-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vb2C14EuEFpL1iB3oexqCbjr8y9l0FLu9xoZamu0Xif3OWxYtdrcjIO4bt/2RZGP +bkIGw4Jx54dLs/m8kbZ5w== 0000897069-00-000177.txt : 20000329 0000897069-00-000177.hdr.sgml : 20000329 ACCESSION NUMBER: 0000897069-00-000177 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLAYCORE INC CENTRAL INDEX KEY: 0000888916 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 363808989 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20450 FILM NUMBER: 581504 BUSINESS ADDRESS: STREET 1: 1212 BARBERRY DRIVE CITY: JANESVILLE STATE: WI ZIP: 53545 BUSINESS PHONE: 6087554777 FORMER COMPANY: FORMER CONFORMED NAME: SWING N SLIDE CORP DATE OF NAME CHANGE: 19950721 10-K 1 FORM 10-K 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. 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 2 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. 3 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 4 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. 5 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. 6 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. 7 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. 8 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. 9 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. 10 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. 11 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. 12 Item 6 -Selected Financial Data
Year Ended December 31 ---------------------------------------------------------------- 1995 1996 1997 1998 1999 ---------------------------------------------------------------- (in thousands, except per share amounts) Statement of income data: 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
13 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. 14 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 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 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 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 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 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 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 PlayCore, Inc. Consolidated Statements of Income
Year ended December 31 1997 1998 1999 -------------------------------------------------------- (In Thousands, Except Per Share Data) 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 ========================================================
22 See accompanying notes. PlayCore, Inc. Consolidated Statements of Stockholders' Equity
Common Stock Additional Treasury Stock ----------------------- Paid-In Retained --------------------- Shares Amount Capital Earnings Shares Amount Total ------------------------------------------------------------------------------------ (In Thousands, Except Shares) 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 ====================================================================================
See accompanying notes. 23 PlayCore, Inc. Consolidated Statements of Cash Flows
Year ended December 31 1997 1998 1999 ---------------------------------------------- (In Thousands) Operating activities 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)
See accompanying notes. 24 PlayCore, Inc. Consolidated Statements of Cash Flows (continued) PlayCore, Inc. Consolidated Statements of Cash Flows
Year ended December 31 1997 1998 1999 ---------------------------------------------- (In Thousands) Financing activities 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
See accompanying notes. 25 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 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 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 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 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 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 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 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 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 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 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 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:
Year ended December 31 1997 1998 1999 ---------------------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ---------------------------------------------------------------------------- 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.
37 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 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.
Year ended December 31 1997 1998 1999 -------------------------------------------------------------------------------------------------- Commercial Consumer Total Commercial Consumer Total Commercial Consumer Total -------------------------------------------------------------------------------------------------- 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
39 PlayCore, Inc. Notes to Consolidated Financial Statements 9. Segment Information (continued) Geographic Information
Revenues (a) Long-Lived Assets (b) ---------------------------------------------------------------------------------- Year ended December 31 December 31 1997 1998 1999 1997 1998 1999 ---------------------------------------------------------------------------------- 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.
10. Quarterly Results of Operations (Unaudited)
1998 ----------------------------------------------------------------- 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------------------------------------------------------------- (In Thousands, Except Per Share Data) 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) 1999 ----------------------------------------------------------------- 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------------------------------------------------------------- (In Thousands, Except Per Share Data) 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)
40 Item 9 - Changes in and Disagreements With Accountants on Accounting and ---------------------------------------------------------------------- Financial Disclosure -------------------- None 41 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 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 (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 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 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 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) Condensed Statement of Cash Flows
Year Ended December 31 1997 1998 1999 ------------------------------------------------ (In Thousands) Operating activities: 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 $ - $ - $ - ========== ========= =========
47 Schedule II PlayCore, Inc. Valuation and Qualifying Accounts Years Ended December 31, 1997, 1998 and 1999
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: 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.
48 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 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 (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 EX-21 2 SUBSIDIARIES 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. EX-23 3 CONSENT 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 EX-27 4 FDS -- PLAYCORE, INC.
5 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 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 800 0 28,968 666 19,124 55,568 38,556 11,868 140,311 58,921 46,232 0 0 116 23,515 140,311 191,936 191,936 112,734 112,734 0 0 8,930 11,591 4,505 7,086 0 0 0 7,086 0.89 0.73
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