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, 1999
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
13, 2000 was $20,917,544 (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 13, 2000, there were 7,957,104 shares of common stock outstanding.
Part III incorporates information by reference from the Proxy Statement to be
filed in connection with the registrant's 2000 annual meeting of stockholders.
<PAGE>
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 below or 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.
Factors that could cause actual events or results to differ from the Company's
forward-looking statements include but are not limited to the following:
o Increased competition from the Company's existing competitors or from the
entry of new competitors into the markets in which the Company sells its
products;
o Decreased demand for the Company's product due to a decline in overall
economic activity affecting the overall sales rate in the markets in which
the Company sells its products;
o Increased prices for wood, plastic, steel, paint, fasteners or other raw
materials used in the Company's products; o Decreased demand for the
Company's products due to inclement weather affecting the overall sales
rate in the markets in which the Company sells its consumer products; and
o Changes in the regulations governing the design and use of the Company's
products, particularly its commercial products.
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. Immediately following the
acquisition on March 13, 1997, GameTime, Inc. 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
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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 more than 6,000 home center, building supply and hardware
stores located in North America and the rest of the world.
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 $13.6 million (including the repayment of certain indebtedness of
Heartland). Heartland markets its products through a national network of
company-owned sales branches and independent dealers. Its products include yard
barns and custom-built garages.
Products and Markets
Commercial Playground Systems
As mentioned previously, on March 13, 1997, PlayCore Wisconsin acquired the
stock and business of GameTime, Inc. ("GameTime"), 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(R), a large three-in-one slide; Megarock(R), a
freeform multiple use climber; and PlayGraphics(R), 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.
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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.
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, a new line of wooden commercial playground systems sold under the Tuff
Kids(TM) brand name was added to the Swing-N-Slide(R) product line. 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 and Wooden Storage Buildings
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
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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 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.
In February 1999, the Company acquired all of the capital stock of Heartland.
After the acquisition was completed, the Company developed a new product line of
premium backyard play systems sold under the Heartland brand name. The product
line includes several modular units that are available in a variety of
combinations, typically consisting of a play fort with multiple decks, a wave
slide, tube slides, and a variety of swing set combinations and monkey bars. The
play systems are sold through several of Heartland's company-owned sales
branches.
Heartland is also 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 1999, yard barns accounted for approximately
82 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 playground systems are sold through a network of
independent sales representatives directly to city and county governments,
nursery, elementary and middle schools, and building contractors.
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Because the Company's Swing-N-Slide 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,
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.
Heartland sells its backyard wooden storage products and play systems through a
national network of company-owned retail locations and independent dealers. The
products are sold directly to consumers.
Manufacture and Assembly
The Company's commercial playground systems, with the exception of the Tuff
Kids(TM) product line, are manufactured at two facilities located in Fort Payne,
Alabama. The Company owns these facilities. 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 Swing-N-Slide consumer play systems and the Tuff Kids(TM)
commercial product line are manufactured, assembled and packaged at two
locations 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.
The Company's wooden storage products and the Heartland consumer play systems
are manufactured at three facilities. The largest is a facility located in
Indianapolis, Indiana. The two other manufacturing facilities are located in
Charleston, South Carolina and Dixon, California.
The Company anticipates that its various facilities will have sufficient
capacity for at least the next twenty-four months.
The Company typically notifies the suppliers of its primary raw materials, such
as steel, paint, wood, aluminum and polyethylene, of its projected annual
requirements in the fall of each year, and coordinates shipments of such
materials with its suppliers throughout the year. 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.
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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
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.
The market for backyard wooden storage products is also highly competitive. The
Company faces competition from manufacturers of metal and plastic storage
products. Arrow Group Industries is a major manufacturer and marketer of metal
storage buildings. Other competitors include Handy Home Products, a manufacturer
of do-it-yourself wooden storage buildings, and Tuff Shed, a manufacturer of
installed wooden storage buildings. Heartland competes on the basis of design,
quality, price and brand name recognition.
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,
1998 and 1999, approximately 67 percent, 58 percent and 60 percent,
respectively, of the Company's net sales occurred between April 1 and September
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 and second quarters, 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 April and May being the peak months for
borrowing.
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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
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, Alabama, California, Indiana and South
Carolina, 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, 1999, the Company had 1,062 full-time employees consisting of
290 sales and marketing employees, 185 employees involved in administration and
587 employees engaged in manufacturing and assembling. During peak production
months, such as March, the Company hires approximately 135 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.
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Item 2 - Properties
- -------------------
The Company's commercial playground systems manufacturing facilities are located
in Fort Payne, Alabama. The facilities consist of a 350,000 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's manufacturing and distribution facilities for the Swing-N-Slide
consumer playground systems and its leased 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.
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 and leases a 7,000 square foot facility in Charlotte, North
Carolina where the Pentes product line is designed.
The Company's wooden storage product line and the Heartland consumer play
systems are manufactured at three locations. The largest facility is located in
Indianapolis, Indiana and is 108,000 square feet. The two other manufacturing
facilities are located in Charleston, South Carolina and Dixon, California and
are 9,000 square feet and 11,500 square feet, respectively. All three facilities
are leased by the Company.
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.
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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, 1999.
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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.
