Company's borrowings under its term
loan and to pay fees associated with the tender offer and the issuance of the
debentures. In 1998, the Company filed a registration statement under which
debentures were offered to holders of common stock other than GreenGrass
Holdings. Additional debentures totaling $535,000 were sold. The outstanding 10%
convertible subordinated debentures are convertible into shares of common stock
of the Company at the rate of $4.70 or $4.80 of the face amount of the
debentures for each share of common stock. Interest on the debentures is payable
semiannually. Through February 15, 1999, at the option of the Company, interest
on the debentures may be paid in the form of additional debentures. The
debentures are unsecured.
32
<PAGE>
4. Revolving Loan, Long-Term Debt, Convertible Subordinated Debentures and Lease
Commitments (continued)
To provide financing for the 1997 acquisition of GameTime (see Note 2) and to
refinance certain indebtedness of PlayCore Wisconsin and GameTime, the Company
and PlayCore Wisconsin entered into several financing agreements which are
identified below. In connection with the prepayment in full of the previous
PlayCore Wisconsin credit agreement, the Company wrote off the unamortized
balance of the related deferred financing costs of $1,400,000.
On March 13, 1997, PlayCore Wisconsin entered into a $69,500,000 senior credit
facility. The facility consists of a $20,000,000 revolving loan facility, a
$45,000,000 Term Loan A facility and a $4,500,000 Term Loan B facility. The
entire credit facility is guaranteed by the Company and secured by substantially
all assets of PlayCore Wisconsin. PlayCore Wisconsin is 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
percentages of inventories and accounts receivable, not to exceed $20,000,000.
Interest on borrowings under the revolving loan facility is payable quarterly at
either 0.75 to 1.5% over the prime rate or 2.0 to 2.75% over LIBOR, with the
precise rate dependent upon PlayCore Wisconsin's debt-to-cash flow ratio. The
revolving loan facility matures in March 2003. Up to $1,000,000 of the revolving
loan facility is available for issuance of letters of credit. The Company is
subject to an annual commitment fee of 0.5% of the daily unused portion of the
commitment.
The weighted average interest rate on the revolving loan facility at December
31, 1997 and 1998 was 8.80% and 8.45%, respectively.
The Term Loan A facility bears interest at the same rates as the revolving loan
facility. The principal portion of the Term Loan A facility is payable quarterly
in amounts between $500,000 and $2,700,000, with the final quarterly principal
payment due in December 2002. In addition, mandatory prepayments are required
based on excess cash flow, as defined.
The Term Loan B facility bears interest at either 2% over the prime rate or
3.25% over LIBOR, at the Company's option. The Term Loan B facility is payable
quarterly in amounts between $16,000 and $33,000, with the final quarterly
principal payment due in June 2003.
On March 13, 1997, the Company and PlayCore Wisconsin entered into Securities
Purchase Agreements with Massachusetts Mutual Life Insurance Company, pursuant
to which the Company sold warrants (the MassMutual Warrants) to purchase an
aggregate of 607,297 shares of its common stock, and PlayCore Wisconsin sold its
12% senior subordinated notes due March 2005 in the aggregate principal amount
of $12,500,000. The Mass Mutual Warrants are exercisable at any time through
March 2003 at an exercise price of $.001 per share and have been valued at
$2,723,000 for financial statement purposes.
33
<PAGE>
4. Revolving Loan, Long-term Debt, Convertible Subordinated Debentures and Lease
Commitments (continued)
In addition, on March 13, 1997, the Company entered into an Investment Agreement
with GreenGrass Holdings pursuant to which the Company sold to GreenGrass
Holdings 1,245,331 shares of its common stock for an aggregate purchase price of
$5,000,000 and sold its Junior Subordinated Bridge Note in the principal amount
of $2,500,000, to be paid by the issuance of shares of the Company's common
stock and accompanied by warrants exercisable through March 2007 to purchase
50,000 shares of its common stock at a price of $4.015 per share. On December
31, 1997, the Company paid approximately $539,000 in cash and issued 488,382
shares of its common stock in repayment of the principal amount of the Junior
Subordinated Bridge Note.
