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 September 30, 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 October 7, 2002
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Common Shares, no par value 4,842,201 Shares
1
ANTHONY & SYLVAN POOLS CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
INDEX
Sequential
Page No.
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Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 2002 (unaudited) and
December 31, 2001............................. 3
Unaudited Condensed Consolidated Statements
of Income - Three Months and Nine Months Ended
September 30, 2002 and 2001................... 4
Unaudited Condensed Consolidated Statements
of Cash Flows - Nine Months Ended
September 30, 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 of
Financial Condition and Results of Operations.... 10-12
Item 3. Quantitative and Qualitative Disclosure about
Market Risk...................................... 12
Item 4. Controls and Procedures............................. 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)
September 30, December 31,
2002 2001
------------- ------------
ASSETS (unaudited) (audited)
------
Current Assets:
Cash and cash equivalents................ $ 3,280 $ 351
Contract receivables, net................ 7,077 16,897
Inventories, net......................... 6,967 5,799
Prepayments and othe..................... 2,187 2,346
Deferred income taxes.................... 2,463 2,037
-------- --------
Total current assets.................. 21,974 27,430
Property, Plant and Equipment, net............... 8,314 9,307
Goodwill, net.................................... 26,276 26,276
Deferred income taxes............................ - 146
Other............................................ 2,872 2,839
-------- --------
$ 59,436 $ 65,998
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term debt..... $ - $ 5
Accounts payable......................... 7,546 7,383
Accrued expenses......................... 15,601 13,029
Accrued income taxes..................... 83 67
-------- --------
Total current liabilities............. 23,230 20,484
Long-term Debt................................... - 7,550
Deferred Income Tax Liabilities.................. 257 -
Other Long-term Liabilities...................... 2,393 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, 4,849,861
shares issued and 4,842,161 outstanding
at September 30, 2002 and 5,132,557
shares issued and 5,132,227 outstanding
at December 31, 2001................... 38,471 40,305
Unearned stock compensation.............. (502) -
Treasury share equivalents,
1,080,599 shares at September 30, 2002
and 1,073,199 at December 31, 2001..... (5,637) (5,592)
Retained earnings........................ 1,224 916
-------- --------
Total shareholders' equity........... 33,556 35,629
-------- --------
$ 59,436 $ 65,998
======== ========
See notes to unaudited condensed consolidated financial statements.
3
ANTHONY & SYLVAN POOLS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(In thousands, except share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
------ ------- -------- ------
Net sales.................... $ 50,626 $ 57,118 $142,291 $151,892
Cost of sales................ 36,607 41,251 103,349 109,421
------- ------- ------- -------
Gross profit............... 14,019 15,867 38,942 42,471
Operating expenses(a)........ 12,503 13,186 37,061 38,399
Restructuring charge......... 1,170 - 1,170 -
------- ------- ------- -------
Income from operations..... 346 2,681 711 4,072
Interest and other .......... 63 1 215 140
------- ------- ------- ------
Income before income taxes. 283 2,680 496 3,932
Provision for income taxes... 106 999 186 1,243
------- ------- ------- ------
Net income(a).............. $ 177 $ 1,681 $ 310 $ 2,689
======== ======== ======== =======
Earnings per share:
Basic $0.03 $0.33 $0.06 $0.53
======= ======= ======= ======
Diluted $0.03 $0.32 $0.06 $0.51
======= ======= ======= ======
Average shares outstanding:
Basic 4,754 5,098 4,934 5,111
======= ======= ======= =======
Diluted 4,816 5,233 4,996 5,245
======= ======= ======= =======
(a) Operating expenses include goodwill amortization expense of $553 in the
nine months ended September 30, 2001 and goodwill amortization expense of
$185 in the three months ended September 30, 2001. Adjusting for these
items, the pro forma net income for the nine months ended September 30,
2001 would have been $3,113 or $0.59 per diluted share and the pro forma
net income for the three months ended September 30, 2001 would have been
$1,801 or $0.34 per diluted share.
See notes to unaudited condensed consolidated financial statements.
