10-Q 1 d10q.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 29, 2001 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 incorporation or organization) (I.R.S. Employer Identification No.) 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 11, 2002 was 7,065,438 shares. ================================================================================ LESLIE'S POOLMART, INC. AND SUBSIDIARIES FORM 10-Q For the Quarterly Period Ended December 29, 2001 INDEX
Part I. Financial Information Page ----------- Item 1. Financial Statements Consolidated Balance Sheets as of December 29, 2001 (unaudited) and September 29, 2001 1 Consolidated Statements of Operations for the 13 weeks ended December 29, 2001 (unaudited) and December 30, 2000 (unaudited) 2 Consolidated Statements of Cash Flows for the 13 weeks ended December 29, 2001 (unaudited) and December 30, 2000 (unaudited) 3 Notes to Consolidated Financial Statements (unaudited) 4 Management's Discussion and Analysis of Financial Condition Item 2. and Results of Operations 5 Part II. Other Information 7 Signatures 7
PART I - FINANCIAL INFORMATION Item 1. Financial Statements Leslie's Poolmart, Inc.
Consolidated Balance Sheets ------------------------------------------------------------------------------------------------------------------------- Amounts In Thousands, except share amounts ------------------------------------------------------------------------------------------------------------------------- December 29, September 29, 2001 2001 ------------------------------------------------------------------------------------------------------------------------- Assets (unaudited) Current assets: Cash and cash equivalents $ 3,122 $ 6,768 Accounts receivable, net 3,795 7,450 Inventories 57,634 55,935 Prepaid expenses and other current assets 1,721 1,176 Deferred tax assets 6,118 6,118 ------------------------------------------------------------------------------------------------------------------------- Total current assets 72,390 77,447 Property, plant and equipment, at cost, net of accumulated depreciation 43,505 44,781 Goodwill, net 7,774 7,836 Deferred financing costs, net 1,580 1,744 Other assets 558 502 ------------------------------------------------------------------------------------------------------------------------- Total assets $ 125,807 $ 132,310 ========================================================================================================================= Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 12,801 $ 19,449 Accrued expenses 21,528 23,329 Income taxes payable 235 5,999 Current maturities of long-term debt 121 121 ------------------------------------------------------------------------------------------------------------------------- Total current liabilities 34,685 48,898 Line of credit borrowings 16,705 - Long-term debt, excluding current maturities 849 867 Senior notes 90,000 90,000 Deferred tax liabilities 2,515 2,515 ------------------------------------------------------------------------------------------------------------------------- Total liabilities 144,754 142,280 ------------------------------------------------------------------------------------------------------------------------- Commitments and contingencies - - Preferred Stock, $0.001 par value; Authorized - 2,000,000 shares; Issued and outstanding - 28,000 Series A at December 29, 2001 and September 29, 2001 43,587 42,314 Shareholder's equity (deficit): Common stock, $0.001 par value, authorized 12,000,000 shares, Issued and outstanding 7,065,438 shares at December 29, 2001 and September 29, 2001, respectively 1 1 Stock subscriptions receivable (450) (450) Paid-in capital (45,278) (45,295) Deficit (16,807) (6,540) ------------------------------------------------------------------------------------------------------------------------- Total shareholders' deficit (62,534) (52,284) ------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity (deficit) $ 125,807 $ 132,310 =========================================================================================================================
See accompanying notes to consolidated financial statements. 1 Leslie's Poolmart, Inc.
Consolidated Statements of Operations ------------------------------------------------------------------------------------------------------------------------- Amounts In Thousands ------------------------------------------------------------------------------------------------------------------------- 13 Weeks Ended December 29, December 30, 2001 2000 ------------------------------------------------------------------------------------------------------------------------- (unaudited) (unaudited) Net Sales $ 30,882 $ 28,585 Cost of merchandise and services sold, including warehousing and transportation expenses 17,768 17,582 ------------------------------------------------------------------------------------------------------------------------- Gross profit 13,114 11,003 Operating and administrative expenses 25,165 24,077 Unusual expense - 1,466 ------------------------------------------------------------------------------------------------------------------------- Operating loss (12,051) (14,540) Other expense: Interest expense, net 2,661 2,818 Other expense 31 201 ------------------------------------------------------------------------------------------------------------------------- Total other expense 2,692 3,019 ------------------------------------------------------------------------------------------------------------------------- Net loss before income tax expense (14,743) (17,559) Income tax benefit 5,749 7,328 ------------------------------------------------------------------------------------------------------------------------- Net loss (8,994) (10,231) ------------------------------------------------------------------------------------------------------------------------- Series A Preferred Stock dividends and accretion 1,273 1,079 ------------------------------------------------------------------------------------------------------------------------- Income applicable to common shareholders $ (10,267) $ (11,310) =========================================================================================================================
See accompanying notes to consolidated financial statements. 2 Leslie's Poolmart, Inc.