Future maturities of long-term debt, including the convertible subordinated
debentures payable to stockholder, at December 31, 1998, are as follows (in
thousands):
1999 $ 7,702
2000 8,078
2001 8,937
2002 8,932
2003 4,461
Thereafter 20,970
-------------
59,080
Less: original issue discount 2,069
-------------
$57,011
=============
Future minimum payments under a noncancelable operating lease total $1,334,000
and are due as follows: 1999--$299,000; 2000--$308,000; 2001--$318,000;
2002--$327,000; and 2003--$82,000. Rent expense, including operating leases, was
$480,000, $820,000 and $1,257,000 in 1996, 1997 and 1998, respectively.
The Company has a swap agreement with a notional amount of $20,000,000 which
expires June 11, 2000, and requires the Company to pay interest at a defined
fixed rate of 6.11% while receiving interest at a defined variable rate of
three-month LIBOR (5.24% at December 31, 1998). This swap agreement effectively
converts $20,000,000 of the Company's Term Loan A to a fixed rate. The
additional net interest expense recorded during both 1997 and 1998 as a result
of the swap agreement was not material. At December 31, 1998, the swap agreement
has a negative fair market value of $338,000 as determined by the lender.
34
<PAGE>
5. Income Taxes
Deferred income taxes consist of the following:
December 31
1997 1998
-------------- -----------------
(In Thousands)
Deferred tax assets:
Noncompete agreement $1,865 $ 1,667
Goodwill 525 -
Inventory 395 381
State net operating loss
carryforward 184 84
Accrued liabilities not currently
deductible for tax 596 553
Other 157 308
-------------- -----------------
3,722 2,993
Deferred tax liabilities:
Goodwill - 312
Intangible assets 2,263 2,186
Property, plant and equipment 1,910 2,698
Prepaid expenses currently
deductible for tax 379 352
-------------- -----------------
4,552 5,548
-------------- -----------------
Net deferred tax liability $ (830) $(2,555)
============== =================
For state income tax purposes, the Company has net operating loss carryforwards
of approximately $968,000 which expire in 2012.
The components of the provision for income taxes consist of the following:
Year ended December 31
1996 1997 1998
--------------- --------------- ----------------
(In Thousands)
Current:
Federal $ 576 $ (235) $ 965
State 49 - 106
-------------- --------------- ----------------
625 (235) 1,071
Deferred:
Federal 556 1,130 1,523
State 74 150 201
-------------- --------------- ----------------
630 1,280 1,724
Benefit applied
to reduce goodwill 225 225 225
-------------- --------------- ----------------
$1,480 $1,270 $3,020
============== =============== ================
35
<PAGE>
5. Income taxes (continued)
The provision for income taxes differs from the amount computed by applying the
federal statutory rate of 34% to income before income taxes and extraordinary
item as follows:
Year ended December 31
1996 1997 1998
------------- -------------- ---------------
(In Thousands)
Taxes at statutory rate $1,037 $1,124 $2,617
State income taxes, net
of federal benefit 107 29 281
Nondeductible expenses
related to tender offer 281 - -
Other 55 117 122
------------- -------------- ---------------
$1,480 $1,270 $3,020
============= ============== ===============
6. Employee Benefit Plans
The Company sponsors two 401(k) plans covering employees who have completed six
months of service and are at least 21 years old. The plans require Company
contributions of 40% or 100% of each participant's deferral, not to exceed 8% or
4% of the participant's eligible income, respectively. The Company expensed
$169,000, $249,000 and $378,000, respectively, in connection with these plans in
1996, 1997 and 1998.
7. Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related interpretations
in accounting for its stock options because, as discussed below, the alternative
fair value accounting provided for under SFAS No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing stock options. Under APB 25, because the exercise
price of the stock options equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized.
The Company has an Incentive Stock Plan (Plan), which reserved 1,200,000 shares
of common stock for granting of nonqualified or incentive stock options to key
employees and directors. In addition, the Company has a Stock Program which has
terminated except as to outstanding options.
Incentive stock options may not be granted at a price less than the fair market
value of the stock on the date of grant. Nonqualified stock options may be
granted at the exercise price established by the compensation committee of the
Board of Directors, which may be less than, equal to or greater than the fair
market value of the stock on the date of grant. Options expire no more than ten
years from date of grant. For employees, option vesting provisions are
determined at the date of grant by the compensation committee. Each independent
director receives an annual fully vested option for 5,000 shares of common stock
at a purchase price equal to the fair market value of the stock on the date of
grant.
