1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
+--+
|X | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
+--+ SECURITIES EXCHANGE ACT Of 1934
For the quarterly period ended March 31, 2001
--------------------
+--+
| | 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 000-26991
--------------------------------------------------------
Anthony & Sylvan Pools Corporation
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1522456
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6690 Beta Drive, Mayfield Village, Ohio 44143
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (440) 720-3301
----------------------------
--------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
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, as
amended, 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 N/A
--- --- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common shares, as of the latest practicable date.
Class Outstanding at May 10, 2001
--------------------------- ---------------------------
Common Shares, no par value 3,851,335 Shares
1
2
ANTHONY & SYLVAN POOLS CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 2001
INDEX
Sequential
Page No.
--------
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 3
Unaudited Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2001 and 2000 4
Unaudited Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000 5
Notes to Unaudited Condensed Consolidated
Financial Statements 6-8
Independent Accountants' Report 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
Part II - Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 4. Submission of Matters to a Vote of Security
Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANTHONY & SYLVAN POOLS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2001 2000
----------- --------
ASSETS (unaudited) (audited)
------
Current Assets:
Cash and cash equivalents ............................................. $ 715 $ 422
Contract receivable, net ............................................. 7,281 11,592
Inventories, net .................................................... 7,455 5,219
Prepayments and other ............................................... 1,899 1,542
Deferred income taxes ............................................... 4,005 1,914
-------- --------
Total current assets ............................................. 21,355 20,689
Property, Plant and Equipment, net .......................................... 9,569 8,674
Goodwill, net ............................................................... 26,819 27,003
Deferred Income Taxes ....................................................... 939 939
Other ....................................................................... 2,988 2,837
-------- --------
$ 61,670 $ 60,142
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt ................................ $ 42 $ 62
Accounts payable .................................................... 7,813 6,323
Accrued expenses .................................................... 17,058 12,379
Accrued income taxes ................................................ 280 505
-------- --------
Total current liabilities ........................................ 25,193 19,269
Long-term Debt .............................................................. 2,350 1,250
Deferred Tax Liability ...................................................... 945 945
Other Long-term Liabilities ................................................. 2,269 2,254
Commitments and Contingencies ............................................... -- --
Shareholders' Equity:
Serial preferred shares no par value,
1,000,000 shares authorized, none issued .......................... -- --
Common shares no par value,
29,000,000 shares authorized, 4,071,120 shares issued and 3,851,263
outstanding at March 31, 2001 and 4,071,113 shares issued
and outstanding at December 31, 2000 .............................. 35,936 36,261
Treasury shares or equivalents,
1,017,012 and 797,155 shares, respectively ........................ (7,546) (5,546)
Retained earnings ................................................... 2,523 5,709
-------- --------
Total shareholders' equity ................................... 30,913 36,424
-------- --------
$ 61,670 $ 60,142
======== ========
See notes to unaudited condensed consolidated financial statements.
3
4
ANTHONY & SYLVAN POOLS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(In thousands, except share data)
Three Months Ended
March 31,
2001 2000
-------- --------
Net sales ................. $ 26,089 $ 30,391
Cost of sales ............. 21,099 23,938
-------- --------
Gross profit ............ 4,990 6,453
Operating expenses(a) ..... 10,121 9,763
-------- --------
(Loss)from operations .... (5,131) (3,310)
Interest and other expense 146 196
-------- --------
(Loss) before income taxes (5,277) (3,506)
(Benefit) for income taxes (2,091) (1,294)
-------- --------
Net (loss) .............. $ (3,186) $ (2,212)
======== ========
(Loss) per share:
Basic ................... $ (.83) $ (.70)
======== ========
Diluted ................. $ (.83) $ (.70)
======== ========
Average shares outstanding:
Basic ................... 3,837 3,170
======== ========
Diluted ................. 3,837 3,170
======== ========
(a) Includes a non-cash deferred compensation credit of $575 in the quarter
ended March 31, 2001 and an expense of $114 in the quarter ended March
31, 2000.
See notes to unaudited condensed consolidated financial statements.
