-----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, F6ONKMiGVLQJXrzPGkerUzU/567q1Nog7LLdPusttBejRJ3MHs7goRtUUlbSOk9w LJf5cC9w33qpEoNn0qBi9Q== 0000897069-98-000547.txt : 19981113 0000897069-98-000547.hdr.sgml : 19981113 ACCESSION NUMBER: 0000897069-98-000547 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 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-Q SEC ACT: SEC FILE NUMBER: 000-20450 FILM NUMBER: 98745600 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-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ________________. Commission file number 0-20450 PlayCore, Inc. (Exact name of registrant as specified in its charter.) Delaware 36-3808989 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1212 Barberry Drive, Janesville, Wisconsin 53545 (Address of principal executive office) Registrant's telephone number, including area code (608) 755-4768. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date: as of November 9, 1998 there were 7,908,964 shares of Common Stock, par value, $.01 per share, outstanding. PLAYCORE, INC. FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 INDEX Part I. Financial Information: Page Unaudited Consolidated Balance Sheets - 1. December 31, 1997 and September 30, 1998 3 Unaudited Consolidated Interim Statements of Operations and Retained Earnings - Three Months Ended September 30, 1997 4 Nine Months Ended September 30, 1997 Three Months Ended September 30, 1998 and Nine Months Ended September 30, 1998 Unaudited Consolidated Interim Statements of Cash Flows- Nine Months Ended September 30, 1997 and 5 Nine Months Ended September 30, 1998 Notes to Unaudited Interim Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7-11 Part II. Other Information Item 6 - Exhibits and Reports on Form 8-K 12 Signature 13 PlayCore, Inc. Consolidated Balance Sheets (unaudited) (in thousands, except share data) December 31, September 30, ASSETS 1997 1998 ----------- ------------- Current assets: Cash $ 677 $ 365 Accounts receivable, less allowance for doubtful accounts of $407 and $490 13,295 21,482 Other receivables 162 1,771 Inventories 12,533 10,371 Refundable income taxes 1,157 - Prepaid expenses 1,586 1,749 Deferred income taxes 765 765 Total current assets 30,175 36,503 Property, plant and equipment, net 20,535 20,789 Deferred financing and other costs, net of accumulated amortization of $868 and $1,375 3,639 3,374 Identifiable intangible assets, net of accumulated amortization of $527 and $761 6,909 6,675 Goodwill, net of accumulated amortization of $4,049 and $4,872 39,907 39,704 ------------ ------------ $ 101,165 $ 107,045 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Revolving loan $ 7,615 $ 11,975 Accounts payable 5,949 5,433 Accrued income taxes - 1,001 Accrued expenses 9,396 10,065 Current portion of long-term debt 9,457 7,215 Total current liabilities 32,417 35,689 Long-term debt, net of current portion 49,590 44,592 Convertible subordinated debentures payable to stockholders 5,869 6,697 Deferred income taxes 1,595 2,790 Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares issued or outstanding - - Common stock, $.01 par value, 25,000,000 shares authorized, 11,542,268 and 11,543,349 shares issued 115 115 Class B common stock, $.01 par value, 1,750,000 shares authorized, no shares issued or outstanding - - Additional paid-in capital 37,518 37,524 Excess purchase price over predecessor basis (5,627) (5,627) Retained earnings 20,199 25,776 Less 3,634,385 common shares held in treasury, at cost (40,511) (40,511) ---------- ------------ Total stockholders' equity 11,694 17,277 ---------- ------------ $ 101,165 $ 107,045 ========== ============ Note: The consolidated balance sheet at December 31, 1997 has been derived from the audited consolidated balance sheet at that date. See notes to interim consolidated financial statements 3 PlayCore, Inc. Consolidated Interim Statements of Operations and Retained Earnings (unaudited) (in thousands, except per share amounts)