36
<PAGE>
7. Stock Options (continued)
At December 31, 1997 and 1998, there were 317,000 and 126,000 and shares
available for grant, respectively. Changes in option shares are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1996 1997 1998
------------------------ ------------------------ -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------- ---------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 258,220 $5.36 322,434 $4.24 1,294,207 $7.01
Granted:
1996--$3.70 to $4.67 per share 239,284 3.80 - - - -
1997--$3.63 to $10.88 per
share - - 1,008,980 7.78 - -
1998--$4.00 to $4.81
per share - - - - 468,500 4.13
Exercised--$3.63 per share (4,000) 3.63 - - - -
Canceled or expired (171,070) 5.34 (37,207) 3.70 (427,500) 7.06
------------- ------------- ------------
Outstanding at end of year
(1998--$3.63 to $10.88 per
share) 322,434 4.24 1,294,207 7.01 1,335,207 5.99
============= ============= ============
Exercisable at end of year 481,207 4.27 517,207 5.16
============= ============
</TABLE>
The weighted average remaining contractual life of the outstanding options is
8.1 years.
Pro forma information regarding net income and net income per share is required
by SFAS No. 123, which also requires that the information be determined as if
the Company has accounted for its stock options granted subsequent to December
31, 1994 under the fair value method of SFAS No. 123. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions: risk-free interest rate of 6.4% in 1996,
5.8% in 1997 and 5.3% in 1998, dividend yield of 0%, volatility factor of the
expected market price of the Company's common stock of .430 in 1996, .445 in
1997 and .440 in 1998, and expected life of the option of approximately seven
years.
37
<PAGE>
7. Stock Options (continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period.
The Company's pro forma information follows:
Year ended December 31
1996 1997 1998
-------- -------- ---------
(In Thousands,
Except Per Share Data)
Pro forma net income $994 $660 $4,535
Pro forma net income per share:
Basic $.17 $.10 $.57
Diluted .17 .12 .50
8. Related-Party Transactions
The Company has entered into a management consulting agreement with certain
members of GreenGrass Capital LLC, a stockholder, pursuant to which these
members provide management consulting services and receive an annual fee of
$300,000. Fees of $263,000, $300,000 and $300,000 were expensed by the Company
during 1996, 1997 and 1998, respectively, pursuant to this agreement.
9. Segment Information
The Company has two reportable segments. The Company's commercial segment
markets its playground systems and related products to municipalities, schools,
park districts and other playground equipment users through a network of
independent representatives. The Company's consumer segment markets its backyard
play systems and related products through various retail outlets. The Company
operated as one reportable segment in 1996.
The Company evaluates performance and allocates resources based on the net
income of each segment. The accounting policies of the reportable segments are
the same as those described in the summary of significant accounting policies.
Intersegment sales and transfers are recorded at cost; there is no intercompany
profit or loss on intersegment sales or transfers.
38
<PAGE>
9. Segment Information (continued)
<TABLE>
<CAPTION>
Year ended December 31,
1997 1998
-------------------------------------- ----------------------------------------
Commercial Consumer Total Commercial Consumer Total
-------------- ------------ ---------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers $53,126 $36,368 $ 89,494 $74,512 $40,280 $114,792
Interest expense 4,092 3,393 7,485 4,310 3,224 7,534
Depreciation and
amortization expense 1,404 2,161 3,565 2,483 2,113 4,596
Income tax expense 977 293 1,270 2,533 487 3,020
Segment profit before
extraordinary item 1,567 470 2,037 3,921 755 4,676
Extraordinary item, net of
tax benefit of $540 - 860 860 - - -
Segment profit (loss) 1,567 (390) 1,177 3,921 755 4,676
Segment assets 56,102 45,063 101,165 61,992 41,448 103,440
Expenditures for long-lived
assets 1,018 622 1,640 2,134 643 2,777
</TABLE>
Geographic Information
<TABLE>
<CAPTION>
Revenues (a) Long-Lived Assets
-------------------------------------- -----------------------------
Year ended December 31, December 31,
1996 1997 1998 1997 1998
------------ ------------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
United States $39,311 $83,492 $107,268 $20,535 $20,871
Foreign countries 2,561 6,002 7,524 - -
------------ ------------- ----------- --------------- -------------
Total $41,872 $89,494 $114,792 $20,535 $20,871
============ ============= =========== =============== =============
(a)Revenues are attributed to countries based on the location of customers.
