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 December 30, 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 1-18741 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) 3925 E. Broadway Road Phoenix, Arizona 85040 (Address of principal executive offices) Registrant's telephone number, including area code: (602) 366-3999 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to 12(g) of the Act: Common Stock Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 [ ] The number of shares of the registrant's Common Stock outstanding at February 10, 2001 was 1,466,976 shares. Page 1 of 9 ================================================================================ LESLIE'S POOLMART, INC. AND SUBSIDIARIES FORM 10-Q For the Quarterly Period Ended December 30, 2000 INDEX
Page Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of December 30, 2000 (unaudited) and September 30, 2000 1 Consolidated Statements of Operations for the 13 weeks ended December 30, 2000 (unaudited) and January 1, 2000 (unaudited) 2 Consolidated Statements of Cash Flows for the 13 weeks ended December 30, 2000 (unaudited) and January 1, 2000 (unaudited) 3 Notes to Consolidated Financial Statements (unaudited) 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Part II. Other Information 7 Signatures 7
PART I - FINANCIAL INFORMATION Item 1. Financial Statements Leslie's Poolmart, Inc. and Subsidiaries Consolidated Balance Sheets ------------------------------------------------------------------------------- Amounts In Thousands, except share amounts -------------------------------------------------------------------------------
December 30, September 30, 2000 2000 ---------------------------------------------------------------------------------------------------------------- Assets (unaudited) Current assets: Cash and cash equivalents $ 196 $ 199 Accounts receivable, net 3,750 9,143 Inventories 57,715 57,430 Prepaid expenses and other current assets 1,697 1,334 Deferred tax assets 8,985 6,335 ---------------------------------------------------------------------------------------------------------------- Total current assets 72,343 74,441 Property, plant and equipment, at cost, net of accumulated depreciation 45,285 46,678 Goodwill, net 8,045 8,114 Intangible assets, net of accumulated amortization 2,351 2,583 Other assets 433 496 ---------------------------------------------------------------------------------------------------------------- $128,457 $132,312 ================================================================================================================ Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 8,670 $ 24,141 Accrued expenses 17,828 18,102 Income taxes payable - 4,273 Current maturities of long-term debt 93 108 ---------------------------------------------------------------------------------------------------------------- Total current liabilities 26,591 46,624 Deferred tax liabilities 3,036 3,036 Line of credit borrowings, net 28,312 1,902 Long-term debt, excluding current maturities 986 988 Senior Notes 90,000 90,000 ---------------------------------------------------------------------------------------------------------------- Total liabilities 148,925 142,550 Preferred Stock, $0.001 par value; Authorized - 2,000,000 shares; Issued and outstanding - 28,000 Series A at December 30, 2000 And September 30, 2000; liquidation preference $28,000,000 38,670 37,526 Commitments and contingencies - - Shareholder's equity (deficit): Common stock, $0.001 par value, authorized 12,000,000 shares, Issued and outstanding 1,466,976 shares at September 30, 2000 and December 30, 2000, respectively 1 1 Additional paid-in capital (44,794) (44,795) Deficit (14,345) (2,970) ---------------------------------------------------------------------------------------------------------------- Total shareholders' deficit (59,138) (47,764) ================================================================================================================ $128,457 $132,312 ================================================================================================================
See accompanying notes to consolidated financial statements. 1 Leslie's Poolmart, Inc. and Subsidiaries Consolidated Statements of Operations -------------------------------------------------------------------------------- Amounts In Thousands --------------------------------------------------------------------------------
13 Weeks Ended December 30, January 1, 2000 2000 ---------------------------------------------------------------------------------------------------------------- (unaudited) (unaudited) Net Sales $ 28,585 $ 30,890 Cost of merchandise and services sold, including warehousing and transportation expenses 17,582 19,711 ---------------------------------------------------------------------------------------------------------------- Gross profit 11,003 11,179 Operating and administrative expenses 24,077 24,982 Unusual expense 1,466 - ---------------------------------------------------------------------------------------------------------------- Operating loss (14,540) (13,803) Other expense: Interest expense, net 2,818 3,032 Other expense 201 301 ---------------------------------------------------------------------------------------------------------------- Total other expense 3,019 3,333 ---------------------------------------------------------------------------------------------------------------- Net loss before income tax expense (17,559) (17,136) Income tax benefit 7,328 7,729 ---------------------------------------------------------------------------------------------------------------- Net loss (10,231) (9,407) ---------------------------------------------------------------------------------------------------------------- Series A Preferred Stock dividends and accretion 1,079 1,028 ---------------------------------------------------------------------------------------------------------------- Income applicable to common shareholders $(11,310) $(10,435) ================================================================================================================
