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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 April 1, 2000.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 May 12, 2000 the number of outstanding shares of the Registrant's common
stock was 1,433,643.
_______________________________________________________________________________
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
April 1, October 2,
2000 1999
---------- ----------
ASSETS (UNAUDITED)
- ------
<S> <C> <C>
CASH $ 200 $ 193
RECEIVABLES, NET 5,066 7,350
INVENTORIES, NET 82,860 58,729
PREPAID EXPENSES 2,496 2,128
DEFERRED TAX ASSETS 5,122 5,122
DEFERRED INCOME TAX CHARGE 11,763 --
-------- --------
TOTAL CURRENT ASSETS 107,507 73,522
PROPERTY, PLANT AND EQUIPMENT, NET 49,254 47,336
GOODWILL, NET 8,253 8,392
NON-COMPETE COVENANT, NET 395 627
DEFERRED FINANCING COSTS, NET 2,187 2,460
OTHER ASSETS 423 443
-------- --------
$168,019 $132,780
======== ========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
- ---------------------------------------
ACCOUNTS PAYABLE $ 53,085 $ 16,937
ACCRUED LIABILITIES 16,008 15,462
CURRENT PORTION OF LONG-TERM DEBT 100 101
INCOME TAXES -- 4,999
-------- --------
TOTAL CURRENT LIABILITIES 69,193 37,499
DEFERRED TAX LIABILITIES 3,106 3,106
LINE-OF-CREDIT BORROWINGS 31,005 7,512
LONG-TERM DEBT, NET OF CURRENT PORTION 1,082 1,095
SENIOR NOTES 90,000 90,000
PREFERRED STOCK 35,318 33,225
SHAREHOLDERS' (DEFICIT)
- -----------------------
COMMON STOCK (45,277) (45,701)
RETAINED EARNINGS/(DEFICIT) (16,408) 6,044
-------- --------
TOTAL SHAREHOLDERS' DEFICIT (61,685) (39,657)
-------- --------
$168,019 $132,780
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED BALANCE SHEETS
2
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LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
------------------
April 1, April 3,
2000 1999
-------- --------
<S> <C> <C>
SALES $ 37,683 $ 33,389
COST OF SALES 27,883 24,897
-------- --------
GROSS PROFIT 9,800 8,492
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 25,818 22,655
AMORTIZATION OF ACQUISITION COSTS 186 185
LOSS ON DISPOSITION OF FIXED ASSETS 335 44
-------- --------
LOSS FROM OPERATIONS (16,539) (14,392)
INTEREST EXPENSE 3,409 3,052
-------- --------
LOSS BEFORE INCOME TAX BENEFIT (19,948) (17,444)
INCOME TAX BENEFIT 8,996 7,763
-------- --------
NET LOSS (10,952) (9,681)
-------- --------
SERIES A PREFERRED STOCK DIVIDENDS
AND ACCRETION 1,065 957
LOSS APPLICABLE TO COMMON SHAREHOLDERS $(12,017) $(10,638)
-------- ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
-----------------------
April 1, April 3,
2000 1999
--------- --------
SALES $ 68,573 $ 59,521
COST OF SALES 51,421 44,783
---------- --------
GROSS PROFIT 17,152 14,738
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 46,787 39,756
AMORTIZATION OF ACQUISITION COSTS 371 371
LOSS ON DISPOSITION OF FIXED ASSETS 636 171
---------- --------
LOSS FROM OPERATIONS (30,642) (25,560)
INTEREST EXPENSE 6,442 5,694
---------- --------
LOSS BEFORE INCOME TAX BENEFIT (37,084) (31,254)
INCOME TAX BENEFIT 16,725 13,908
---------- --------
NET LOSS (20,359) (17,346)
---------- --------
SERIES A PREFERRED STOCK DIVIDENDS
AND ACCRETION 2,093 1,880
LOSS APPLICABLE TO COMMON SHAREHOLDERS $(22,452) $(19,226)
========== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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LESLIE'S POOLMART, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Six Months Ended
----------------------
April 1, April 3,
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
NET LOSS $(20,359) $(17,346)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 4,455 4,022
LOSS ON DISPOSITION OF FIXED ASSETS 636 172
NON-CASH COMPENSATION CHARGE 424 --
INCOME TAX BENEFIT (16,725) (13,908)
NET CHANGE IN RECEIVABLES,
INVENTORY AND PAYABLES 14,810 6,908
OTHER, NET (348) (1,920)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (17,107) (22,072)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
- -----------------------------------------------
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (6,407) (10,061)
