<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 June 27, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the transition period from _______________ to ____________
COMMISSION FILE NUMBER 0-18741
LESLIE'S POOLMART, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4620298
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
20630 Plummer Street, Chatsworth, California 91311
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (818) 993-4212
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _____
-----
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes ______ No _______
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
As of August 3, 1998 the number of outstanding shares of the Registrant's common
stock was 1,433,643.
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 27, September 27,
1998 1997
----------- --------------
(UNAUDITED)
ASSETS
- ------
<S> <C> <C>
CASH $ 4,311 $ 14,829
RECEIVABLES, NET 4,737 4,368
INVENTORIES, NET 61,542 40,239
PREPAID EXPENSES 2,365 1,523
DEFERRED TAX ASSETS 4,313 4,313
-------- --------
TOTAL CURRENT ASSETS 77,268 65,272
PROPERTY, PLANT AND EQUIPMENT, NET 40,455 35,694
GOODWILL, NET 8,797 8,051
NON-COMPETE CONVENANT 1,215 --
DEFERRED FINANCING COSTS 3,154 3,564
OTHER ASSETS 627 671
-------- --------
$131,516 $113,252
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
ACCOUNTS PAYABLE $ 31,599 $ 11,838
ACCRUED LIABILITIES 17,524 10,544
CURRENT PORTION OF LONG-TERM DEBT 87 87
INCOME TAXES 2,536 6,092
-------- --------
TOTAL CURRENT LIABILITIES 51,746 28,561
DEFERRED TAX LIABILITIES 3,393 3,393
LONG-TERM DEBT, NET OF CURRENT PORTION 1,243 1,290
SENIOR NOTES 90,000 90,000
PREFERRED STOCK 28,437 25,853
SHAREHOLDERS' EQUITY
- ---------------------
COMMON STOCK (47,432) (47,349)
RETAINED EARNINGS 4,129 11,504
-------- --------
TOTAL SHAREHOLDERS' DEFICIT (43,303) (35,845)
-------- --------
$131,516 $113,252
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED BALANCE SHEETS
2
<PAGE>
LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
--------------------
June 27, June 28,
1998 1997
--------- --------
<S> <C> <C>
SALES $110,851 $98,034
COST OF SALES 64,542 57,176
-------- -------
GROSS PROFIT 46,309 40,858
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 27,277 23,788
AMORTIZATION OF ACQUISITION COSTS 185 63
RECAPITALIZATION COSTS -- 794
LOSS ON DISPOSITION OF FIXED ASSETS 42 201
-------- -------
INCOME FROM OPERATIONS 18,805 16,012
INTEREST EXPENSE 2,689 948
-------- -------
INCOME BEFORE INCOME TAXES 16,116 15,064
INCOME TAX PROVISION 7,021 6,288
-------- -------
NET INCOME 9,095 8,776
-------- -------
SERIES A PREFERRED STOCK DIVIDENDS
AND ACCRETION 885 153
INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 8,210 $ 8,623
======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------
June 27, June 28,
1998 1997
--------- ---------
<S> <C> <C>
SALES $159,492 $142,934
COST OF SALES 100,721 92,116
-------- --------
GROSS PROFIT 58,771 50,818
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 58,480 49,492
AMORTIZATION OF ACQUISITION COSTS 385 188
RECAPITALIZATION COSTS -- 794
LOSS ON DISPOSITION OF FIXED ASSETS 148 927
-------- --------
LOSS FROM OPERATIONS (242) (583)
INTEREST EXPENSE 7,885 2,369
-------- --------
LOSS BEFORE INCOME TAX BENEFIT (8,127) (2,952)
INCOME TAX BENEFIT 3,336 1,187
-------- --------
NET LOSS (4,791) (1,765)
-------- --------
SERIES A PREFERRED STOCK DIVIDENDS
AND ACCRETION 2,584 153
LOSS APPLICABLE TO COMMON SHAREHOLDERS $(7,375) $(1,918)
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------
June 27, June 28,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
NET LOSS $ (4,791) $ (1,765)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 5,165 3,923
LOSS ON DISPOSITION OF FIXED ASSETS 148 927
INCOME TAX BENEFIT (3,336) (1,187)
NET CHANGE IN RECEIVABLES,
INVENTORY AND PAYABLES 4,849 4,728
OTHER, NET (797) 231
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,238 6,857
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (9,229) (7,382)
BUSINESS ACQUISITIONS (2,396) --
------- -------
NET CASH USED IN INVESTING ACTIVITIES (11,625) (7,382)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
NET LINE-OF-CREDIT PAYMENTS -- (7,263)
PROCEEDS FROM ISSUANCE OF SENIOR NOTES -- 90,000
PAYMENTS OF LONG-TERM DEBT (47) (16,697)
PAYMENT OF DEFERRED FINANCING COSTS -- (3,533)
PURCHASE OF COMMON STOCK -- (94,300)
PROCEEDS FROM ISSUANCE OF PREFERRED AND
COMMON STOCK, NET (84) 39,797
------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (131) 8,004
------- -------
NET (DECREASE) INCREASE IN CASH (10,518) 7,479
CASH AT BEGINNING OF PERIOD 14,829 124
------- -------
CASH AT END OF PERIOD $ 4,311 $ 7,603
