-----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, Bi3/ilJL2RuYwM6OSA7+yNhIsnee2Mh2WBBPWH0wmdqOpxIg0tatHxOtlcGHg6Ls rc18jNX6HE95wQvVpKuppQ== 0000898430-98-001706.txt : 19980505 0000898430-98-001706.hdr.sgml : 19980505 ACCESSION NUMBER: 0000898430-98-001706 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980328 FILED AS OF DATE: 19980504 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LESLIES POOLMART INC CENTRAL INDEX KEY: 0000866048 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 954620298 STATE OF INCORPORATION: DE FISCAL YEAR END: 0927 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18741 FILM NUMBER: 98609655 BUSINESS ADDRESS: STREET 1: 20630 PLUMMER ST CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8189934212 MAIL ADDRESS: STREET 1: 20222 PLUMMER ST CITY: CHATSWORTH STATE: CA ZIP: 91311 10-Q 1 FORM 10-Q FOR PERIOD ENDED MARCH 28, 1998 ================================================================================ 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 March 28, 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 0-18741 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 Incorporation or Organization) Identification No.) 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 May 1, 1998 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)
March 28, September 27, 1998 1997 ----------- ------------- ASSETS (UNAUDITED) - ------ CASH $ 149 $ 14,829 RECEIVABLES, NET 2,360 4,368 INVENTORIES, NET 62,846 40,239 PREPAID EXPENSES 2,450 1,523 DEFERRED TAX ASSETS 4,313 4,313 DEFERRED INCOME TAX CHARGE 5,000 -- -------- -------- TOTAL CURRENT ASSETS 77,118 65,272 PROPERTY, PLANT AND EQUIPMENT, NET 39,992 35,694 GOODWILL, NET 8,866 8,051 NON-COMPETE CONVENANT 1,131 -- DEFERRED FINANCING COSTS 3,291 3,564 OTHER ASSETS 645 671 -------- -------- $131,043 $113,252 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ ACCOUNTS PAYABLE $ 39,797 $ 11,838 ACCRUED LIABILITIES 10,182 10,544 LINE-OF-CREDIT BORROWING 10,179 -- CURRENT PORTION OF LONG-TERM DEBT 87 87 INCOME TAXES -- 6,092 -------- -------- TOTAL CURRENT LIABILITIES 60,245 28,561 DEFERRED TAX LIABLITIES 3,393 3,393 LONG-TERM DEBT, NET OF CURRENT PORTION 1,283 1,290 SENIOR NOTES 90,000 90,000 PREFERRED STOCK 27,552 25,853 SHAREHOLDERS' EQUITY - -------------------- COMMON STOCK (47,349) (47,349) RETAINED (DEFICIT) EARNINGS (4,081) 11,504 -------- -------- TOTAL SHAREHOLDERS'EQUITY (51,430) (35,845) -------- -------- $131,043 $113,252 ======== ========
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 --------------------- March 28, March 29, 1998 1997 --------- --------- SALES $24,403 $23,816 COST OF SALES 18,667 18,254 ------- ------- GROSS PROFIT 5,736 5,562 SELLING, GENERAL & ADMINISTRATIVE EXPENSES 17,880 15,055 AMORTIZATION OF ACQUISITION COSTS 136 64 LOSS ON DISPOSITION OF FIXED ASSETS -- 71 ------- ------- LOSS FROM OPERATIONS (12,280) (9,628) INTEREST EXPENSE 2,767 799 ------- ------- LOSS BEFORE INCOME TAX BENEFIT (15,047) (10,427) INCOME TAX BENEFIT 6,543 4,326 ------- ------- NET LOSS (8,504) (6,101) ------- ------- SERIES A PREFERRED STOCK DIVIDENDS AND ACCRETION 861 -- LOSS APPLICABLE TO COMMON SHAREHOLDERS $(9,365) $(6,101) ======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS)
Six Months Ended ---------------------- March 28, March 29, 1998 1997 --------- --------- SALES $48,641 $44,900 COST OF SALES 36,179 34,940 -------- -------- GROSS PROFIT 12,462 9,960 SELLING, GENERAL & ADMINISTRATIVE EXPENSES 31,203 25,704 AMORTIZATION OF ACQUISITION COSTS 200 125 LOSS ON DISPOSITION OF FIXED ASSETS 106 726 -------- -------- LOSS FROM OPERATIONS (19,047) (16,595) INTEREST EXPENSE 5,196 1,421 -------- -------- LOSS BEFORE INCOME TAX BENEFIT (24,243) (18,016) INCOME TAX BENEFIT 10,357 7,475 -------- -------- NET LOSS (13,886) (10,541) -------- -------- SERIES A PREFERRED STOCK DIVIDENDS AND ACCRETION 1,700 -- LOSS APPLICABLE TO COMMON SHAREHOLDERS $(15,586) $(10,541) ======== ========
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)
Six Months Ended ----------------------- March 28, March 29, 1998 1997 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES - ------------------------------------ NET LOSS $(13,886) $(10,541) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 3,280 2,442 LOSS ON DISPOSITION OF FIXED ASSETS 106 726 INCOME TAX BENEFIT (10,357) (7,475) NET CHANGE IN RECEIVABLES, INVENTORY AND PAYABLES 6,263 8,656 OTHER, NET (902) (929) -------- -------- NET CASH (USED IN) OPERATING ACTIVITIES (15,496) (7,121) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES - ------------------------------------ PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (7,160) (5,540) BUSINESS ACQUISITIONS (2,196) -- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (9,356) (5,540) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES - ------------------------------------ NET LINE-OF-CREDIT BORROWINGS 10,179 19,106 PAYMENTS OF LONG-TERM DEBT (7) (6,457) PROCEEDS FROM ISSUANCE OF COMMON STOCK -- 21 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 10,172 12,670 -------- -------- NET (DECREASE) INCREASE IN CASH (14,680) 9 CASH AT BEGINNING OF PERIOD 14,829 124 -------- -------- CASH AT END OF PERIOD $ 149 $ 133 ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 LESLIE'S POOLMART, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 29, 1998 (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 six month periods ended March 28, 1998 and March 29, 1997 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 1997 Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 22, 1997. 