PROCEEDS ON DISPOSITIONS OF PROPERTY, PLANT
AND EQUIPMENT 42 --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (6,365) (10,061)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
LINE-OF-CREDIT BORROWINGS, NET 23,493 22,768
PAYMENTS OF LONG-TERM DEBT (14) (10)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 23,479 22,758
-------- --------
NET INCREASE/(DECREASE) IN CASH 7 (9,375)
CASH AT BEGINNING OF PERIOD 193 9,564
-------- --------
CASH AT END OF PERIOD $ 200 $ 189
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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LESLIE'S POOLMART, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 2000
(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 six month periods ended April 1, 2000 and April 3, 1999 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 1999 Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 22, 1999. 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 October 2, 1999 and for the year
then ended. The results of operations for the three and six months ended
April 1, 2000 and April 3, 1999 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 markets its products under the trade
name Leslie's Swimming Pool Supplies through 382 retail stores in 30
states; a nationwide mail order catalog; and a new 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.
On January 3, 2000, Brian P. McDermott was appointed Chairman of the
Board, and Lawrence H. Hayward joined the Company as President and Chief
Executive Officer, the post previously occupied by Mr. McDermott. Mr.
Hayward also serves on the Board of Directors of the Company. Michael J.
Fourticq, the outgoing Chairman of the Board, remains on the Board of
Directors.
Mr. Hayward joined Leslie's from Fleming Companies, Inc. In 1999, while at
Fleming, Mr. Hayward served as President of ABCO Desert Markets, an
Arizona based retail chain. From 1995 to 1999, Mr. Hayward served as
President and CEO of Carr Gottstein Foods Company, Alaska's largest food
and drug retailer and wholesale distributor. Between 1990 to 1995, Mr.
Hayward served as Vice President, Retail Operations for Buttrey Food &
Drug. Prior to this, Mr. Hayward served in positions of increasing
responsibility at American Stores Companies.
6
<PAGE>
(3) Inventories
Inventories consist of the following:
April 1, April 3,
2000 1999
-------- --------
(in thousands)
Raw materials and supplies $ 1,071 $ 1,049
Finished goods 81,789 72,112
-------- --------
Total Inventories $ 82,860 $ 73,161
======== ========
(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 1999 fiscal
year ended on October 2, 1999 and included 52 weeks.
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 382 Company-owned retail stores in 30 states;
a nationwide mail order catalog; and a new 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
Summary
-----------------------------------------
(In thousands)
Three Months Ended Six Months Ended
------------------- -------------------
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
-------- -------- -------- --------
Sales $ 37,683 $ 33,389 $ 68,573 $ 59,521
Loss from Operations (16,539) (14,392) (30,642) (25,560)
Depreciation 1,892 1,789 3,811 3,377
Amortization 186 185 371 371
Non-Cash Compensation Charge 424 -- 424 --
Loss on Asset Dispositions 335 45 636 172
-------- -------- -------- --------
EBITDA Loss $(13,702) $(12,373) $(25,400) $(21,640)
======== ======== ======== ========
7
<PAGE>
In the second quarter ended April 1, 2000, the Company reported an EBITDA
loss of $13,702,000, as compared to an EBITDA loss of $12,373,000 for the
second quarter of fiscal 1999. EBITDA represents earnings before interest,
taxes, depreciation, amortization, loss or gain on fixed asset
dispositions, and any other non-cash income or expenses. During the
quarter, 15 new stores were opened and 3 stores were closed, bringing the
total store count to 382 on April 1, 2000, up from 350 on April 3, 1999.
The Company historically incurs an operating loss in the quarter ending in
March and generally expects such losses to grow as new stores continue to
be added at a significant rate.
