EX-99.1 2 poolq407er.htm POOL 2007 EARNINGS RELEASE poolq407er.htm

 
 
Exhibit 99.1    
 
FOR IMMEDIATE RELEASE    
 

POOL CORPORATION REPORTS FISCAL 2007 RESULTS
 

COVINGTON, LA. (February 21, 2008) – Pool Corporation (the “Company” or “POOL”) (NASDAQ/GSM: POOL) today announced fourth quarter and full year 2007 results.

“We continue to weather an unprecedented external market environment.  The real estate market issues, with falling home values and tighter credit, intensified throughout 2007, creating a significant drop in new construction activities and negatively affecting our 2007 results.  Despite this, our employees did an outstanding job of executing by providing exceptional value to our customers and suppliers, and these efforts resulted in market share gains and improved our competitive position.  As we continue to improve every facet of how we execute, we will take advantage of the tremendous long-term opportunities present in our young industry,” commented Manuel Perez de la Mesa, President and CEO.

Net sales for the year ended December 31, 2007 increased $18.6 million, or 1%, to $1.93 billion, compared to $1.91 billion in 2006.  The increase in net sales is a result of the Wickham acquisition and sales from new locations opened in new markets.  Base business sales decreased 1% year over year as demand for pool and irrigation construction products was impacted by the weak housing market and less than favorable weather conditions, particularly in the first half of 2007.  Complementary products sales, a majority of which are tied to new construction, decreased 3% from 2006.

Gross profit for the year ended December 31, 2007 decreased $9.3 million, or 2%, to $530.6 million from $539.9 million in 2006.  Gross profit as a percentage of net sales (gross margin) decreased 80 basis points to 27.5% in 2007 from 28.3% in 2006.  The decrease in 2007 gross margin is primarily due to competitive pricing pressures as a result of the market conditions.

Selling and administrative expenses (operating expenses) for 2007 increased $24.3 million, or 7%, to $396.9 million from $372.6 million in 2006.  Operating expenses as a percentage of net sales increased to 20.6% in 2007 from 19.5% in 2006 due to the investments made in 29 new sales centers since the beginning of 2006, sales center expansions and relocations, increases in our accounts receivable reserves and higher freight costs. These increased costs were partially offset by lower incentive expenses and the impact from cost control initiatives.

Operating income decreased $33.6 million, or 20%, to $133.8 million in 2007 from $167.4 million in 2006.  Operating income as a percentage of net sales (operating margin) decreased 190 basis points to 6.9% in 2007 from 8.8% in 2006.  Interest expense increased 46% for 2007 due to higher debt levels for borrowings to fund share repurchases and a higher average effective interest rate compared to the same period in 2006. Earnings for 2007 decreased to $1.37 per diluted share on net income of $69.4 million, compared to $1.74 per diluted share on net income of $95.0 million in 2006.  The opening of 29 new sales centers since the beginning of 2006 is estimated to have had a dilutive impact of approximately $0.16 on earnings per share for 2007.

On the balance sheet, total net receivables decreased 9% compared to December 31, 2006 primarily due to lower fourth quarter 2007 sales and an increase in the allowance for doubtful accounts.  Our inventory levels increased 14% to $379.7 million at December 31, 2007.  The increase reflects inventory for the 12 new sales centers opened in 2007 and higher inventory levels attributable to the decline in fourth quarter sales.  The quality of our inventory remains high as measured by the percentage of total inventory in our fastest-turning inventory classes, which accounted for essentially the entire increase from December 31, 2006.

Cash provided by operations was $71.6 million in 2007, compared to $69.0 million in 2006.  The increase in 2007 cash provided by operations is primarily the result of favorable impacts from changes in working capital balances, which offset the decrease in net income. The Company repurchased 4.1 million shares of its common stock under its repurchase plan during 2007, using $137.7 million in borrowing capacity to fund these purchases.