1998 1999
----------------------- ----------------------
High Low High Low
----------------------- ----------------------
1st Quarter 4-3/8 3-3/8 5-5/8 4-1/4
2nd Quarter 4-15/16 3-5/8 6-1/2 4-3/4
3rd Quarter 4-1/2 3-11/16 9 5-5/8
4th Quarter 5-1/4 3-1/2 10-3/4 6-3/8
- ------------------------
As of March 13, 2000, there were 80 record holders and approximately 1,000
beneficial owners of PlayCore's common 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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Item 6 -Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------
1995 1996 1997 1998 1999
----------------------------------------------------------------
(in thousands, except per share amounts)
Statement of income data:
<S> <C> <C> <C> <C> <C>
Net sales.................................... $45,077 $41,872 $89,494 $114,792 $191,936
Gross profit................................. 21,902 20,544 40,901 53,374 79,202
Operating income............................. 11,131 9,618 11,573 15,574 21,159
Income before income taxes and
extraordinary item........................ 6,727 3,050 3,307 7,696 11,591
Extraordinary item........................... - - (860) - -
Net income................................... 4,127 1,570 1,177 4,676 7,086
Per common share:
Basic:
Income before extraordinary item.......... $0.67 $0.26 $0.29 $0.59 $0.89
Extraordinary item........................ - - (0.12) - -
Net income................................ $0.67 $0.26 $0.17 $0.59 $0.89
Diluted:
Income before extraordinary item.......... $0.67 $0.26 $0.28 $0.51 $0.73
Extraordinary item........................ - - (0.10) - -
Net income................................ $0.67 $0.26 $0.18 $0.51 $0.73
Balance sheet data(at period end):
Working capital deficit...................... ($81) ($1,525) ($2,242) ($723) ($3,353)
Total assets................................. 44,585 46,264 101,165 103,440 140,311
Total debt (1)............................. 41,738 41,498 72,531 66,951 87,682
Total stockholders' equity (deficit)......... (796) 789 11,694 16,376 23,631
(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, 1999, with the results of operations for the year
ended December 31, 1998, and of the results of operations for the year ended
December 31, 1998, with the results of operations for the year ended December
31, 1997.
On February 16, 1999, the Company acquired all of the capital stock of
Heartland, a maker of backyard storage buildings. The acquisition of Heartland
was accounted for using the purchase method. Therefore, the results of Heartland
are included with those of the Company beginning with the date of acquisition.
Results of Operations:
Year ended December 31, 1999, compared to the year ended December 31, 1998.
Net Sales. Net sales increased $77.1 million, or 67.2 percent, to $191.9 million
for the year ended December 31, 1999 as compared to $114.8 million for the year
ended December 31, 1998. Sales of the Company's consumer products increased
$67.0 million, or 166.3 percent, to $107.3 million for the year ended December
31, 1999 as compared to $40.3 million for the same period a year ago. This
increase in sales was mainly attributable to the inclusion of Heartland's sales
from February 16, 1999, the date of its acquisition, through December 31, 1999.
Sales of the Company's commercial products increased $10.2 million, or 13.6
percent, to $84.7 million for the twelve months ended December 31, 1999 as
compared to $74.5 million for the same period a year ago. Sales of the Company's
commercial products continue to benefit from growth in the commercial market
driven by strong demographic trends and the impact of new playground equipment
safety standards.
Gross Profit. Gross profit increased $25.8 million, or 48.4 percent, to $79.2
million but decreased as a percentage of net sales to 41.3 percent for the year
ended December 31, 1999 as compared to $53.4 million and 46.5 percent for the
year ended December 31, 1998. The primary reason for the decrease in gross
profit margin was the impact of Heartland's wooden storage building sales, which
have a lower profit margin than consumer and commercial playground equipment.
Gross profit for the Company's consumer products segment increased $22.1
million, or 125.5 percent, to $39.7 million but decreased as a percentage of net
sales to 37.0 percent for the year ended December 31, 1999 as compared to $17.6
million and 43.8 percent for the same period a year ago. Gross profit for the
Company's commercial products segment increased $3.7 million, or 10.4 percent,
to $39.5 million but decreased as a percentage of net sales to 46.7 percent for
the year ended December 31, 1999 as compared to $35.8 million and 47.9 percent
for the year ended December 31, 1998. The decrease in the gross profit margin of
the commercial products was mainly due to manufacturing inefficiencies during
the peak production season caused by the increased use of temporary employees
and costs related to the expansion of the production facility.
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Selling Expenses. Selling and marketing expenses increased $10.3 million, or
40.8 percent, but decreased as a percentage of net sales to 18.4 percent for the
year ended December 31, 1999 as compared to $25.1 million and 21.9 percent of
net sales for the same period a year ago. The dollar increase was primarily due
to inclusion of Heartland's selling expenses for the period February 16, 1999
through December 31, 1999. The decrease as a percentage of net sales was
attributable to the impact of higher sales volume on fixed selling expenses and
the lower selling costs as a percentage of net sales associated with wooden
storage building sales. Selling expenses for the Company's consumer products
increased $8.3 million, or 105.1 percent, to $16.2 million for the year ended
December 31, 1999 as compared to $7.9 million for the year ended December 31,
1998. Selling expenses for the Company's commercial products increased $2.0
million, or 11.1 percent, to $19.2 million for the year ended December 31, 1999
as compared to $17.2 million for the same period a year ago.
General and Administrative Expenses. General and administrative expenses
increased $9.3 million, or 88.2 percent, to $19.9 million and increased as a
percentage of net sales to 10.4 percent for the twelve months ended December 31,
1999 as compared to $10.6 million and 9.2 percent for the twelve months ended
December 31, 1998. The dollar increase was primarily due to the inclusion of
Heartland's general and administrative expenses for the period February 16, 1999
through December 31, 1999. The increase as a percentage of net sales was mostly
due to the impact of higher general and administrative expenses as a percentage
of net sales related to wooden storage building sales.
