SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT Of 1934
For the quarterly period ended March 31, 2002
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT Of 1934
For the transition period from to
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Commission File Number 000-26991
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Anthony & Sylvan Pools Corporation
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(Exact name of registrant as specified in its charter)
Ohio 31-1522456
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6690 Beta Drive, Mayfield Village, Ohio 44143
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (440) 720-3301
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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, 2002
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Common Shares, no par value 4,409,042 Shares
1
ANTHONY & SYLVAN POOLS CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR QUARTER ENDED MARCH 31, 2002
INDEX
Sequential
Page No.
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2002 and December 31, 2001...........................3
Unaudited Condensed Consolidated Statements of Operations-
Three Months Ended March 31, 2002 and 2001.....................4
Unaudited Condensed Consolidated Statements of Cash Flows-
Three Months Ended March 31, 2002 and 2001.....................5
Notes to Unaudited Condensed Consolidated
Financial Statements.........................................6-8
Independent Accountants' Review Report...........................9
Item 2. Management's Discussion and Analysis.........................10-12
Part II - Other Information
Item 1. Legal Proceedings...............................................13
Item 2. Changes in Securities...........................................13
Item 4. Submission of Matters to a Vote of Security
Holders.......................................................13
Item 6. Exhibits and Reports on Form 8-K................................13
2
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,
2002 2001
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ASSETS (unaudited) (audited)
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Current Assets:
Cash and cash equivalents.............. $ 1,268 $ 351
Contract receivable, net .............. 6,983 16,897
Inventories, net ...................... 8,913 5,799
Prepayments and other ................. 1,795 2,346
Deferred income taxes.................. 4,002 2,037
---------- ------------
Total current assets................ 22,961 27,430
Property, Plant and Equipment, net............ 9,108 9,307
Goodwill, net................................. 26,276 26,276
Deferred Income Taxes......................... 146 146
Other ........................................ 3,063 2,839
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$ 61,554 $ 65,998
========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
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Current Liabilities:
Current maturities of long-term debt... $ - $ 5
Accounts payable....................... 10,244 7,383
Accrued expenses....................... 16,194 13,029
Accrued income taxes................... 67 67
---------- ------------
Total current liabilities 26,505 20,484
Long-term Debt ............................... - 7,550
Other Long-term Liabilities................... 2,366 2,335
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,
4,753,489 shares issued and 4,746,211
outstanding at March 31, 2002 and
4,665,961 shares issued and
4,665,661 shares outstanding at
December 31, 2001................... 40,899 40,305
Unearned stock compensation............ (528) -
Treasury shares or equivalents,
982,642 and 975,664 shares,
respectively (5,645) (5,592)
Retained earnings...................... (2,043) 916
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Total shareholders' equity.......... 32,683 35,629
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$ 61,554 $ 65,998
========== ============
See notes to unaudited condensed consolidated financial statements.
3
ANTHONY & SYLVAN POOLS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(In thousands, except share data)
Three Months Ended
March 31,
2002 2001
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Net sales........................... $ 28,293 $ 26,089
Cost of sales....................... 22,383 21,099
-------- --------
Gross profit...................... 5,910 4,990
Operating expenses(a)............... 10,522 10,121
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(Loss) from operations............ (4,612) (5,131)
Interest and other expense.......... 122 146
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(Loss) before income taxes........ (4,734) (5,277)
(Benefit) for income taxes.......... (1,775) (2,101)
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Net (loss)........................ $ (2,959) $ (3,176)
======== ========
(Loss) per share:
Basic $ (.63) $ (.68)
======== ========
Diluted $ (.63) $ (.68)
======== ========
Average shares outstanding:
Basic 4,668 4,643
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Diluted 4,668 4,643
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(a) Includes a non-cash deferred compensation credit of $575 and goodwill
amortization expense of $184 in the quarter ended March 31, 2001.
See notes to unaudited condensed consolidated financial statements.
4
ANTHONY & SYLVAN CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Dollars in thousands)
Three Months Ended
March 31,
2002 2001
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Cash Flows from Operating Activities:
Net loss........................................ $ (2,959) $(3,176)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.............. 714 820
Deferred income taxes...................... (1,965) (2,091)
Non-cash deferred compensation............. - (575)
Other...................................... (155) -
Changes in operating assets and liabilities
net of assets acquired
Contract receivables....................... 9,914 4,311
Inventories................................ (3,114) (2,236)
Prepayments and other...................... 551 (357)
Accounts payable........................... 2,861 1,490
Accrued expenses and other................. 3,165 4,444
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Net cash provided by operating activities. 9,012 2,630
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Cash Flows from Investing Activities:
Additions to property, plant and equipment...... (521) (1,532)
Other........................................... - (135)
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Net cash used in investing activities.. (521) (1,667)
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Cash Flows from Financing Activities:
Proceeds from/(repayment of) long-term debt..... (7,555) 1,080
Proceeds from sale of shares.................... - 250
Proceeds from option exercise................... 34 -
Purchase of treasury shares..................... (53) (2,000)
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Net cash used in financing activities.. (7,574) (670)
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Net increase in cash and cash equivalents............. 917 293
Cash and Cash Equivalents:
Beginning of period................................. 351 422
-------- --------
End of period....................................... $ 1,268 $ 715
======== ========
Supplemental Cash Flow Information:
Interest paid.............................. $ 94 $ 88
======== ========
Income taxes (refunded)/paid............... $ (399) $ 525
======== ========
See notes to unaudited condensed consolidated financial statements.