4
5
ANTHONY & SYLVAN CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Dollars in thousands)
Three Months Ended
March 31,
2001 2000
------- -------
Cash Flows from Operating Activities:
Net loss .......................................................... $(3,186) $(2,212)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ........................... 820 685
Deferred income taxes ................................... (2,091) --
Non-cash deferred compensation .......................... (575) 114
Other ................................................... -- (8)
Changes in operating assets and liabilities
net of assets acquired
Contract receivables ......................................... 4,311 2,501
Inventories .................................................. (2,236) (2,343)
Prepayments and other ........................................ (357) (257)
Accounts payable ............................................. 1,490 3,540
Accrued expenses and other ................................... 4,454 1,569
------- -------
Net cash provided by operating activities ................ 2,630 3,589
------- -------
Cash Flows from Investing Activities:
Additions to property, plant and equipment ........................ (1,532) (609)
Other ............................................................. (135) (161)
------- -------
Net cash used in investing activities .................... (1,667) (770)
------- -------
Cash Flows from Financing Activities:
Proceeds from/(repayment of) long-term debt ....................... 1,080 (2,543)
Proceeds from issuance of shares .................................. 250 270
Purchase of treasury shares ....................................... (2,000) --
------- -------
Net cash used in financing activities ..................... (670) (2,273)
------- -------
Net increase in cash and cash equivalents ............................... 293 546
Cash and Cash Equivalents:
Beginning of period ................................................... 422 533
------- -------
End of period ......................................................... $ 715 $ 1,079
======= =======
Supplemental Cash Flow Information:
Interest paid ................................................ $ 88 $ 187
======= =======
Income taxes paid ............................................ $ 525 $ 28
======= =======
See notes to unaudited condensed consolidated financial statements.
5
6
ANTHONY & SYLVAN POOLS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Anthony & Sylvan Pools Corporation and Subsidiaries (the
"Company") is among the largest residential in-ground concrete pool
sales and installation businesses in the United States and operates
in one business segment.
(2) INTERIM UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated balance sheet as of
March 31, 2001 and statements of operations and cash flows for the
three-month periods ended March 31, 2001 and 2000 are unaudited. In
the opinion of management, these interim unaudited condensed
consolidated financial statements have been prepared on the same
basis as the audited financial statements for the year ended December
31, 2000 and include all adjustments, consisting of only normal and
recurring adjustments, necessary for the fair presentation of the
interim period. The disclosures in the notes related to these interim
unaudited condensed consolidated financial statements are also
unaudited. The unaudited condensed consolidated statements of
operations for the three-month period ended March 31, 2001 are not
necessarily indicative of the results to be expected for the full
year. Financial statements should be read in conjunction with the
audited financial statements included in the annual report on Form
10-K.
(3) EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding. Diluted
earnings per share is based on the combined weighted average number
of shares outstanding including the assumed exercise or conversion of
options. The treasury stock method is used in computing diluted
earnings per share. The calculations are as follows (in thousands
except per share data):
THREE-MONTHS ENDED
MARCH 31,
2001 2000
------- -------
(UNAUDITED)
Numerator:
Net (loss) $(3,186) $(2,212)
======= =======
Denominator:
Weighted average common
shares outstanding 3,837 3,170
6
7
Dilutive effect of
stock options (a) - -
------- -------
Denominator for net
(loss) per diluted share 3,837 3,170
------- -------
Net (loss) per share:
Basic $ (.83) $ (.70)
------- -------
Diluted $ (.83) $ (.70)
------- -------
(a) Due to the net loss reported in both periods, the share base
used in calculating net (loss) per diluted share does not
include the effect of common share equivalents, as its effect
would be anti-dilutive.
(4) DEBT
On August 10, 1999, the Company entered into a $35 million
revolving credit facility ("Credit Facility") with a group of banks.
The Credit Facility, secured by the assets of the Company, matures
August 10, 2002 and may be extended in one-year increments with the
approval of the bank group. The Company's borrowing capacity and
interest rates under the Credit Facility are based on its profitability
and leverage. Interest is charged at increments over either Prime or
Libor rates. In addition a 37.5 basis points commitment fee is payable
on the total amount of the unused commitment. As of March 31, 2001, the
effective rate on all outstanding borrowings under the Credit Facility
was 8.375% and the available borrowings were $17.0 million. The Company
is in compliance with all of its debt covenants under the Credit
Facility.