See accompanying notes to consolidated financial statements. 2 Leslie's Poolmart, Inc. and Subsidiaries Consolidated Statements of Cash Flows -------------------------------------------------------------------------------- Amounts in Thousands --------------------------------------------------------------------------------
13 Weeks Ended December 30, January 1, 2000 2000 ---------------------------------------------------------------------------------------------------------------- (unaudited) (unaudited) Operating activities: Net loss $(10,231) $ (9,407) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,230 2,104 Amortization of loan fees and discounts 114 137 Deferred income taxes (2,650) (7,712) Loss on disposition of assets 201 301 Changes in operating assets and liabilities Accounts and other receivables 5,393 2,938 Inventories (285) (7,030) Prepaid expenses and other (363) 37 Other assets 63 8 Accounts payable and accrued liabilities (13,095) 5,949 Income taxes (6,923) - ---------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (25,546) (12,675) ---------------------------------------------------------------------------------------------------------------- Investing activities: Additions to property and equipment (895) (2,545) Proceeds from sale of property and equipment 30 - ---------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (865) (2,545) ---------------------------------------------------------------------------------------------------------------- Financing activities: Net short-term borrowings 26,410 15,237 Payments on long-term debt (2) (15) ---------------------------------------------------------------------------------------------------------------- Net provided by financing activities 26,408 15,222 ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (3) 2 Cash and cash equivalents and beginning of period 199 193 ---------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 196 $ 195 ================================================================================================================
See accompanying notes to consolidated financial statements. 3 Leslie's Poolmart, Inc. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) (1) Presentation and Financial Information The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete 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 three-month period ended December 30, 2000 are not necessarily indicative of the results that may be expected for the year ended September 30, 2001. The balance sheet at December 30, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain reclassifications have been made to the prior year. During prior years, warehousing, transportation and the related occupancy costs were reported as operating and administrative expenses and certain retail occupancy costs were classified as cost of sales. For the current year presentation, these distribution expenses have been reclassified as cost of sales and the retail occupancy costs have been reclassified as operating and administrative expenses. During the first quarter 2001, the Company recorded and additional $1.5 million for expenses associated with its Corporate headquarter relocation to Phoenix, Arizona. Termination expenses of $0.7 million were paid to approximately 100 employees that did not relocate to Arizona. It is anticipated that the majority of the relocation costs have been expensed at that there will not be any material changes in future periods. For further information, refer to the consolidated financial statements and footnotes thereto included in Leslie's Poolmart, Inc.'s annual report on Form 10-K for the year ended September 30, 2000. (2) Organization and Operation 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 377 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 consists of the following:
December 30, September 30, Amounts in thousands 2000 2000 ------------------------------------------------------------------------------- Raw materials and supplies $ 1,716 $ 430 Finished goods 55,999 57,000 ------------------------------------------------------------------------------- Total Inventories $57,715 $57,430 ===============================================================================
