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 26, 2004
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 incorporation or organization) |
(I.R.S. Employer Identification No.) |
3925 E. Broadway Road
Phoenix, Arizona 85040
(Address of principal executive offices)
Registrant’s telephone number, including area code: (602) 366-3999
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of the registrant’s Common Stock outstanding at August 4, 2004 was 7,369,502 shares.
AND SUBSIDIARIES
FORM 10-Q
For the Quarterly Period Ended June 26, 2004
INDEX
PART I - FINANCIAL INFORMATION
(Dollar amounts in thousands)
| June 26, 2004 |
September 27, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 14,467 | $ | 10,022 | ||||
| Accounts and other receivables, net |
5,356 | 7,801 | ||||||
| Inventories |
84,380 | 53,030 | ||||||
| Prepaid expenses and other current assets |
2,066 | 1,301 | ||||||
| Deferred tax assets |
6,028 | 6,028 | ||||||
| Total current assets |
112,297 | 78,182 | ||||||
| Property, plant and equipment, at cost, net of accumulated depreciation |
39,446 | 40,759 | ||||||
| Goodwill, net |
7,460 | 7,460 | ||||||
| Deferred financing costs, net |
1,932 | 2,069 | ||||||
| Other assets |
479 | 466 | ||||||
| Total assets |
$ | 161,614 | $ | 128,936 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 52,889 | $ | 26,217 | ||||
| Accrued expenses |
30,047 | 28,739 | ||||||
| Income taxes payable |
7,115 | 7,816 | ||||||
| Total current liabilities |
90,051 | 62,772 | ||||||
| Revolving commitment |
— | |||||||
| Other long term liabilities |
12,884 | 7,914 | ||||||
| Senior notes |
59,495 | 59,495 | ||||||
| Deferred tax liabilities |
1,017 | 1,017 | ||||||
| Total liabilities |
163,447 | 131,198 | ||||||
| Commitments and contingencies |
— | — | ||||||
| Redeemable preferred stock, $0.001 par value; authorized – 2,000,000 shares; Issued and outstanding – 46,216 Series A at June 26, 2004 and 45,915 Series A at September 27, 2003 |
46,215 | 45,915 | ||||||
| Stockholder’s equity (deficit): |
||||||||
| Common stock, $0.001 par value; authorized - 12,000,000 shares, Issued and outstanding - 7,369,502 shares at June 26, 2004 and September 27, 2003, respectively |
7 | 7 | ||||||
| Stock subscriptions receivable |
(450 | ) | (450 | ) | ||||
| Paid-in capital |
(44,714 | ) | (44,714 | ) | ||||
| Retained deficit |
(2,891 | ) | (3,020 | ) | ||||
| Total stockholders’ deficit |
(48,048 | ) | (48,177 | ) | ||||
| Total liabilities and stockholders’ equity (deficit) |
$ | 161,614 | $ | 128,936 | ||||
See accompanying notes to consolidated financial statements.
1
Consolidated Statements of Operations
(Dollar amounts in thousands)
| 13 Weeks Ended |
39 Weeks Ended |
|||||||||||||||
| June 26, 2004 |
June 28, 2003 |
June 26, 2004 |
June 28, 2003 |
|||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Sales |
$ | 151,953 | $ | 139,026 | $ | 231,621 | $ | 210,477 | ||||||||
| Cost of merchandise sold and services sold, including warehousing and transportation expenses |
76,730 | 70,051 | 119,269 | 109,394 | ||||||||||||
| Gross profit |
75,223 | 68,975 | 112,352 | 101,083 | ||||||||||||
| Selling, general and administrative expenses |
41,445 | 37,430 | 97,802 | 91,147 | ||||||||||||
| Operating income |
33,778 | 31,545 | 14,550 | 9,936 | ||||||||||||
| Other expenses/(income): |
||||||||||||||||
| Interest expense |
1,826 | 2,625 | 5,443 | 7,859 | ||||||||||||
| Debt restructuring expense |
— | 338 | — | 338 | ||||||||||||
| Interest income |
(2 | ) | (12 | ) | (12 | ) | (28 | ) | ||||||||
| Other expense |
83 | 68 | 136 | 280 | ||||||||||||
| Total other expense |
1,907 | 3,019 | 5,567 | 8,449 | ||||||||||||
| Income before income taxes |
31,871 | 28,526 | 8,983 | 1,487 | ||||||||||||
| Income tax expense |
12,614 | 11,189 | 3,584 | 601 | ||||||||||||
| Net income |
19,257 | 17,337 | 5,399 | 886 | ||||||||||||
| Series A Preferred Stock dividends and accretion |
(1,822 | ) | (1,573 | ) | (5,270 | ) | (4,560 | ) | ||||||||
| Income/(loss) applicable to common shareholders |
$ | 17,435 | $ | 15,764 | $ | 129 | $ | (3,674 | ) | |||||||
See accompanying notes to consolidated financial statements.
