<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 December 27, 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 0-18741
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 February 4, 1998 the number of outstanding shares of the
Registrant's common stock was 1,433,643.
- --------------------------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 27, September 27,
1997 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
CASH $ 5,503 $ 14,829
RECEIVABLES, NET 2,130 4,368
INVENTORIES, NET 41,667 40,239
PREPAID EXPENSES 1,849 1,523
DEFERRED TAX ASSETS 4,313 4,313
-------- --------
TOTAL CURRENT ASSETS 55,462 65,272
PROPERTY, PLANT AND EQUIPMENT, NET 36,311 35,694
GOODWILL, NET 7,987 8,051
DEFERRED FINANCING COSTS 3,438 3,564
OTHER ASSETS 670 671
-------- --------
$103,868 $113,252
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
ACCOUNTS PAYABLE $ 11,050 $ 11,838
ACCRUED LIABILITIES 11,887 10,544
LINE-OF-CREDIT BORROWINGS -- --
CURRENT PORTION OF LONG-TERM DEBT 87 87
INCOME TAXES 1,542 6,092
-------- --------
TOTAL CURRENT LIABILITIES 24,566 28,561
DEFERRED TAX LIABILITIES 3,393 3,393
LONG-TERM DEBT, NET OF CURRENT PORTION 1,279 1,290
SENIOR NOTES 90,000 90,000
PREFERRED STOCK 26,691 25,853
SHAREHOLDERS' EQUITY
- --------------------
COMMON STOCK (47,349) (47,349)
RETAINED EARNINGS 5,288 11,504
-------- --------
TOTAL SHAREHOLDERS' EQUITY (42,061) (35,845)
-------- --------
$103,868 $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
------------------------------------
December 27, December 28,
1997 1996
------------ ------------
<S> <C> <C>
SALES $ 24,238 $ 21,084
COST OF SALES 17,512 16,686
--------- ---------
GROSS PROFIT 6,726 4,398
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 13,323 10,646
AMORTIZATION OF ACQUISITION COSTS 64 64
LOSS ON DISPOSITION OF FIXED ASSETS 106 655
--------- ---------
LOSS FROM OPERATIONS (6,767) (6,967)
INTEREST EXPENSE 2,429 622
--------- ---------
LOSS BEFORE INCOME TAX BENEFIT (9,196) (7,589)
INCOME TAX BENEFIT 3,814 3,149
--------- ---------
NET LOSS (5,382) (4,440)
--------- ---------
SERIES A PREFERRED STOCK DIVIDENDS
AND ACCRETION 834 --
INCOME APPLICABLE TO COMMON SHAREHOLDERS $ (6,216) $ (4,440)
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
December 27, December 28,
1997 1996
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
NET LOSS $(5,382) $(4,440)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 1,562 1,116
LOSS ON DISPOSITION OF FIXED ASSETS 106 655
INCOME TAX BENEFIT (3,814) (3,149)
NET CHANGE IN RECEIVABLES,
INVENTORY AND PAYABLES 629 (60)
OTHER NET (320) 70
------- -------
NET CASH (USED IN) OPERATING ACTIVITIES (7,219) (5,808)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (2,096) (1,969)
PROCEEDS FROM DISPOSITIONS OF PROPERTY,
PLANT AND EQUIPMENT -- --
------- -------
NET CASH USED IN INVESTING ACTIVITIES (2,096) (1,969)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
NET LINE-OF-CREDIT BORROWINGS -- 8,177
PAYMENTS OF LONG-TERM DEBT (11) (437)
------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (11) 7,740
------- -------
NET DECREASE IN CASH (9,326) (37)
CASH AT BEGINNING OF PERIOD 14,829 124
------- -------
CASH AT END OF PERIOD $ 5,503 $ 87
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
LESLIE'S POOLMART, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1997
(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 month periods ended December 27, 1997 and December 28, 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 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
year then ended. The results of operations for the three months ended
December 27, 1997 and December 28, 1996 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 287 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 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 the accompanying statement of
shareholders' equity. 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.
5
<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:
December 27, December 28,
1997 1996
------------ ------------
(in thousands)
Raw materials and supplies $ 1,403,000 $ 1,659,000
Finished goods 40,264,000 32,289,000
------------ ------------
Total Inventories $ 41,667,000 $ 33,948,000
============ ============
(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. The 1996
and 1995 fiscal years include 52 weeks, while the nine month fiscal year
ended September 27, 1997 includes 39 weeks. Each fiscal quarter will
have 13 weeks and will close on the Saturday closest to December 31,
March 31 and June 30.
(5) SUBSEQUENT EVENT
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 287 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.
