-----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, V+ledanwrdxdqR79mmzZS+rMUsELPkSI7zq1N3VIf2mkIr+stPhYAwEAl5EoCeQ5 3Y5y/R/GcjbCwyg97nMHlg== 0000898430-98-002749.txt : 19980805 0000898430-98-002749.hdr.sgml : 19980805 ACCESSION NUMBER: 0000898430-98-002749 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980627 FILED AS OF DATE: 19980804 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: 98676935 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 QUARTERLY PERIOD ENDED JUNE 27, 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 June 27, 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 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 3, 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)
June 27, September 27, 1998 1997 ----------- -------------- (UNAUDITED) ASSETS - ------ CASH $ 4,311 $ 14,829 RECEIVABLES, NET 4,737 4,368 INVENTORIES, NET 61,542 40,239 PREPAID EXPENSES 2,365 1,523 DEFERRED TAX ASSETS 4,313 4,313 -------- -------- TOTAL CURRENT ASSETS 77,268 65,272 PROPERTY, PLANT AND EQUIPMENT, NET 40,455 35,694 GOODWILL, NET 8,797 8,051 NON-COMPETE CONVENANT 1,215 -- DEFERRED FINANCING COSTS 3,154 3,564 OTHER ASSETS 627 671 -------- -------- $131,516 $113,252 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ ACCOUNTS PAYABLE $ 31,599 $ 11,838 ACCRUED LIABILITIES 17,524 10,544 CURRENT PORTION OF LONG-TERM DEBT 87 87 INCOME TAXES 2,536 6,092 -------- -------- TOTAL CURRENT LIABILITIES 51,746 28,561 DEFERRED TAX LIABILITIES 3,393 3,393 LONG-TERM DEBT, NET OF CURRENT PORTION 1,243 1,290 SENIOR NOTES 90,000 90,000 PREFERRED STOCK 28,437 25,853 SHAREHOLDERS' EQUITY - --------------------- COMMON STOCK (47,432) (47,349) RETAINED EARNINGS 4,129 11,504 -------- -------- TOTAL SHAREHOLDERS' DEFICIT (43,303) (35,845) -------- -------- $131,516 $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 -------------------- June 27, June 28, 1998 1997 --------- -------- SALES $110,851 $98,034 COST OF SALES 64,542 57,176 -------- ------- GROSS PROFIT 46,309 40,858 SELLING, GENERAL & ADMINISTRATIVE EXPENSES 27,277 23,788 AMORTIZATION OF ACQUISITION COSTS 185 63 RECAPITALIZATION COSTS -- 794 LOSS ON DISPOSITION OF FIXED ASSETS 42 201 -------- ------- INCOME FROM OPERATIONS 18,805 16,012 INTEREST EXPENSE 2,689 948 -------- ------- INCOME BEFORE INCOME TAXES 16,116 15,064 INCOME TAX PROVISION 7,021 6,288 -------- ------- NET INCOME 9,095 8,776 -------- ------- SERIES A PREFERRED STOCK DIVIDENDS AND ACCRETION 885 153 INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 8,210 $ 8,623 ======== =======
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 --------------------- June 27, June 28, 1998 1997 --------- --------- SALES $159,492 $142,934 COST OF SALES 100,721 92,116 -------- -------- GROSS PROFIT 58,771 50,818 SELLING, GENERAL & ADMINISTRATIVE EXPENSES 58,480 49,492 AMORTIZATION OF ACQUISITION COSTS 385 188 RECAPITALIZATION COSTS -- 794 LOSS ON DISPOSITION OF FIXED ASSETS 148 927 -------- -------- LOSS FROM OPERATIONS (242) (583) INTEREST EXPENSE 7,885 2,369 -------- -------- LOSS BEFORE INCOME TAX BENEFIT (8,127) (2,952) INCOME TAX BENEFIT 3,336 1,187 -------- -------- NET LOSS (4,791) (1,765) -------- -------- SERIES A PREFERRED STOCK DIVIDENDS AND ACCRETION 2,584 153 LOSS APPLICABLE TO COMMON SHAREHOLDERS $(7,375) $(1,918) ======== ========
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 --------------------- June 27, June 28, 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES - ------------------------------------ NET LOSS $ (4,791) $ (1,765) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: DEPRECIATION AND AMORTIZATION 5,165 3,923 LOSS ON DISPOSITION OF FIXED ASSETS 148 927 INCOME TAX BENEFIT (3,336) (1,187) NET CHANGE IN RECEIVABLES, INVENTORY AND PAYABLES 4,849 4,728 OTHER, NET (797) 231 ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,238 6,857 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES - ------------------------------------ PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (9,229) (7,382) BUSINESS ACQUISITIONS (2,396) -- ------- ------- NET CASH USED IN INVESTING ACTIVITIES (11,625) (7,382) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES - ------------------------------------ NET LINE-OF-CREDIT PAYMENTS -- (7,263) PROCEEDS FROM ISSUANCE OF SENIOR NOTES -- 90,000 PAYMENTS OF LONG-TERM DEBT (47) (16,697) PAYMENT OF DEFERRED FINANCING COSTS -- (3,533) PURCHASE OF COMMON STOCK -- (94,300) PROCEEDS FROM ISSUANCE OF PREFERRED AND COMMON STOCK, NET (84) 39,797 ------- ------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (131) 8,004 ------- ------- NET (DECREASE) INCREASE IN CASH (10,518) 7,479 CASH AT BEGINNING OF PERIOD 14,829 124 ------- ------- CASH AT END OF PERIOD $ 4,311 $ 7,603 ======== =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 LESLIE'S POOLMART, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 27, 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 nine month periods ended June 27, 1998 and June 28, 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 nine months ended June 27, 1998 and June 28, 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 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:
June 27, June 28, 1998 1997 ------- ------- (in thousands) Raw materials and supplies $ 843 $ 2,071 Finished goods 60,699 51,456 ------- ------- Total Inventories $61,542 $53,527