Amortization of Intangible Assets. Amortization of financing fees, goodwill and
other identifiable intangible assets was $2.8 million for the year ended
December 31, 1999 as compared to $2.1 million for the year ended December 31,
1998. The increase in amortization was a result of the goodwill and financing
fees associated with the Heartland acquisition.
Other Expenses. Interest expense increased $1.4 million to $8.9 million for the
year ended December 31, 1999. The increase in interest was mainly due to the
additional debt incurred in connection with the Heartland acquisition.
Year ended December 31, 1998, compared to the year ended December 31, 1997.
Net Sales. Net sales increased by $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(R) sales for the entire twelve months of 1998
versus the inclusion of GameTime(R) 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.
15
<PAGE>
Gross Profit. Gross profit increased $12.5 million, or 30.5 percent, to $53.4
million andincreased 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 for the year 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 year ended December 31, 1997. The dollar increase was
primarily due to the inclusion of GameTime(R)'s selling and marketing expenses
for the entire twelve months of 1998. 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. 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(R)'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(R) 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(R)
acquisition in March 1997.
16
<PAGE>
Other expense decreased to $0.3 million for the year ended December 31, 1998
from $0.8million for the same period a year ago. In 1997, other expense included
costs related to the settlement of stockholder lawsuits.
Liquidity and Capital Resources
The Company's primary sources of working capital are cash flows from operations
and borrowings under PlayCore Wisconsin, Inc.'s senior credit facility, which
was entered into in March 1997, amended in February 1999 and in March 2000, and
runs through June 2003. PlayCore Wisconsin, Inc. is a wholly owned subsidiary of
the Company. The PlayCore Wisconsin facility consists of (a) a $33.0 million
revolving credit facility; (b) a $38.0 million Term A facility and (c) a $9.0
million Term B facility. The revolving loan facility will reduce to $28.0
million after July 31, 2000. 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 PlayCore Wisconsin revolving credit facility is
limited to specified percentages of qualified inventories and accounts
receivable, not to exceed $33.0 million. At December 31, 1999, the outstanding
amount of the revolving loan facility was $25.1 million, and the remaining
availability was approximately $0.9 million.
The Company made capital expenditures totaling approximately $7.2 million in the
year ended December 31, 1999. Approximately $4.4 million of this total was spent
on an expansion of the GameTime(R) facility in Fort Payne, Alabama. This
expansion provides needed additional capacity to meet projected sales growth and
also allows for better workflow through the facility. 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
In late 1999, the Company completed its remediation and testing of systems with
respect to Year 2000 readiness. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $169,000 during 1999 in connection with remediating its
systems for the Year 2000. The Company is not aware of any material problems
resulting from Year 2000 issues, either with our products, our internal systems,
or the products and services of third parties. The Company will continue to
monitor its mission critical computer applications and those of its suppliers
and vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
17
<PAGE>
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. If market interest rates for
the borrowings under the senior credit facility average 1% more during the year
ended December 31, 2000 than they did during 1999, the Company's interest
expense would increase, and income before taxes would decrease by approximately
$0.7 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.
In February 2000, the Company entered into an interest rate cap agreement
covering $20.0 million of outstanding debt obligations and expiring February
2002. The cap agreement places a LIBOR rate ceiling of 8% on the obligations
covered.
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
Index to Financial Statements:
Form 10-K
PlayCore, Inc.: Page Number
-----------
Report of Independent Auditors....................................19
Consolidated Balance Sheets at December 31, 1998
and 1999......................................................20
For the years ended December 31, 1997, 1998 and 1999:
- Consolidated Statements of Income...........................22
- Consolidated Statements of Stockholders' Equity.............23
- Consolidated Statements of Cash Flows.......................24
Notes to Consolidated Financial Statements....................26
18
<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, 1998 and 1999, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1998 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. 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 28, 2000, except for
Note 4 as to which the
date is March 3, 2000
19
<PAGE>
PlayCore, Inc.
Consolidated Balance Sheets
December 31
1998 1999
-------------------------
(In Thousands, Except
Shares and Per
Share Data)
Assets
Current assets:
Cash $ 487 $ 800
Accounts receivable, less allowance for doubtful
accounts of $801 and $666 18,036 28,302
Other receivables 551 1,219
Refundable income taxes - 1,169
Inventories 11,754 19,124
Prepaid expenses 1,869 3,099
Deferred income taxes 890 1,855
-------------------------
Total current assets 33,587 55,568
Property, plant and equipment, net 20,871 26,688
Deferred financing and other costs, net of accumulated
amortization of $1,557 and $2,537 3,194 3,557
Identifiable intangible assets, net of accumulated
amortization of $843 and $1,169 6,593 6,358
Goodwill, net of accumulated amortization of $5,156
and $6,621 39,195 47,768
Other long-term assets - 372
-------------------------
$103,440 $140,311
=========================
20
<PAGE>
December 31
1998 1999
-------------------------
(In Thousands, Except
Shares and Per
Share Data)
Liabilities and stockholders' equity
Current liabilities:
Revolving loan $ 9,940 $ 25,105
Accounts payable 5,346 9,319
Accrued income taxes 216 -
Accrued expenses 11,106 15,410
Current portion of long-term debt 7,702 9,087
-------------------------
Total current liabilities 34,310 58,921
Long-term debt 42,288 46,232
Convertible subordinated debentures 7,021 7,258
Deferred income taxes 3,445 4,269
Commitments (Note 4)
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, 11,543,349 and 11,575,599 shares issued 115 116
Class B common stock, $.01 par value, 1,750,000 shares
authorized, no shares issued or outstanding - -
Additional paid-in capital 37,524 37,692
Retained earnings 19,248 26,334
Cost of 3,634,385 shares of common stock in treasury (40,511) (40,511)
-------------------------
Total stockholders' equity 16,376 23,631
-------------------------
$103,440 $140,311
=========================
See accompanying notes.