Sales
--------------------------------------
(In thousands)
Three Months Ended Six Months Ended
------------------ ------------------
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
-------- -------- -------- --------
Retail Stores $ 37,068 $ 32,826 $ 67,434 $ 58,372
Mail Order 615 563 1,139 1,149
-------- -------- -------- --------
Total Sales $ 37,683 $ 33,389 $ 68,573 $ 59,521
Total sales for the second quarter increased 12.9% and are up 15.2% in the
fiscal year-to-date. Retail store sales grew 12.9% over prior year,
resulting in a year-to-date sales growth of 15.5%. Sales grew as a result
of an increase in the total number of stores in operation in 2000 versus
1999, as well as a comparable store sales increase of 7.1% in the second
quarter and 9.2% year-to-date. 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
rapid growth of store-based service operations.
Mail order catalog sales increased 9.2% in the second quarter due to a new
internet e-commerce capability for commercial customers.
Gross profit for the three months ended April 1, 2000 equaled $9,800,000
or 26.0% of sales, 0.6% of sales higher than was reported in the same
quarter of the prior year. This brings the year-to-date gross margin to
25.0%, 0.2% higher than the prior year. The increased gross margin
reflects a combination of lower acquisition costs for some products and a
focus on higher margin categories, such as parts and specialty chemicals.
In the second quarter of fiscal 2000, selling, general and administrative
expenses equaled $25,818,000, an increase of 14.0% versus 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. Also during the quarter, $424,000 was charged against
SG&A for non-cash compensation expenses related to changes in the option
agreement with the former president.
Interest expense equaled $3,409,000 in the second quarter of fiscal 2000,
up 11.7% from the same period of last year. Increased line-of-credit
borrowings produced the higher interest expense in 2000.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Changes in Financial Condition
Between October 2, 1999 and April 1, 2000, total current assets increased
$33,985,000 principally is a result of inventory which increased
$24,131,000 during the period. The inventory increase is due to several
early buys of merchandise, for which extended dating terms were received
from vendors, in preparation for the upcoming selling season.
During the same period, current liabilities increased $31,694,000, due to
a $36,148,000 increase in accounts payable partially offset by a
$4,999,000 decrease in current income tax liabilities. The higher accounts
payable reflects the increased inventory in the period while the reduced
income tax liability reflects the accrued tax benefit associated with the
year-to-date operating loss.
8
<PAGE>
Liquidity and Capital Resources
In the six months ended April 1, 2000, net cash used in operating
activities was $17,107,000 compared with $22,072,000 in the same period of
the prior year. During these six months, line of credit borrowings are
typically used to finance the operating losses experienced outside of the
Company's peak selling season. In the first six months, cash used in
investing activities was $6,365,000, down from $10,061,000 in the same
period of the prior year. This decrease resulted from lower capital
expenditures associated with reduced new store openings planned for fiscal
2000 versus the prior year.
Cash provided by financing activities was $23,479,000 in the first six
months of fiscal 2000, compared to $22,758,000 in the same period of last
year. Line-of-credit borrowings increased primarily to finance first and
second quarter operating losses and capital expenditures associated with
the continued new store openings.
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.
YEAR 2000 ISSUE
The computer systems issue relating to dates beyond 1999 is the result of
many computer programs being written to use and store dates with only the
last two digits of the applicable year. As a result, these programs may
assume that all two digit dates are twentieth century dates. This could
have resulted in system failure, anomalous system behavior or incorrect
system reporting. To date, the Company has not experienced any significant
issues related to Year 2000.
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, INC.
Date: May 16, 2000 /s/ Donald J. Anderson
______________________________
Donald J. Anderson
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> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-03-1999
<PERIOD-END> APR-01-2000
<CASH> 200
<SECURITIES> 0
<RECEIVABLES> 5,066
<ALLOWANCES> 0
<INVENTORY> 82,860
<CURRENT-ASSETS> 107,507
<PP&E> 49,254
<DEPRECIATION> 0
<TOTAL-ASSETS> 168,019
<CURRENT-LIABILITIES> 69,193
<BONDS> 0
35,318
0
<COMMON> (45,277)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 168,019
<SALES> 0
<TOTAL-REVENUES> 68,573
<CGS> 0
<TOTAL-COSTS> 51,421
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,442
<INCOME-PRETAX> (37,084)
<INCOME-TAX> (16,725)
<INCOME-CONTINUING> (20,359)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,359)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
