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 |
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For the Quarterly Period Ended December 28, 2002 |
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| o |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the transition period from to |
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Commission File Number 0-18741
LESLIE’S POOLMART, INC.
(Exact name of registrant as specified in its charter)
| Delaware |
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95-4620298 |
| (State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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| 3925 E. Broadway Road | ||
| (Address of principal executive offices) | ||
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| Registrant’s telephone number, including area code: (602) 366-3999 | ||
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| Securities registered pursuant to Section 12(b) of the Act: None | ||
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| Securities registered pursuant to 12(g) of the Act: None | ||
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 o |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| Yes o |
No x |
The number of shares of the registrant’s Common Stock outstanding at February 11, 2003 was 7,080,438 shares.
LESLIE’S POOLMART, INC.
AND SUBSIDIARIES
FORM 10-Q
For the Quarterly Period Ended December 28, 2002
INDEX
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Item 1. |
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Consolidated Balance Sheets as of December 28, 2002 (unaudited) and September 28, 2002 |
1 |
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2 | |
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3 | |
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4 | |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
6 |
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Item 4. |
8 | |
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| 9 | |||
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9 | ||
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PART I - FINANCIAL INFORMATION
Leslie’s Poolmart, Inc.
Amounts In Thousands, except share amounts
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December 28, |
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September 28, |
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(unaudited) |
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| Assets |
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| Current assets: |
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Cash and cash equivalents |
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$ |
2,620 |
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$ |
17,996 |
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Accounts and other receivables, net |
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5,013 |
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7,398 |
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Inventories |
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66,651 |
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55,540 |
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Prepaid expenses and other current assets |
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1,548 |
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1,235 |
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Deferred tax assets |
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7,678 |
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7,678 |
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Total current assets |
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83,510 |
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89,847 |
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| Property, plant and equipment, at cost, net of accumulated depreciation |
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40,487 |
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42,744 |
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| Goodwill, net |
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7,564 |
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7,564 |
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| Deferred financing costs, net |
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907 |
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1,080 |
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| Other assets |
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466 |
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529 |
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| Total assets |
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$ |
132,934 |
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$ |
141,764 |
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| Liabilities and Stockholders’ Equity |
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| Current liabilities: |
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Accounts payable |
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$ |
24,170 |
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$ |
19,572 |
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Accrued expenses |
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24,294 |
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27,402 |
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Income taxes payable |
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2,125 |
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8,225 |
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Current maturities of long-term debt |
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— |
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14 |
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Total current liabilities |
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50,589 |
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55,213 |
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| Line of credit borrowings |
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3,923 |
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— |
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| Other long-term liabilities |
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3,459 |
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2,121 |
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| Senior notes |
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90,000 |
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90,000 |
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| Deferred tax liabilities |
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1,812 |
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1,812 |
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Total liabilities |
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149,783 |
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149,146 |
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| Commitments and contingencies |
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— |
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— |
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| Preferred Stock, $0.001 par value; Authorized – 2,000,000 shares; |
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Issued and outstanding – 45,616 Series A at December 28, 2002 and 45,517 Series A at September
28, 2002 |
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45,616 |
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45,517 |
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| Stockholders’ equity (deficit): |
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| Common stock, $0.001 par value, Authorized 12,000,000 shares; |
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Issued and outstanding 7,065,438 shares at December 28, 2002 and September 28, 2002,
respectively |
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1 |
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1 |
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Stock subscriptions receivable |
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(450 |
) |
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(450 |
) | |
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Paid-in capital |
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(45,278 |
) |
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(45,278 |
) | |
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Retained deficit |
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(16,738 |
) |
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(7,172 |
) | |
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Total stockholders’ deficit |
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(62,465 |
) |
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(52,899 |
) | |
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| Total liabilities and stockholders’ equity (deficit) |
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$ |
132,934 |
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$ |
141,764 |
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See accompanying notes to consolidated financial statements.
1
Leslie’s Poolmart, Inc.