 
 
 

In the fourth quarter of 2007, net sales decreased $17.7 million, or 6%, to $300.8 million, compared to $318.5 million in the comparable 2006 period.  Gross margin increased 40 basis points to 26.4% in the fourth quarter of 2007 from 26.0% for the same period last year.  The 2007 gross margin benefited from a favorable comparison to fourth quarter 2006 gross margin, which was negatively impacted by an adjustment to vendor incentives earned for the year.  The seasonal operating loss for the fourth quarter was $12.8 million compared to an operating loss of $4.1 million in the same period last year.  The loss per share for the fourth quarter of 2007 was $0.24 per diluted share on a net loss of $11.6 million, compared to a loss of $0.10 per diluted share on a net loss of $5.0 million in the fourth quarter of 2006.

“Our objectives in 2008 are to continue to execute on our business strategies that we believe will provide long-term value to our customers, suppliers and our shareholders, and to exploit business improvement opportunities available to us while maintaining tight control over our expenses.  Given the challenges in the external environment, we will not provide any earnings per share guidance until we gain more visibility for how our 2008 results are tracking,” continued Perez de la Mesa.

Pool Corporation is the largest wholesale distributor of swimming pool and related backyard products.  Currently, POOL operates 281 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 Operations
(Unaudited)
(In thousands, except per share data)
 
   
        Three Months Ended
    
Year Ended
  
   
        December 31,
    
        December 31,
  
   
        2007
    
        2006
    
        2007
    
        2006
  
                         
Net sales
   $ 300,755     $ 318,486     $ 1,928,367     $ 1,909,762  
Cost of sales
     221,319       235,581       1,397,721       1,369,814  
Gross profit
     79,436       82,905       530,646       539,948  
Percent
     26.4 %     26.0 %     27.5 %     28.3 %
                                 
Selling and administrative expenses
     92,232       86,975       396,872       372,566  
Operating income (loss)
     (12,796 )     (4,070 )     133,774       167,382  
Percent
     (4.3 )%     (1.3 )%     6.9 %     8.8 %
                                 
Interest expense, net
     5,383       4,213       22,148       15,196  
Income (loss) before income taxes and
        equity earnings (loss)
     (18,179 )     (8,283 )     111,626       152,186  
Provision (benefit) for income taxes
     (6,964 )     (3,198 )     43,154       58,759  
Equity earnings (loss) in unconsolidated investments, net
     (374 )     84       922       1,597  
Net income (loss)
   $ (11,589 )   $ (5,001 )   $ 69,394     $ 95,024  
                                 
Earnings (loss) per share:
                                
Basic
   $ (0.24 )   $ (0.10 )   $ 1.42     $ 1.83  
Diluted
   $ (0.24 )   $ (0.10 )   $ 1.37     $ 1.74  
Weighted average shares outstanding:
                                
Basic
     47,448       50,750       48,887       51,866  
Diluted
     47,448       50,750       50,802       54,662  
                                 
Cash dividends declared per common share
   $ 0.12     $ 0.105     $ 0.465     $ 0.405  
 
 
3
 

POOL CORPORATION
Condensed Consolidated Balance Sheets
 (Unaudited)
(In thousands)
 
   
December 31,
  
December 31,
    
Change
  
   
2007
  
2006
    
$
  
      %
  
                     
Assets
                    
Current assets:
                    
Cash and cash equivalents
$
15,825
$
16,734
  
$
(909
)
(5
)%
Receivables, net
  
45,257
  
51,116
    
(5,859
)
(11
)
Receivables pledged under receivables facility
  
95,860
  
103,821
    
(7,961
)
(8
)
Product inventories, net
  
379,663
  
332,069
    
47,594
  
14
  
Prepaid expenses and other current assets
  
8,265
  
8,005
    
260
  
3
  
Deferred income taxes
  
9,139
  
7,676
    
1,463
  
19
  
Total current assets
  
554,009
  
519,421
    
34,588
  
7
  
                     
Property and equipment, net
  
34,223
  
33,633
    
590
  
2
  
Goodwill
  
155,247
  
154,244
    
1,003
  
1
  
Other intangible assets, net
  
14,504
  
18,726
    
(4,222
)
(23
)
Equity interest investments
  
33,997
  
32,509
    
1,488
  
5
  
Other assets, net
  
22,874
  
16,029
    
6,845
  
43
  
Total assets
$
814,854
$
774,562
  
$
40,292
  
5
%
                     
Liabilities and stockholders’ equity
                    
Current liabilities:
                    
