EX-99.1 2 poolq208er.htm POOL Q2 2008 EARNINGS RELEASE poolq208er.htm

Exhibit 99.1
 
FOR IMMEDIATE RELEASE
 

POOL CORPORATION REPORTS SECOND QUARTER RESULTS
AND UPDATES 2008 EARNINGS PROJECTION

______________________

 
COVINGTON, LA. (July 24, 2008) – Pool Corporation (NASDAQ/GSM:POOL) today reported results for the second quarter of 2008.
 
“Our second quarter results reflect continued strong performance in every facet of our business execution,” said Manuel Perez de la Mesa, President and CEO.  “While sales remain pressured by the unprecedented adverse market conditions impacting our industry, we have improved margin management, controlled expenses and realized market share gains while strengthening our business foundation for the future.”
 
Net sales for the quarter ended June 30, 2008 decreased $33.5 million, or 5%, to $693.0 million, compared to $726.5 million in the second quarter of 2007.  Base business sales declined 7% due to reduced new pool and irrigation construction activity.  This reduction was partially offset by sales from acquired businesses and an increase in maintenance, repair and replacement product sales.  During the quarter, complementary product sales, which are heavily weighted towards new pool construction, were down approximately 12% compared to a 9% increase in the same period in 2007.
 
Gross profit for the second quarter of 2008 decreased $5.1 million, or 2%, to $202.8 million from $207.9 million in the comparable 2007 period.  Gross profit as a percentage of net sales (gross margin) improved to 29.3% in the second quarter of 2008 from 28.6% for the second quarter of 2007.  The increase in gross margin is attributable to improved pricing management, a favorable shift in sales mix to products in the higher margin maintenance market and an increase in sales of private label products.  This increase in gross margin was partially offset by lower estimated vendor incentives earned compared to the second quarter of 2007 due to lower purchase volumes.
 
Operating expenses increased $3.3 million, or 3%, to $112.8 million in the second quarter of 2008 from $109.5 million in the second quarter of 2007.  This increase was primarily due to operating expenses related to the NPT acquisition.  Base business operating expenses decreased 1% quarter over quarter.
 
Operating income decreased $8.4 million, or 9%, to $90.0 million from $98.4 million.  Operating income as a percentage of net sales (operating margin) was 13.0% for the current quarter, down from 13.5% for the second quarter of 2007.  Interest expense decreased 14% during the quarter due to a lower weighted average effective interest rate, which was partially offset by higher average debt levels compared to the second quarter of 2007.  Earnings per share for the second quarter of 2008 was $1.09 per diluted share on net income of $52.9 million, compared to $1.12 per diluted share on net income of $57.8 million for the second quarter of 2007.

Net sales for the six months ended June 30, 2008 decreased $69.0 million, or 6%, to $1,031.2 million, compared to $1,100.2 million in the comparable 2007 period.  Base business sales declined 8% for the first six months of 2008.  Complementary product sales for the first half of 2008 were down approximately 13% due to the continued decline in new pool and irrigation construction activity.  Gross margin increased 60 basis points to 28.9% in the first half of 2008 from 28.3% for the same period last year.

 
 
 

Operating income for the first six months of 2008 decreased 14% to $92.2 million compared to $107.1 million in the same period last year.  Operating margin was 8.9% for the first half of 2008 compared to 9.7% for the first half of 2007.  Earnings per share for the first six months of 2008 decreased 11% to $1.02 per diluted share on net income of $49.7 million, compared to $1.14 per diluted share on net income of $59.1 million in the comparable 2007 period.

“Based on results to date and the current external environment, we are narrowing our full year 2008 earnings guidance to a projected range of $1.26 to $1.36 per diluted share compared to our initial projected range of $1.20 to $1.50 per diluted share,” said Perez de la Mesa.  “In the second half of 2008, we have more modest comparisons and anticipate continued improvement in every facet of our business execution.”

On the balance sheet, total net receivables decreased 8% compared to June 30, 2007 due to lower sales.  Inventory levels decreased 1% to $385.3 million at June 30, 2008.  Excluding acquired inventories of approximately $15.7 million, inventories decreased 5% year over year.