(5) CAPITAL STOCK
On January 5, 2001, based on the authorization of its Board of
Directors, the Company purchased a block of 250,000 shares of its
common stock, in a private transaction at $8.00 per share.
(6) LITIGATION
Certain claims, suits and complaints arising in the ordinary
course of business have been filed or are pending against the Company.
In the opinion of management, the results of all such matters will not
have a material adverse effect on the Company's financial position,
results of operations or liquidity.
7
8
(7) NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. The Company adopted the statement
effective January 1, 2001. The adoption of SFAS No. 133 did not have a
significant impact on the financial position or results of operations
of the Company because the Company does not have derivative
instruments.
(8) SUBSEQUENT EVENTS
On May 4, 2001, the Board of Directors authorized a 10% stock
dividend to be distributed on or about May 30, 2001 to shareholders of
record on May 16, 2001. The consolidated financial statements have not
been restated to reflect the number of shares outstanding following the
dividend.
8
9
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Directors of
Anthony & Sylvan Pools Corporation and Subsidiary
Mayfield Village, Ohio
We have reviewed the accompanying condensed consolidated balance sheet of
Anthony & Sylvan Pools Corporation and Subsidiary (the "Company") as of March
31, 2001, and the related condensed consolidated statements of operations and
cash flows for the three-month periods ended March 31, 2001 and 2000. These
consolidated financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of December 31, 2000, and the related statements of operations,
shareholders' equity, and cash flows for the year then ended (not presented
herein) and in our report dated March 28, 2001 we expressed an unqualified
opinion on those financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31, 2000
is fairly stated, in all material respects, in relation to the balance sheet
from which it has been derived.
DELOITTE & TOUCHE LLP
Cleveland, Ohio
April 24, 2001
9
10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH
THREE MONTHS ENDED MARCH 31, 2000
Net sales of $26.1 million for the three-months ended March 31, 2001 decreased
14.2% from $30.4 million for the same period in fiscal 2000. The decrease was
primarily attributable to decreases in production as a result of winter weather
conditions which was worse than was experienced in the last several years, and
which had a major impact on our ability to install swimming pools in many of our
markets, offset by increases in average selling prices compared with a year
earlier.
Gross profit decreased to $5.0 million in 2001 from $6.5 million in 2000 as a
result of the decrease in net sales. Gross profit as a percentage of sales for
the three months decreased from 21.2% of net sales to 19.1% as the lower
production volume resulted in fixed construction costs being spread over a lower
revenue base.
Operating expenses, consisting of selling and administrative expenses, increased
by $0.3 million to $10.1 million in 2001 from $9.8 million in 2000. The increase
was primarily attributable to higher administrative expenses related to efforts
at improving our infrastructure and execution, partially offset by a credit for
non-cash deferred compensation related to the Company's long-term incentive plan
which is accounted for as a variable plan, based on changes in the Company's
stock price.
As a result of the above items, adjusted for the impact of federal and state
taxes, the net loss for the three month period increased $1.0 million from $2.2
million in 2000 to $3.2 million in 2001. The net loss per share, which benefited
from a higher number of shares outstanding following a stock option exercise in
the fourth quarter of 2000, increased $(0.13) per share from $(0.70) in 2000 to
$(0.83) in 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $2.6 million for the three-months ended
March 31, 2001 compared with $3.6 million in the same period in fiscal 2000. The
decrease is primarily attributable to the higher net loss in 2000. Cash used in
investing activities increased $0.9 million to $1.7 million in 2001 from $0.8
million in 2000 as a result of increased expenditure related to the Company's
investment in new technology which commenced in the fourth quarter of 2000. The
excess of cash from operating activities over cash used in investing activities,
combined with $1.0 million in proceeds from long-term debt, was used to acquire
$2.0 million of treasury shares in 2001.