Consolidated Statements of Operations
Amounts In Thousands
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13 Weeks Ended |
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December 28, |
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December 29, |
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(unaudited) |
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(unaudited) |
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| Sales |
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$ |
35,897 |
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$ |
30,882 |
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| Cost of merchandise and services sold, including warehousing and transportation expenses, and related occupancy
costs |
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20,099 |
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17,768 |
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Gross profit |
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15,798 |
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13,114 |
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| Selling, general and administrative expenses |
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26,499 |
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25,103 |
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| Amortization of goodwill |
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— |
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62 |
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Operating loss |
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(10,701 |
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(12,051 |
) |
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| Other (income) expense: |
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Interest expense |
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2,545 |
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2,669 |
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Interest income |
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(3 |
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(8 |
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Loss on disposal of fixed assets |
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111 |
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31 |
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| Total other expense |
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2,653 |
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2,692 |
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| Net loss before taxes |
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(13,354) |
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(14,743 |
) | |
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| Income tax benefit |
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(5,226 |
) |
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(5,749 |
) | |
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Net loss |
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(8,128 |
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(8,994 |
) |
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| Series A Preferred Stock dividends and accretion |
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1,438 |
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1,273 |
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| Loss applicable to common stockholders |
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$ |
(9,566 |
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$ |
(10,267 |
) | |
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See accompanying notes to consolidated financial statements.
2
Leslie’s Poolmart, Inc.
Consolidated Statements of Cash Flows
Amounts in Thousands
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13 Weeks Ended |
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December 28, |
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December 29, |
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(unaudited) |
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(unaudited) |
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| Operating activities: |
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Net loss |
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$ |
(8,128 |
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$ |
(8,994 |
) | |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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2,274 |
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2,121 |
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Amortization of loan fees and discounts |
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173 |
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164 |
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Allowance for doubtful accounts |
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93 |
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10 |
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Loss on disposition of assets |
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111 |
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31 |
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Changes in operating assets and liabilities |
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Accounts and other receivables |
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2,292 |
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3,645 |
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Inventories |
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(11,111 |
) |
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(1,699 |
) | |
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Prepaid expenses and other current assets |
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(313 |
) |
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(545 |
) | |
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Other assets |
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62 |
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56 |
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Accounts payable and accrued expenses |
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1,490 |
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(8,449 |
) | |
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Income taxes |
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(6,100 |
) |
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(5,764 |
) | |
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Net cash used in operating activities |
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(19,157 |
) |
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(19,536 |
) | |
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| Investing activities: |
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Purchase of property, plant and equipment |
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(131 |
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(828 |
) | |
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Proceeds from disposition of property, plant and equipment |
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3 |
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14 |
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Net cash used in investing activities |
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(128 |
) |
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(814 |
) | |
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| Financing activities: |
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Net line of credit borrowings |
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3,923 |
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16,705 |
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Payments of long-term debt |
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(14 |
) |
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(18 |
) | |
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Proceeds from issuance of common stock, net |
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— |
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17 |
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Net provided by financing activities |
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3,909 |
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16,704 |
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| Net decrease in cash and cash equivalents |
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(15,376 |
) |
|
(3,646 |
) | ||
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| Cash and cash equivalents and beginning of period |
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17,996 |
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6,768 |
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| Cash and cash equivalents at end of period |
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$ |
2,620 |
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$ |
3,122 |
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See accompanying notes to consolidated financial statements.
3
Leslie’s Poolmart, Inc.