Accounts payable
$
194,178
$
177,544
  
$
16,634
  
9
%
Accrued and other current liabilities
  
37,216
  
35,610
    
1,606
  
5
  
Short-term financing
  
68,327
  
74,286
    
(5,959
)
(8
)
Current portion of long-term debt and other long-term liabilities
  
3,439
  
4,350
    
(911
)
(21
)
Total current liabilities
  
303,160
  
291,790
    
11,370
  
4
  
                     
Deferred income taxes
  
17,714
  
15,023
    
2,691
  
18
  
Long-term debt
  
279,525
  
188,157
    
91,368
  
49
  
Other long-term liabilities
  
5,664
  
1,908
    
3,756
  
197
  
                     
Total liabilities
  
606,063
  
496,878
    
109,185
  
22
  
Total stockholders’ equity
  
208,791
  
277,684
    
(68,893
)
(25
)
Total liabilities and stockholders’ equity
$
814,854
$
774,562
  
$
40,292
  
5
%

 
1.
The allowance for doubtful accounts was $9.9 million at December 31, 2007 and $4.9 million at December 31, 2006.
2.
The inventory reserve was $5.4 million at December 31, 2007 and $4.8 million at December 31, 2006.

 
4
 

POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

   
Year Ended
 December 31,
      
   
   
  
 2007
  
 2006 
  
 Change
  
  
   
Operating activities
                  
   
 Net income
$
69,394
 $
 95,024
$
 (25,630
 )
    
   
 Adjustments to reconcile net income to net cash provided by operating activities:
                  
       Depreciation  
9,289
  
 8,162
  
1,127
      
       Amortization  
 4,694
  
 4,742
  
 (48
  )    
       Share-based compensation  
 7,398
  
 7,204
  
 194
      
       Excess tax benefits from share-based compensation  
 (8,482
 )
 (14,627
 )
 6,145
      
       Equity earnings in unconsolidated investments  
 (1,523
 )
 (2,602
 )
 1,079
      
       Other  
 1,926
  
(2,329
  )
 4,255
      
   
 Changes in operating assets and liabilities, net of effects of acquisitions:
                  
       Receivables  
8,822
 
 (5,301
 )
 14,123
      
       Product inventories  
(48,001
  )
 5,882
  
 (53,883
 )
    
       Accounts payable  
 16,505
 
 (5,269
 )
 21,774
      
       Other current assets and liabilitites  
 11,622
  
 (21,876
  )
 33,498
 
    
   
Net cash provided by operating activities
  
71,644
  
69,010
  
2,634
   )
    
                       
   
Investing activities
                  
   
Acquisition of businesses, net of cash acquired
  
(2,087
     )
(26,662
     )
24,575
      
   
Proceeds from sale of investment
  
75
 
—
     
75
      
   
Purchase of property and equipment, net of sale proceeds
  
(10,626
  )
(14,777
  )
4,151
      
   
Net cash used in investing activities
  
(12,638
     )
(41,439
     )
28,801
      
                       
   
Financing activities
                  
   
Proceeds from revolving line of credit
  
477,246
  
442,495
  
34,751
   )
    
   
Payments on revolving line of credit
  
(482,878
     )
(380,438
     )
(102,440
     )
    
   
Proceeds from asset-backed financing
  
87,479
  
93,347
  
(5,868
     )
    
   
Payments on asset-backed financing
  
(93,438
     )
(84,718
     )
(8,720
     )
    
   
Proceeds from long-term debt
  
100,000
  
—
  
100,000
      
   
Payments on long-term debt and other long-term liabilities
  
(4,321
     )
(1,514
     )
(2,807
     )
    
   
Payments of capital lease obligations
  
(257
     )
(257
     )
—
      
   
Payments of deferred financing costs
  
(1,152
     )
(156
     )
(996
     )
    
   
Excess tax benefits from share-based compensation
  
8,482
  
14,627
  
(6,145
     )
    
   
Issuance of common stock under stock plans
  
7,292
  
7,220
  
72
      
   
Payments of cash dividends
  
(22,734
     )
(21,080
     )
(1,654
     )
    