On August 10, 1999, the Company entered into a $35 million revolving credit
facility ("Credit Facility") with a group of banks. The Credit Facility, secured
by the assets of the Company, matures August 10, 2002 and may be extended in
one-year increments with the approval of the bank group. The
10
11
Company's borrowing capacity and interest rates under the Credit Facility are
based on its profitability and leverage. Interest rates are charged at
increments over either Prime or Libor rates. In addition, a 37.5 basis points
commitment fee is payable on the total amount of the unused commitment. As of
March 31, 2000, the effective rate on all outstanding borrowings under the
Credit Facility was 8.375% and the available borrowings were $17.0 million. The
Company is in compliance with all of its debt covenants under the Credit
Facility.
The Company believes that existing cash and cash equivalents, internally
generated funds and funds available under its line of credit will be sufficient
to meet its needs.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in pricing of
equipment, materials and contract labor, and interest rates. Market risk is the
potential loss arising from adverse changes in market rates and prices, such as
commodity prices and interest rates. The Company does not enter into financial
instruments to manage and reduce the impact of some of these risks. Further, the
Company does not enter into derivatives or other financial instruments for
trading or speculative purposes.
The Company is exposed to cash flow and fair value risk arising out of changes
in interest rates with respect to its long-term debt. Information with respect
to the Company's principal cash flows and it's weighted average interest rates
on long-term debt at March 31, 2001 is included in the Condensed Consolidated
Financial Statements.
The Company's financial results have been impacted by fluctuations in its stock
price, as a portion of the Company's Long-Term Incentive Plan was treated as a
variable versus a fixed stock option award plan.
CYCLICALITY AND SEASONALITY
The Company believes that the in-ground swimming pool industry is strongly
influenced by general economic conditions and tends to experience periods of
decline during economic downturns. Since the majority of the Company's swimming
pool installation purchases are financed, pool sales are particularly sensitive
to interest rate fluctuations and the availability of credit. A sustained period
of high interest rates could result in declining sales, which could have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
Historically, approximately 70% of the Company's revenues have been generated in
the second and third quarters of the year, the peak season for swimming pool
installation and use. Conversely, the Company typically incurs net losses during
the first and fourth quarters of the year. Unseasonably cold weather or
extraordinary amounts of rainfall during the peak sales season can significantly
reduce pool purchases. In addition, unseasonably early or late warming trends
can increase or decrease the length of the swimming pool season, significantly
affecting sales and operating profit.
11
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No change
ITEM 2. CHANGES IN SECURITIES
No change
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
The annual meeting of shareholders of the Company (the "Annual
Meeting") was held on May 4, 2001. Of the 3,851,263 shares of common
stock outstanding and entitled to vote at the Annual Meeting, 3,622,671
shares were each present in person or by proxy, each entitled to one
vote on each matter to come before the meeting.
The following matters were submitted to a vote of security holders of
the Company at the Annual Meeting, with the results indicated:
1. Proposal to elect 4 directors to hold office until the Annual
Meeting of Shareholders in 2002 and until their respective successors
are duly elected and qualified:
Votes cast FOR the election of Mr. Blackwell: 3,475,036
Votes WITHHELD: 147,635
Votes cast FOR the election of Ms. Jorgenson: 3,473,619
Votes WITHHELD: 149,052
Votes cast FOR the election of Mr. Neidus: 3,454,541
Votes WITHHELD: 168,130
Votes cast FOR the election of Mr. Waldin: 3,475,036
Votes WITHHELD: 147,635
2. Proposal to approve the 2001 Stock Option Plan:
Votes cast FOR the 2001 Long-Term Incentive Plan: 2,608,600
Votes AGAINST: 487,707
Votes WITHHELD: 6,692
Shares held by brokers and nominees: 3,128,846
Shares held by brokers and nominees not voted: 18,802
12
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
13
14
SIGNATURE
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.
Anthony & Sylvan Pools Corporation
(Registrant)
Stuart D. Neidus
---------------------------------------
STUART D. NEIDUS
Chairman and Chief Executive Officer
(Principal Executive Officer)
William J. Evanson
---------------------------------------
WILLIAM J. EVANSON
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
Date: May 14, 2001
14