EX-99.1 2 poolq307er.htm POOL Q3 2007 EARNINGS RELEASE poolq307er.htm
                                                            
                                                                                   
Exhibit 99.1
 
FOR IMMEDIATE RELEASE
 
 
POOL CORPORATION REPORTS THIRD QUARTER RESULTS
MAINTAINS EARNINGS GUIDANCE
______________________

 
COVINGTON, La. (October 23, 2007) – Pool Corporation (the “Company” or “POOL”) (NASDAQ/GSM:POOL) today reported results for the third quarter of 2007.
 
Earnings per share for the third quarter of 2007 was $0.43 per diluted share on net income of $21.8 million, compared to $0.58 per diluted share on net income of $31.5 million for the third quarter of 2006.
 
“Considering the unprecedented and very difficult real estate market, our business has held up relatively well, evidence of the resiliency of our business model in good times and bad,” commented Manuel Perez de la Mesa, President and CEO.
 
Despite a significant decline in new pool construction in major pool markets and less than ideal weather conditions in the quarter, net sales declined only 2% to $527.4 million in the third quarter of 2007 compared to $537.0 million in the third quarter of 2006.  During the quarter, complementary products, which are sold primarily in the new pool construction market, decreased 5% compared to a 35% increase in the same period in 2006.
 
Gross profit for the third quarter of 2007 decreased $10.2 million, or 7%, to $139.8 million from $150.0 million in the comparable 2006 period.  Gross profit as a percentage of net sales (gross margin) was 26.5% for the third quarter of 2007 compared to 27.9% for the third quarter of 2006.  Third quarter 2007 gross margin was comparatively lower due to competitive pricing trends, as other distributors sold off excess inventories, and unfavorable comparisons to the third quarter 2006 gross margin which had benefited from second quarter 2006 pre-price increase inventory purchases.  By comparison, gross margin in the third quarter of 2005 was 27.0%.
 
Operating expenses increased $3.4 million, or 3.5%, to $100.3 million in the third quarter of 2007 from $96.9 million in the third quarter of 2006.  This increase reflects the impact from investments in 27 new sales centers since the beginning of 2006 and higher expenses related to over 20 sales center expansions and relocations within the past 15 months.  These new expenses were partially offset by the impact from cost control initiatives.
 
Operating income was $39.5 million, down from $53.1 million in the third quarter of 2006.  Operating income as a percentage of net sales (operating margin) decreased to 7.5% for the current quarter from 9.9% for the third quarter of 2006.
 
Interest expense increased to $6.3 million for the current quarter from $4.3 million in the third quarter of 2006.  This increase is attributable to higher debt levels for borrowings to fund share repurchases, coupled with higher interest rates.
 
“While the majority of our sales are derived from the maintenance, repair and replacement market, which experienced modest gains in the quarter, the demand for new pool and irrigation construction products continued to lag,” said Perez de la Mesa.  “However, our service-oriented approach, our unrelenting focus on execution and our drive to provide increasingly greater value in the channel enabled us to gain market share, improve our competitive position and continue to help our customers outperform their competition.  Consistent with our most recent guidance, we project that 2007 earnings per share will be in the range of $1.45 to $1.55 per diluted share.”
 
Net sales for the nine months ended September 30, 2007 increased $36.3 million, or 2%, to $1,627.6 million, compared to $1,591.3 million in the comparable 2006 period.  Base business sales remained flat for the first nine months of 2007, which compares with base business sales growth of 12% for the first nine months of 2006.  Complementary product sales for the first nine months of 2007 decreased 2%, impacted by the decline in new pool construction activity in 2007.  Gross margin decreased 100 basis points to 27.7% in the first nine months of 2007 from 28.7% for the same period last year.
 