4
ANTHONY & SYLVAN POOLS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Dollars in thousands)
Nine Months Ended
September 30,
2002 2001
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Cash Flows from Operating Activities:
Net income .......................................................... $ 310 $ 2,689
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................. 2,201 2,566
Non-cash deferred compensation ................................. 92 (575)
Deferred income taxes .......................................... (23) (231)
Other .......................................................... (142) 24
Changes in operating assets and liabilities net of assets acquired:
Contract receivables ........................................... 9,820 2,749
Inventories .................................................... (1,168) (923)
Prepayments and other .......................................... 159 56
Accounts payable ............................................... 163 2,911
Accrued expenses and other ..................................... 2,588 3,496
-------- --------
Net cash provided by operating activities .................. 14,000 12,762
-------- --------
Cash Flows from Investing Activities:
Additions to property, plant and equipment .......................... (1,390) (2,423)
Other ............................................................... 353 (15)
-------- --------
Net cash used in investing activities ...................... (1,037) (2,438)
-------- --------
Cash Flows from Financing Activities:
Repayment of long term debt ......................................... (7,555) (1,293)
Proceeds on exercise of stock options ............................... 34 -
Proceeds on issuance of shares ...................................... - 530
Purchase of treasury shares ......................................... (2,513) (2,315)
-------- --------
Net cash used in financing activities ....................... (10,034) (3,078)
-------- --------
Net increase in cash and cash equivalents ................................. 2,929 7,246
Cash and Cash Equivalents:
Beginning of period ..................................................... 351 422
-------- --------
End of period ........................................................... $ 3,280 $ 7,668
======== ========
Supplemental Cash Flow Information:
Interest paid .................................................. $ 192 $ 147
======== ========
Income taxes (refunded)/paid ................................... $ (399) $ 599
======== ========
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
September 30, 2002 and statements of income and cash flows for the
three-month and nine-month periods ended September 30, 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, except for the adoption of SFAS 142 as further
described in note 8, 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 income
for the three-month and nine-month period ended September 30, 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 NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
------ ------- ------- ------
(UNAUDITED) (UNAUDITED)
Numerator
Net income available
to common shareholders $ 177 $1,681 $ 310 $2,689
====== ====== ====== ======
Denominator
Weighted average common
shares outstanding 4,754 5,098 4,934 5,111
Dilutive effect of
stock options 62 135 62 134
------ ------ ------ ------
Denominator for net
Income per
diluted share 4,816 5,233 4,996 5,245
====== ====== ====== ======
Earnings per share:
Basic $ 0.03 $ 0.33 $ 0.06 $ 0.53
====== ====== ====== ======
Diluted $ 0.03 $ 0.32 $ 0.06 $ 0.51
====== ====== ====== ======
6
(4) RESTRUCTURING CHARGE
In September 2002, the Company made a decision to close its
swimming pool installation divisions in the Orlando and Southeastern
Florida markets. As a result, the Company recorded a $1,170,000 pre-tax
restructuring reserve in the three-months ended September 30, 2002,
which is included in accrued expenses in the accompanying condensed
consolidated balance sheet. The charge consists of approximately
$113,000 of severance costs, $913,000 of future lease obligations, and
$144,000 of other exit costs. Cash payments of approximately $34,000
for employee severance costs were made and charged against the reserve
for the quarter ended September 30, 2002. The Company expects to pay
the majority of the future cash outlays to satisfy this liability in
the fourth quarter of 2002, with the possible exception of certain
lease or lease termination payments which may extend beyond that date.
In addition to the restructuring charge, those divisions had
combined operating losses of $800,000 and $500,000 for the three-months
ended September 30, 2002 and 2001, respectively, and operating losses
of $2,600,000 and $1,500,000 for the nine-months ended September 30,
2002 and 2001, respectively. In addition to the restructuring charge,
the company expects to incur additional operating losses of between
$1,000,000 and $1,400,000 during the fourth quarter of 2002 related to
the wind-down of operations. It is expected that the wind-down will,
for the most part, be completed by December 31, 2002. At that time
those operations will be accounted for as discontinued.
(5) CAPITAL STOCK
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 unaudited condensed consolidated financial
statements have been retroactively restated to reflect the number of
shares outstanding following the dividend.
On May 8, 2002, the Company purchased a block of approximately
337,000 shares of its common stock in a private transaction for
approximately $2.4 million.
On October 24, 2002, the Board of Directors authorized a 10% stock
dividend to be distributed on or about November 29, 2002 to
shareholders of record on November 15, 2002. The unaudited condensed
consolidated financial statements shown in this report have not been
retroactively restated to reflect the number of shares outstanding
following the dividend.