Consolidated Statements of Cash Flows ----------------------------------------------------------------------------------------------------------------------- Amounts in Thousands ----------------------------------------------------------------------------------------------------------------------- 13 Weeks Ended December 29, December 30, 2001 2000 ------------------------------------------------------------------------------------------------------------------------- (unaudited) (unaudited) Operating activities: Net loss $ (8,994) $ (10,231) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,121 2,230 Amortization of loan fees and discounts 164 114 Deferred income taxes - (2,650) Loss on disposition of assets 30 201 Changes in operating assets and liabilities Accounts and other receivables 3,655 5,393 Inventories (1,699) (617) Prepaid expenses and other (545) (363) Other assets (56) 63 Accounts payable and accrued liabilities (8,449) (13,799) Income taxes (5,764) (4,273) ------------------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (19,537) (23,932) ------------------------------------------------------------------------------------------------------------------------- Investing activities: Additions to property and equipment (827) (895) Proceeds from sale of property and equipment 14 30 ------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (813) (865) ------------------------------------------------------------------------------------------------------------------------- Financing activities: Net short-term borrowings 16,705 21,475 Payments of long-term debt (18) (17) Issuance of common stock 17 - ------------------------------------------------------------------------------------------------------------------------- Net provided by financing activities 16,704 21,458 ------------------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (3,646) (3,339) Cash and cash equivalents and beginning of period 6,768 5,252 ------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 3,122 $ 1,913 =========================================================================================================================
See accompanying notes to consolidated financial statements. 3 Leslie's Poolmart, Inc. 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 29, 2001 are not necessarily indicative of the results that may be expected for the year ended September 28, 2002. The balance sheet at December 29, 2001 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. 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 29, 2001. (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 388 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 29, September 29, Amounts in thousands 2001 2001 --------------------------------------------------------------------------------------- Raw materials and supplies $ 435 $ 182 Finished goods 57,199 55,753 --------------------------------------------------------------------------------------- Total Inventories $ 57,634 $ 55,935 =======================================================================================
4 Leslie's Poolmart, Inc. 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 388 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 29, 2001 Compared to 13 Weeks Ended December 30, 2000 Net Sales. Net sales for the 13 weeks ended December 29, 2001 were $30.9 million compared to $28.6 million for the 13 weeks ended December 30, 2000. The 8.0% increase was due primarily to improved comparable store sales as well as to the increased store count as compared to the prior year. Retail comparable store sales for the 13 weeks of fiscal 2002, increased 6.6% from the 13 weeks in fiscal 2001. Gross Profit. Gross profit for the 13 weeks ended December 29, 2001 was $13.1 million compared to $11.0 million for the 13 weeks ended December 30, 2000. As a percentage of sales, gross profit was 42.5% for the 13 weeks of fiscal 2002 compared to 38.5% for the 13 weeks of fiscal 2001. Gross profit as a percentage of sales for the 13 weeks 2001 increased due to improved acquisition costs and reductions in distribution expenses as compared to the prior year. Operating and Administrative Expenses. Operating and administrative expenses for the 13 weeks ended December 29, 2001, were $25.2 million as compared to $25.5 million for the 13 weeks ended December 30, 2000. Operating and administrative expenses as a percentage of sales were 81.5% for the 13 ended December 29, 2001 compared to 89.4% for the 13 ended December 30, 2000. Operating expenses for the fiscal 2001 quarter decreased as compared to the 2000 quarter due primarily to a $1.4 million unusual charge taken in the prior year for expenses associated with the Company's relocation of its corporate offices from Chatsworth, California to Phoenix, Arizona. Excluding the charge taken in the prior year, expenses increased by $1.1 million as compared to the prior year. This was due primarily to the increase in occupancy costs related to the increased store count and increases in insurance costs and other related administrative expenses. Operating Loss. Operating loss, for the 13 weeks ended December 29, 2001 was reduced $2.5 million from a $14.5 million loss for the 13 weeks ended December 30, 2000. The improvement in the 5 quarter was due to improved sales and gross margin rates and the unusual expense taken in the prior year for costs associated with the corporate relocation. Other Income and Expense. Net interest expense was $2.7 million for the 13 weeks ended December 29, 2001 compared to $2.8 million for the 13 weeks ended December 30, 2000. The decrease in interest expense was due primarily to lower average debt balances and interest rates in the quarter. During the quarter, the Company also benefited from receiving from its lending institution a reduced spread on its borrowing costs due to meeting certain financial targets during the prior year. Income Taxes. The Company's income tax benefit for the 13 weeks ended December 29, 2001 was $5.7 million as compared to a $7.3 million benefit for the 13 weeks ended December 30, 2000. EBITDA. Excluding the unusual charge taken in the prior year for expenses associated with the Company's relocation, the EBITDA loss for the 13 weeks ended December 29, 2001 was $9.9 million, versus an EBITDA loss of $10.8 million, for the 13 weeks ended December 30, 2000. EBITDA is determined as follows:
December 29, December 30, Amounts in thousands 2001 2000 ----------------------------------------------------------------------------------------- Operating loss $ (12,051) $ (14,540) Depreciation 2,059 2,045 Amortization 62 185 Unusual expense - 1,466 ----------------------------------------------------------------------------------------- EBITDA loss $ (9,930) $ (10,844) =========================================================================================
Financial Condition, Liquidity and Capital Resources Changes in Financial Condition. Between September 29, 2001 and December 29, 2001, total current assets decreased $5.1 million primarily as the result of reductions in accounts receivable which decreased $3.7 million during the period. During the same period, current liabilities decreased $14.2 million due primarily to reductions in accounts payable, accrued expenses and income tax liabilities. The change in accounts payable and accrued expenses 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 $19.5 million for the 13 weeks ended December 29, 2001 compared to net cash used by operating activities of $23.9 million for the same period in the prior year. The change in the 13 weeks 2001 compared to 2000 was due primarily to the reduction in net loss coupled with the improved management of working capital. Capital expenditures for the 13 weeks ended December 29, 2001 were $0.8 million. Capital expenditures are expected to range between $6.0 and $9.0 million for fiscal 2002. It is anticipated that the balance of 2002 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 29, 2001 was $16.7 million as compared to $21.5 million in the prior year. 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. 6 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. 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 11, 2002 By: /s/ Donald J. Anderson ----------------------------------------- Donald J. Anderson Executive Vice-President and Chief Financial Officer Date: February 11, 2002 7