</TABLE>
Major Customer
During 1997 and 1998, there were no sales to any customer that exceeded 10% of
net sales. Two customers accounted for 22% and 16% of net sales during 1996,
respectively. Accounts receivable from these customers represented 28% and 29%
of accounts receivable at December 31, 1996, respectively.
10. Commitments
The Company has $1,332,000 in commitments for the completion of the building
construction at its GameTime facility at December 31, 1998.
39
<PAGE>
11. Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------- --------------- --------------- -----------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Net sales $10,849 $34,923 $24,827 $18,895
Gross profit 4,970 17,736 10,940 7,255
Income (loss) before extraordinary item
(282) 4,291 98 (2,070)
Net income (loss) (1,142) 4,291 98 (2,070)
Earnings (loss) per share:
Basic earnings (loss) per share:
Income (loss) before extraordinary
item $ (.04) $.61 $.01 $ (.29)
Extraordinary item (.14) - - -
--------------- --------------- --------------- -----------------
Net income (loss) $ (.18) $.61 $ .01 $ (.29)
=============== =============== =============== =================
Diluted earnings (loss) per share:
Income (loss) before extraordinary
item $(.04) $.49 $.01 $(.29)
Extraordinary item (.14) - - -
--------------- --------------- --------------- -----------------
Net income (loss) $(.18) $.49 $.01 $(.29)
=============== =============== =============== =================
<CAPTION>
1998
-----------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------- --------------- --------------- -----------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Net sales $25,257 $36,856 $29,533 $23,146
Gross profit 11,590 18,976 13,266 9,542
Net income (loss) 109 4,936 532 (901)
Earnings (loss) per share:
Basic .01 .62 .07 (.11)
Diluted .01 .51 .06 (.11)
</TABLE>
12. Subsequent Event
On February 16, 1999, the Company acquired all of the capital stock of Heartland
Industries, Inc. (Heartland), a maker of wooden storage buildings, for
approximately $13,300,000 (including the repayment of certain indebtedness of
Heartland), subject to certain adjustments as defined in the Agreement and Plan
of Merger. Heartland has a national network of company-owned sales branches and
independent dealers to sell its products, which include yard barns and
custom-built garages. The transaction will be accounted for under the purchase
method of accounting.
The acquisition was financed by amending and restating the existing senior
credit facility to increase the revolving loan facility to $28,000,000, the Term
Loan A facility to $38,000,000 and the Term Loan B facility to $9,000,000.
40
<PAGE>
Item 9 - Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
41
<PAGE>
PART III
Item 10 - Directors and Executive Officers of the Registrant
Information concerning directors is incorporated by reference from the
"Election of Directors" section of PlayCore's Proxy Statement for the annual
meeting of stockholders to be held on May 26, 1999 (the "Proxy Statement"),
which Proxy Statement will be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, within 120 days after the end of
PlayCore's fiscal year. Information concerning the executive officers will be
included in Exhibit A, "Executive Officers of PlayCore", to the Proxy Statement.
Information concerning compliance with Section 16(a) of the Exchange Act is
incorporated by reference from the "Section 16(a) Beneficial Ownership Reporting
Compliance" section of the Proxy Statement.
Item 11 - Executive Compensation
Incorporated by reference from the "Executive Compensation"
section of the Proxy Statement.
Item 12 - Security Ownership of Certain Beneficial
Owners and Management
Incorporated by reference from the "Ownership of Common Stock"
section of the Proxy Statement.
Item 13 - Certain Relationships and Related
Transactions
Incorporated by reference from the "Executive Compensation" and
"Other Transactions and Certain Relationships" sections of the
Proxy Statement.
42
<PAGE>
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) Financial Statements and Financial Statement Schedules
The following consolidated financial statements are included in Item 8:
Form 10-K
Page Number
PlayCore, Inc.