21
<PAGE>
<TABLE>
PlayCore, Inc.
Consolidated Statements of Income
<CAPTION>
Year ended December 31
1997 1998 1999
--------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Net sales $ 89,494 $114,792 $191,936
Cost of goods sold 48,593 61,418 112,734
--------------------------------------------------------
Gross profit 40,901 53,374 79,202
Operating expenses:
Selling 17,813 25,113 35,366
General and administrative 9,616 10,575 19,906
Amortization of intangible assets 1,899 2,112 2,771
--------------------------------------------------------
29,328 37,800 58,043
--------------------------------------------------------
Operating income 11,573 15,574 21,159
Other expense:
Interest expense 7,485 7,534 8,930
Other, net 781 344 638
--------------------------------------------------------
Total other expense 8,266 7,878 9,568
--------------------------------------------------------
Income before income taxes and
extraordinary item 3,307 7,696 11,591
Provision (credit) for income taxes:
Current (235) 1,070 1,223
Deferred 1,280 1,725 3,057
Benefit applied to reduce goodwill 225 225 225
--------------------------------------------------------
1,270 3,020 4,505
--------------------------------------------------------
Income before extraordinary item 2,037 4,676 7,086
Extraordinary loss, net of income tax
benefit of $540 860 - -
========================================================
Net income $ 1,177 $ 4,676 $ 7,086
========================================================
Basic earnings per share:
Income before extraordinary item $ .29 $ .59 $ .89
Extraordinary item (.12) - -
--------------------------------------------------------
Net income $ .17 $ .59 $ .89
========================================================
Diluted earnings per share:
Income before extraordinary item $ .28 $ .51 $ .73
Extraordinary item (.10) - -
--------------------------------------------------------
Net income $ .18 $ .51 $ .73
========================================================
</TABLE>
22
See accompanying notes.
<PAGE>
<TABLE>
PlayCore, Inc.
Consolidated Statements of Stockholders' Equity
<CAPTION>
Common Stock Additional Treasury Stock
----------------------- Paid-In Retained ---------------------
Shares Amount Capital Earnings Shares Amount Total
------------------------------------------------------------------------------------
(In Thousands, Except Shares)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 9,604,000 $ 96 $27,646 $13,395 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 14,572 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 19,248 3,634,385 (40,511) 16,376
Issuance of common stock 2,250 - 14 - - - 14
Exercise of stock options 30,000 1 154 - - - 155
Net income - - - 7,086 - - 7,086
====================================================================================
Balance at December 31, 1999 11,575,599 $116 $37,692 $26,334 3,634,385 $(40,511) $23,631
====================================================================================
</TABLE>
See accompanying notes.
23
<PAGE>
<TABLE>
PlayCore, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
Year ended December 31
1997 1998 1999
----------------------------------------------
(In Thousands)
Operating activities
<S> <C> <C> <C>
Net income $ 1,177 $ 4,676 $ 7,086
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes 1,280 1,725 3,057
Benefit applied to reduce goodwill 225 225 225
Write-off of unamortized deferred financing
costs 1,400 - -
Depreciation 1,666 2,484 3,052
Amortization of deferred financing costs,
intangible assets and goodwill 1,899 2,112 2,771
Amortization of debt discount 289 365 365
Interest converted to convertible subordinated
debentures and common stock 822 617 237
Changes in operating assets and liabilities:
Accounts receivable (2,692) (4,712) (9,544)
Other receivables 529 (380) (661)
Income taxes (1,158) 1,373 (1,109)
Inventories (1,129) 867 (2,628)
Prepaid expenses 681 (275) (839)
Accounts payable (567) (759) 2,463
Accrued expenses 4,699 1,609 (1,423)
----------------------------------------------
Net cash provided by operating activities 9,121 9,927 3,052
Investing activities
Acquisitions of businesses, net of cash acquired (42,614) (590) (14,766)
Purchase of property, plant and equipment (1,640) (2,777) (7,167)
Other (141) - (261)
----------------------------------------------
Net cash used in investing activities (44,395) (3,367) (22,194)
</TABLE>
See accompanying notes.
24
<PAGE>
PlayCore, Inc.