Operating income for the first nine months of 2007 was $146.6 million compared to operating income of $171.5 million in the same period last year.  Operating margin decreased to 9.0% for the first nine months of 2007 compared to 10.8% for the first nine months of 2006.  Earnings per share for the first nine months of 2007 decreased 13% to $1.58 per diluted share on net income of $81.0 million, compared to $1.82 per diluted share on net income of $100.0 million in the comparable 2006 period.  The opening of 27 new sales centers since the beginning of 2006 is estimated to have had a dilutive impact of approximately $0.09 on earnings per share for the first nine months of 2007.

On the balance sheet, total net receivables decreased 5% compared to September 30, 2006 due to lower sales compared to the year ago period and due to an increase in the allowance for doubtful accounts. The allowance for doubtful accounts was increased to reflect slower payments from customers in markets that have been adversely impacted by the decline in new pool and irrigation construction.  Our inventory levels increased 12% to $317.1 million at September 30, 2007.  The increase reflects inventory for the 12 new sales centers opened since September 2006, an earlier start of seasonal purchasing compared to 2006, inventory related to the expansion of complementary product offerings and higher inventory levels attributed to the decline in sales.  The quality of our inventory remains high as measured by the percentage of total inventory in our fastest-turning inventory classes, which increased compared to September 30, 2006.
 
Cash provided by operations was $33.5 million in the first nine months of 2007 compared to $81.5 million in the same period in 2006.  This decrease is primarily due to the decrease in net income and the difference in the timing of the payment of our 2007 estimated income taxes, which were paid in the third quarter of 2007, and our 2006 estimated income taxes, which were deferred until the fourth quarter of 2006 as allowed by the Katrina Emergency Tax Relief Act of 2005.  The Company repurchased 1.8 million shares and 3.7 million shares of its common stock during the third quarter and first nine months of 2007, respectively, using $126.8 million in borrowing capacity for the year to fund these purchases.

Pool Corporation is the largest wholesale distributor of swimming pool and related backyard products.  Currently, POOL operates 285 sales centers in North America and Europe, through which it distributes more than 100,000 national brand and private label products to roughly 70,000 wholesale customers.  For more information about POOL, please visit www.poolcorp.com.

This news release includes “forward-looking” statements that involve risk and uncertainties that are generally identifiable through the use of words such as “believe,” “expect,” “intend,” “plan,” “estimate,” “project” and similar expressions and include projections of earnings.  The forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements speak only as of the date of this release, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur.  Actual results may differ materially due to a variety of factors, including the sensitivity of our business to weather conditions, our ability to maintain favorable relationships with suppliers and manufacturers, competition from other leisure product alternatives and mass merchants, changes in the economy and the housing market and other risks detailed in POOL’s 2006 Annual Report on Form 10-K and 2007 Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission.

CONTACT:
Craig K. Hubbard
Treasurer
985.801.5117
craig.hubbard@poolcorp.com
 

2
 
POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
 
 
Three Months Ended 
    
Nine Months Ended
  
 
September 30, 
    
        September 30,
  
   
2007
    
2006
      
2007
    
2006
  
                           
Net sales
$
527,434
  
$
537,017
    
$
1,627,612
  
$
1,591,276
  
Cost of sales
  
387,631
    
387,022
      
1,176,402
    
1,134,233
  
Gross profit
  
139,803
    
149,995
      
451,210
    
457,043
  
Percent
  
26.5
 %
  
27.9
 %
    
27.7
   %
  
28.7
   %
                           
Selling and administrative expenses
  
100,298
    
96,903
      
304,640
    
285,591
  
Operating income
  
39,505
    
53,092
      
146,570
    
171,452
  
Percent
  
7.5
 %
  
9.9
 %
    
9.0
   %
  
10.8
   %
                           
Interest expense, net
  
6,349
    
4,276
      
16,765
    
10,983
  
Income before income taxes and equity earnings
  
33,156
    
48,816
      
129,805
    
160,469
  
Provision for income taxes
  
12,802
    
18,848
      
50,118
    
61,957
  
Equity earnings in unconsolidated investments, net
  
1,481
    
1,525
      
1,296
    
1,513
  
Net income
$
21,835
  
$
31,493
    
$
80,983
  
$
100,025
  
                           
Earnings per share:
                          
