<PAGE>
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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 29, 1996.
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 0-19096
LESLIE'S POOLMART
(Exact name of registrant as specified in its charter)
California 93-0976447
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
20222 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 1, 1996 the number of outstanding shares of the Registrant's
common stock was 6,542,972.
This Report on Form 10-Q contains 10 pages.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LESLIE'S POOLMART
-----------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 29, December 30,
1996 1995
----------- -------------
ASSETS (UNAUDITED)
- ------
<S> <C> <C>
CASH $ 123 $ 74
RECEIVABLES, NET 4,188 2,235
INVENTORIES, NET 50,097 34,303
PREPAID EXPENSES 2,646 1,876
DEFERRED TAX ASSETS 2,321 2,321
-------- -------
TOTAL CURRENT ASSETS 59,375 40,809
-------- -------
PROPERTY, PLANT AND EQUIPMENT, NET 33,294 29,545
GOODWILL, NET 8,425 8,550
OTHER ASSETS 659 625
-------- -------
$101,753 $79,529
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 32,263 $ 8,761
LINE-OF-CREDIT BORROWINGS 8,766 16,956
CURRENT PORTION OF LONG-TERM DEBT 2,120 2,085
INCOME TAXES 2,959 ---
-------- -------
TOTAL CURRENT LIABILITIES 46,108 27,802
DEFERRED INCOME TAXES 1,963 1,963
LONG-TERM DEBT, NET OF CURRENT PORTION 7,349 7,843
CONVERTIBLE SUBORDINATED DEBENTURE 10,000 10,000
SHAREHOLDERS' EQUITY
- --------------------
COMMON STOCK 32,379 32,100
RETAINED EARNINGS 3,954 (179)
-------- -------
TOTAL SHAREHOLDERS'
EQUITY 36,333 31,921
-------- -------
$101,753 $79,529
======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED BALANCE SHEETS
-2-
<PAGE>
LESLIE'S POOLMART
-----------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
June 29, July 1,
1996 1995
---------- ----------
<S> <C> <C>
SALES $ 88,835 $ 71,945
COST OF SALES 50,599 42,062
---------- ----------
GROSS PROFIT 38,236 29,883
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 20,908 17,686
AMORTIZATION OF ACQUISITION COSTS 63 59
---------- ----------
INCOME FROM OPERATIONS 17,265 12,138
INTEREST EXPENSE 756 699
---------- ----------
INCOME BEFORE INCOME TAXES 16,509 11,439
INCOME TAX PROVISION 6,851 4,747
---------- ----------
NET INCOME $ 9,658 $ 6,692
========== ==========
NET INCOME PER SHARE OF COMMON STOCK $ 1.41 $ 1.01
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING AND
COMMON STOCK EQUIVALENTS 6,866,985 6,622,313
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-3-
<PAGE>
LESLIE'S POOLMART
-----------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
June 29, July 1,
1996 1995
---------- ----------
<S> <C> <C>
SALES $ 106,899 $ 87,305
COST OF SALES 64,405 53,596
---------- ----------
GROSS PROFIT 42,494 33,709
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 33,712 28,373
AMORTIZATION OF ACQUISITION COSTS 127 119
---------- ----------
INCOME FROM OPERATIONS 8,655 5,217
INTEREST EXPENSE 1,590 1,326
---------- ----------
INCOME BEFORE INCOME TAXES 7,065 3,891
INCOME TAX PROVISION 2,932 1,615
---------- ----------
NET INCOME $ 4,133 $ 2,276
========== ==========
NET INCOME PER SHARE OF COMMON STOCK $ .61 $ .34
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING AND
COMMON STOCK EQUIVALENTS 6,821,833 6,607,950
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-4-
<PAGE>
LESLIE'S POOLMART
-----------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
--------------------
June 29, July 1,
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
NET INCOME $ 4,133 $ 2,276
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 2,227 1,387
NET CHANGE IN RECEIVABLES, 8,714 4,525
INVENTORY AND PAYABLES
OTHER, NET (806) (1,190)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,268 6,998
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (5,849) (7,199)
PROCEEDS FROM DISPOSITIONS OF PROPERTY, PLANT
AND EQUIPMENT --- 313
------- -------
NET CASH USED IN INVESTING ACTIVITIES (5,849) (6,886)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
NET LINE-OF-CREDIT PAYMENTS (8,190) (7,208)
ADDITIONS TO LONG-TERM DEBT --- 10,000
PAYMENTS OF LONG-TERM DEBT (459) (2,943)
PROCEEDS FROM ISSUANCE OF COMMON STOCK 279 81
------- -------
NET CASH USED IN FINANCING ACTIVITIES (8,370) (70)
------- -------
NET INCREASE IN CASH 49 42
CASH AT BEGINNING OF PERIOD 74 63
------- -------
CASH AT END OF PERIOD $ 123 $ 105
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-5-
<PAGE>
LESLIE'S POOLMART
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1996
(UNAUDITED)
(1) PRESENTATION OF FINANCIAL INFORMATION
The condensed consolidated financial statements included herein have been
prepared by Leslie's Poolmart (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 six month periods ended June 29, 1996 and July 1, 1995
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 1995 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 29, 1996.