6
<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
-------------------------
December 27, December 28,
1997 1996
------------ ------------
<S> <C> <C>
Sales $24,238 $21,084
Loss from Operations (6,767) (6,967)
Depreciation 1,372 1,036
Goodwill Amortization 64 63
Loss on Asset Dispositions 106 655
LIFO (Gain)/Loss -- 284
------- -------
EBITDA Loss $(5,225) $(4,929)
</TABLE>
In the first quarter ended December 27, 1997, the Company reported an EBITDA
loss of $5,225,000, as compared to an EBITDA loss of $4,929,000 for the December
quarter of 1996. EBITDA represents earnings before interest, taxes,
depreciation, amortization, loss or gain on fixed asset dispositions, and LIFO
adjustments. During the quarter, 2 new stores were opened and 2 stores were
closed, bringing the total store count to 278 on December 27, 1997, up from 259
in December of 1996. The Company historically incurs an operating loss in the
quarter of the year ending in December and generally expects such losses to grow
as new stores continue to be added at a significant rate.
<TABLE>
<CAPTION>
Sales
-------------------------
(In thousands)
Three Months Ended
-------------------------
December 27, December 28,
1997 1996
------------ ------------
<S> <C> <C>
Retail Stores $22,697 $19,238
Mail Order 749 919
Service Departments 792 927
------- -------
$24,238 $21,084
</TABLE>
Sales for the first quarter increased 15.0% over the December quarter of 1996.
Retail store sales grew 18.0% 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 16.2%. The 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 rollout of the
store-based service operations. Commercial sales increased about 28% in the
quarter compared to the same period of last year, and contributed about 4% to
the comparable store sales growth. Additionally, the Company started to convert
its remaining Service Department operations into store-based service operations,
and as a result, is reflecting these service sales in retail store sales. This
also added approximately 4% to the first quarter comparable store sales growth.
Mail order catalog sales in the first quarter declined 18.5% compared to the
same quarter of the prior year. Service Department sales declined 14.6% in the
quarter, reflecting the transition to the store-based service operations
described above.
7
<PAGE>
Gross profit for the three months ended December 27, 1997 equaled $6,726,000 or
27.7% of sales, 6.8% of sales higher than was reported in the same quarter of
the prior year. The higher gross margin is primarily due to increased product
gross margins and lower inventory shrinkage expense, as well as a decrease in
rent expense as a percentage of sales due to the reduced number of new stores
opened in 1997 versus 1996.
In the first quarter of 1998, selling, general and administrative expenses
equaled $13,323,000, an increase of 25.1% over the same period of last year.
This increase is largely the result of higher store expenses and increased
overhead costs associated with the continued growth in the number of stores.
Interest expense equaled $2,429,000 in the first quarter of 1998, up
significantly from $622,000 in the same period of last year. Increased
borrowings resulting from the Recapitalization transaction and related issuance
of the $90,000,000 in Senior Notes produced the higher interest expense in 1998.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Changes in Financial Condition
Between September 27, 1997 and December 27, 1997, total current assets decreased
$9,810,000 principally the result of lower cash balances which decreased
$9,326,000 during the period. The cash decreased due to the seasonal nature of
the Company's business, specifically, funding the usual December quarter
operating loss.
During the same period, current liabilities decreased $3,995,000, largely due to
a $4,550,000 decrease in current income tax liabilities. The reduced income tax
liability reflects the accrued tax benefit associated with the quarterly
operating loss.
Liquidity and Capital Resources
In the quarter ended December 1997, net cash used in operating activities was
$7,219,000 compared with $5,808,000 in the December quarter of the prior year.
In the December quarter, cash is typically used to finance the operating losses
experienced outside of the Company's peak selling season. In the December
quarter, cash used in investing activities was $2,096,000, up very slightly from
$1,969,000 in the same quarter of the prior year.
Cash used in financing activities was $11,000 in the quarter ended December 1997
compared with cash provided of $7,740,000 in the same quarter of 1996. In 1996,
line-of-credit borrowings increased primarily to finance the usual December
quarter operating loss whereas, in 1997, no additional borrowings were needed as
the Company had sufficient cash balances available.
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
ITEM 6: Exhibits and Reports on Form 8-K
(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: February 6, 1998 /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> OCT-03-1998
<PERIOD-START> SEP-28-1997
<PERIOD-END> DEC-27-1997
<CASH> 5,503
<SECURITIES> 0
<RECEIVABLES> 2,130
<ALLOWANCES> 0
<INVENTORY> 41,667
<CURRENT-ASSETS> 55,462
<PP&E> 36,311
<DEPRECIATION> 0
<TOTAL-ASSETS> 103,868
<CURRENT-LIABILITIES> 24,566
<BONDS> 0
26,691
0
<COMMON> (47,349)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 103,868
<SALES> 0
<TOTAL-REVENUES> 24,238
<CGS> 0
<TOTAL-COSTS> 17,512
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,429
<INCOME-PRETAX> (9,196)
<INCOME-TAX> 3,814
<INCOME-CONTINUING> (5,382)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,382)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
