<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997.
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
Incorporation or Organization) Identification No.)
20630 Plummer Street, Chatsworth, California 91311
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (818) 993-4212
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ______ No _______
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
As of May 5, 1997 the number of outstanding shares
of the Registrant's common stock was 6,554,672.
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LESLIE'S POOLMART
-----------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 29, December 28,
1997 1996
----------- ------------
ASSETS (UNAUDITED)
- ------ -----------
<S> <C> <C>
CASH $ 133 $ 87
RECEIVABLES, NET 2,900 2,550
INVENTORIES, NET 56,552 33,948
PREPAID EXPENSES 2,650 1,693
DEFERRED TAX ASSETS 2,602 2,602
DEFERRED INCOME TAX CHARGE 4,326 ---
-------- -------
TOTAL CURRENT ASSETS 69,163 40,880
PROPERTY, PLANT AND EQUIPMENT, NET 35,557 33,307
GOODWILL, NET 8,235 8,298
OTHER ASSETS 701 672
-------- -------
$113,656 $83,157
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
ACCOUNTS PAYABLE 36,554 $ 6,055
ACCRUED LIABILITIES 5,651 4,480
LINE-OF-CREDIT BORROWINGS ---- 15,440
CURRENT PORTION OF LONG-TERM DEBT 131 2,187
-------- -------
TOTAL CURRENT LIABILITIES 42,336 28,162
DEFERRED INCOME TAXES 3,099 3,099
LONG-TERM DEBT, NET OF CURRENT PORTION 27,986 5,581
CONVERTIBLE SUBORDINATED DEBENTURE 10,000 10,000
SHAREHOLDERS' EQUITY
- --------------------
COMMON STOCK 32,646 32,625
RETAINED (DEFICIT) EARNINGS (2,411) 3,690
TOTAL SHAREHOLDERS'EQUITY 30,235 36,315
-------- -------
$113,656 $83,157
======== =======
</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 PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
March 29, March 30,
1997 1996
--------- ---------
<S> <C> <C>
SALES $ 23,816 $18,064
COST OF SALES 18,254 13,806
-------- -------
GROSS PROFIT 5,562 4,258
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 15,126 12,804
AMORTIZATION OF ACQUISITION COSTS 64 64
-------- -------
LOSS FROM OPERATIONS (9,628) (8,610)
INTEREST EXPENSE 799 834
-------- -------
LOSS BEFORE INCOME TAX BENEFIT (10,427) (9,444)
INCOME TAX BENEFIT 4,326 3,919
-------- -------
NET LOSS $ (6,101) $(5,525)
======== =======
NET LOSS PER SHARE OF COMMON STOCK $ (.90) $ (.82)
======== =======
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING AND
COMMON STOCK EQUIVALENTS 6,789 6,769
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
LESLIE'S POOLMART
-----------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
March 29, March 30,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
NET LOSS $(6,101) $(5,525)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 1,314 1,057
LOSS ON DISPOSITION OF FIXED ASSETS 71 ---
INCOME TAX BENEFIT (4,326) (3,919)
NET CHANGE IN RECEIVABLES, 8,716 4,627
INVENTORY AND PAYABLES
OTHER, NET (987) (324)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (1,313) (4,084)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (4,739) (2,393)
PROCEEDS FROM DISPOSITIONS OF PROPERTY,
PLANT AND EQUIPMENT 1,168 ---
------- -------
NET CASH USED IN INVESTING ACTIVITIES (3,571) (2,393)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
NET LINE-OF-CREDIT BORROWINGS 4,929 6,412
PAYMENTS OF LONG-TERM DEBT (20) ---
PROCEEDS FROM ISSUANCE OF COMMON STOCK 21 73
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,930 6,485
------- -------
NET INCREASE IN CASH 46 8
CASH AT BEGINNING OF PERIOD 87 74
------- -------
CASH AT END OF PERIOD $ 133 $ 82
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
LESLIE'S POOLMART
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
(UNAUDITED)
(1) PRESENTATION OF FINANCIAL INFORMATION
The 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 three month
periods ended March 29, 1997 and March 30, 1996 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 1996 Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 28, 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 December 28, 1996 and for the year then ended. The
results of operations for the three months ended March 29, 1997 and March
30, 1996 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 278 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
1996 and 1995) and all of its operating profits are generated in the second
and third quarters.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 29, March 30,
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
Raw materials and supplies 2,007 3,120
Finished goods 54,545 51,610
------- -------
Total Inventories $56,552 $54,730
======= =======
</TABLE>
(4) RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share" (SFAS 128)
and SFAS No. 129, "Disclosure of Information about Capital Structure" (SFAS
129). SFAS 128 revises and simplifies the computation for earnings per share
and requires certain additional disclosures. SFAS 129 requires additional
disclosures regarding the Company's capital structure. Both standards will
be adopted in the fourth quarter of fiscal 1997. Management does not expect
the adoption of these standards to have a material effect on the Company's
financial position or results of operations.