Consolidated Balance Sheets at December 31,
1997 and 1998...................................................21
For the years ended December 31, 1996, 1997,
and 1998:
- Consolidated Statements of Income............................23
- Consolidated Statements of Stockholders'
Equity.....................................................24
- Consolidated Statements of Cash Flows........................25
Notes to Consolidated Financial Statements......................27
The following consolidated financial statement schedules are included
in Item 14(d):
Form 10-K
Page Number
Schedule I - Condensed Financial Information of
Registrant..........................................46
Schedule II - Valuation and Qualifying Accounts...............48
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements or the notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
43
<PAGE>
(c) Exhibits
Exhibit
Number Exhibit
(3.1) Amended and Restate Certification of Incorporation of PlayCore, Inc.
[Incorporated by reference to Exhibit 4.(i)(2) of PlayCore's
Registration Statement on Form S-8 (Registration No. 33-48735)].
(3.2) Amended and Restate By-Laws of PlayCore, Inc. [Incorporated by
reference to Exhibit 3.2 of PlayCore, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1996].
(4.1) Amended and Restated Credit Agreement, dated as of February 16, 1999,
among PlayCore, Inc., PlayCore Wisconsin, Inc. the Lenders party
thereto and Fleet National Bank, as lender and agent [Incorporated by
reference to Exhibit 4.1 of PlayCore, Inc.'s Current Report on Form 8-K
dated February 16, 1999].
(4.2) Securities Purchase Agreement, dated as of March 13, 1997, among
PlayCore, Inc., PlayCore Wisconsin, Inc. and Massachusetts Mutual Life
Insurance Company, together with the notes and warrants related thereto
[Incorporated by reference to Exhibits 4.11, 4.15, 4.16, 4.20, and 4.21
of PlayCore, Inc.'s Current Report on Form 8-K dated March 13, 1997].
(4.3) Securities Purchase Agreement, dated as of March 13, 1997, among
PlayCore, Inc., PlayCore Wisconsin, Inc. and MassMutual Corporate
Investors, together with the note and warrant related thereto
[Incorporated by reference to Exhibits 4.12, 4.17 and 4.22 of PlayCore,
Inc.'s Current Report on Form 8-K dated March 13, 1997].
(4.4) Securities Purchase Agreement, dated as of March 13, 1997, among
PlayCore, Inc., PlayCore Wisconsin, Inc. and Mass Mutual Participation
Investors, together with the note and warrant related thereto
[Incorporated by reference to Exhibits 4.13, 4.18 and 4.23 of PlayCore,
Inc.'s Current Report on Form 8-K dated March 13, 1997].
(4.5) Securities Purchase Agreement, dated as of March 13, 1997, among
PlayCore, Inc., PlayCore Wisconsin, Inc. and MassMutual Corporate Value
Partners Limited, together with the note and warrant related thereto
[Incorporated by reference to Exhibits 4.14, 4.19 and 4.24 of PlayCore,
Inc.'s Current Report on Form 8-K dated March 13,1997].
(4.6) 10% Convertible Subordinated Debenture due 2004, dated February 16,
1996, in the original principal amount of $4,300,000 issued by
PlayCore, Inc. to GreenGrass Holdings [Incorporated by reference to
Exhibit 10.(i)(1) of PlayCore, Inc.'s Registration Statement of Form
S-2 (Registration No. 333-3907)].
44
<PAGE>
(4.7) 10% Convertible Subordinated Debenture due 2004, dated April 25, 1996,
in the original principal among of $700,000 issued by PlayCore, Inc. to
GreenGrass Holdings [Incorporated by reference to Exhibit 10.(i)(2)of
PlayCore, Inc.'s Registration Statement on Form S-2(Registration No.
333-3907].
(4.8) Warrant No.1 for the Purchase of Common Stock of PlayCore, Inc., dated
as of March 13,1997 [Incorporated by reference to Exhibit 4.27 of
PlayCore, Inc.'s Current Report on Form 8-K dated March 13, 1997].
(4.9) Amended and Restated Registration Rights Agreement, dated as of March
13, 1997, between PlayCore, Inc. and GreenGrass Holdings [Incorporated
by reference to Exhibit 4.28 of PlayCore, Inc.'s Current Report on Form
8-K dated March 13, 1997].