Consolidated Statements of Cash Flows (continued)
<TABLE>
PlayCore, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
Year ended December 31
1997 1998 1999
----------------------------------------------
(In Thousands)
Financing activities
<S> <C> <C> <C>
Net change in revolving loan $ 1,990 $ 2,325 $ 15,165
Issuance of long-term debt 63,777 535 10,323
Payments on long-term debt (34,264) (9,422) (5,359)
Debt issuance costs incurred (3,044) (194) (843)
Proceeds from issuance of common stock 4,931 6 14
Proceeds from issuance of common stock warrant 2,723 - -
Proceeds from exercise of stock options - - 155
Purchase of common stock for treasury (163) - -
----------------------------------------------
Net cash provided by (used in) financing activities 35,950 (6,750) 19,455
----------------------------------------------
Net increase (decrease) in cash 676 (190) 313
Cash at beginning of year 1 677 487
----------------------------------------------
Cash at end of year $ 677 $ 487 $ 800
==============================================
Supplemental disclosure of cash flows information -
Cash paid during the year for:
Interest $ 5,619 $ 6,627 $ 8,379
Income taxes (refunds), net 384 (369) 2,107
</TABLE>
See accompanying notes.
25
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
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). PlayCore Wisconsin, Inc. has as its wholly owned
subsidiary, Heartland Industries, Inc.
Nature of Business
The Company designs and manufactures consumer and commercial outdoor playground
equipment and backyard products. The consumer division markets its primary
product lines, kits for wooden swing sets and climbing units, plastic slides and
related accessories and wooden storage buildings nationwide through home
improvement retail centers and the division's branch network. 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.
26
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
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 $2,490,000, $3,297,000
and $4,319,000 in 1997, 1998 and 1999, 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.
27
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
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):
1997 1998 1999
--------------------------------
Numerator:
Numerator for basic earnings per share -
income before extraordinary item $2,037 $4,676 $7,086
Effect of dilutive securities -
10% convertible subordinated debentures 343 394 442
================================
Numerator for diluted earnings per share $2,380 $5,070 $7,528
================================
Denominator:
Denominator for basic earnings per share -
weighted average shares 6,942 7,909 7,918
Effect of dilutive securities:
Employee stock options 36 36 277
Warrants 485 621 638
10% convertible subordinated debentures 1,161 1,338 1,500
================================
Denominator for diluted earnings per share 8,624 9,904 10,333
================================
Comprehensive Income
Net income for 1997, 1998 and 1999 is the same as comprehensive income as
defined pursuant to SFAS No. 130, "Reporting Comprehensive Income."
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which was
amended by SFAS No. 137. Provisions of these standards are required to be
adopted in years beginning after June 15, 2000. Because of the Company's minimal
use of derivatives, management does not anticipate that the adoption of SFAS No.
133 will have a significant effect on the results of operations, financial
position or cash flows of the Company.
28
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
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 an unsecured 10% subordinated note payable in the
principal amount of $2,000,000) plus transaction costs 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.
On February 16, 1999, PlayCore Wisconsin acquired all of the issued and
outstanding shares of capital stock of Heartland Industries, Inc. (Heartland), a
manufacturer of wooden storage buildings, for $13,629,000 ($13,129,000 in cash
and an unsecured 10% subordinated note payable in the principal amount of
$500,000) plus transaction costs and including the assumption of Heartland's
indebtedness of approximately $7,050,000.
In connection with the Heartland acquisition, the Company has recorded an
accrual for restructuring costs of $1,603,000 related to a business plan which
the Company began formulating at the acquisition date. The costs included in the
accrual include costs associated with the consolidation of nine production
centers, including moving costs, remaining lease payments, severance and
relocation costs as well as severance and outplacement costs resulting from the
restructuring of the sales and information systems departments. Costs totaling
approximately $672,000 have been charged against the accrual through December
31, 1999.
The 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,
Pentes and Heartland acquisitions of $19,655,000, $620,000 and $10,263,000,
respectively, has been recorded as goodwill.
The acquisition of Pentes did not have a material impact on the Company's
consolidated results of operations.
29
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
2. Acquisitions (continued)
The following unaudited pro forma results of operations for the years ended
December 31, 1998 and 1999, assume the acquisition of Heartland occurred on
January 1, 1998:
December 31
1998 1999
----------------------------
(In Thousands, Except Per
Share Data)
Net sales $195,346 $195,953
Net income 3,999 5,843
Earnings per share:
Basic $.51 $.74
Diluted .44 .61
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.
3. Balance Sheet Detail
Inventories consist of the following:
December 31
1998 1999
----------------------------
(In Thousands)
Finished goods and work in process $ 7,153 $10,699
Raw materials 4,602 8,425
----------------------------
$11,754 $19,124
============================
30
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
3. Balance Sheet Detail (continued)
Property, plant and equipment consist of the following:
December 31
1998 1999
----------------------------
(In Thousands)
Land and land improvements $ 1,093 $ 2,713
Buildings 7,691 11,333
Shop equipment 18,159 20,226
Office equipment 2,313 3,190
Vehicles 75 192
----------------------------
29,331 37,654
Less accumulated depreciation 8,963 11,868
----------------------------
20,368 25,786
Construction in progress 503 902
----------------------------
$20,871 $26,688
============================
Identifiable intangible assets consist of the following:
December 31
1998 1999
----------------------------
(In Thousands)
Patent cost $1,995 $2,022
Trademarks and trade names 5,441 5,505
----------------------------
7,436 7,527
Less accumulated amortization 843 1,169
----------------------------
$6,593 $6,358
============================
Accrued expenses consist of the following:
December 31
1998 1999
----------------------------
(In Thousands)
Accrued commissions $ 3,760 $ 5,251
Other accrued expenses 7,346 10,159
----------------------------
$11,106 $15,410
============================
31
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
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
1998 1999
----------------------------
(In Thousands)
Term loans $37,177 $41,800
12% senior subordinated notes, net of
original issue discount of $2,069 and
$1,704 at December 31, 1998 and 1999,
respectively, based on an imputed interest
rate of 14.9%
10,431 10,796
10% convertible subordinated debentures 7,021 7,258
10% subordinated notes payable 2,000 2,500
Other 382 223
----------------------------
Total long-term debt 57,011 62,577
Less amounts due within one year 7,702 9,087
----------------------------
$49,309 $53,490
============================
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
completed a tender offer for shares of common stock of the Company on February
16, 1996. GreenGrass Holdings also purchased 10% convertible subordinated
debentures, maturing in 2004. In 1998, additional debentures totaling $535,000
were sold to holders of common stock other than GreenGrass Holdings. 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, interest on the debentures was
paid in the form of additional debentures. The debentures are unsecured.