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 September 27, 1997 and for the nine months then ended. The results of operations for the three and six months ended March 28, 1998 and March 29, 1997 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 currently markets its products under the trade name Leslie's Swimming Pool Supplies through 317 retail stores in 28 states and through mail order catalogs sent to selected swimming pool owners. 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. On June 11, 1997, Leslie's Poolmart (a California corporation - "Leslie's California") reincorporated in Delaware by merging into a wholly-owned Delaware subsidiary (the "Reincorporation"), changed its name to Leslie's Poolmart, Inc. and merged Poolmart USA Inc., a newly-formed corporation, with and into the Company (the "Recapitalization"). As a result of the Recapitalization, (i) each outstanding share of common stock of Leslie's California was converted into $14.50 cash (other than 359,505 shares owned primarily by members of management); and (ii) outstanding options covering approximately 830,000 shares of common stock, including those not yet vested, were exercised and retired for payment of the difference between the exercise price and $14.50 per share. The total value of the shares and options cashed out approximated $94,300,000, plus $5,229,000 in expenses associated with this transaction. These costs have been included in the cost to repurchase the common stock in the accompanying statement of shareholders' equity. In connection with the Recapitalization, the Company changed the authorized capital stock of the Company to 12,000,000 shares of common stock with a $0.001 par value and 2,000,000 shares of preferred stock with a $0.001 par value. In order to finance the repurchase of the outstanding common shares and options, the Company issued $90,000,000 of its 10.375% Senior Notes and sold 1,074,138 shares of its common stock for proceeds of $15,575,000. As indicated above, certain directors and members of management converted some of the Leslie's California common shares which they owned into shares of the Company's common stock. 6 Also in connection with the Recapitalization, the Company issued 28,000 shares of its Series A Preferred Stock of the Company, par value $0.001 per share, at $1,000 per share for a total consideration of $28,000,000, consisting of cash and an exchange of the $10,000,000 principal amount of Convertible Subordinated Debentures of Leslie's California held by a major supplier. In connection with this transaction, the holder of the Series A Preferred Stock received Warrants to purchase up to 15.0% of the shares of the Company's common stock at a purchase price of $0.01 per share (subject to adjustment) for a period of ten years. (3) INVENTORIES Inventories consist of the following:
March 28, March 29, 1998 1997 ------- ------- (in thousands) Raw materials and supplies $ 1,091 $ 2,007 Finished goods 61,755 54,545 ------- ------- Total Inventories $62,846 $56,552 ======= =======
(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. Each fiscal quarter will have 13 weeks and will close on the Saturday closest to December 31, March 31 and June 30. (5) BUSINESS ACQUISITIONS In January 1998, the Company purchased the capital stock of Blackwood & Simmons, Inc. (dba Marlin Pool Supply), an operator of six swimming pool supply stores located in the Atlanta, Georgia area, in a cash for stock transaction. The purchase price, net of excess cash on hand, was approximately $2,300,000. 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 317 Company-owned retail stores in 28 states and through a nationwide mail order catalog. 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; and Bridgeport, New Jersey. 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. 7 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 Six Months Ended ---------------------- ---------------------- March 28, March 29, March 28, March 29, 1998 1997 1998 1997 --------- --------- --------- --------- Sales $ 24,403 $23,816 $ 48,641 $ 44,900 Loss from Operations (12,280) (9,628) (19,047) (16,595) Depreciation 1,435 1,250 2,807 2,288 Amortization 136 64 200 125 Loss on Asset Dispositions -- 71 106 726 LIFO (Gain)/Loss -- -- -- 284 -------- ------- -------- --------- EBITDA Loss $(10,709) $(8,243) $(15,934) ($13,172)
In the second quarter ended March 28, 1998, the Company reported an EBITDA loss of $10,709,000, as compared to an EBITDA loss of $8,243,000 for the March quarter of 1997. EBITDA represents earnings before interest, taxes, depreciation, amortization, loss or gain on fixed asset dispositions, and LIFO adjustments. During the quarter, 29 new stores were opened, 1 relocated store was reopened and 5 stores were added as a result of the Marlin acquisition, bringing the total store count to 313 on March 28, 1998, up from 268 in March of 1997. The Company historically incurs an operating loss in the quarters ending in December and March and expects such losses to grow as new stores continue to be added at a significant rate.
