10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 1, 2000. 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 0-18741 Leslie's Poolmart, Inc. (Exact name of registrant as specified in its charter)
Delaware 95-4620298 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 20630 Plummer Street, Chatsworth, California 91311 (Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (818) 993-4212 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock (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 _____ ----- Applicable only to issuers involved in bankruptcy proceedings during the preceding five years: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ______ No _______ APPLICABLE ONLY TO CORPORATE REGISTRANTS: As of August 14, 2000 the number of outstanding shares of the Registrant's common stock was 1,433,643. _______________________________________________________________________________ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LESLIE'S POOLMART, INC. ----------------------- CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
July 1, October 2, 2000 1999 ------------ ----------- ASSETS (UNAUDITED) ------ CASH $ 201 $ 193 RECEIVABLES, NET 8,505 7,350 INVENTORIES, NET 75,896 58,729 PREPAID EXPENSES 2,674 2,128 DEFERRED TAX ASSETS 5,122 5,122 -------- -------- TOTAL CURRENT ASSETS 92,398 73,522 PROPERTY, PLANT AND EQUIPMENT, NET 48,283 47,336 GOODWILL, NET 8,184 8,392 NON-COMPETE COVENANT, NET 279 627 DEFERRED FINANCING COSTS, NET 2,428 2,460 OTHER ASSETS 411 443 -------- -------- $151,983 $132,780 ======== ======== LIABILITIES AND SHAREHOLDERS' (DEFICIT) --------------------------------------- ACCOUNTS PAYABLE $ 45,434 $ 16,937 ACCRUED LIABILITIES 20,127 15,462 CURRENT PORTION OF LONG-TERM DEBT 100 101 INCOME TAXES 520 4,999 -------- -------- TOTAL CURRENT LIABILITIES 66,181 37,499 DEFERRED TAX LIABILITIES 3,106 3,106 LINE-OF-CREDIT BORROWINGS 4,210 7,512 LONG-TERM DEBT, NET OF CURRENT PORTION 1,039 1,095 SENIOR NOTES 90,000 90,000 PREFERRED STOCK 36,402 33,225 SHAREHOLDERS' (DEFICIT) ----------------------- COMMON STOCK (45,277) (45,701) RETAINED EARNINGS/(DEFICIT) (3,678) 6,044 -------- -------- TOTAL SHAREHOLDERS' DEFICIT (48,955) (39,657) -------- -------- 151,983 $132,780 ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED BALANCE SHEETS 2 LESLIE'S POOLMART, INC. ----------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS)
Three Months Ended -------------------------- July 1, July 3, 2000 1999 ----------- ---------- SALES $ 138,286 $128,875 COST OF SALES 78,811 71,880 ----------- ---------- GROSS PROFIT 59,475 56,995 SELLING, GENERAL & ADMINISTRATIVE EXPENSES 30,799 31,610 AMORTIZATION OF ACQUISITION COSTS 185 185 LOSS ON DISPOSITION OF FIXED ASSETS 107 115 ----------- ---------- INCOME FROM OPERATIONS 28,384 25,085 INTEREST EXPENSE 3,191 2,944 ----------- ---------- INCOME BEFORE INCOME TAXES 25,193 22,141 INCOME TAX PROVISION 11,378 9,853 ----------- ---------- NET INCOME 13,815 12,288 ----------- ---------- SERIES A PREFERRED STOCK DIVIDENDS AND ACCRETION 1,084 974 INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 12,731 $ 11,314 =========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3 LESLIE'S POOLMART, INC. ----------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS)
Nine Months Ended ----------------------- July 1, July 3, 2000 1999 -------- -------- SALES $206,859 $188,396 COST OF SALES 130,232 116,663 --------- -------- GROSS PROFIT 76,627 71,733 SELLING, GENERAL & ADMINISTRATIVE EXPENSES 77,586 71,366 AMORTIZATION OF ACQUISITION COSTS 556 556 LOSS ON DISPOSITION OF FIXED ASSETS 743 286 --------- -------- LOSS FROM OPERATIONS (2,258) (475) INTEREST EXPENSE 9,633 8,638 --------- -------- LOSS BEFORE INCOME TAX BENEFIT (11,891) (9,113) INCOME TAX BENEFIT 5,347 4,055 --------- -------- NET LOSS (6,544) (5,058) --------- -------- SERIES A PREFERRED STOCK DIVIDENDS AND ACCRETION 3,177 2,854 LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (9,721) $ (7,912) ========= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 LESLIE'S POOLMART, INC. ----------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Nine Months Ended ------------------------------- July 1, July 3, 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES ------------------------------------ NET LOSS $(6,544) $ (5,058) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 6,360 6,108 LOSS ON DISPOSITION OF FIXED ASSETS 743 286 NON-CASH COMPENSATION CHARGE 424 -- INCOME TAXES (5,347) (4,055) NET CHANGE IN RECEIVABLES, INVENTORY AND PAYABLES 15,708 7,789 OTHER, NET (515) (867) --------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 10,829 4,203 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES ------------------------------------ PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (7,904) (13,831) PROCEEDS FROM DISPOSITIONS OF PROPERTY, PLANT & EQUIPMENT 442 210 NET CASH USED IN INVESTING ACTIVITIES (7,462) (13,621) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES ------------------------------------ NET LINE-OF-CREDIT (REPAYMENTS) BORROWINGS (3,302) 98 PAYMENTS OF LONG-TERM DEBT (57) (51) --------- -------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,359) 47 --------- -------- NET (DECREASE) INCREASE IN CASH 8 (9,371) CASH AT BEGINNING OF PERIOD 193 9,564 --------- -------- CASH AT END OF PERIOD $ 201 $ 193 ========= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 LESLIE'S POOLMART, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 1, 2000 (Unaudited) (1) Presentation of Financial Information The financial statements included herein have been prepared by Leslie's Poolmart, Inc. (the "Company"), without audit, and include all adjustments of a normal recurring nature which are, in the opinion of management, necessary for a fair presentation of the results of operations for the three and nine month periods ended July 1, 2000 and July 3, 1999 pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures in these financial statements are adequate to make the information presented not misleading. The following material under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" is written with the presumption that the users of the interim financial statements have read or have access to the Company's 1999 Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 22, 1999. This document contains the latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations as of October 2, 1999 and for the year then ended. The results of operations for the three and nine months ended July 1, 2000 and July 3, 1999 are not indicative of the results for a full year. (2) Organization and Operations Leslie's Poolmart, Inc. is a specialty retailer of swimming pool supplies and related products. The Company markets its products under the trade name Leslie's Swimming Pool Supplies through 384 retail stores in 30 states; a nationwide mail order catalog; and an internet E-commerce capability. The Company also repackages certain bulk chemical products for retail sale. The Company's business is highly seasonal as the majority of its sales and all of its operating profits are generated in the quarters ending June and September. (3) Inventories Inventories consist of the following: July 1, July 3, 2000 1999 ------- ------- (in thousands) Raw materials and supplies $ 1,958 $ 1,665 Finished goods 73,938 74,600 ------- ------- Total Inventories $75,896 $76,265 ======= ======= (4) Fiscal Periods In 1997, the Company changed its fiscal year end from the Saturday closest to December 31 to the Saturday closest to September 30. The 1999 fiscal year ended on October 2, 1999 and included 52 weeks. 6 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Leslie's Poolmart, Inc. is the leading specialty retailer of swimming pool supplies and related products in the United States. The Company currently markets its products through 384 Company-owned retail stores in 30 states; a nationwide mail order catalog; and an internet E-commerce capability. Leslie's is vertically integrated, operating a chemical repackaging facility in Ontario, California. It supplies its retail stores from distribution facilities located in Ontario, California; Dallas, Texas; Bridgeport, New Jersey; and Covington, Kentucky. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company's business exhibits substantial seasonality which the Company believes is typical of the swimming pool supply industry. In general, sales and net income are highest during the fiscal quarters ending in June and September, which represent the peak months of swimming pool use. Sales are substantially lower during the quarters ending December and March when the Company will typically incur operating losses. The Company expects that its quarterly results of operations will fluctuate depending on the timing and amount of revenue contributed by new stores and, to a lesser degree, the timing of costs associated with the opening of new stores. The Company generally attempts to open its new stores in the quarter ending in March in order to position itself for the following peak season. RESULTS OF OPERATIONS
Summary -------------------------------------------------------- (In thousands) Three Months Ended Nine Months Ended ---------------------- --------------------- July 1, July 3, July 1, July 3, 2000 1999 2000 1999 -------- --------- -------- --------- Sales $138,286 $128,875 $206,859 $188,396 Income/Loss from Operations 28,384 25,085 (2,258) (475) Depreciation 1,961 1,764 5,772 5,141 Amortization 185 185 556 556 Non-Cash Compensation Charge -- -- 424 -- Loss on Asset Dispositions 107 115 743 286 -------- -------- -------- -------- EBITDA $ 30,637 $ 27,149 $ 5,237 $ 5,508 ======== ======== ======== ========