5
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, 2002 and statements of operations and cash flows for the
three-month periods ended March 31, 2002 and 2001 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, 2001 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, 2002 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,
2002 2001
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(unaudited)
Numerator:
Net (loss) $ (2,959) $ (3,176)
======== ========
Denominator:
Weighted average common
shares outstanding 4,668 4,643
Dilutive effect of
stock options (a) - -
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Denominator for net
(loss) per diluted share 4,668 4,643
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Net (loss) per share:
Basic $ (.63) $ (.68)
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Diluted $ (.63) $ (.68)
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(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.
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(4) DEBT
The Company has a $35 million revolving credit facility ("Credit
Facility") with a group of banks secured by the assets of the
Company. On December 31, 2001 the Credit Facility was amended to
extend the maturity date of the agreement to August 10, 2004. It
may be extended in one-year increments after that 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. The amended
agreement provides for a seasonal increase in borrowings during the
first quarter of the year. Total available borrowing capacity under
the Credit facility at March 31, 2002 is $11.3 million. The Company
is in compliance with all of its debt covenants under the Credit
Facility.
(5) 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.
(6) NEW ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," effective January
1, 2002. Upon adoption, the Company ceased to amortize $26.3
million of goodwill. It had recorded $184,000 of amortization of
goodwill in the first quarter of 2001 and would have recorded a
similar amount of amortization in 2002. Excluding any goodwill
amortization in the first quarter of 2001 would have reduced the
reported net loss to $(2,992,000), or $(.64) per share.
In lieu of amortization, the Company was required to perform an
initial impairment review of goodwill before June 30, 2002. This
initial impairment review was completed during the first quarter of
2002. Based on the results of the review, management does not
believe any impairment of goodwill exists.
On January 1, 2002, the Company adopted Statement No. 144,
"Accounting for the Impairment of Long-Lived Assets." This
Statement which supersedes Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of," provides a
single accounting model for long-lived assets to be disposed of.
Although retaining many of the fundamental recognition and
measurement provisions of Statement No. 121, the Statement
significantly changes the criteria that would have to be met to
classify an asset as held-for-sale. The distinction is important
because assets held-for-sale are stated at the lower of their fair
values or carrying amounts and depreciation is no longer
recognized. The adoption of Statement No. 144 did not have a
significant impact on the consolidated financial position, results
of operations or cash flows of the Company.
(7) SUBSEQUENT EVENTS
On May 1, 2002, the Board of Directors authorized a 10% stock
dividend to be distributed on or about May 30, 2002 to shareholders
of record on May 16, 2002. The consolidated financial statements
have not been restated to reflect the number of shares outstanding
following the
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dividend.
On May 8, 2002, the Company purchased, in a private
transaction, a block of approximately 337,000 common shares of its
stock for approximately $2.4 million.
8
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders,
Anthony & Sylvan Pools Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
Anthony & Sylvan Pools Corporation and Subsidiaries (the Company) as of March
31, 2002, and the related condensed consolidated statements of operations and
cash flows for the three-month period ended March 31, 2002. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review 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 making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, 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 review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above 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
Anthony & Sylvan Pools Corporation and Subsidiaries as of December 31, 2001,
and the related consolidated statements of income, shareholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated February 15, 2002 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
2001, is fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
As discussed in Note 6 to the condensed consolidated financial statements,
the Company changed its method of accounting for goodwill effective January
1, 2002.
KPMG LLP
April 23, 2002, except for Note 7, as
to which the date is May 8, 2002
9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The Company believes the following critical accounting
policies affect its more significant estimates and assumptions used in the
preparation of its consolidated financial statements.
REVENUE RECOGNITION Revenue from pool installation contracts is recognized on
the percentage-of-completion accounting method based on the proportion of total
costs incurred during the various phases of installation as a percentage of
total estimated contract costs. Revisions in cost and revenue estimates are
reflected in the period in which the facts requiring such revisions become
known. Provision is made currently for estimated losses on uncompleted
installations. The majority of the Company's contracts call for progress
payments to be made while completing individual phases of the installation until
the final phases of installation, at which time the remaining portion is
recognized as a contract receivable. Progress payments in excess of revenue
recognized are classified as billings in excess of costs and estimated earnings
on uncompleted contracts, and are included in accrued expenses. Unbilled
contract receivables are not material at any point in time. Contract costs
include direct material, labor, subcontract costs and overheads. Selling and
administrative expenses are charged to income as incurred.