Sales --------------------------------------------- (In thousands) Three Months Ended Six Months Ended --------------------- --------------------- March 28, March 29, March 28, March 29, 1998 1997 1998 1997 --------- --------- --------- --------- Retail Stores $23,573 $22,134 $46,270 $41,372 Mail Order 743 794 1,492 1,713 Service Departments 87 888 879 1,815 ------- ------- ------- ------- Total $24,403 $23,816 $48,641 $44,900
Sales for the second quarter increased 2.5% over the March quarter of 1997, bringing the year-to-date sales growth to 8.3%. Retail store sales grew 6.5% in the second quarter and 11.8% year-to-date, reflecting an increase in the total number of stores in operation and comparable store sales which were flat for the March quarter but increased 7.5% on a year- to-date basis. Declines in residential retail sales in the March quarter were offset by the addition of service sales and continued growth in the commercial business. Very modest sales growth was seen in the quarter due to the cool, wet weather experienced in the California market in February and March, and in comparison to a very strong March quarter of 1997. The year-to-date 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 roll out of the store-based service operations. Commercial sales increased 10.9% in the quarter and 18.1% year-to-date. In the second quarter, the Company converted most of its remaining Service Departments into store-based service operations and, as a result, is reflecting these service sales in retail store sales. Commercial sales growth and the addition of service sales contributed about 7% to comparable store sales in both the quarter and year-to-date periods. Mail order catalog sales in the second quarter declined 6.4% compared to the same quarter of the prior year. Service Department sales declined 90.2% in the quarter, reflecting the transition to the store-based service operations described above. 8 Gross profit for the three months ended March 28, 1998 equaled $5,736,000 or 23.5% of sales, .1% of sales higher than was reported in the same quarter of the prior year. This brings the year-to-date gross margin to 25.6%, 3.4% of sales higher than the same period in the prior year. The higher gross margin in the quarter is primarily due to increased product gross margins, largely offset by higher rent expense as a percentage of sales due to the increased number of new stores opened in 1998 versus 1997, and to the softness of sales in the March quarter of this year. In the second quarter of 1998, selling, general and administrative expense equaled $17,880,000, an 18.8% increase above the $15,055,000 incurred in the comparable quarter of 1997. This brings the year-to-date selling, general and administrative expenses to $31,203,000, up 21.4% over the prior year. The 21.4% year-to-date growth in selling, general and administrative expenses reflects higher operating expenses associated with the increased sales and the increased number of stores in 1998. Interest expense equaled $2,767,000 in the second quarter of 1998, and $5,196,000 year-to-date, up from $799,000 and $1,421,000 in the comparable periods in 1997. The higher interest expense was primarily due to increased borrowings in June of 1997 resulting from the completion of the Recapitalization transaction and the related issuance of the $90,000,000 in Senior Notes. Amortization expense in the second quarter increased to $136,000 from $64,000 in the prior year due to higher goodwill amortization and the amortization of non-competition agreements associated with the Marlin acquisition. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Changes in Financial Condition Between September 27, 1997 and March 28, 1998, total current assets increased $11,846,000, principally the result of inventory which increased $22,607,000 during the period, offset by declines in cash balances. The inventory increase results from the seasonal nature of the Company's business and the new stores opened in 1998. Cash declined during the period funding the operating losses which occur in the December and March quarters and the capital expenditures for new store additions. During the same period, current liabilities increased $31,684,000, largely due to a $27,959,000 increase in accounts payable. This increase relates primarily to favorable dating terms on trade payables extended by vendors to support the seasonal inventory buildup. Liquidity and Capital Resources In the six months ended March 28, 1998, net cash used in operating activities was $15,496,000 compared with $7,121,000 in the first six months of the prior year. During these six months, cash is typically used to finance the operating losses experienced outside of the Company's peak selling season. Cash used in investing activities was $9,356,000, compared with $5,540,000 in the first six months of the prior year. This increase results from increased capital expenditures in fiscal 1998 as compared to fiscal 1997, primarily due to opening a larger number of new stores in 1998, and to a small acquisition made in the quarter. In the March quarter, the Company purchased Marlin Pool Supplies, an operator of six swimming pool supply stores located in the Atlanta, Georgia area. Cash provided by financing activities was $10,172,000 in the six months ended March 1998. Borrowings increased primarily to finance the usual operating losses and capital expenditures associated with the continued new store openings. 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. 9 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 Date: May 4, 1998 /s/ Robert D. Olsen --------------------------------- Robert D. Olsen Chief Financial Officer 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS OCT-03-1998 SEP-28-1997 MAR-28-1998 149 0 2,360 0 62,846 77,118 39,992 0 131,043 60,245 0 27,552 0 (47,349) 0 131,043 0 48,641 0 36,179 0 0 5,196 (24,243) 10,357 (13,886) 0 0 0 (13,886) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----