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 December 30, 1995 and for the
year then ended. The results of operations for the six months ended June
29, 1996 and July 1, 1995 are not indicative of the results for a full
year.
(2) ORGANIZATION AND OPERATIONS
Leslie's Poolmart 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 260 retail stores in
27 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 (79% in 1995 and 1994) and all of its operating profits are
generated in the second and third quarters.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 29, July 1,
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Raw materials and supplies $ 1,964 $ 1,375
Finished goods 48,133 41,054
------- -------
Total Inventories $50,097 $42,429
======= =======
</TABLE>
(4) RECENT ACCOUNTING PRONOUNCEMENT
In the first quarter of 1996, the Company adopted Statement of Financial
Accounting Standard No. 121 "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of" (SFAS 121). The adoption
of SFAS 121 did not impact the Company's financial position or its
results of operations.
-6-
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Leslie's Poolmart is the leading specialty retailer of swimming pool
supplies and related products in the United States. The Company
currently markets its products through 260 Company-owned retail stores
in 27 states and through a nationwide mail order catalog. Leslie's is
vertically integrated, operating a chemical repackaging facility in Los
Angeles, California. It supplies its retail stores from distribution
facilities located in Chatsworth, 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 second and third
fiscal quarters which represent the peak months of swimming pool use.
Sales are substantially lower during the first and fourth quarters when
the Company will typically incur net 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 attempts to open its new stores
in the first quarter or early in the second quarter in order to
position itself for the following peak season.
RESULTS OF OPERATIONS
In the second quarter ended June 29, 1996, the Company reported a net
income of $9,658,000 or $1.41 per share, as compared to a net income of
$6,692,000 or $1.01 per share for the second quarter of 1995. For the
first six months of 1996, the company reported net income of $4,133,000
or $.61 per share as compared to net income of $2,276,000 or $.34 per
share in the first half of 1995. Year to date, 35 new stores have been
opened bringing the total store count to 259 as of June 29, 1996.
<TABLE>
<CAPTION>
1996 compared to 1995: Sales
---------------------------------------
(in thousands)
Three Months Ended Six Months Ended
------------------ ------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Retail $83,436 $66,569 $ 99,897 $80,480
Mail Order 3,764 3,966 4,521 4,667
Service Departments 1,635 1,410 2,481 2,158
-------- ------- -------- -------
$88,835 $71,945 $106,899 $87,305
</TABLE>
Sales for the second quarter ended June 29, 1996 increased 23.5% over
the second quarter of 1995, bringing the year-to-date sales growth to
22.4%. Retail sales grew 25.3% in the second quarter and 24.1% year-to-
date, reflecting an increase in the total number of Company stores in
operation as well as comparable store sales gains of 16.1% for the
quarter and 14.5% for the year-to-date period. The increase in
comparable store sales resulted from the improved weather conditions
experienced in 1996 relative to 1995, the maturing of new stores opened
over the last several years, and from continued growth of commercial
sales. In total, commercial sales grew by approximately 25% in the
second quarter and 27% for the year-to-date period as compared to last
year.
-7-
<PAGE>
Mail order catalog sales declined 5.1% in the second quarter and 3.1%
year-to-date as compared to prior year. New store openings in a number of
strong mail order markets continue to cannibalize mail order sales this
year.
Service Department sales increased 16.0% in the second quarter, and 15.0%
year-to-date, due to an increased number of service technicians operating
in existing service areas, as well as generally improved execution.
The gross margin for the three months ended June 29, 1996 equaled 43.0%,
1.5% of sales higher than was reported in the second quarter of 1995.
This brings the year-to-date gross margin to 39.8%, 1.2% of sales higher
than the first half of 1995. Gross profit represents sales less the cost
of services and purchased goods, chemical repackaging costs, and non-
administrative occupancy costs. The gross margin increase in 1996
reflects increased retail pricing taken in early 1996, offsetting some
product cost increases seen in 1995 and again in 1996. Store and
distribution center rents also declined 0.1% of sales year-to-date with
the slightly lower number of new store additions this season and the
improved sales performance compared to 1995.