(10.1) Lease dated October 13, 1995, between Hovde Development, Inc.,lessor,
and PlayCore, Inc., Lessee [Incorporated by reference to Exhibit 10.2
of PlayCore, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1996].
(10.2) PlayCore, Inc. 1996 Incentive Stock Plan [Incorporated by reference to
Exhibit 10 (iii) (A)(1) of PlayCore, Inc.'s Registration Statement on
Form S-2 (Registration No. 333-3907)].
(10.3) Management Consulting Agreement dated as of February 16, 1996, by and
among PlayCore Wisconsin, Inc., PlayCore, Inc., Glencoe Investment
Corporation and Desai Capital Management Incorporated [Incorporated by
reference to Exhibit 10.5 of PlayCore, Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1996].
(10.4) Employment Agreement dated January 5, 1998 between PlayCore, Inc. and
Frederic L. Contino [Incorporated by reference to Exhibit 10.4 of
PlayCore, Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1997].
(21) Subsidiaries of PlayCore, Inc.
(23) Consent of Ernst & Young LLP.
(27) Financial Data Schedule [EDGAR version only].
45
<PAGE>
d) Financial Statement Schedules
Schedule I
PlayCore, Inc.
Condensed Financial Information of Registrant
Years Ended December 31, 1996, 1997 and 1998
PlayCore, Inc. (Parent Company)
Condensed Balance Sheet
December 31
1997 1998
-----------------------------
(In Thousands)
Investment in, and amounts due from,
wholly owned subsidiary $ 37,122 $ 41,179
----------- -----------
Total assets $ 37,122 $ 41,179
=========== ===========
Current liabilities $ 215 $ 530
Amounts due to wholly owned subsidiary 19,344 17,252
Convertible subordinated debentures
payable to stockholder 5,869 7,021
Stockholders' equity:
Common stock 115 115
Cost of 3,634,385 shares of common
stock in treasury (40,511) (40,511)
Other stockholders' equity 52,090 56,772
----------- -----------
11,694 16,376
----------- -----------
Total liabilities and stockholders' equity $ 37,122 $ 41,179
=========== ===========
Condensed Statement of Income
Year Ended December 31
1996 1997 1998
------------------------------------------
(In Thousands)
Management fees from wholly owned
subsidiary $ 2,200 $ 2,200 $ 2,200
Costs and expenses:
Administrative expense 503 428 490
Interest expense 437 832 637
Other expense 1,488 682 74
------- ------- --------
2,428 1,942 1,201
------- ------- --------
Income (loss) before income taxes
and equity in net income of
subsidiary (228) 258 999
Provision (credit) for income taxes (80) 90 380
Equity in net income of subsidiary 1,718 1,009 4,057
-------- ------- --------
Net income $ 1,570 $ 1,177 $ 4,676
======== ======= ========
46
<PAGE>
Schedule I
(continued)
<TABLE>
PlayCore, Inc.
Condensed Financial Information of Registrant
Years Ended December 31, 1996, 1997 and 1998
PlayCore, Inc. (Parent Company)
<CAPTION>
Condensed Statement of Cash Flows
Year Ended December 31
1996 1997 1998
----------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Operating activities:
Net income $ 1,570 $ 1,177 $ 4,676
Adjustments to reconcile net income to net
cash used in operating activities:
Equity in net income of subsidiary (1,718) (1,009) (4,057)
Interest converted to convertible
subordinated debentures and common stock 323 822 617
Decrease in current liabilities (5,190) (10,442) (1,777)
----------- ----------- -----------
Net cash used in operating activities (5,015) (9,452) (541)
Net cash provided by (used in) investing activities - - -
Financing activities:
Issuance of long-term debt - 2,500 -
Payments of long-term debt - (539) -
Issuance of convertible subordinated debentures 5,000 - 535
Proceeds from issuance of common stock - 4,931 6
Proceeds from issuance of common stock warrant - 2,723 -
Proceeds from exercise of stock options 15 - -
Purchase of treasury stock - (163) -
----------- ----------- -----------
Net cash provided by financing activities 5,015 9,452 541
----------- ----------- -----------
Net increase in cash - - -
Cash at beginning and end of year $ - $ - $ -
=========== =========== ===========
</TABLE>
47
<PAGE>
Schedule II
<TABLE>
PlayCore, Inc.