5
<PAGE>
(5) PROPOSED REINCORPORATION AND MERGER
On February 26, 1997, the Company's Board of Directors approved an
Agreement of Merger providing for the reincorporation of the Company in
Delaware by merger into a wholly-owned subsidiary, and an Agreement and
Plan of Merger providing for the merger of Poolmart USA Inc., a newly-
formed corporation, with and into the Company. Following consummation of
the reincorporation and upon effectiveness of the subsequent merger, (i)
each outstanding share of common stock of the Company would be converted
into $14.50 cash (other than 359,505 shares owned primarily by members of
management, including Michael Fourticq, the Chairman of the Company, and
Brian McDermott, the President and CEO of the Company and other than
shares as to which the holders perfect dissenters' rights) and (ii)
outstanding options covering approximately 846,000 shares of common stock,
including those not yet vested, would be cancelled for payment of the
difference between the exercise price and $14.50 per share. The total
value of the shares and options at the transaction price of $14.50
approximates $101 million. The proposed mergers are subject to various
conditions, including financing and approval by the Company's
shareholders. The shareholders are expected to vote on June 10, 1997.
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 278 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 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 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 first quarter ended March 29, 1997, the Company reported a net
loss of $6,101,000 or $.90 per share, as compared to a net loss of
$5,525,000 or $.82 per share for the first quarter of 1996. During the
quarter 11 new stores were opened and 2 stores were closed, bringing the
total store count to 278 on March 29, 1997. The Company historically
incurs a net loss in the first quarter of the year and generally expects
such losses to grow as new stores continue to be added at a significant
rate.
6
<PAGE>
1997 compared to 1996:
<TABLE>
<CAPTION>
Sales
---------------------
(In thousands)
Three Months Ended
---------------------
March 29, March 30,
1997 1996
--------- ---------
<S> <C> <C>
Retail Stores $22,134 $16,461
Mail Order 794 757
Service Departments 888 846
------- -------
$23,816 $18,064
</TABLE>
Sales for the first quarter increased 31.8% over the first quarter of
1996. Retail store sales grew 34.5% for the three-month period due to an
increase in the total number of stores in operation in 1997 versus 1996 as
well as a comparable store sales increase of 20.8%. The increase in
comparable store sales is primarily the result of the maturing of the new
stores opened over the last several years, and continued growth in
commercial sales. Commercial sales increased 21% in the first quarter of
1997 compared to the same period last year. Additionally, in the Southern
California market, the Company is testing the operation of its service
technicians out of the local stores, and as a result, is reflecting these
service sales in the retail store sales total. This added approximately
2.0% to the first quarter comparable store sales growth.
Mail order catalog sales in the first quarter increased 4.9% compared to
the first quarter of the prior year on increased residential mail order
sales, resulting from an expanded catalog mailing in 1997 and generally
favorable weather. Service Department sales increased 5.0% in the first
quarter, reflecting strong growth in the Texas service centers, offset by
the reclassification of the Southern California service sales to retail
store sales.
Gross profit for the three months ended March 29, 1997 equaled $5,562,000
or 23.4% of sales, .2% of sales lower than was reported in the first
quarter of 1996. The lower gross margin is primarily due to increased
promotional activity in 1997 supporting new store openings, offset by
lower rent expense as a percentage of sales due to the decrease in the
number of new stores opened in 1997 versus 1996.
In the first quarter of 1997, selling, general and administrative expenses
equaled $15,126,000, an increase of 18.1% over the same period of last
year. This increase is the result of higher store expenses and increased
corporate overhead costs required to support the continued growth in the
number of stores.