(6) DEBT
The company has a $35 million revolving credit facility ("Credit
Facility") with a group of banks secured by the assets of the Company
which matures August 10, 2004. 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 September 30, 2002,
there were no outstanding borrowings under the Credit Facility and the
available borrowings were $5.6 million. The Company is in compliance
with all of its debt covenants under the Credit Facility.
(7) 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.
(8) NEW ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," effective January 1,
2002. Upon
7
adoption, the Company ceased to amortize $26.3 million of goodwill. It
had recorded $553,000 of amortization of goodwill in the nine-months
ended September 30, 2001 and $185,000 in the three-months ended
September 30, 2001 and would have recorded similar amounts of
amortization in 2002. Excluding any goodwill amortization in the
nine-months ended September 30, 2001 would have increased the reported
net income to $3,113,000 or $0.59 per diluted share for the nine-month
period ended September 30, 2001, and to $1,801,000 or $0.34 per diluted
share, in the three-month period ended September 30, 2001.
In lieu of amortization, the Company was required to perform an
initial impairment review of goodwill as of January 1, 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. On September 12, 2002 the Company announced that it would
be closing its swimming pool installation divisions in the Orlando and
Southeastern Florida markets. A $1,170,000 restructuring charge,
related to exit costs, which will be incurred as a result of these
closures, was recorded during the three-months ended September 30,
2002. The wind-down of these operations is expected to be substantially
completed by December 31, 2002. At that time these operations will be
accounted for as discontinued in accordance with the guidance contained
in Statement No. 144. 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.
In July 2002, the FASB issued SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities. It addresses issues
regarding the recognition, measurement, and reporting of costs that are
associated with exit and disposal activities, including restructuring
activities that are currently accounted for pursuant to the guidance
that the Emerging Issues Task Force (EITF) set forth in EITF Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." Examples of costs covered by the standard include
lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing,
or other exit or disposal activity. SFAS 146 is scheduled to replace
Issue 94-3 on January 1, 2003 for exit or disposal activities that are
initiated after December 31, 2002. The Company has not yet adopted SFAS
146 and does not expect the adoption of SFAS 146 to have a material
impact on its results of operations or financial position.
8
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders of
Anthony & Sylvan Pools Corporation and subsidiaries
We have reviewed the accompanying condensed consolidated balance sheet of
Anthony & Sylvan Pools Corporation and subsidiaries (the "Company") as of
September 30, 2002, and the related condensed consolidated statements of income
and cash flows for the three-month and nine-month periods ended September 30,
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 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 review, we are not aware of any material modifications that should
be made to the accompanying 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 consolidated balance
sheet from which it has been derived.
As discussed in Note 8 to the condensed consolidated financial statements, the
Company changed its method of accounting for goodwill effective January 1, 2002.
KPMG LLP
October 24, 2002
Cleveland, Ohio
9
ITEM 2. MANAGEMENT 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 SEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 2001
Net sales of $50.6 million for the three-months ended September 30, 2002
decreased 11.4% from $57.1 million for the same period in fiscal 2001. The
decrease was primarily attributable to a decrease in unit production, as a
result of some areas of the business experiencing consumer restraint, and was
partially offset by increases in average selling prices compared with a year
earlier.
Gross profit decreased $1.9 million to $14.0 million in 2002 from $15.9 million
in 2001, primarily as a result of the decrease in net sales. Gross profit, as a
percentage of sales for the three months, decreased slightly from 27.8% of net
sales to 27.7% as a result of slightly higher material, subcontractor and other
costs incurred in some of our markets which have not been fully offset by
increases in average selling prices.
Operating expenses, consisting of selling and administrative expenses, decreased
by $0.7 million to $12.5 million in 2002 from $13.2 million in 2001. As a
percentage of sales, operating expenses increased from 23.1% in 2001 to 24.7% in
2002 as a result of the decrease in sales. The decrease in operating expenses
was partly attributable to decreases in headcount and the elimination of
goodwill amortization.
Included in the results for the three-months ended September 30, 2002 is a $1.2
million restructuring charge related to the closure of the Company's swimming
pool installation divisions in the Orlando and Southeastern Florida markets. The
Company expects to pay the majority of the future cash outlays to satisfy this
liability in the fourth quarter of 2002, with the possible exception of certain
lease or lease termination payments which may extend beyond that date.