Basic
$
0.45
  
$
0.61
    
$
1.64
  
$
1.91
  
Diluted
$
0.43
  
$
0.58
    
$
1.58
  
$
1.82
  
Weighted average shares outstanding:
                          
Basic
  
48,623
    
51,532
      
49,372
    
52,243
  
Diluted
  
50,490
    
54,277
      
51,347
    
55,092
  
                           
Cash dividends declared per common share
$
0.120
  
$
0.105
    
$
0.345
  
$
0.300
  

 
3

POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
 
     
      September 30,
    
       September 30,
    
            Change
  
     
       2007
    
       2006
    
       $
    
           %
  
                           
Assets
                        
Current assets:
                        
 
Cash and cash equivalents
$
50,265
  
$
40,874
  
$
9,391
    
23
%
 
Receivables, net
  
58,023
    
64,540
    
(6,517
 )
  
(10
)
 
Receivables pledged under receivables facility
  
142,511
    
147,049
    
(4,538
 )
  
(3
)
 
Product inventories, net
  
317,110
    
283,930
    
33,180
    
12
 
 
Prepaid expenses and other current assets
  
9,004
    
7,785
    
1,219
    
16
 
 
Deferred income taxes
  
7,652
    
4,024
    
3,628
    
90
 
Total current assets
  
584,565
    
548,202
    
36,363
    
7
 
                         
 
Property and equipment, net
  
35,518
    
32,201
    
3,317
    
10
 
Goodwill
  
155,247
    
156,123
    
(876
 )
  
(1
)
Other intangible assets, net
  
15,459
    
19,964
    
(4,505
 )
  
(23
)
Equity interest investments
  
34,561
    
32,383
    
2,178
    
7
 
Other assets, net
  
19,073
    
13,862
    
5,211
    
38
 
Total assets
$
844,423
  
$
802,735
  
$
41,688
    
5
%
                           
Liabilities and stockholders’ equity
                        
Current liabilities:
                        
 
Accounts payable
$
127,889
  
$
111,349
  
$
16,540
    
15
%
 
Accrued and other current liabilities
  
53,557
    
118,892
    
(65,335
 )
  
(55
)
 
Short-term financing
  
110,715
    
110,974
    
(259
 )
  
—
 
 
Current portion of long-term debt and other long-term liabilities
  
3,350
    
3,731
    
(381
 )
  
(10
)
Total current liabilities
  
295,511
    
344,946
    
(49,435
 )
  
(14
)
                         
 
Deferred income taxes
  
15,185
    
12,760
    
2,425
    
19
 
Long-term debt
  
292,750
    
144,750
    
148,000
    
102
 
Other long-term liabilities
  
6,152
    
1,625
    
4,527
    
279
 
Total liabilities
$
609,598
  
$
504,081
  
$
105,517
    
21
%
Total stockholders’ equity
  
234,825
    
298,654
    
(63,829
)
  
(21
)
Total liabilities and stockholders’ equity
$
844,423
  
$
802,735
  
$
41,688
    
5
%
                                 __________________

1.  
The allowance for doubtful accounts was $8.7 million at September 30, 2007 and $4.5 million at September 30, 2006.  The inventory reserve was $5.4 million at September 30, 2007 and $4.9 million at September 30, 2006.