WARRANTY The Company accrues an estimate of warranty claims using regression
analysis formulas and estimates of the aggregate liability for claims based on
the Company's historical experience. The portion of claims the Company estimates
will not be paid within one year is included in other long-term liabilities.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED WITH THREE MONTHS
ENDED MARCH 31, 2001
Net sales of $28.3 million for the three-months ended March 31, 2002 increased
8.4% from $26.1 million for the same period in fiscal 2001. The increase was
primarily attributable to increases in average selling prices combined with
increases in production as a result of winter weather conditions that were
somewhat milder than the previous year in the Company's Northeast markets.
Gross profit increased to $5.9 million in 2002 from $5.0 million in 2001 as a
result of the increase in net sales and an increase in gross profit margins.
Gross profit, as a percentage of sales, for the three months increased from
19.1% of net sales to 20.9%, primarily as a result of higher average selling
prices and increased production volume.
Operating expenses, consisting of selling and administrative expenses, increased
by $0.4 million to $10.5 million in 2002 from $10.1 million in 2000. The
increase was primarily attributable to the inclusion in 2001 of a $0.6 million
credit for non-cash deferred compensation related to the Company's long-term
incentive plan which was accounted for as a variable plan and the elimination of
amortization of goodwill in 2002, as the Company adopted SFAS 142, "Goodwill and
Other Intangible Assets," which would have increased operating expenses by
approximately $.2 million in the quarter ended March 31, 2002. Thus, on a pro
forma basis, operating expenses for the three months
10
ended March 31, 2002 were flat with the prior year's first quarter operating
expenses. Had the Company adopted SFAS 142 in 2001 and not recorded any
goodwill amortization in the first quarter of 2001, the reported net loss for
that quarter would have been $(2,992,000), or $(.64) per share.
The Company's effective tax rate decreased from 39.8% in 2001 to 37.5% in 2002.
The higher rate in 2001 was the result of the $0.6 million credit for non-cash
deferred compensation related to the Company's long-term incentive plan which
was not included for tax purposes.
Primarily as a result of the above items, the reported net loss for the three
month period decreased $0.2 million $(3.2) million in 2001 to $(3.0) million in
2002. The net loss per share decreased $(0.05) per share from $(0.68) in 2001 to
$(0.63) in 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $9.0 million for the three-months ended
March 31, 2002 compared with $2.6 million in the same period in fiscal 2001. The
increase is primarily attributable to reductions in receivables of $9.9 million
in 2002 compared with reductions of $4.3 million in 2001. The Company had $16.9
million of receivables at December 31, 2001 compared with $11.6 million at
December 31, 2000 as a result of increased amounts owed by customers under sales
promotion programs run in the Company's Northeast markets during the fourth
quarter of each year. The majority of the receivables under these programs was
collected during the first quarter of each of the years. Cash used in investing
activities decreased $1.2 million from $1.7 million in 2001 to $0.5 million in
2002 as a result of lower capital expenditures in the first quarter of 2002
compared with the first quarter of 2001. The remaining cash provided by
operating activities was used primarily to repay bank borrowings, reducing
long-term debt to zero at March 31, 2002.
The Company has a $35 million revolving credit facility ("Credit Facility") with
a group of banks secured by the assets of the Company. Total available borrowing
capacity under the Credit facility at March 31, 2002 is $11.3 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 its weighted average interest rates on
long-term debt at March 31, 2002 is included in the Condensed Consolidated
Financial Statements and the Notes to the Condensed Consolidated Financial
Statements.
11
Prior to an amendment of the Company's Long-Term Incentive Plan on April 1,
2001, the Company's financial results were 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 or award plan. As a result of the
amendment, the Company no longer accounts for any portion of the Plan as a
variable 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 and results of
operations.
Historically, approximately two-thirds 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.
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 1, 2002. Of the 4,746,211 shares of
common stock outstanding and entitled to vote at the Annual
Meeting, 4,636,940 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 2003 and until their respective
successors are duly elected and qualified:
Votes cast FOR the election of Mr. Blackwell: 4,635,339
Votes WITHHELD: 1,601
Votes cast FOR the election of Ms. Jorgenson: 4,634,222
Votes WITHHELD: 2,718
Votes cast FOR the election of Mr. Neidus: 4,614,831
Votes WITHHELD: 22,109
Votes cast FOR the election of Mr. Waldin: 4,635,339
Votes WITHHELD: 1,601
Shares held by brokers and nominees: 3,809,922
Shares held by brokers and nominees not voted: 19,754
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
13
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 13, 2002
14