4 Leslie's Poolmart, Inc. and Subsidiaries Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General 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 377 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 13 Weeks Ended December 30, 2000 Compared to 13 Weeks Ended January 1, 2000 Net Sales. Net sales for the 13 weeks ended December 30, 2000 were $28.6 million compared to $30.9 million for the 13 weeks ended January 1, 2000. The 7.5% decrease was due primarily to the strong comparable sales recorded during the prior year, the Company's decision to reduce promotional spending as compared to prior years levels and the elimination of business in certain commercial and service markets. Retail comparable store sales for the 13 weeks of fiscal 2001, decreased 8.7% from the 13 weeks in fiscal 2000. Gross Profit. Gross profit for the 13 weeks ended December 30, 2000 was $11.0 million compared to $11.2 million for the 13 weeks ended January 1, 2000. As a percentage of sales, gross profit was 38.5% for the 13 weeks of fiscal 2001 compared to 36.2% for the 13 weeks of fiscal 2000. Gross profit as a percentage of sales for the 13 weeks 2000 improved primarily due to the Company's decision to moderate its promotional spending as compared to the prior year. Operating and Administrative Expenses. Operating and administrative expenses for the 13 weeks ended December 30, 2000, excluding an unusual charge of $1.5 million for expenses associated with the Company's relocation of its Corporate office from Chatsworth, California to Phoenix, Arizona, were $24.1 million compared to $25.0 million for the 13 weeks ended January 1, 2000. Operating and administrative expenses as a percentage of sales were 84.2% for the 13 ended December 30, 2000 compared to 80.9% for the 13 ended January 1, 2000. Operating expenses for the fiscal 2001 quarter decreased as compared to the 2000 quarter primarily due to effective expense controls during the quarter. On a rate basis, expenses increased as a percentage of sales due to the reduction in sales and increases in occupancy costs due to the increased store count. Operating Loss. Operating loss, excluding the unusual charge, for the 13 weeks ended December 30, 2000 was reduced $0.7 million from a $13.8 million loss for the 13 weeks ended January 1, 2000. The improvement in the quarter was due to the improved gross margin rates and effective expense controls. 5 Other Income and Expense. Net interest expense was $2.8 million for the 13 weeks ended December 30, 2000 compared to $3.0 million for the 13 weeks ended January 1, 2000. The decrease in interest expense was due primarily to lower average debt balances in the quarter. Income Taxes. The Company's income tax benefit for the 13 weeks ended December 30, 2000 was $7.3 million as compared to a $7.7 million benefit for the 13 weeks ended January 1, 2000. EBITDA. Excluding the unusual charge for expenses associated with the Company's move, the EBITDA loss for the 13 weeks ended December 30, 2000 was $10.8 million, versus an EBITDA loss of $11.7 million, for the 13 weeks ended January 1, 2000. EBITDA is determined as follows:
December 30, January 1, Amounts in thousands 2000 2000 ------------------------------------------------------------------------------- Operating loss $(14,540) $(13,802) Depreciation 2,045 1,919 Amortization 185 185 Unusual expense 1,466 - ------------------------------------------------------------------------------- EBITDA loss $(10,844) $(11,698) ===============================================================================
Financial Condition, Liquidity and Capital Resources Changes in Financial Condition. Between September 30, 2000 and December 30, 2000, total current assets decreased $2.1 million primarily as the result of reductions in accounts receivable which decreased $5.4 million during the period. During the same period, current liabilities decreased $20.0 million due primarily to a reduction in accounts payable partially offset by a $4.3 decrease in current income tax liabilities. The change in accounts payable reflects the timing of payments between periods while the reduced income tax liability reflects the accrued tax benefit associated with the quarterly operating loss. Liquidity and Capital Resources. Net cash used by operating activities was $25.5 million for the 13 weeks ended December 30, 2000 compared to net cash used by operating activities of $12.7 million for the same period in the prior year. The change in the 13 weeks 2001 compared to 2000 was due primarily to decreases in accrued expenses and accounts payable, partially offset by the reduction in accounts receivable. Capital expenditures for the 13 weeks ended December 30, 2000 were $0.9 million. Capital expenditures are expected to range between $6.0 and $9.0 million for fiscal 2001. It is anticipated that the balance of 2001 capital expenditures will be funded out of cash provided by operations and borrowings under the working capital revolver. Net cash provided by financing activities for the 13 weeks ended December 30, 2000 was $26.4 million. Funds borrowed under the revolving credit portion of the Company's credit facility are restricted to working capital and general corporate purposes. The level of borrowings under the Company's revolving debt is dependent primarily upon cash flows from operations, the timing of disbursements, long-term borrowing activity and capital expenditure requirements. The Company believes 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 and the relocation of the corporate office. 6 PART II. OTHER INFORMATION -------------------------- Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K - None SIGNATURES Pursuant to the requirements of the Securities and 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. By: /s/ Lawrence H. Hayward ---------------------------- Lawrence H. Hayward President and Chief Executive Officer Date: February 13, 2001 By: /s/ Donald J. Anderson --------------------------- Donald J. Anderson Executive Vice-President and Chief Financial Officer Date: February 13, 2001 7