Three months Nine months Three months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 1997 1997 1998 1998 ----- ------ ------ ------ Net sales $ 24,827 $ 70,599 $ 29,533 $ 91,646 Cost of goods sold 13,887 36,953 16,267 47,814 ------ ------ ------ ------ Gross profit 10,940 33,646 13,266 43,832 Operating expenses: Selling 5,454 13,200 7,517 19,655 General and administrative 2,502 6,563 2,232 7,389 Amortization of intangible assets 537 1,408 536 1,573 ----- ------ ------ ------ 8,493 21,171 10,285 28,617 ----- ------ ------ ------ Operating income 2,447 12,475 2,981 15,215 Other expense: Interest expense 2,017 5,519 1,852 5,800 Other, net 262 317 122 258 ----- ----- ----- ------ Total other expense 2,279 5,836 1,974 6,058 ----- ----- ----- ------ Income before income taxes and extraordinary item 168 6,639 1,007 9,157 Income tax expense 70 2,532 475 3,580 ---- ----- ----- ----- Income before extraordinary item 98 4,107 532 5,577 Extraordinary item, net of income tax benefit of $540 -- 860 -- -- Net income 98 3,247 532 5,577 Retained earnings at beginning of period 22,171 19,022 25,244 20,199 ------ ------ ------ ------ Retained earnings at end of period $ 22,269 $22,269 $ 25,776 $ 25,776 ====== ====== ====== ====== Basic earnings per share: Income before extraordinary item $ 0.01 $ 0.60 $ 0.07 $ 0.71 Extraordinary loss -- (0.13) -- -- ----- ----- ---- ----- Net income $ 0.01 $ 0.47 $ 0.07 $ 0.71 ===== ===== ==== ===== Diluted earnings per share: Income before extraordinary item $ 0.01 $ 0.52 $ 0.06 $ 0.59 Extraordinary loss -- (0.10) -- -- --------- --------- -------- ------- Net income $ 0.01 $ 0.42 $ 0.06 $ 0.59 ========= ========= ======== =======
See notes to interim consolidated financial statements 4 PlayCore, Inc. Consolidated Interim Statements of Cash Flows (unaudited) (in thousands) Nine months Nine months ended ended September 30, September 30, 1997 1998 Operating activities Net income $ 3,247 $ 5,577 Adjustments to reconcile net income to net cash provided by operating activities: Write-off of unamortized deferred financing costs 1,400 - Amortization of debt discount 197 274 Deferred income taxes 690 1,195 Depreciation 1,360 1,837 Amortization of intangible assets 1,408 1,573 Interest converted to convertible subordinated debentures 265 292 Changes in operating assets and liabilities (1,783) (5,619) Net cash provided by operating activities 6,784 5,129 Investing activities Purchase of property, plant and equipment (1,061) (2,048) Acquisitions, net of cash acquired (42,566) (590) Other (141) - Net cash used by investing activities (43,768) (2,638) Financing activities Increase in revolving loan 1,545 4,360 Issuances of long-term debt 63,777 536 Debt issuance costs incurred (3,027) (191) Proceeds from issuance of commom stock warrants 2,723 - Proceeds from issuance of common stock, net of offering costs 4,550 6 Payments of long-term debt (31,643) (7,514) Net cash provided(used) by financing ------- ------- activities 37,925 (2,803) ------- ------- Increase(decrease) in cash 941 (312) Cash at beginning of period 1 677 ------- ------- Cash at end of period $ 942 $ 365 ======= ======= Supplemental disclosure of cash flows information cash paid during period for: $ 4,164 $ 5,607 Income taxes, net of refunds received 369 134 See notes to interim consolidated financial statements 5 Notes to Interim Consolidated Financial Statements Unaudited (in thousands) September 30, 1998 1. Basis of presentation of unaudited consolidated financial statements The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for year end financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 2. Earnings per share The following table sets forth the computation of basic and diluted earnings per share:
Three months Nine months Three months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 1997 1997 1998 1998 Numerator: Numerator for basic and diluted earnings per share - income before extraordinary item $ 98 $ 4,107 $ 532 $ 5,577 Effect of diluted securities - 10% convertible subordinated debentures -- 252 -- 285 ------- ------- ------- ------- Numerator for diluted earnings per share $ 98 $ 4,359 $ 532 $ 5,862 ======= ======= ======= ======= Denominator: Denominator for basic earnings per share - weighted average shares 7,134 6,823 7,909 7,909 Effect of diluted securities: Employee stock options(treasury stock method) 39 39 42 42 Warrants 596 438 620 620 10% convertible subordinated debentures -- 1,164 -- 1,298 ----- ----- ----- ----- Denominator for diluted earnings per share 7,769 8,464 8,571 9,869 ===== ===== ===== ===== Inventories Inventories consist of the following: December 31, September 30, 1997 1998 -------- -------- Finished goods and work in process $ 7,112 $ 5,482 Raw materials 5,421 4,889 ------ ------ $12,533 $10,371 ======= =======