======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
LESLIE'S POOLMART, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 27, 1998
(UNAUDITED)
(1) PRESENTATION OF FINANCIAL INFORMATION
The financial statements included herein have been prepared by
Leslie's Poolmart, Inc. (the "Company"), without audit, and include all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary for a fair presentation of the results of operations
for the three and nine month periods ended June 27, 1998 and June 28, 1997
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes the disclosures
in these financial statements are adequate to make the information
presented not misleading.
The following material under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is written with
the presumption that the users of the interim financial statements have
read or have access to the Company's 1997 Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 22, 1997. This
document contains the latest audited financial statements and notes
thereto, together with Management's Discussion and Analysis of Financial
Condition and Results of Operations as of September 27, 1997 and for the
nine months then ended. The results of operations for the three and nine
months ended June 27, 1998 and June 28, 1997 are not indicative of the
results for a full year.
(2) ORGANIZATION AND OPERATIONS
Leslie's Poolmart, Inc. is a specialty retailer of swimming pool supplies
and related products. The Company currently markets its products under
the trade name Leslie's Swimming Pool Supplies through 317 retail stores
in 28 states and through mail order catalogs sent to selected swimming
pool owners. The Company also repackages certain bulk chemical products
for retail sale. The Company's business is highly seasonal as the
majority of its sales and all of its operating profits are generated in
the quarters ending June and September.
On June 11, 1997, Leslie's Poolmart (a California corporation "Leslie's
California") reincorporated in Delaware by merging into a wholly-owned
Delaware subsidiary (the "Reincorporation"), changed its name to Leslie's
Poolmart, Inc. and merged Poolmart USA Inc., a newly-formed corporation,
with and into the Company (the "Recapitalization"). As a result of the
Recapitalization, (i) each outstanding share of common stock of Leslie's
California was converted into $14.50 cash (other than 359,505 shares owned
primarily by members of management); and (ii) outstanding options covering
approximately 830,000 shares of common stock, including those not yet
vested, were exercised and retired for payment of the difference between
the exercise price and $14.50 per share. The total value of the shares
and options cashed out approximated $94,300,000, plus $5,229,000 in
expenses associated with this transaction. These costs have been included
in the cost to repurchase the common stock. In connection with the
Recapitalization, the Company changed the authorized capital stock of the
Company to 12,000,000 shares of common stock with a $0.001 par value and
2,000,000 shares of preferred stock with a $0.001 par value.
In order to finance the repurchase of the outstanding common shares and
options, the Company issued $90,000,000 of its 10.375% Senior Notes and
sold 1,074,138 shares of its common stock for proceeds of $15,575,000. As
indicated above, certain directors and members of management converted
some of the Leslie's California common shares which they owned into shares
of the Company's common stock.
6
<PAGE>
Also in connection with the Recapitalization, the Company issued 28,000
shares of its Series A Preferred Stock of the Company, par value $0.001
per share, at $1,000 per share for a total consideration of $28,000,000,
consisting of cash and an exchange of the $10,000,000 principal amount of
Convertible Subordinated Debentures of Leslie's California held by a major
supplier. In connection with this transaction, the holder of the Series A
Preferred Stock received Warrants to purchase up to 15.0% of the shares of
the Company's common stock at a purchase price of $0.01 per share (subject
to adjustment) for a period of ten years.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 27, June 28,
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Raw materials and supplies $ 843 $ 2,071
Finished goods 60,699 51,456
------- -------
Total Inventories $61,542 $53,527
</TABLE>
(4) FISCAL PERIODS
In 1997, the Company changed its fiscal year end from the Saturday closest
to December 31 to the Saturday closest to September 30. Each fiscal
quarter will have 13 weeks and will close on the Saturday closest to
December 31, March 31 and June 30.