The use of cash in operations decreased $18.9 million to $35.2 million in the first six months of 2008.  The decrease in cash used in operations is primarily the result of favorable impacts from changes in working capital balances, which offset the reduction in net income.  Adjusted EBITDA (as defined in the addendum to this release) was $96.7 million in the second quarter of 2008 compared to $106.0 million in the second quarter of 2007 and $102.1 million for the six months ended June 30, 2008 compared to $117.6 million for the six months ended June 30, 2007.

Pool Corporation is the largest wholesale distributor of swimming pool and related backyard products.  Currently, POOL operates 290 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 2007 Form 10-K and Form 10-Q for the quarter ended March 31, 2008 filed with the Securities and Exchange Commission.

 

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

 
2
 
 
POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)

 
Three Months Ended
  
Six Months Ended
  
 
June 30,
  
June 30,
  
 
2008
  
2007
  
2008
  
2007
  
                       
Net sales
$
692,972
  
$
726,472
  
$
1,031,187
  
$
1,100,178
  
Cost of sales
  
490,220
    
518,550
    
733,081
    
788,771
  
Gross profit
  
202,752
    
207,922
    
298,106
    
311,407
  
Percent
  
29.3
%
  
28.6
%
  
28.9
%
  
28.3
%
Selling and administrative expenses
  
112,762
    
109,489
    
205,919
    
204,342
  
Operating income
  
89,990
    
98,433
    
92,187
    
107,065
  
Percent
  
13.0
%
  
13.5
%
  
8.9
%
  
9.7
%
                         
Interest expense, net
  
5,087
    
5,897
    
10,111
    
10,416
  
Income before income taxes and equity earnings (losses)
  
84,903
    
92,536
    
82,076
    
96,649
  
Provision for income taxes
  
32,811
    
35,728
    
31,722
    
37,316
  
Equity earnings (losses) in unconsolidated investments, net
  
783
    
986
    
(663
)
  
(185
)
Net income
$
52,875
  
$
57,794
  
$
49,691
  
$
59,148
  
                         
Earnings per share:
                        
Basic
$
1.11
  
$
1.17
  
$
1.04
  
$
1.19
  
Diluted
$
1.09
  
$
1.12
  
$
1.02
  
$
1.14
  
Weighted average shares outstanding:
                        
Basic
  
47,718
    
49,326
    
47,628
    
49,753
  
Diluted
  
48,716
    
51,504
    
48,499
    
51,974
  
                         
Cash dividends declared per common share
$
0.13
  
$
0.12
  
$
0.25
  
$
0.225
  

 
3
 

POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
 
     
          June 30,
    
          June 30,
    
             Change
  
     
          2008
    
          2007
    
          $
    
%
  
                           
Assets
                        
Current assets:
                        
 
Cash and cash equivalents
$
26,453
  
$
47,171
  
$
(20,718
)
  
(44
)%
 
Receivables, net
  
75,563
    
90,892
    
(15,329
)
  
(17
)
 
Receivables pledged under receivables facility
  
203,091
    
210,373
    
(7,282
)
  
(3
)
 
Product inventories, net
  
385,258
    
388,364
    
(3,106
)
  
(1
)
 
Prepaid expenses and other current assets
  
11,376
    
10,705
    
671
    
6
  
 
Deferred income taxes
  
9,139
    
7,676
    
1,463
    
19
  
Total current assets
  
710,880
    
755,181
    
(44,301
)
  
(6
)
                           
Property and equipment, net
  
33,892
    
36,628
    
(2,736
)
  
(7
)
Goodwill
  
167,352
    
155,231
    
12,121
    
8
  
Other intangible assets, net
  
14,480
    
16,561
    
(2,081
)
  
(13
)
Equity interest investments
  
32,839
    
32,156
    
683
    
2
  
Other assets, net
  
25,612
    
19,065
    
6,547
    
34
  
Total assets
$
985,055
  
$
1,014,822
  
$
(29,767
)
  
(3
)%
                           
Liabilities and stockholders’ equity
                        
Current liabilities:
                        
 
Accounts payable
$
193,663
  
$
229,691
  
$
(36,028
)
  