Notes to Consolidated Financial Statements (unaudited)
| (1) |
Presentation and Financial Information |
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The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 28, 2002 are not necessarily indicative of the results that may be expected for the year ended September 27, 2003. |
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The balance sheet at December 28, 2002 has been derived from the unaudited 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. |
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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 28, 2002. |
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| (2) |
Organization and Operation |
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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 411 retail stores in 33 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. |
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| (3) |
Inventories |
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Inventories consists of the following: |
| Amounts in thousands |
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December 28, |
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September 28, |
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| Raw materials and supplies |
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$ |
825 |
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$ |
660 |
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| Finished goods |
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65,826 |
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54,880 |
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| Total Inventories |
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$ |
66,651 |
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$ |
55,540 |
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| (4) |
Goodwill |
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In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 141 Business Combinations and SFAS No. 142 Goodwill and Other Intangible Assets, the Company applied the new rules on accounting for goodwill and other intangible assets deemed to have indefinite lives beginning on September 29, 2002. The Company no longer amortizes its goodwill under SFAS No. 142 but will be subjected to periodic assessments for impairment. The unamortized balance of goodwill at December 28, 2002 was $7.6 million. Amortization expense of $62,000 was included in the consolidated statements of operations for the 13 weeks ended December 29, 2001. |
4
| (5) |
Stock Based Compensation |
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The Company has adopted the provisions of SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure” which amends SFAS No. 123 “ Accounting for Stock-Based Compensation”. The Company has adopted the disclosure only provision of SFAS No. 123 and accordingly recognizes no compensation expense for employee stock option grants. Had compensation expense for these plans been determined consistent with SFAS No. 123, the Company losses would have increased by $15,000 for each of the 13 weeks ended December 28, 2002 and December 29, 2001, respectively. |
5
Leslie’s Poolmart, Inc.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The Private Securities Litigation Reform Act of 1995 provides a ‘‘safe harbor’’ for forward-looking statements. Certain information included in this document (as well as information included in oral statements or other written statements made or to be made by the Company) contains statements that are forward-looking, such as statements relating to plans for future activities. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to domestic economic conditions, activities of competitors, seasonality changes in federal or state tax laws and of the administration of such laws and the general condition of the economy.
This discussion and analysis of our financial condition and results of operations, should be read in conjunction with our unaudited consolidated financial statements and disclosures included elsewhere in this report, and management’s discussion and analysis of financial condition and results of operations included as part of Form 10-K for the year 2002.
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 411 Company-owned retail stores in 33 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 28, 2002 Compared to 13 Weeks Ended December 29, 2001
Net Sales. Net sales for the 13 weeks ended December 28, 2002 were $35.9 million compared to $30.9 million for the 13 weeks ended December 29, 2001. The 16.2% 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 2003, increased 13.7% from the 13 weeks in fiscal 2002.
Gross Profit. Gross profit for the 13 weeks ended December 28, 2002 was $15.8 million compared to $13.1 million for the 13 weeks ended December 29, 2001. As a percentage of sales, gross profit was 44.0% for the 13 weeks of fiscal 2003 compared to 42.5% for the 13 weeks of fiscal 2002. Gross profit as a
6
percentage of sales for the 13 weeks 2002 increased due to lower 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 28, 2002, were $26.5 million as compared to $25.2 million for the 13 weeks ended December 29, 2001. Operating and administrative expenses as a percentage of sales were 73.8% for the 13 weeks ended December 28, 2002 compared to 81.5% for the 13 ended December 29, 2001. The increase in operating expenses was due primarily to the costs associated with the increased store count as compared to the prior year.
Operating Loss. Operating loss for the 13 weeks ended December 28, 2002 was reduced $1.4 million from a $12.1 million loss for the 13 weeks ended December 29, 2001. The improvement in the quarter was primarily due to increases in sales and the improvement in gross margin dollars.
Interest Expense. Net interest expense was $2.5 million for the 13 weeks ended December 28, 2002 compared to $2.7 million for the 13 weeks ended December 29, 2001. The decrease in interest expense was due primarily to lower average debt balances and interest rates in the quarter.
Income Taxes. The Company’s income tax benefit for the 13 weeks ended December 28, 2002 was $5.2 million as compared to a $5.7 million benefit for the 13 weeks ended December 29, 2001.
EBITDA. The EBITDA loss for the 13 weeks ended December 28, 2002 was $8.4 million, versus an EBITDA loss of $9.9 million for the 13 weeks ended December 29, 2001.