6 Management's Discussion and Analysis of Financial Condition and Results of Operations Special Note Regarding Forward-Looking Statements Certain matters discussed herein are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes," "anticipates," "expects" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those currently anticipated. Readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Results of Operations: On March 13, 1997, the Company acquired GameTime, Inc. (GameTime), a leading manufacturer of modular and custom commercial outdoor playground equipment for schools, parks and municipalities. GameTime was merged into Newco, Inc. the Company's wholly owned operating subsidiary, as an independent business unit. The acquisition of GameTime was accounted for using the purchase method. Therefore, the results of GameTime are included with those of the Company beginning with the date of the acquisition. In April 1998, the Company changed its name to PlayCore, Inc. from Swing-N-Slide Corp. Three Months Ended September 30, 1998 Compared to the Three Months Ended September 30, 1997. Net Sales. Net sales increased $4.7 million, or 19.0 percent, to $29.5 million for the three months ended September 30, 1998 as compared to $24.8 million for the same period a year ago. The increase was primarily due to the growth in sales of commercial playground equipment, which management attributes to the impact of new playground equipment safety standards. Gross Profit. Gross profit increased $2.3 million, or 21.3 percent, to $13.3 million and increased as a percentage of net sales to 44.9 percent for the three months ended September 30, 1998 as compared to $10.9 million and 44.1 percent for the same period a year ago. The impact of higher sales volume on fixed overhead costs and ongoing efficiency improvements led to the increase in the gross profit margin. Selling Expense. Selling expense increased $2.0 million, or 37.8 percent to $7.5 million, and increased as a percentage of net sales to 25.5 percent for the three months ended September 30, 1998 as compared to $5.5 million and 22.0 percent for the three months ended September 30, 1997. The increase as a percentage of net sales mainly results from the increase in commercial playground equipment sales, which have higher selling costs as a percentage of net sales. 7 General and Administrative Expenses. General and administrative expenses decreased $0.3 million, or 10.8 percent, to $2.2 million and decreased as a percentage of net sales to 7.6 percent for the three months ended September 30, 1998 as compared to $2.5 million and 10.1 percent for the same period a year ago. The primary reason for the decrease as a percentage of net sales was the impact of higher sales volume on fixed general and administrative expenses. Amortization of Intangible Assets. Amortization of financing fees, goodwill and other identifiable intangible assets was $0.5 million for the three months ended September 30, 1998 and for the same period a year ago. Other Expense. Interest expense decreased $0.2 million to $1.9 million for the three months ended September 30, 1998. This decrease was primarily due to the scheduled repayments of principal on the Company's term note and the pay-off of the Company's $2.5 million Junior Subordinated Bridge Note on December 31, 1997. Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September 30, 1997. Net Sales. Net sales for the nine months ended September 30, 1998 increased $21.0 million, or 29.8 percent, to $91.6 million as compared to $70.6 million for the same period in 1997. The primary reasons for the increase was the inclusion of GameTime sales for the entire nine months of 1998 versus the inclusion of GameTime sales from March 13 through September 30, 1997, and the increase in sales of commercial playground equipment. Gross Profit. Gross profit increased $10.2 million, or 30.3 percent, to $43.8 million and increased slightly as a percentage of net sales to 47.8 percent for the nine months ended September 30, 1998 as compared to $33.6 million and 47.7 percent for the same period a year ago. The main reason for the increase in gross profit margin was the impact of higher sales volume on fixed overhead costs. Selling Expense. Selling and marketing expenses increased $6.5 million, or 48.9 percent, to $19.7 million and increased as a percentage of net sales to 21.4 percent for the nine months ended September 30, 1998 as compared to $13.2 million and 18.7 percent for the same period a year ago. The dollar increase was primarily due to the inclusion of GameTime's