(5) BUSINESS ACQUISITIONS
In January 1998, the Company purchased the capital stock of Blackwood &
Simmons, Inc. (dba Marlin Pool Supply), an operator of six swimming pool
supply stores located in the Atlanta, Georgia area, in a cash for stock
transaction. The purchase price, net of excess cash on hand, was
approximately $2,300,000.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Leslie's Poolmart, Inc. is the leading specialty retailer of swimming pool
supplies and related products in the United States. The Company currently
markets its products through 317 Company-owned retail stores in 28 states
and through a nationwide mail order catalog. Leslie's is vertically
integrated, operating a chemical repackaging facility in Ontario,
California. It supplies its retail stores from distribution facilities
located in Ontario, California; Dallas, Texas; and Bridgeport, New Jersey.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business exhibits substantial seasonality which the Company
believes is typical of the swimming pool supply industry. In general,
sales and net income are highest during the fiscal quarters ending in June
and September, which represent the peak months of swimming pool use. Sales
are substantially lower during the quarters ending December and March when
the Company will typically incur operating losses.
7
<PAGE>
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
<TABLE>
<CAPTION>
Summary
--------
(In thousands)
Three Months Ended Nine Months Ended
-------------------- --------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $110,851 $98,034 $159,492 $142,934
Income/(Loss) from Operations 18,805 16,012 (242) (583)
Depreciation 1,563 1,297 4,370 3,585
Amortization 185 63 385 188
Loss on Asset Dispositions 42 201 148 927
Recapitalization Costs -- 794 -- 794
LIFO (Gain)/Loss -- -- -- 284
-------- ------- -------- --------
EBITDA $ 20,595 $18,367 $ 4,661 $ 5,195
</TABLE>
In the third quarter ended June 27, 1998, the Company reported an EBITDA of
$20,595,000, as compared to an EBITDA of $18,367,000 for the June quarter of
1997. EBITDA represents earnings before interest, taxes, depreciation,
amortization, loss or gain on fixed asset dispositions, and LIFO adjustments.
During the quarter, 5 new stores were opened and one store was closed, bringing
the total store count to 317 on June 27, 1998, up from 278 in June of 1997.
<TABLE>
<CAPTION>
Sales
-----------------------------------------
(In thousands)
Three Months Ended Nine Months Ended
------------------- -------------------
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Retail Stores $108,415 $93,448 $154,685 $134,820
Mail Order 2,419 2,927 3,911 4,640
Service Departments 17 1,659 896 3,474
-------- ------- -------- --------
Total $110,851 $98,034 $159,492 $142,934
</TABLE>
Sales for the third quarter increased 13.1% over the June quarter of 1997,
bringing the year-to-date sales growth to 11.6%. Retail store sales grew
16.0% in the third quarter and 14.7% year-to-date, reflecting an increase
in the total number of stores in operation and comparable store sales
which were up 7.8% for the June quarter and 7.7% on a year-to-date basis.
Modest sales growth was seen in the quarter due to the cool, wet weather
experienced in the California market during April, May and June.
The year-to-date increase in comparable store sales is primarily the
result of the maturing of the new stores opened over the last several
years, the continued growth in commercial sales, and the roll out of the
store-based service operations. Commercial sales increased about 19% in
both the quarter and year-to-date periods. In the third quarter, the
Company converted all of its remaining Service Departments into store-
based service operations and, as a result, is reflecting these service
sales in retail store sales. Commercial sales growth and the addition of
service sales contributed about 6% to comparable store sales gains in both
the quarter and year-to-date periods.
Mail order catalog sales in the third quarter declined 17.4% compared to
the same quarter of the prior year reflecting continued cannibalization
from new store openings. Service Department sales were all but eliminated
in the quarter, reflecting the transition to the store-based service
operations described above.