   
Purchases of treasury stock
  
(139,676
     )
(111,112
     )
(28,564
     )
    
   
Net cash used in financing activities
  
(63,957
  )
(41,586
     )
(22,371
  )    
   
Effect of exchange rate changes on cash
  
4,042
  
3,883
  
159
      
   
Change in cash and cash equivalents
  
(909
  ) 
(10,132
  )
9,223
      
   
Cash and cash equivalents at beginning of year
  
16,734
  
26,866
  
(10,132
     )
    
   
Cash and cash equivalents at end of year
$
15,825
$
16,734
$
(909
  )    

 
5
 

Addendum

The following table breaks out our consolidated results into the base business component and the acquired and new market component (sales centers excluded from base business):

(Unaudited)
  
Base Business
Acquired & New Market
  
Total
(In thousands)
  
Three Months Ended
Three Months Ended
  
Three Months Ended
   
December 31,
December 31,
  
December 31,
   
2007
  
2006
  
2007
  
2006
    
2007
  
2006
  
Net sales
$
296,304
$
314,536
$
4,451
$
3,950
  
$
300,755
$
318,486
  
                             
Gross profit
  
78,433
  
81,698
  
1,003
  
1,207
    
79,436
  
82,905
  
Gross margin
  
26.5
%
26.0
%
22.5
%
30.6
%
  
26.4
%
26.0
%
                             
Selling and administrative expenses
  
91,036
  
86,242
  
1,196
  
733
    
92,232
  
86,975
  
Expenses as a % of net sales
  
30.7
%
27.4
%
26.9
%
18.6
%
  
30.7
%
27.3
%
                             
Operating income (loss)
  
(12,603
)
(4,544
)
(193
)
474
    
(12,796
)
(4,070
)
Operating margin
  
(4.3
)%
(1.4
)%
(4.3
)%
12.0
%
  
(4.3
)%
(1.3
)%

(Unaudited)
  
Base Business
Acquired & New Market
  
Total
(In thousands)
  
Year Ended
Year Ended
  
Year Ended
   
December 31,
December 31,
  
December 31,
   
2007
  
2006
  
2007
  
2006
    
2007
  
2006
  
Net sales
$
1,877,107
$
1,894,169
$
51,260
$
15,593
  
$
1,928,367
$
1,909,762
  
                             
Gross profit
  
516,375
  
535,510
  
14,271
  
4,438
    
530,646
  
539,948
  
Gross margin
  
27.5
%
28.3
%
27.8
%
28.5
%
  
27.5
%
28.3
%
                             
Selling and administrative expenses
  
384,853
  
369,498
  
12,019
  
3,068
    
396,872
  
372,566
  
Expenses as a % of net sales
  
20.5
%
19.5
%
23.4
%
19.7
%
  
20.6
%
19.5
%
                             
Operating income
  
131,522
  
166,012
  
2,252
  
1,370
    
133,774
  
167,382
  
Operating margin
  
7.0
%
8.8
%
4.4
%
8.8
%
  
6.9
%
8.8
%

We exclude the following sales centers from base business for a period of 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 and new market sales centers on the basis of their net sales as a percentage of total net sales.

Due to the timing of the five sales centers closed or consolidated during the fourth quarter of 2007, these locations have not been excluded for the purpose of calculating base business for all periods presented.

 
6
 
 
The acquired and new market component in the tables above consists of the operations of two new market sales centers for the fourth quarter, an average of four new market sales centers for the year to date and the following acquisitions for the periods indicated:

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

(1)
After 15 months of operations, we include acquired sales centers in the base business calculation including the comparative prior year period.

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)
  
Year Ended
(In thousands)
  
December 31,
     
2007
  
2006
Net income
$
69,394
$
95,024
 
Add:
        
 
     Interest expense, net
  
22,148
  
15,196
 
     Provision for income taxes
  
43,154
  
58,759
 
     Income taxes on equity earnings
  
602
  
1,005
 
     Share based compensation
  
7,398
  
7,204
 
     Depreciation
  
9,289
  
8,162
 
     Amortization (1)
  
4,468
  
4,609
EBITDA
$
156,453
$
189,959

            (1)  Excludes amortization included in interest expense, net

 
7