(16
)%
 
Accrued and other current liabilities
  
70,755
    
62,071
    
8,684
    
14
  
 
Short-term financing
  
121,492
    
150,000
    
(28,508
)
  
(19
)
 
Current portion of long-term debt and other long-term liabilities
  
4,633
    
4,350
    
283
    
7
  
Total current liabilities
  
390,543
    
446,112
    
(55,569
)
  
(12
)
                           
Deferred income taxes
  
17,527
    
15,212
    
2,315
    
15
  
Long-term debt
  
316,000
    
272,599
    
43,401
    
16
  
Other long-term liabilities
  
6,455
    
6,519
    
(64
)
  
(1
)
Total liabilities
  
730,525
    
740,442
    
(9,917
)
  
(1
)
Total stockholders’ equity
  
254,530
    
274,380
    
(19,850
)
  
(7
)
Total liabilities and stockholders’ equity
$
985,055
  
$
1,014,822
  
$
(29,767
)
  
(3
)%
__________________

1.  
Total receivables at June 30, 2008 include approximately $6.7 million of acquired receivables, primarily from our acquisition of National Pool Tile (NPT).  The allowance for doubtful accounts was $9.7 million at June 30, 2008 and $6.4 million at June 30, 2007, with $1.1 million of the June 30, 2008 balance related to the acauisition of NPT.
 
2.  
Total product inventories at June 30, 2008 include approximately $15.7 million of acquired inventories, primarily from our acquisition of NPT.  The inventory reserve was $7.9 million June 30, 2008 and $5.0 million at June 30, 2007, with $1.2 million of the June 30, 2008 balance related to the acquisition of NPT.

 
4
 

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

 
Six Months Ended
June 30, 
            
 
         2008 
               2007 
    
  Change 
  
Operating activities
                    
Net income
$ 
 49,691
                   $
59,148
 
  
$ 
(9,457
) 
  
Adjustments to reconcile net income to net cash used in operating activities:
                    
 
 Depreciation
  
4,804
  
4,516
      
288
    
 
 Amortization
  
2,149
  
2,493
      
(344
) 
  
 
 Share-based compensation
  
4,269
  
3,945
      
324
    
 
 Excess tax benefits from share-based compensation
  
(1,652
)
(6,399
)
    
4,747
    
 
 Equity losses in unconsolidated investments
  
1,158
  
353
      
805
    
 
 Other
  
(1,501
)
637
 
    
(2,138
)
  
Changes in operating assets and liabilities, net of effects of acquisitions:
                    
 
 Receivables
  
(132,735
)
(147,733
)
    
14,998
    
 
 Product inventories
  
8,995
 
(56,282
)
    
65,277
 
  
 
 Accounts payable
  
(2,606
 )
52,102
      
(54,708
 )
  
 
 Other current assets and liabilities
  
32,266
 
33,145
 
    
(879
)
  
Net cash used in operating activities
  
(35,162
)
(54,075
)
    
18,913
 
  
                         
Investing activities
                  
Acquisition of businesses, net of cash acquired
  
(32,840
)
(2,087
)
    
(30,753
)
  
Divestiture of business    724  
— 
        724    
Purchase of property and equipment, net of sale proceeds
  
(3,611
)
(7,606
)
    
3,995
    
Proceeds from sale of investment
  
­—
  
75
      
(75
)
  
Net cash used in investing activities
  
(35,727
)
(9,618
)
    
(26,109
)
  
                     
Financing activities
                    
Proceeds from revolving line of credit
  
190,100
  
215,271
      
(25,171
)
  
Payments on revolving line of credit
  
(150,625
)
(229,329
)
    
78,704
    
Proceeds from asset-backed financing
  
73,335
  
87,479
      
(14,144
)
  
Payments on asset-backed financing
  
(20,170
)
(11,765
)
    
(8,405
)
  
Proceeds from long-term debt
  
—
  
100,000
      
(100,000
)
  
Payments on long-term debt and other long-term liabilities
  
(1,591
)
(1,547
)
    
(44
)
  
Payments of capital lease obligations
  
(251
)
(257
)
    
6
    
Payments of deferred financing costs
  
(22
)
(397
)
    