Valuation and Qualifying Accounts
Years Ended December 31, 1996, 1997 and 1998
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and Acquired End of
Description of Year Expenses Balance 1 Deductions 2 Year
(In Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996 $ 91 $ 10 $ - $ 3 $ 98
====== ======= ====== ====== =======
Year ended December 31, 1997 $ 98 $ 259 $ 300 $ 250 $ 407
====== ======= ====== ====== =======
Year ended December 31, 1998 $ 407 $ 572 $ 12 $ 190 $ 801
====== ======= ====== ====== =======
- -----------
1 Balance of acquired company at date of acquisition.
2 Uncollectible accounts written off, net of recoveries.
</TABLE>
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on behalf of the
undersigned, thereunto duly authorized.
PlayCore, Inc. Date
By /s/ Frederic L. Contino 3/29/99
Frederic L. Contino
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name and Title Signature Date
TERENCE S. MALONE /s/ Terence S. Malone 3/29/99
Chairman of the Board Terence S. Malone
of Directors and a Director
FREDERIC L. CONTINO /s/Frederic L. Contino 3/29/99
President and Chief Frederic L. Contino
Executive Officer and a Director
DAVID S. EVANS /s/ David S. Evans 3/29/99
Director David S. Evans
RICHARD E. RUEGGER /s/Richard E. Ruegger 3/29/99
Vice President-Finance, Richard E. Ruegger
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
GEORGE N. HERRERA /s/George N. Herrera 3/29/99
Director George N. Herrera
TIMOTHY R. KELLEHER /s/Timothy R. Kelleher 3/29/99
Director Timothy R. Kelleher
GARY A. MASSEL /s/Gary A. Massel 3/29/99
Director Gary A. Massel
RONALD D. WRAY /s/Ronald D. Wray 3/29/99
Director Ronald D. Wray
49
<PAGE>
PLAYCORE, INC.
EXHIBIT INDEX TO FORM 10-K For the
Fiscal Year ended December 31, 1998
Exhibit
Number Exhibit
(3.1) Amended and Restate Certification of Incorporation of PlayCore, Inc.
[Incorporated by reference to Exhibit 4.(i)(2) of PlayCore, Inc.'s
Registration Statement on Form S-8 (Registration No. 33-48735)].
(3.2) Amended and Restate By-Laws of PlayCore, Inc. [Incorporated by
reference to Exhibit 3.2 of PlayCore, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1996].
(4.1) Amended and Restated Credit Agreement, dated as of February 16, 1999,
among PlayCore, Inc., PlayCore Wisconsin, Inc., the Lenders party
thereto and Fleet National Bank, as lender and agent [Incorporated by
reference to Exhibit 4.1 of PlayCore, Inc.'s Current Report on Form 8-K
dated February 16, 1999].
(4.2) Securities Purchase Agreement, dated as of March 13, 1997, among
PlayCore, Inc., PlayCore Wisconsin, Inc., and Massachusetts Mutual Life
Insurance Company, together with the notes and warrants related thereto
[Incorporated by reference to Exhibits 4.11, 4.15, 4.16, 4.20, and 4.21
of PlayCore, Inc.'s Current Report on Form 8-K dated March 13, 1997].
(4.3) Securities Purchase Agreement, dated as of March 13, 1997, among
PlayCore, Inc., PlayCore Wisconsin, Inc., and MassMutual Corporate
Investors, together with the note and warrant related thereto
[Incorporated by reference to Exhibits 4.12, 4.17 and 4.22 of PlayCore,
Inc.'s Current Report on Form 8-K dated March 13, 1997].
(4.4) Securities Purchase Agreement, dated as of March 13, 1997, among
PlayCore, Inc., PlayCore Wisconsin, Inc., and Mass Mutual Participation
Investors, together with the note and warrant related thereto
[Incorporated by reference to Exhibits 4.13, 4.18 and 4.23 of
Swing-N-Slide, Inc.'s Current Report on Form 8-K dated March 13, 1997].