4

POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
   
Nine Months Ended
 September 30,
    
       
 
 2007
   
 2006 
   
 Change
     
   
Operating activities
                
     Net income
$
 80,983
 $
 100,025
$
 (19,042
  )  
     Adjustments to reconcile net income to net cash provided by operating activities:                
       Depreciation  
 6,868
  
 5,980
  
 888
    
         Amortization  
 3,665
  
 3,472
  
 193
    
         Share-based compensation  
 5,564
  
 5,517
  
 47
    
         Excess tax benefits from share-based compensation  
 (8,345
  )
 (10,619
  )
 2,274
    
         Equity earnings in unconsolidated investments  
 (2,087
  )
 (2,476
  )
 389
    
         Other  
 3,441
  
 1,645
  
 1,796
    
     Changes in operating assets and liabilities, net of effects of acquisitions:                
         Receivables  
(49,373
  )
 (61,121
  )
 11,748
    
         Product inventories  
 14,580
  
 53,889
  
 (39,309
  )  
         Accounts payable  
 (49,743
  )
 (71,359
  )
 21,616
    
         Other current assets and liabilitites  
 27,927
  
 56,525
  
 (28,598
  )  
   
Net cash provided by operating activities
  
33,480
  
81,478
  
(47,998
     )
  
                     
   
Investing activities
                
   
Acquisition of businesses, net of cash acquired
  
(2,087
     )
(26,662
     )
24,575
    
   
Purchase of property and equipment, net of sale proceeds
 
(9,407
     )
(11,146
     )
1,739
    
   
Dividend on equity investment
 
35
  
—
  
35
    
   
Proceeds from sale of investment
 
75
  
—
  
75
    
   
Net cash used in investing activities
  
(11,384
     )
(37,808
     )
26,424
    
                     
   
Financing activities
                
   
Proceeds from revolving line of credit
  
306,771
  
311,838
  
(5,067
     )
  
   
Payments on revolving line of credit
  
(299,928
     )
(293,938
     )
(5,990
     )
  
   
Proceeds from asset-backed financing
  
87,479
  
93,347
  
(5,868
     )
  
   
Payments on asset-backed financing
  
(51,050
     )
(48,030
     )
(3,020
     )
  
   
Proceeds from long-term debt
  
100,000
  
—
  
100,000
    
   
Payments on long-term debt and other long-term liabilities
  
(3,320
     )
(1,497
     )
(1,823
     )
  
   
Payments of capital lease obligations
  
(257
     )
(257
     )
—
    
   
Payments of deferred financing costs
  
(397
     )
(128
     )
(269
     )
  
   
Excess tax benefits from share-based compensation
  
8,345
  
10,619
  
(2,274
     )
  
   
Issuance of common stock under stock option plans
  
7,154
  
6,335
  
819
    
   
Payment of cash dividends
  
(17,033
     )
(15,734
     )
(1,299
     )
  
   
Purchase of treasury stock
 
(128,777
     )
(93,495
     )
(35,282
     )
  
   
Net cash provided by (used in) financing activities
  
8,987
  
(30,940
     )
39,927
    
   
Effect of exchange rate changes on cash
 
2,448
  
1,278
  
1,170
    
   
Change in cash and cash equivalents
  
33,531
  
14,008
  
19,523
    
   
Cash and cash equivalents at beginning of period
 
16,734
  
26,866
 
(10,132
     )
  
   
Cash and cash equivalents at end of period
$
50,265
$
40,874
$
9,391
    

 

5

Addendum

           
(Unaudited)
 
Base Business
Acquired & New Market
  
Total
(In thousands)
  
Three Months Ended
Three Months Ended
  
Three Months Ended
   
September 30,
September 30,
  
September 30,
 
 
2007
 
2006
 
2007
 
2006
 
 
2007
 
2006
 
Net sales
$
512,629
$
527,166
$
14,805
$
9,851
  
$
527,434
$
537,017
  
                             
Gross profit
  
135,864
  
147,227
  
3,939
  
2,768
    
139,803
  
149,995
  
Gross margin
  
26.5
%
27.9
%
26.6
%
28.1
%
  
26.5
%
27.9
%
                             
Selling and administrative expenses
  
96,575
  
95,439
  
3,723
  
1,464
    
100,298
  
96,903
  
Expenses as a % of net sales
  
18.8
%
18.1
%
25.1
%
14.9
%
  
19.0
%
18.0
%
                             
Operating income
  
39,289
  
51,788
  
216
  
1,304
    
39,505
  
53,092
  
Operating income margin
 
7.7
%
9.8
%
1.5
%
13.2
%
 
7.5
%
9.9
%

           
(Unaudited)
 