Interest expense equalled $799,000 in the first quarter of 1997, down
slightly from $834,000 in the same period last year. The lower interest
expense was primarily the result of decreased borrowings due to improved
working capital management in the first quarter of 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Changes in Financial Condition
Between December 28, 1996 and March 29, 1997, total current assets
increased $28,283,000 principally the result of inventory which increased
$22,604,000 during the period. The inventory increase results from the
seasonal nature of the Company's business and the new stores opened in
1997.
Over the same period, current liabilities increased $14,174,000, largely
due to a $30,499,000 increase in accounts payable, offset by the
reclassification of $15,440,000 line of credit borrowings to long-term
debt. The increase in account payable related primarily to favorable
dating terms on trade payables extended by vendors to support the seasonal
inventory buildup.
7
<PAGE>
Liquidity and Capital Resources
In the first quarter of 1997, net cash used in operating activities was
$1,313,000 compared with $4,084,000 in first quarter of the prior year.
In the first quarter, cash is typically used to finance operating losses
experienced prior to the Company's peak selling season. The impact of the
increased operating loss in 1997 was offset by reduced working capital
requirements in 1997 relative to 1996.
For the first quarter, cash used in investing activities was $3,571,000
compared with $2,393,000 in the first quarter of the prior year. This
increase results from increased capital expenditures in 1997 as compared
to 1996, primarily due to opening the 1997 new stores earlier in the
season as compared to the last several years. Also, in the first quarter
of 1997, two retail store properties were sold generating proceeds
totaling approximately $1,168,000.
Cash provided by financing activities was $4,930,000 in the first quarter
of 1997 compared with $6,485,000 in the first quarter of 1996. Borrowings
increased primarily to finance the usual first quarter operating loss and
capital expenditures associated with the continued new store openings.
In January of 1997 the Company amended its credit agreement with Wells
Fargo Bank to consolidate the existing line of credit facility, the
project financing facility, and the term loan into one expanded
$38,000,000 line of credit facility. The term of the expanded line of
credit facility was extended through February 16, 2000 and as a result,
the line of credit has been classified as long-term debt on the March 29,
1997 balance sheet. Interest accrues at the lender's reference rate (8.5%
at March 29, 1997) or at LIBOR plus 1.75% at the Company's election.
On February 26, 1997, the Company's Board of Directors approved an
Agreement of Merger providing for the reincorporation of the Company in
Delaware by merger into a wholly-owned subsidiary, and an Agreement and
Plan of Merger providing for the merger of Poolmart USA Inc., a newly-
formed corporation, with and into the Company. Following consummation of
the reincorporation and upon effectiveness of the subsequent merger, (i)
each outstanding share of common stock of the Company would be converted
into $14.50 cash (other than 359,505 shares owned primarily by members of
management, including Michael Fourticq, the Chairman of the Company, and
Brian McDermott, the President and CEO of the Company and other than
shares as to which the holders perfect dissenters' rights) and (ii)
outstanding options covering approximately 846,000 shares of common stock,
including those not yet vested, would be cancelled for payment of the
difference between the exercise price and $14.50 per share. The total
value of the shares and options at the transaction price of $14.50
approximates $101 million. The proposed mergers are subject to various
conditions, including financing and approval by the Company's
shareholders. The shareholders are expected to vote on June 10, 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.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 5: OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LESLIE'S POOLMART
Date: May 12, 1997 /s/ Robert D. Olsen
---------------------------------
Robert D. Olsen
Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 133
<SECURITIES> 0
<RECEIVABLES> 2,900
<ALLOWANCES> 0
<INVENTORY> 56,552
<CURRENT-ASSETS> 69,163
<PP&E> 35,557
<DEPRECIATION> 0
<TOTAL-ASSETS> 113,656
<CURRENT-LIABILITIES> 42,336
<BONDS> 0
0
0
<COMMON> 32,646
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 113,656
<SALES> 0
<TOTAL-REVENUES> 23,816
<CGS> 0
<TOTAL-COSTS> 18,254
<OTHER-EXPENSES> 15,190
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 799
<INCOME-PRETAX> (10,427)
<INCOME-TAX> 4,326
<INCOME-CONTINUING> (6,101)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,101)
<EPS-PRIMARY> (.90)
<EPS-DILUTED> (.90)
</TABLE>