375
    
Excess tax benefits from share-based compensation
  
1,652
  
6,399
      
(4,747
)
  
Issuance of common stock under stock option plans
  
2,289
  
5,414
      
(3,125
)
  
Payments of cash dividends
  
(11,951
)
(11,185
)
    
(766
)
  
Purchases of treasury stock
  
(1,263
)
(67,998
)
    
66,735
    
Net cash provided by financing activities
  
81,503
  
92,085
      
(10,582
 )  
Effect of exchange rate changes on cash
  
14
 
2,045
 
    
(2,031
)
  
Change in cash and cash equivalents
  
10,628
 
30,437
      
(19,809
)
  
Cash and cash equivalents at beginning of period
  
15,825
  
16,734
      
(909
)
  
Cash and cash equivalents at end of period
$
26,453
$
47,171
 
  
$ 
(20,718
)
  

 
5
 

Addendum

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

(Unaudited)
  
Base Business
Excluded
  
Total
(In thousands)
  
Three Months Ended
Three Months Ended
  
Three Months Ended
   
June 30,
June 30,
  
June 30,
   
2008
  
2007
  
2008
  
2007
    
2008
  
2007
  
Net sales
$
656,806
$
702,785
$
36,166
$
23,687
  
$
692,972
$
726,472
  
                             
Gross profit
  
191,219
  
201,768
  
11,533
  
6,154
    
202,752
  
207,922
  
Gross margin
  
29.1
%
28.7
%
31.9
%
26.0
%
  
29.3
%
28.6
%
                             
Selling and administrative expenses
  
103,628
  
104,725
  
9,134
  
4,764
    
112,762
  
109,489
  
Expenses as a % of net sales
  
15.8
%
14.9
%
25.3
%
20.1
%
  
16.3
%
15.1
%
                             
Operating income
  
87,591
  
97,043
  
2,399
  
1,390
    
89,990
  
98,433
  
Operating margin
  
13.3
%
13.8
%
6.6
%
5.9
%
  
13.0
%
13.5
%

(Unaudited)
  
Base Business
Excluded
  
Total
(In thousands)
  
Six Months Ended
Six Months Ended
  
Six Months Ended
   
June 30,
June 30,
  
June 30,
   
2008
  
2007
  
2008
  
2007
    
2008
  
2007
  
Net sales
$
989,307
$
1,074,606
$
41,880
$
25,572
  
$
1,031,187
$
1,100,178
  
                             
Gross profit
  
284,771
  
304,787
  
13,335
  
6,620
    
298,106
  
311,407
  
Gross margin
  
28.8
%
28.4
%
31.8
%
25.9
%
  
28.9
%
28.3
%
                             
Selling and administrative expenses
  
194,229
  
198,104
  
11,690
  
6,238
    
205,919
  
204,342
  
Expenses as a % of net sales
  
19.6
%
18.4
%
27.9
%
24.4
%
  
20.0
%
18.6
%
                             
Operating income
  
90,542
  
106,683
  
1,645
  
382
    
92,187
  
107,065
  
Operating margin
  
9.2
%
9.9
%
3.9
%
1.5
%
  
8.9
%
9.7
%

We exclude the following sales centers from base business results for a period of 15 months (parenthetical numbers for each category indicate the number of sales centers excluded as of June 30, 2008):

·  
acquired sales centers (10, net of consolidations – see table below);
·  
existing sales centers consolidated with acquired sales centers (6);
·  
closed sales centers (3);
·  
consolidated sales centers in cases where we do not expect to maintain the majority of the existing business (1); and
·  
sales centers opened in new markets (0).
 
6
 
We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales.  After 15 months of operations, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.

In addition to the 20 sales centers excluded from base business as of June 30, 2008, there were 2 new market sales centers excluded until they became base business sales centers in June 2008.  We also divested our pool liner fabrication operation in France as of April 2008, and therefore we have excluded the results from base business for the three month period ended June 30, 2007.
 