Base Business
Acquired & New Market
  
Total
(In thousands)
  
Nine Months Ended
Nine Months Ended
  
Nine Months Ended
   
September 30,
September 30,
  
September 30,
 
 
2007
 
2006
 
2007
 
2006
 
 
2007
 
2006
 
Net sales
$
1,580,783
$
1,579,633
$
46,829
$
11,643
  
$
1,627,612
$
1,591,276
  
                             
Gross profit
  
437,950
  
453,817
  
13,260
  
3,226
    
451,210
  
457,043
  
Gross margin
  
27.7
%
28.7
%
28.3
%
27.7
%
  
27.7
%
28.7
%
                             
Selling and administrative expenses
  
293,835
  
283,257
  
10,805
  
2,334
    
304,640
  
285,591
  
Expenses as a % of net sales
  
18.6
%
17.9
%
23.1
%
20.0
%
  
18.7
%
17.9
%
                             
Operating income
  
144,115
  
170,560
  
2,455
  
892
    
146,570
  
171,452
  
Operating income margin
 
9.1
%
10.8
%
5.2
%
7.7
%
 
9.0
%
10.8
%

We exclude the following sales centers from base business for 15 months:

·  
acquired sales centers;
·  
sales centers divested or consolidated with acquired sales centers; and
·  
new sales centers opened in new markets.

Additionally, we generally allocate overhead expenses to acquired sales centers on the basis of acquired sales center net sales as a percentage of total net sales.

6

There were four new sales centers opened in new markets, which have been excluded from base business at September 30, 2007.  The effect of sales center acquisitions in the tables above includes the operations of the following:

 
Acquired
  
Acquisition
Date
  
Sales Centers Acquired
  
Period
Excluded
Wickham Supply, Inc. and Water Zone, LP
  
August 2006
  
14
  
January – September 2007 and
   August – September 2006
Tor-Lyn, Limited
  
February 2007
  
1
  
February – September 2007

We define EBITDA as net income plus interest expense, income taxes, share-based compensation, depreciation and amortization.  We consider EBITDA an important indicator of the operational strength and performance of our business, including the ability to provide cash flows to fund growth, service debt and pay dividends.  EBITDA eliminates the non-cash expenses related to share-based compensation, depreciation of tangible assets and amortization of intangible assets.  We believe EBITDA should be considered in addition to, not as a substitute for, operating income, net income and other measures of financial performance reported in accordance with accounting principles generally accepted in the United States (GAAP).

The table below presents a reconciliation of net income to EBITDA.

             
(Unaudited)
 
Three Months Ended
  
 
Nine Months Ended
 
(In thousands)
  
September 30,
    
September 30,
  
 
 
 
2007
 
2006
    
2007
  
2006
  
Net income
$
21,835
  
31,493
  
$
80,983
  
100,025
  
 
Add:
                    
 
Interest expense, net
  
6,349
  
4,276
    
16,765
  
10,983
  
 
Provision for income taxes
  
12,802
  
18,848
    
50,118
  
61,957
  
 
Income tax expense on equity earnings
  
959
  
976
    
791
  
963
  
 
Share-based compensation
  
1,619
  
1,511
    
5,564
  
5,517
  
 
Depreciation
  
2,352
  
2,147
    
6,868
  
5,980
  
 
Amortization (1)
 
1,114
  
1,040
    
3,497
  
3,377
  
EBITDA
$
47,030
  
60,291
  
$
164,586
  
188,802
  

(1)  Excludes amortization included in interest expense, net


7