selling and marketing expenses for the full nine months in 1998. The increase as a percentage of net sales is mainly due to the higher selling costs as a percent of net sales inherent in commercial playground equipment sales. General and Administrative Expenses. General and administrative expenses increased $0.8 million, or 12.6 percent, to $7.4 million but decreased as a percentage of net sales to 8.1 percent for the nine months ended September 30, 1998 as compared to $6.6 million and 9.3 percent for the nine months ended September 30, 1997. The dollar increase was primarily due to the inclusion of GameTime's general and administrative expenses for the entire nine months of 1998. The main reason for the decrease as a percentage of net sales was the impact of higher sales volume on fixed general and administrative expenses. 8 Amortization of Intangible Assets. Amortization of financing fees, goodwill and other identifiable intangible assets was $1.6 million for the nine months ended September 30, 1998 as compared to $1.4 million for the same period a year ago. Additional amortization resulted from goodwill, identifiable intangible assets and financing fees associated with the GameTime acquisition. Other Expense. Interest expense increased $0.3 million to $5.8 million for the nine months ended September 30, 1998. This increase in interest expense was due to the additional debt that was incurred in connection with the GameTime acquisition on March 13, 1997. Seasonality The Company's sales pattern is seasonal and is concentrated in the period from April 1 through September 30 (approximately 65 percent). The timing of initial stocking orders and fluctuations in customer demand through the spring and summer months contribute to this pattern. Liquidity and Capital Resources During the nine months ended September 30, 1998, total indebtedness decreased approximately $2.1 million. Cash generated from operations was used to pay down the debt. The Company's primary sources of working capital are cash flows from operations and borrowings under Newco's senior credit facility that was entered into in March 1997 and runs through June 2003. The facility consists of (a) a $20.0 million revolving credit facility; (b) a $45.0 million Term A facility and (c) a $4.5 million Term B facility. The entire facility is guaranteed by PlayCore, Inc. and secured by a first priority mortgage or security interest in all of Newco's tangible and intangible assets, as well as the pledge of all of the outstanding shares of Newco Common Stock. In addition, the Company and Newco are subject to certain restrictive covenants which include, among other things, restrictions on the payment of dividends and a limitation on additional indebtedness. Borrowing availability under the revolving credit facility is limited to specified percentages of qualified inventories and accounts receivable, not to exceed $20.0 million. At September 30, 1998, the outstanding amount of the revolving loan facility was $12.0 million, and availability was approximately $18.0 million. The Company made capital expenditures totaling approximately $2.0 million in the nine months ended September 30, 1998. The Company continues to evaluate opportunities for both internal and external growth and believes that funds generated from operations and its current and anticipated future capacity for borrowing will be sufficient to fund current business operations as well as anticipated future capital expenditures and growth opportunities. Impact of Year 2000 Certain of the Company's older computer programs were written using two digits rather than four to define the applicable year. As a result, such older computer programs could misinterpret a date using "00" as the year 1900 rather than the year 2000. If not corrected, many computer applications with this defect could fail or create erroneous results. 9 The Company's Year 2000 compliance is directed by senior management and includes four main projects: 1. Information technology; 2. Operating equipment with embedded chips or software; 3. Products; and 4. 3rd party suppliers and customers These projects generally include four phases: 1. Assessment - assessing equipment and systems for potential Year 2000 non-compliance; 2. Remediation - developing solutions to correct Year 2000 non-compliance; 3. Testing - testing the developed solutions for effectiveness; and 4. Implementation - implementing the fully tested solutions. The following chart is a summary of our Year 2000 compliance schedule target dates: Resolution Phases