In the second quarter of 1996, selling, general and administrative
expenses equaled $20,908,000, an 18.2% increase above the $17,686,000
incurred in the second quarter of 1995. This brings the year-to-date
selling, general and administrative expenses to $33,712,000, up 18.8%
over the prior year. The 18.8% year-to-date growth in selling, general
and administrative expenses reflects higher operating expenses associated
with the addition of 35 stores in 1996. Much higher depreciation expense
was also incurred year-to-date in 1996 versus 1995 due to the large
capital expenditures made in the last two years associated with the
greater new store additions and investments in information technology.
Excluding depreciation, selling, general and administrative expenses grew
only 16.6% year-to-date as compared to prior year.
Interest expense equalled $756,000 in the second quarter of 1996, and
$1,590,000 year-to-date, up from $699,000 and $1,326,000 in the same
fiscal periods in 1995. The higher interest expense was primarily the
result of increased borrowings due to continued capital spending and
working capital requirements related to new store openings.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Changes in Financial Condition
Between December 30, 1995 and June 29, 1996, total current assets
increased $18,566,000, principally the result of inventory which
increased $15,794,000 during the period. The inventory increase resulted
primarily from the seasonal nature of the Company's business, and the
increased number of stores in operation in 1996. Over the same period,
current liabilities increased $18,306,000, largely due to a $23,502,000
increase in accounts payable and accrued liabilities, relating primarily
to favorable dating terms on trade payables extended by vendors.
Liquidity and Capital Resources
For the first two quarters ending June 29, 1996, net cash provided by
operating activities was $14,268,000 compared with $6,998,000 in the
first half of the prior year. Higher earnings and improved working
capital management produced the higher cash flow from operating
activities in 1996.
For the first six months ended June 29, 1996, cash used in investing
activities was $5,849,000 compared with $6,886,000 in the first two
quarters of the prior year. This decrease results from reduced capital
expenditures in 1996 as compared to 1995 primarily due to the lower
number of new store openings in 1996 and the opening of the New Jersey
distribution center in 1995.
-8-
<PAGE>
Cash used in financing activities was $8,370,000 in the first six months
of 1996 compared with $70,000 in 1995. In the second quarter of 1995,
the Company completed a private placement of its $10 million 8%
Convertible Subordinated Debentures.
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.
Recent Accounting Pronouncement
In the first quarter of 1996, the Company adopted Statement of Financial
Accounting Standard No. 121 "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of" (SFAS 121). The adoption
of SFAS 121 did not impact the Company's financial position or its
results of operations.
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1996 Annual Meeting of Shareholders of the Company was held on May 30, 1996.
At the Annual Meeting the Shareholders elected six directors of the Company for
a term of one year, approved the amendment of the Company's 1990 Stock Option
Plan to increase the number of options issuable under the plan, and ratified
Arthur Andersen, LLP as the Company's independent auditors for the current
fiscal year.
The votes for the election of directors were:
<TABLE>
<CAPTION>
"FOR" "WITHHELD" Abstentions/Non-Votes
----- ---------- ---------------------
<S> <C> <C> <C>
John A. Canning, Jr. 5,394,713 109,407
Murray A. Dashe 5,394,611 109,509
Michael J. Fourticq 5,395,343 108,777
Richard H. Hillman 5,395,343 108,777
Dr. Dale R. Laurance 5,394,713 109,407
Brian P. McDermott 5,395,343 108,777
</TABLE>
The votes for the approval of the Amendment to the 1990 Stock Option Plan were:
<TABLE>
<CAPTION>
Shares Voted "FOR" Shares Voted "AGAINST" Abstentions/Non-Votes
- ------------------ ---------------------- ---------------------
<S> <C> <C> <C>
2,986,183 1,164,342 1,353,595
</TABLE>
The votes for the ratification of the selection of independent auditors were:
<TABLE>
<CAPTION>
Shares Voted "FOR" Shares Voted "AGAINST" Abstentions/Non-Votes
- ------------------ ---------------------- ---------------------
<S> <C> <C> <C>
5,495,454 4,900 3,766
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
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<PAGE>
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 12, 1996 /s/ Robert D. Olsen
---------------------------------
Robert D. Olsen
Chief Financial Officer
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-29-1996
<CASH> 123
<SECURITIES> 0
<RECEIVABLES> 4,188
<ALLOWANCES> 0
<INVENTORY> 50,097
<CURRENT-ASSETS> 59,375
<PP&E> 33,294
<DEPRECIATION> 0
<TOTAL-ASSETS> 101,753
<CURRENT-LIABILITIES> 46,108
<BONDS> 0
0
0
<COMMON> 32,379
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 101,753
<SALES> 0
<TOTAL-REVENUES> 106,899
<CGS> 0
<TOTAL-COSTS> 64,405
<OTHER-EXPENSES> 127
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,590
<INCOME-PRETAX> 7,065
<INCOME-TAX> 2,932
<INCOME-CONTINUING> 4,133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,133
<EPS-PRIMARY> .61
<EPS-DILUTED> .60
</TABLE>