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, including the
senior credit facility, which are identified below. In connection with the
prepayment in full of the previous PlayCore Wisconsin credit agreement in 1997,
the Company wrote off the unamortized balance of the related deferred financing
costs of $1,400,000. The senior credit facility was amended in February 1999 in
connection with the acquisition of Heartland (see Note 2).
32
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
4. Revolving Loan, Long-Term Debt, Convertible Subordinated Debentures and Lease
Commitments (continued)
Effective March 3, 2000, PlayCore Wisconsin has an amended $76,000,000 senior
credit facility. The facility consists of a $33,000,000 revolving loan facility,
a $38,000,000 Term Loan A facility and a $9,000,000 Term Loan B facility. The
revolving loan facility will reduce to $28,000,000 after July 31, 2000. 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 $28,000,000.
Interest on borrowings under the revolving loan facility is payable quarterly at
either 0.75% to 2% over the prime rate or 2.0% to 3.25% 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 average daily unused portion
of the commitment.
The weighted average interest rate on the revolving loan facility at December
31, 1998 and 1999, was 8.45% and 9.58%, 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 $406,000 and $4,050,000, 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 2.75% over the prime rate or
3.75% over LIBOR, at the Company's option. The Term Loan B facility is payable
quarterly in amounts of $66,666, with the final quarterly principal payment of
$8,200,000 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 618,937 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 MassMutual 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>
PlayCore, Inc.
Notes to Consolidated Financial Statements
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.
In connection with the GameTime and Heartland acquisitions, the Company entered
into two unsecured 10% subordinated notes of $2,000,000 and $500,000,
respectively. The $2,000,000 note is payable in full in March 2005. Interest on
this note is payable semiannually. The $500,000 note is due in annual
installments of $167,000 starting in February 2002 through February 2004.
Interest on this note is payable quarterly.
Future maturities of long-term debt, including the convertible subordinated
debentures payable to stockholders, at December 31, 1999, are as follows (in
thousands):
2000 $ 9,087
2001 11,286
2002 13,667
2003 8,867
2004 13,124
Thereafter 8,250
------------
64,281
Less: original issue discount 1,704
============
$62,577
============
Future minimum payments under noncancelable operating leases total $8,155,000
and are due as follows: 2000--$2,832,000; 2001--$1,887,000; 2002--$1,314,000;
2003--$590,000; 2004--$435,000 and thereafter--$1,097,000. Rent expense,
including operating leases, was $820,000, $1,257,000 and $3,564,000 in 1997,
1998 and 1999, respectively.
In February 2000, the Company entered into an interest rate cap agreement
covering $20,000,000 of outstanding debt obligation and expiring February 2002.
The cap agreement places a LIBOR rate ceiling of 8% on the obligation covered.
34
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
5. Income Taxes
Deferred income taxes consist of the following:
December 31
1998 1999
----------------------------
(In Thousands)
Deferred tax assets:
Noncompete agreement $ 1,667 $1,321
Allowance for doubtful accounts 308 256
Inventory 381 863
Net operating loss carryforwards 84 479
Accrued liabilities not currently
deductible for tax 553 1,710
----------------------------
2,993 4,629
Deferred tax liabilities:
Goodwill 312 1,174
Intangible assets 2,186 2,198
Property, plant and equipment 2,698 2,881
Prepaid expenses currently deductible
for tax 352 790
----------------------------
5,548 7,043
----------------------------
Net deferred tax liability $(2,555) $(2,414)
============================
For federal income tax purposes, the Company has net operating loss
carryforwards of approximately $1,243,000 which expire in 2020 resulting from
the Company's acquisition of Heartland. The utilization of the net operating
loss carryforwards is subject to an annual limitation of $642,000.
The components of the provision for income taxes consist of the following:
Year ended December 31
1997 1998 1999
------------------------------------------
(In Thousands)
Current:
Federal $ (235) $ 965 $1,074
State - 105 149
------------------------------------------
(235) 1,070 1,223
Deferred:
Federal 1,130 1,523 2,700
State 150 202 357
------------------------------------------
1,280 1,725 3,057
Benefit applied to reduce goodwill 225 225 225
------------------------------------------
$1,270 $3,020 $4,505
==========================================
35
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
The provision for income taxes differs from the amount computed by applying the
federal statutory rate of 34% (35% for income in excess of $10,000,000) to
income before income taxes and extraordinary item as follows:
Year ended December 31
1997 1998 1999
------------------------------------------
(In Thousands)
Taxes at statutory rate $1,124 $2,617 $3,957
State income taxes, net of federal
benefit 29 281 456
Other 117 122 92
------------------------------------------
$1,270 $3,020 $4,505
==========================================
6. Employee Benefit Plans
The Company sponsors three 401(k) plans. Two of the plans cover employees who
have completed six months of service and are at least 21 years old. These 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 third
plan covers employees who have completed one year of service and are at least 21
years old. The Company matches 25% of each participant's deferral, not to exceed
8% of earnings. The Company expensed $249,000, $378,000 and $501,000
respectively, in connection with these plans in 1997, 1998 and 1999.