We have excluded the following acquisitions from base business for the periods identified:

 
 
Acquired
  
 
Acquisition
Date
  
Net
Sales Centers Acquired
  
 
Period
Excluded
National Pool Tile (NPT) (1)
  
March 2008
  
9
  
March – June 2008
Canswim Pools
  
March 2008
  
1
  
March – June 2008
Tor-Lyn, Limited
  
February 2007
  
1
  
February – April 2007 and January – April 2008

The table below summarizes the changes in our sales centers in the first half of 2008:

December 31, 2007
281
  Acquired, net of consolidations (1)
 12
  Consolidated
  (1)
  Closed
  (1)
March 31, 2008
291
  New locations
   1
  Consolidation of acquired locations (1)
  (2)
June 30, 2008
290
 
       (1)  We acquired 15 NPT sales centers and have consolidated 6 of these with existing sales centers, including 4 in March 2008 and 2 in the second quarter of 2008.

 
 

 
7
 

We define Adjusted EBITDA as net income or net loss plus interest expense, income taxes, depreciation, amortization and share-based compensation.  Adjusted EBITDA is not a measure of cash flow or liquidity as determined by generally accepted accounting principles (GAAP).  We have included Adjusted EBITDA as a supplemental disclosure because we believe that it is widely used by our investors, industry analysts and others as a useful supplemental liquidity measure in conjunction with cash flows provided by or used in operating activities to help investors understand our ability to provide cash flows to fund growth, service debt and pay dividends as well as compare our cash flow generating capacity from year to year.

We believe Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income, net income or loss, cash flows provided by or used in operating, investing, and financing activities or other income statement or cash flow statement line items reported in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.

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

(Unaudited)
  
Three Months Ended
    
Six Months Ended
  
(In thousands)
  
June 30,
    
June 30,
  
     
2008
  
2007
    
2008
  
2007
  
Net income
$
52,875
$
57,794
  
$
49,691
$
59,148
  
 
Add:
                    
 
Interest expense, net
  
5,087
  
5,897
    
10,111
  
10,416
  
 
Provision for income taxes
  
32,811
  
35,728
    
31,722
  
37,316
  
 
Income tax expense (benefit) on equity (earnings) losses
  
507
  
648
    
(495
)
(168
)
 
Share-based compensation
  
1,999
  
2,402
    
4,269
  
3,945
  
 
Depreciation
  
2,417
  
2,332
    
4,804
  
4,516
  
 
Amortization (1)
  
996
  
1,213
    
1,949
  
2,383
  
Adjusted EBITDA
$
96,692
$
106,014
  
$
102,051
$
117,556
  

(1)  Excludes amortization included in interest expense, net
 

The table below presents a reconciliation of Adjusted EBITDA to cash used in operating activities.

(Unaudited)
  
Three Months Ended
    
Six Months Ended
  
(In thousands)
  
June 30,
    
June 30,
  
     
2008
  
2007
    
2008
  
2007
  
Adjusted EBITDA
$
96,692
$
106,014
  
$
102,051
$
117,556
  
 
Add:
                    
 
Interest expense, net(1)
  
(4,998
)
(5,837
)
  
(9,911
)
(10,306
)
 
Provision for income taxes
  
(32,811
)
(35,728
)
  
(31,722
)
(37,316
)
 
Income tax (expense) benefit on equity (earnings) losses
  
(507
)
(648
)
  
495
  
168
  
 
Excess tax benefits on share-based compensation
  
(112
)
(3,565
)
  
(1,652
)
(6,399
)
 
Equity (earnings) losses in unconsolidated investments, net
  
(1,288
)
(1,634
)
  
1,158
  
353
  
 
Other
  
1,111
  
2,557
    
(1,501
)
637
  
 
Change in operating assets and liabilities
  
(77,809
)
(101,927
)
  
(94,080
)
(118,768
)
Net cash used in operating activities
$
(19,722
 ) 
 $
(40,768
)
$
(35,162
 ) 
 $
(54,075
)
 
(1)  Excludes amortization of deferred financing costs of $89 and $60 for the three months ended June 30, 2008 and June 30, 2007, respectively, and $200 and $110 for the six months ended June 30, 2008 and June 30, 2007, respectively.  This non-cash expense is included in interest expense, net on the Consolidated Statements of Income.

 
 
8