---------------- -------------------- ------------------- -------------------- -------------------- Assessment Remediation Testing Implementation ---------------- -------------------- ------------------- ------------------ -------------------- Information 100% Complete 85% Complete 75% Complete 75% Complete Technology E Expected Expected Expected x completion date completion completion date p December 1998 date April 1999 o February 1999 s u r ---------------- ------------------- ------------------- ------------------- -------------------- e Operating 90% Complete 75% Complete 50% Complete 50% Complete T Equipment with y Embedded Chips Expected completion Expected completion Expected completion Expected completion p or software date, December 1998 date, March 1999 date, April 1999 date, April 1999 e ----------------- ------------------- ------------------- ------------------- -------------------- Products 100% Complete 100% Complete 100% Complete 90% Complete Expected completion date, January 1999 ----------------- ------------------- ------------------- ------------------- -------------------- 3rd Party 10% Complete for Suppliers and 50% Complete for system interface 10% Complete for 10% Complete for Customers system interface system interface system interface Develop contingency Expected completion plans as for surveying appropriate, Expected completion Implement vendors, February February 1999 date for system contingency plans or 1999 interface work, alternatives as March 1999 necessary, February 1999 ---------------- ------------------- ------------------- ------------------- --------------------
10 We believe our Year 2000 compliance will be completed on schedule, but the schedule is based on a number of factors and assumptions. These assumptions include the accuracy and completeness of responses by 3rd parties to our inquiries and the availability of skilled personnel to complete the compliance work. The compliance schedule could be adversely impacted if any of the factors and assumptions are incorrect. We cannot give assurance that our Year 2000 compliance projects will be completed on schedule or that we will not uncover Year 2000 issues that could create a material impact on the operation of the Company. In addition, disruptions in the economy generally resulting from Year 2000 issues could also materially adversely affect the Company. The Company could be subject to litigation for computer system failures, equipment shutdowns or improperly dated business records. The amount of such potential liability and lost revenue cannot be reasonably estimated at this time. The Company is in the process of working with third party vendors and customers to ensure that the Company's systems that interface directly with third parties are Year 2000 compliant by March 1999. Although management believes a significant interruption in our suppliers and customers activities (due to Year 2000 issues) is unlikely, such an interruption could have a material impact on our financial results. We do not believe that the cost of our Year 2000 compliance will be material to our financial condition or results of operations. The cost of Year 2000 compliance is not expected to exceed $400,000 and is being funded through operating cash flows. To date, we have spent approximately $200,000 on Year 2000 compliance. The Company currently has no contingency plans in place in the event it does not complete all phases of the Year 2000 program. The Company plans to evaluate the status of completion in March 1999 and determine whether such a plan is necessary. 11 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None. 12 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PlayCore, Inc. Date: November 11, 1998 /s/ Richard E. Ruegger -------------------------------------- Richard E. Ruegger, Vice President-Finance and Chief Financial Officer (Duly authorized officer and Principal Financial and Accounting Officer) 13 EX-27 2 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED FINANCIAL STATEMENTS OF PLAYCORE, INC., AS OF AND FOR THE QUARTERLY PERIOD SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 365 0 21,482 490 10,371 36,503 29,106 8,317 107,045 35,689 51,289 0 0 115 17,162 107,045 91,646 91,646 47,814 28,617 258 95 5,800 9,157 3,580 5,577 0 0 0 5,577 .71 .59
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