The effective tax rate increased slightly from 37.3% in 2001 to 37.5% in 2002.
10
Primarily as a result of the above items, net income for the three-month period
decreased from $1.7 million in 2001 to $0.2 million in 2002. Net income per
diluted share decreased $0.29 per share to $0.03 in 2002.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 2001
Net sales of $142.3 million for the nine-months ended September 30, 2002
decreased 6.3% from $151.9 million for the same period in fiscal 2001. The
decrease was primarily attributable to a decrease in unit production as a result
of lower consumer confidence levels that began to emerge in the second half of
2001, partially offset by increases in average selling prices compared with a
year earlier.
Gross profit decreased $3.6 million from $42.5 million in 2001 to $38.9 million
in 2002, primarily as a result of the decrease in net sales. Gross profit as a
percentage of sales for the nine months decreased from 28.0% of net sales to
27.4%, as a result of a combination of the decrease in revenue and higher direct
costs which were not fully offset by increases in average selling prices.
Operating expenses, consisting of selling and administrative expenses decreased
$1.3 million from $38.4 million in 2001 to $37.1 million in 2002. As a
percentage of sales, operating expenses increased slightly from 25.3% in 2001 to
26.0% in 2002. The decrease in operating expenses was partially attributable to
decreases in headcount, professional fees and goodwill amortization. Included in
2001 results was a credit of $.6 million for non-cash deferred compensation
related to the Company's long-term incentive plan, which was amended in the
first quarter of 2001.
Included in the results for the nine-months ended September 30, 2002 is a $1.2
million restructuring charge related to the closure of the Company's swimming
pool installation divisions in the Orlando and Southeastern Florida markets.
The effective tax rate increased from 31.6% in 2001 to 37.5% in 2002, primarily
as a result of the $0.6 million non-cash deferred compensation credit included
in the 2001 results. This item was not included for tax purposes.
Primarily as a result of the above, net income for the nine-month period
decreased $2.4 million to $0.3 million in 2002. Net income per diluted share,
decreased $0.45 to $0.06 per share in 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $14.0 million for the nine-months ended
September 30, 2002 compared with $12.8 million in the same period in fiscal
2001. The increase is attributable to reductions in receivables of $9.8 million
in 2002 compared with reductions of $2.7 million in 2001, partially offset by
lower net income and smaller increases in accounts payable and accrued expenses
when compared with the same period last year. 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 revenue generated under deferred payment sales
programs run in the Company's Northeast markets during the fourth quarter of
each year. The majority of the revenue generated under these programs was
collected during the first quarter of each of the years. Cash used in investing
activities decreased $1.4 million from $2.4 million in 2001 to $1.0 million in
2002 primarily as a result of lower capital expenditures. The remaining cash
provided by operating activities was used to repay bank borrowings, reducing
long-term debt to zero and to finance approximately $2.5 million of treasury
stock purchases.
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 September 30, 2002 was $5.6 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.
11
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. Conversely, a sustained period of low interest rates could
potentially help offset the impact of any economic downturns.
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.
ITEM 3. 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 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 weighted average interest rates on long-term
debt at September 30, 2002 is included in the Unaudited Condensed Consolidated
Financial Statements and the Notes to the Unaudited Condensed Consolidated
Financial Statements.
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.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to filing this Form 10-Q, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as defined in Rule 13a-14 of the Securities
Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective, in all material respects, in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in this Quarterly Report on Form 10-Q.
There have been no significant changes in the Company's internal controls or in
other factors which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.
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
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification pursuant to 18 U.S.C Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The following report on Form 8-k was filed with the
Securities and Exchange Commission during the quarter ended
September 30, 2002:
Under Item 5, Anthony & Sylvan Pools Corporation Press
Release, dated September 12, 2002
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: November 14, 2002
14
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Stuart D. Neidus, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Anthony & Sylvan
Pools Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Stuart D. Neidus
---------------------------
Stuart D. Neidus
Chief Executive Officer
Dated: November 14, 2002
15
CERTIFICATION OF PRINCIPAL
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
I, William J. Evanson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Anthony & Sylvan
Pools Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
William J. Evanson
---------------------------
William J. Evanson
Chief Financial and Accounting Officer
Dated: November 14, 2002
16