8
<PAGE>
Gross profit for the three months ended June 27, 1998 equaled $46,309,000
or 41.8% of sales, .1% of sales higher than was reported in the same
quarter of the prior year. This brings the year-to-date gross margin to
36.8%, 1.2% of sales higher than the same period in the prior year. The
higher gross margin in the quarter is primarily due to increased product
gross margins, largely offset by higher rent expense as a percentage of
sales due to the increased number of new stores opened in 1998 versus
1997.
In the third quarter of 1998, selling, general and administrative expense
equaled $27,277,000, a 14.7% increase above the $23,788,000 incurred in
the comparable quarter of 1997. This brings the year-to-date selling,
general and administrative expenses to $58,480,000, up 18.2% over the
prior year. The 18.2% year-to-date growth in selling, general and
administrative expenses reflects higher operating expenses associated with
the increased sales and the increased number of stores operated in 1998.
Interest expense equaled $2,689,000 in the third quarter of 1998, and
$7,885,000 year-to-date, up from $948,000 and $2,369,000 in the comparable
periods in 1997. The higher interest expense was primarily due to the
increased borrowings resulting from the Recapitalization transaction and
the related issuance of the $90,000,000 in Senior Notes.
Amortization expense in the third quarter increased to $185,000 from
$63,000 in the prior year due to higher goodwill amortization and the
amortization of non-competition agreements associated with the Marlin
acquisition.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Changes in Financial Condition
Between September 27, 1997 and June 27, 1998, total current assets
increased $11,996,000, principally the result of inventory which increased
$21,303,000 during the period, offset by declines in cash balances. The
inventory increase results from the seasonal nature of the Company's
business and from the new stores opened in 1998. Cash declined during the
period funding the capital expenditures for new store additions and the
Company's pre-tax year-to-date losses.
During the same period, current liabilities increased $23,185,000, largely
due to a $19,761,000 increase in accounts payable. This increase relates
primarily to favorable dating terms on trade payables extended by vendors
to support the seasonal inventory buildup.
Liquidity and Capital Resources
In the nine months ended June 27, 1998, net cash provided by operating
activities was $1,238,000 compared with $6,857,000 in the first nine
months of the prior year. The decline in cash provided by operating
activities is due primarily to the higher year-to-date pre-tax losses in
1998 which, in turn, result from the higher interest expense produced by
the Recapitalization transaction.
Cash used in investing activities was $11,625,000, compared with
$7,382,000 in the first nine months of the prior year. This increase
results from increased capital expenditures in fiscal 1998 as compared to
fiscal 1997, primarily due to opening a larger number of new stores in
1998, and to a small acquisition made during the period. In January 1998,
the Company purchased Marlin Pool Supplies, an operator of six swimming
pool supply stores located in the Atlanta, Georgia area.
Cash used in financing activities was $131,000 in the nine months ended
June 1998. This was comprised of payments on some long term debt and some
residual costs associated with the Recapitalization transaction completed
in 1997.
The Company believes that its internally generated funds, as well as its
borrowing capacity, are adequate to meet its working capital needs,
maturing obligations and capital expenditure requirements, including those
relating to the opening of new stores.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 5: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-A
(a) EXHIBITS
27. FINANCIAL DATA SCHEDULE
(b) REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LESLIE'S POOLMART
Date: August 4, 1998 /s/ Robert D. Olsen
---------------------------------
Robert D. Olsen
Chief Financial Officer
10
<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> 9-MOS
<FISCAL-YEAR-END> OCT-03-1998
<PERIOD-START> SEP-28-1998
<PERIOD-END> JUN-27-1998
<CASH> 4,311
<SECURITIES> 0
<RECEIVABLES> 4,737
<ALLOWANCES> 0
<INVENTORY> 61,542
<CURRENT-ASSETS> 77,268
<PP&E> 40,455
<DEPRECIATION> 0
<TOTAL-ASSETS> 131,516
<CURRENT-LIABILITIES> 51,746
<BONDS> 0
28,437
0
<COMMON> (47,432)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 131,516
<SALES> 0
<TOTAL-REVENUES> 159,492
<CGS> 0
<TOTAL-COSTS> 100,721
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,885
<INCOME-PRETAX> (8,127)
<INCOME-TAX> 3,336
<INCOME-CONTINUING> (4,791)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,791)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