(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 Nine Months Ended -------------------- -------------------- June 27, June 28, June 27, June 28, 1998 1997 1998 1997 -------- -------- -------- -------- Sales $110,851 $98,034 $159,492 $142,934 Income/(Loss) from Operations 18,805 16,012 (242) (583) Depreciation 1,563 1,297 4,370 3,585 Amortization 185 63 385 188 Loss on Asset Dispositions 42 201 148 927 Recapitalization Costs -- 794 -- 794 LIFO (Gain)/Loss -- -- -- 284 -------- ------- -------- -------- EBITDA $ 20,595 $18,367 $ 4,661 $ 5,195
In the third quarter ended June 27, 1998, the Company reported an EBITDA of $20,595,000, as compared to an EBITDA of $18,367,000 for the June quarter of 1997. EBITDA represents earnings before interest, taxes, depreciation, amortization, loss or gain on fixed asset dispositions, and LIFO adjustments. During the quarter, 5 new stores were opened and one store was closed, bringing the total store count to 317 on June 27, 1998, up from 278 in June of 1997.
Sales ----------------------------------------- (In thousands) Three Months Ended Nine Months Ended ------------------- ------------------- June 27, June 28, June 27, June 28, 1998 1997 1998 1997 -------- -------- -------- -------- Retail Stores $108,415 $93,448 $154,685 $134,820 Mail Order 2,419 2,927 3,911 4,640 Service Departments 17 1,659 896 3,474 -------- ------- -------- -------- Total $110,851 $98,034 $159,492 $142,934
Sales for the third quarter increased 13.1% over the June quarter of 1997, bringing the year-to-date sales growth to 11.6%. Retail store sales grew 16.0% in the third quarter and 14.7% year-to-date, reflecting an increase in the total number of stores in operation and comparable store sales which were up 7.8% for the June quarter and 7.7% on a year-to-date basis. Modest sales growth was seen in the quarter due to the cool, wet weather experienced in the California market during April, May and June. 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 about 19% in both the quarter and year-to-date periods. In the third quarter, the Company converted all 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 6% to comparable store sales gains in both the quarter and year-to-date periods. Mail order catalog sales in the third quarter declined 17.4% compared to the same quarter of the prior year reflecting continued cannibalization from new store openings. Service Department sales were all but eliminated in the quarter, reflecting the transition to the store-based service operations described above. 8 Gross profit for the three months ended June 27, 1998 equaled $46,309,000 or 41.8% 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 36.8%, 1.2% 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. In the third quarter of 1998, selling, general and administrative expense equaled $27,277,000, a 14.7% increase above the $23,788,000 incurred in the comparable quarter of 1997. This brings the year-to-date selling, general and administrative expenses to $58,480,000, up 18.2% over the prior year. The 18.2% 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 operated in 1998. Interest expense equaled $2,689,000 in the third quarter of 1998, and $7,885,000 year-to-date, up from $948,000 and $2,369,000 in the comparable periods in 1997. The higher interest expense was primarily due to the increased borrowings resulting from the Recapitalization transaction and the related issuance of the $90,000,000 in Senior Notes. Amortization expense in the third quarter increased to $185,000 from $63,000 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 June 27, 1998, total current assets increased $11,996,000, principally the result of inventory which increased $21,303,000 during the period, offset by declines in cash balances. The inventory increase results from the seasonal nature of the Company's business and from the new stores opened in 1998. Cash declined during the period funding the capital expenditures for new store additions and the Company's pre-tax year-to-date losses. During the same period, current liabilities increased $23,185,000, largely due to a $19,761,000 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 nine months ended June 27, 1998, net cash provided by operating activities was $1,238,000 compared with $6,857,000 in the first nine months of the prior year. The decline in cash provided by operating activities is due primarily to the higher year-to-date pre-tax losses in 1998 which, in turn, result from the higher interest expense produced by the Recapitalization transaction. Cash used in investing activities was $11,625,000, compared with $7,382,000 in the first nine 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 during the period. In January 1998, the Company purchased Marlin Pool Supplies, an operator of six swimming pool supply stores located in the Atlanta, Georgia area. Cash used in financing activities was $131,000 in the nine months ended June 1998. This was comprised of payments on some long term debt and some residual costs associated with the Recapitalization transaction completed in 1997. 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: August 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 9-MOS OCT-03-1998 SEP-28-1998 JUN-27-1998 4,311 0 4,737 0 61,542 77,268 40,455 0 131,516 51,746 0 28,437 0 (47,432) 0 131,516 0 159,492 0 100,721 0 0 7,885 (8,127) 3,336 (4,791) 0 0 0 (4,791) 0 0
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