(4.5) Securities Purchase Agreement, dated as of March 13, 1997, among
PlayCore, Inc., PlayCore Wisconsin, Inc., and MassMutual Corporate
Value Partners Limited, together with the note and warrant related
thereto [Incorporated by reference to Exhibits 4.14, 4.19 and 4.24 of
PlayCore, Inc.'s Current Report on Form 8-K dated March 13,1997].
50
<PAGE>
(4.6) 10% Convertible Subordinated Debenture due 2004, dated February 16,
1996, in the original principal amount of $4,300,000 issued by
PlayCore, Inc. to GreenGrass Holdings [Incorporated by reference to
Exhibit 10.(i)(1) of PlayCore, Inc.'s Registration Statement of Form
S-2 (Registration No. 333-3907)].
(4.7) 10% Convertible Subordinated Debenture due 2004, dated April 25, 1996,
in the original principal among of $700,000 issued by PlayCore, Inc. to
GreenGrass Holdings [Incorporated by reference to Exhibit 10.(i)(2)of
PlayCore, Inc.'s Registration Statement on Form S-2(Registration No.
333-3907].
(4.8) Warrant No.1 for the Purchase of Common Stock of PlayCore, Inc., dated
as of March 13,1997 [Incorporated by reference to Exhibit 4.27 of
PlayCore, Inc.'s Current Report on Form 8-K dated March 13, 1997].
(4.9) Amended and Restated Registration Rights Agreement, dated as of March
13, 1997, between PlayCore, Inc. and GreenGrass Holdings [Incorporated
by reference to Exhibit 4.28 of PlayCore, Inc.'s Current Report on Form
8-K dated March 13, 1997].
(10.1) Lease dated October 13, 1995, between Hovde Development, Inc.,lessor,
and PlayCore, Inc., Lessee [Incorporated by reference to Exhibit 10.2
of PlayCore, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1996].
(10.2) PlayCore, Inc. 1996 Incentive Stock Plan [Incorporated by reference to
Exhibit 10 (iii) (A)(1) of PlayCore, Inc.'s Registration Statement on
Form S-2 (Registration No. 333-3907)].
(10.3) Management Consulting Agreement dated as of February 16, 1996,by and
among PlayCore Wisconsin, PlayCore, Inc., Glencoe Investment
Corporation and Desai Capital Management Incorporated [Incorporated by
reference to Exhibit 10.5 of PlayCore, Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1996].
(10.4) Employment Agreement dated January 5, 1998 between PlayCore, Inc. and
Frederic L. Contino [Incorporated by reference to Exhibit 10.4 of
PlayCore, Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1997].
(21) Subsidiaries of PlayCore, Inc.
(23) Consent of Ernst & Young LLP.
(27) Financial Data Schedule [EDGAR version only].
51
Exhibit 21
Subsidiaries of PlayCore, Inc.
The registrant has no parent but has the subsidiary listed below which is
included in the accompanying consolidated financial statements.
PlayCore Wisconsin, Inc. (Wisconsin Corporation) - Wholly owned.
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8, No. 33-48735) pertaining to the PlayCore, Inc. Stock Program of our report
dated January 29, 1999, except for Note 12, as to which the date is February 16,
1999, with respect to the consolidated financial statements and schedules of
PlayCore, Inc. included in the Annual Report (Form 10-K) for the year ended
December 31, 1998.
Milwaukee, Wisconsin /s/ERNST & YOUNG LLP
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF PLAYCORE, INC. AS OF AND FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 487
<SECURITIES> 0
<RECEIVABLES> 18,837
<ALLOWANCES> 801
<INVENTORY> 11,754
<CURRENT-ASSETS> 33,587
<PP&E> 29,834
<DEPRECIATION> 8,963
<TOTAL-ASSETS> 103,440
<CURRENT-LIABILITIES> 34,310
<BONDS> 42,288
0
0
<COMMON> 115
<OTHER-SE> 16,261
<TOTAL-LIABILITY-AND-EQUITY> 103,440
<SALES> 114,792
<TOTAL-REVENUES> 114,792
<CGS> 61,418
<TOTAL-COSTS> 37,800
<OTHER-EXPENSES> 344
<LOSS-PROVISION> 572
<INTEREST-EXPENSE> 7,534
<INCOME-PRETAX> 7,696
<INCOME-TAX> 3,020
<INCOME-CONTINUING> 4,676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,676
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.51
</TABLE>