2
Consolidated Statements of Cash Flows
(Dollar amounts in thousands)
| 39 Weeks Ended |
||||||||
| June 26, 2004 |
June 28, 2003 |
|||||||
| (unaudited) | (unaudited) | |||||||
| Operating activities: |
||||||||
| Net income |
$ | 5,399 | $ | 886 | ||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
7,700 | 6,918 | ||||||
| Amortization of loan fees and discounts |
397 | 858 | ||||||
| Allowance for doubtful accounts |
300 | 333 | ||||||
| Loss on disposition of assets |
136 | 280 | ||||||
| Changes in operating assets and liabilities |
||||||||
| Accounts and other receivables |
2,145 | (1,019 | ) | |||||
| Inventories |
(31,350 | ) | (20,657 | ) | ||||
| Prepaid expenses and other current assets |
(765 | ) | (1,599 | ) | ||||
| Other assets |
(13 | ) | 64 | |||||
| Accounts payable and accrued expenses |
27,980 | 26,044 | ||||||
| Income taxes payable |
(701 | ) | (4,578 | ) | ||||
| Net cash provided by operating activities |
11,228 | 7,530 | ||||||
| Investing activities: |
||||||||
| Purchase of property, plant and equipment |
(7,133 | ) | (6,418 | ) | ||||
| Proceeds from disposition of property, plant and equipment |
610 | 3 | ||||||
| Net cash used in investing activities |
(6,523 | ) | (6,415 | ) | ||||
| Financing activities: |
||||||||
| Payments on long-term debt |
— | (14 | ) | |||||
| Proceeds from issuance of common stock, net |
— | 31 | ||||||
| Payment of deferred financing cost |
(260 | ) | (1,885 | ) | ||||
| Net cash used in financing activities |
(260 | ) | (1,838 | ) | ||||
| Net increase/(decrease) in cash and cash equivalents |
4,445 | (723 | ) | |||||
| Cash and cash equivalents at beginning of period |
10,022 | 17,996 | ||||||
| Cash and cash equivalents at end of period |
$ | 14,467 | $ | 17,273 | ||||
See accompanying notes to consolidated financial statements.
3
Leslie’s Poolmart, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
| (1) | Presentation and Financial Information |
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the 39-week period ended June 26, 2004 are not necessarily indicative of the results that may be expected for the year ended October 2, 2004.
The balance sheet at June 26, 2004 has been derived from the unaudited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto included in Leslie’s Poolmart, Inc.’s annual report on Form 10-K for the year ended September 27, 2003.
| (2) | Organization and Operation |
Leslie’s Poolmart, Inc. which is sometimes referred to as the “Company” in this report, 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 473 retail stores in 36 states; a nationwide mail order catalog; and an 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 in June and September.
| (3) | Inventories |
Inventories consists of the following:
| Amounts in thousands |
June 26, 2004 |
September 27, 2003 | ||||
| Raw materials and supplies |
$ | 1,622 | $ | 371 | ||
| Finished goods |
82,758 | 52,659 | ||||
| Total Inventories |
$ | 84,380 | $ | 53,030 | ||
| (4) | Line of Credit Agreement |
The Company’s Loan and Security Agreement (the “Loan and Security Agreement”) with Wells Fargo Retail Finance LLC. terminates on January 15, 2008 and allows the Company to optionally increase its maximum borrowing to $75.0 million. The Loan and Security Agreement contains certain financial covenants that include minimum calculated EBITDA levels, maximum capital expenditure amounts, Fixed Charge Coverage Ratio, and Senior Leverage Ratio. As of June 26, 2004, the Company was in compliance with these covenants.
4
| (5) | Stock Based Compensation |
The Company has adopted the provisions of SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure” which amends SFAS No. 123 “Accounting for Stock-Based Compensation”. The Company has adopted the disclosure only provision of SFAS No. 123 and accordingly recognizes no compensation expense for employee stock option grants. Had compensation expense for these plans been determined consistent with SFAS No. 123, the Company net income would have been decreased by $28,000 and $15,000 for the 13 weeks ended June 26, 2004 and June 28, 2003, respectively and $75,000 and $45,000 for the 39 weeks ended June 26, 2004 and June 28, 2003, respectively.
| (6) | Recent Accounting Pronouncements |
FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), was issued in January 2003 and addresses consolidation by business enterprises of variable interest entities. FIN 46 clarifies existing accounting for whether variable interest entities, as defined in FIN 46, should be consolidated in financial statements based upon the investee’s ability to finance activities without additional financial support and whether investors possess characteristics of a controlling financial interest. FIN 46 applies to public entities that have interests in special purpose entities for periods