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.
36
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
7. Stock Options (continued)
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.
At December 31, 1998 and 1999, there were 126,000 and 121,000 shares available
for grant, respectively. Changes in option shares are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
----------------------------------------------------------------------------
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 322,434 $4.24 1,294,207 $7.01 1,335,207 $5.99
Granted:
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 - -
1999--$6.00 to
$6.19 per share - - - - 70,000 6.13
Exercised--$4.25 to $7.00 per
share - - - - (30,000) 5.17
Canceled or expired (37,207) 3.70 (427,500) 7.06 (69,758) 7.79
--------- --------- ---------
Outstanding at end of year
(1999--$3.63 to $10.88 per
share) 1,294,207 7.01 1,335,207 5.99 1,305,449 5.90
========= ========= =========
Exercisable at end of year 481,207 4.27 517,207 5.16 818,449 5.31
========= ========= =========
The weighted average remaining contractual life of the outstanding options is 7.3 years.
</TABLE>
37
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
7. Stock Options (continued)
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 5.8% in 1997,
5.3% in 1998 and 5.8% in 1999, dividend yield of 0%, volatility factor of the
expected market price of the Company's common stock of .445 in 1997, .440 in
1998 and .465 in 1999, and expected life of the option of approximately seven
years.
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.
Had compensation cost been determined based upon the fair value at the grant
date for awards under the plans based on the provisions of SFAS No. 123, the
Company's pro forma net income and earnings per share would have been as
follows:
Year ended December 31
1997 1998 1999
---------------------------------------------
(In Thousands,
Except Per Share Data)
Pro forma net income $660 $4,535 $6,971
Pro forma net income per share:
Basic $.10 $.57 $.88
Diluted .12 .50 .72
38
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
8. Related Party Transactions
The Company has 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
$300,000 per year were expensed by the Company during 1997, 1998 and 1999
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, wooden storage buildings and related products through various
retail outlets and a network of Company owned sales branches and independent
dealers.
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.
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
--------------------------------------------------------------------------------------------------
Commercial Consumer Total Commercial Consumer Total Commercial Consumer Total
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from external
customers $53,126 $36,368 $89,494 $74,512 $40,280 $114,792 $84,677 $107,259 $191,936
Interest expense 4,092 3,393 7,485 4,310 3,224 7,534 4,517 4,413 8,930
Depreciation and
amortization
expense 1,404 2,161 3,565 2,483 2,113 4,596 2,824 2,999 5,823
Income tax expense 977 293 1,270 2,533 487 3,020 3,550 955 4,505
Segment profit before
extraordinary item 1,567 470 2,037 3,921 755 4,676 5,584 1,502 7,086
Extraordinary item,
net of tax benefit
of $540 - 860 860 - - - - - -
Segment profit (loss) 1,567 (390) 1,177 3,921 755 4,676 5,584 1,502 7,086
Segment assets 56,102 45,063 101,165 61,992 41,448 103,440 73,189 67,122 140,311
Expenditures for long-
lived assets 1,018 622 1,640 2,134 643 2,777 6,136 1,031 7,167
</TABLE>
39
<PAGE>
PlayCore, Inc.
Notes to Consolidated Financial Statements
9. Segment Information (continued)
Geographic Information
<TABLE>
<CAPTION>
Revenues (a) Long-Lived Assets (b)
----------------------------------------------------------------------------------
Year ended December 31 December 31
1997 1998 1999 1997 1998 1999
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $83,492 $107,268 $186,069 $20,535 $20,871 $27,060
Foreign countries 6,002 7,524 5,867 - - -
----------------------------------------------------------------------------------
Total $89,494 $114,792 $191,936 $20,535 $20,871 $27,060
==================================================================================
(a) Revenues are attributed to countries based on the location of customers.
(b) Long-lived assets include net property, plant and equipment and other long-term assets, and exclude
intangible assets.
</TABLE>
10. Quarterly Results of Operations (Unaudited)
<TABLE>
<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)
<CAPTION>
1999
-----------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-----------------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Net sales $31,473 $61,955 $53,143 $45,365
Gross profit 13,190 28,811 21,747 15,454
Net income (loss) 292 6,405 916 (527)
Earnings (loss) per share:
Basic .04 .81 .12 (.07)
Diluted .03 .64 .10 (.07)
</TABLE>
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 2000 annual meeting
of stockholders (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.
Report of Independent Auditors ..................................19
Consolidated Balance Sheets at December 31, 1998
and 1999..........................................................20
For the years ended December 31, 1997, 1998, and 1999:
- Consolidated Statements of Income...............................22
- Consolidated Statements of Stockholders' Equity.................23
- Consolidated Statements of Cash Flows...........................24
Notes to Consolidated Financial Statements........................26
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,
44
<PAGE>
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, 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, Independent Auditors.