In the third quarter ended July 1, 2000, the Company reported an EBITDA of $30,637,000, as compared to an EBITDA of $27,149,000 for the third quarter of fiscal 1999. EBITDA represents earnings before interest, taxes, depreciation, amortization, loss or gain on fixed asset dispositions, and any other non-cash income or expenses. During the quarter, 2 new stores were opened bringing the total store count to 384 on July 1, 2000, up from 365 on July 3, 1999. 7
Sales --------------------------------------------- (In thousands) Three Months Ended Nine Months Ended --------------------- --------------------- July 1, July 3, July 1, July 3, 2000 1999 2000 1999 -------- -------- -------- -------- Retail Stores $136,122 $126,694 $203,556 $185,066 Mail Order 2,164 2,181 3,303 3,330 -------- -------- -------- -------- Total Sales $138,286 $128,875 $206,859 $188,396
Total sales for the third quarter increased 7.3% and are up 9.8% in the fiscal year-to-date. Retail store sales grew 7.4% over prior year, resulting in a year-to-date sales growth of 10.0%. Sales grew as a result of an increase in the total number of stores in operation in 2000 versus 1999, as well as a comparable store sales increase of 4.5% in the third quarter and 5.9% year-to-date. The increase in comparable store sales is primarily the result of the maturing of the new stores opened over the last several years, the continued growth in commercial sales, and the rapid growth of store-based service operations. Mail order catalog sales were flat in the third quarter and down slightly compared to prior year. Gross profit for the three months ended July 1, 2000 equaled $59,475,000 or 43.0% of sales, 1.2% of sales lower than was reported in the same quarter of the prior year. Year-to-date gross margin was 37.0% or 1.1% lower than the prior year. The decreased gross margin reflects increased promotional activity as compared to prior year and the impact of strategic pricing initiatives to improve sell through on slow moving and excess inventory items that were targeted for action earlier in the quarter. In the third quarter of fiscal 2000, selling, general and administrative expenses equaled $30,799,000, a decrease of 2.6% versus the same period of last year. This decrease is largely the result of the Company's expense reduction initiatives implemented during the period. Interest expense equaled $3,191,000 in the third quarter of fiscal 2000, up 8.4% from the same period of last year. Increased line-of-credit borrowings produced the higher interest expense in 2000. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Changes in Financial Condition Between October 2, 1999 and July 1, 2000, total current assets increased $18,876,000 principally as a result of inventory which increased $17,167,000 during the period. The inventory increase results from the seasonal nature of the Company's business and the new stores opened in 2000. During the same period, current liabilities increased $28,682,000, due to a $28,497,000 increase in accounts payable. The increase relates primarily to more favorable terms on trade payables extended by vendors to support the seasonal inventory buildup. 8 Liquidity and Capital Resources In the nine months ended July 1, 2000, net cash provided by operating activities was $10,829,000 compared with $4,203,000 in the same period of the prior year. Over the same period, cash used in investing activities as $7,462,000 down from $13,621,000 in the same period of the prior year. This decrease resulted primarily from lower capital expenditures associated with new store openings planned for fiscal 2000 versus the prior year. On June 22, 2000, the Company completed a new Loan and Security Agreement with Foothill Capital Corporation that replaces its existing facility. This $65 million dollar facility is secured by certain assets of the Company. The Company believes that its internally generated funds, as well as its borrowing capacity, are adequate to meet its working capital needs, maturing obligations and capital expenditure requirements, including those relating to the opening of new stores. PART II. OTHER INFORMATION ITEM 5: OTHER INFORMATION ITEM 6: Exhibits and Reports on Form 8-A (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K None SIGNATURES 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. LESLIE'S POOLMART, INC. Date: August 14, 2000 /s/ Donald J. Anderson ---------------------- Donald J. Anderson Chief Financial Officer 9