EBITDA(1) is determined as follows:
| Amounts in thousands |
|
December 28, |
|
December 29, |
| ||
| |
|
|
|
|
| ||
| Net loss |
|
$ |
(8,128 |
) |
$ |
(8,994 |
) |
| Depreciation |
|
|
2,274 |
|
|
2,059 |
|
| Amortization |
|
|
— |
|
|
62 |
|
| Interest expense, net |
|
|
2,542 |
|
|
2,661 |
|
| Loss on disposition of assets |
|
|
111 |
|
|
31 |
|
| Income tax benefit |
|
|
(5,226 |
) |
|
(5,749 |
) |
| |
|
|
|
|
|
|
|
| EBITDA loss |
|
$ |
(8,427 |
) |
$ |
(9,930 |
) |
| |
|
|
|
|
|
|
|
| (1) |
EBITDA is defined as earnings before interest, taxes, depreciation, amortization, loss/(gain) on disposition of fixed assets. EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States (GAAP), but is used by some investors to determine a company’s ability to service or incur indebtedness. EBITDA is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. EBITDA should not be construed as an indicator of a company’s operating performance or liquidity, and should not be considered in isolation from or as a substitute for net income (loss), cash flows from operations or cash flow data all of which are prepared in accordance with GAAP. We have presented. EBITDA solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP. |
Financial Condition, Liquidity and Capital Resources
Changes in Financial Condition. Between September 28, 2002 and December 28, 2002, total current assets decreased $6.3 million as the result of reductions in cash and accounts receivable which were somewhat offset by the increase in inventory during the period.
7
During the same period, current liabilities decreased $4.6 million due primarily to reductions in, 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 $19.2 million for the 13 weeks ended December 28, 2002 compared to net cash used by operating activities of $19.5 million for the same period in the prior year. The change in the 13 weeks ended December 28, 2002 compared to the same period in 2001 was due primarily to the reduction in net loss.
Capital expenditures for the 13 weeks ended December 28, 2002 were $0.1 million. Capital expenditures are expected to range between $8.0 and $10.0 million for fiscal 2003. It is anticipated the balance of 2003 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 28, 2002 was $3.9 million as compared to $16.7 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.
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.
Item 4. Controls and Procedures.
Our Principal Executive Officer and Principal Accounting Officer reviewed our disclosure controls and procedures during the last 90 days. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information related to the Company (including our consolidated subsidiaries) that is required to be included in our periodic SEC filings. There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
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Item 1. Legal Proceedings
We are and may continue to be a party to various lawsuits and arbitrations from time to time. As of December 28, 2002, we were not a party to any legal proceedings that we believe are likely to have a material effect on our business.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
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.
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Leslie’s Poolmart, INC. | |
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/s/ LAWRENCE H. HAYWARD |
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Lawrence H. Hayward |
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President and |
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Chief Executive Officer |
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Date: February 11, 2003 | |
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By: |
/s/ DONALD J. ANDERSON |
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Donald J. Anderson |
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Executive Vice-President and |
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Chief Financial Officer |
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Date: February 11, 2003 | |
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CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
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I, Lawrence H. Hayward, certify that: | ||
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I have reviewed this quarterly report on Form 10-Q of Leslie’s Poolmart, Inc.; | |
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Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
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Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
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The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: | |
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designed such disclosure controls and procedures to ensure that material information relating to the registrant, including us consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
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evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
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presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
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The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): | |
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all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
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any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
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The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. | |
| Date: February 11, 2003 |
By: |
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/s/ LAWRENCE H. HAYWARD |
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Lawrence H. Hayward |
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President and |
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Chief Executive Officer |
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CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
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I, Donald J. Anderson certify that: | ||
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I have reviewed this quarterly report on Form 10-Q of Leslie’s Poolmart, Inc.; | |
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Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
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Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
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The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: | |
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designed such disclosure controls and procedures to ensure that material information relating to the registrant, including us consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
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evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
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presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
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The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): | |
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all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
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any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
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The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. | |
| Date: February 11, 2003 |
By: |
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/s/ DONALD J. ANDERSON |
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Donald J. Anderson |
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Executive Vice-President and |
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Chief Financial Officer |
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