(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, 1997, 1998 and 1999
PlayCore, Inc. (Parent Company)
Condensed Balance Sheet
December 31
1998 1999
---------------------
(In Thousands)
Investment in, and amounts due from, wholly
owned subsidiary $ 41,179 $ 47,600
-------- --------
Total assets $ 41,179 $ 47,600
======== ========
Current liabilities $ 530 $ 420
Amounts due to wholly owned subsidiary 17,252 16,291
Convertible subordinated debentures payable
to stockholder 7,021 7,258
Stockholders' equity:
Common stock 115 116
Cost of 3,634,385 shares of common stock
in treasury (40,511) (40,511)
Other stockholders' equity 56,772 64,026
-------- --------
16,376 23,631
-------- --------
Total liabilities and stockholders' equity $ 41,179 $ 47,600
======== ========
Condensed Statement of Income
Year Ended December 31
1997 1998 1999
------------------------
(In Thousands)
Management fees from wholly owned subsidiary $2,200 $2,200 $2,200
Costs and expenses:
Administrative expense 428 490 396
Interest expense 832 637 719
Other expense 682 74 -
------ ----- -----
1,942 1,201 1,115
------ ----- -----
Income before income taxes and equity in
net income of subsidiary 258 999 1,085
Provision for income taxes 90 380 420
Equity in net income of subsidiary 1,009 4,057 6,421
------ ----- -----
Net income $1,177 $4,676 $7,086
====== ====== ======
46
<PAGE>
Financial Statement Schedules
Schedule I
(continued)
PlayCore, Inc.
Condensed Financial Information of Registrant
Years Ended December 31, 1997, 1998 and 1999
PlayCore, Inc. (Parent Company)
<TABLE>
Condensed Statement of Cash Flows
<CAPTION>
Year Ended December 31
1997 1998 1999
------------------------------------------------
(In Thousands)
Operating activities:
<S> <C> <C> <C>
Net income $ 1,177 $ 4,676 $ 7,086
Adjustments to reconcile net income to net
cash used in operating activities:
Equity in net income of subsidiary (1,009) (4,057) (6,421)
Interest converted to convertible
subordinated debentures and common stock 822 617 237
Decrease in current liabilities (10,442) (1,777) (1,071)
---------- --------- ---------
Net cash used in operating activities (9,452) (541) (169)
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 - 535 -
Proceeds from issuance of common stock 4,931 6 14
Proceeds from issuance of common stock warrant 2,723 - -
Proceeds from exercise of stock options - - 155
Purchase of treasury stock (163) - -
---------- --------- ---------
Net cash provided by financing activities 9,452 541 169
---------- --------- ---------
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, 1997, 1998 and 1999
<CAPTION>
Additions
----------------------
Balance at Charged to Balance at
Beginning Costs and Acquired End of
Description of Year Expenses Balance1 Deductions2 Year
- ----------------------------------------------------------------------------------------------------------------
(In Thousands)
Allowance for doubtful accounts:
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997 $ 98 $ 259 $ 300 $ 250 $ 407
===== ===== ===== ====== =====
Year ended December 31, 1998 $ 407 $ 572 $ 12 $ 190 $ 801
===== ===== ===== ====== =====
Year ended December 31, 1999 $ 801 $ 831 $ 478 $1,444 $ 666
===== ===== ===== ====== =====
- --------------------
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 3/28/00
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 3/28/00
Chairman of the Board Terence S. Malone
of Directors and a Director
FREDERIC L. CONTINO /s/Frederic L. Contino 3/28/00
President and Chief Frederic L. Contino
Executive Officer and a Director
DAVID S. EVANS /s/ David S. Evans 3/28/00
Director David S. Evans
RICHARD E. RUEGGER /s/Richard E. Ruegger 3/28/00
Vice President-Finance, Richard E. Ruegger
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
GEORGE N. HERRERA /s/George N. Herrera 3/28/00
Director George N. Herrera
TIMOTHY R. KELLEHER /s/Timothy R. Kelleher 3/28/00
Director Timothy R. Kelleher
GARY A. MASSEL /s/Gary A. Massel 3/28/00
Director Gary A. Massel
RONALD D. WRAY /s/Ronald D. Wray 3/28/00
Director Ronald D. Wray
49
<PAGE>
PLAYCORE, INC.
EXHIBIT INDEX TO FORM 10-K
For the Fiscal Year ended December 31, 1999
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)].
(3.3) 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, Independent Auditors.
(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.
Heartland Industries, Inc. (Delaware Corporation) - Wholly owned subsidiary of
PlayCore Wisconsin, Inc.
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 28, 2000, except for Note 4, as to which the date is March 3,
2000, with respect to the consolidated financial statements and schedules of
PlayCore, Inc. included in this Annual Report (Form 10-K) for the year ended
December 31, 1999.
Milwaukee, Wisconsin /s/ERNST & YOUNG LLP
March 27, 2000
<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, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 800
<SECURITIES> 0
<RECEIVABLES> 28,968
<ALLOWANCES> 666
<INVENTORY> 19,124
<CURRENT-ASSETS> 55,568
<PP&E> 38,556
<DEPRECIATION> 11,868
<TOTAL-ASSETS> 140,311
<CURRENT-LIABILITIES> 58,921
<BONDS> 46,232
0
0
<COMMON> 116
<OTHER-SE> 23,515
<TOTAL-LIABILITY-AND-EQUITY> 140,311
<SALES> 191,936
<TOTAL-REVENUES> 191,936
<CGS> 112,734
<TOTAL-COSTS> 112,734
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,930
<INCOME-PRETAX> 11,591
<INCOME-TAX> 4,505
<INCOME-CONTINUING> 7,086
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,086
<EPS-BASIC> 0.89
<EPS-DILUTED> 0.73
</TABLE>
