EX-99.1 2 poolq209er.htm POOL CORP Q2 2009 EARNINGS RELEASE poolq209er.htm
 
Exhibit 99.1
 
FOR IMMEDIATE RELEASE
 

POOL CORPORATION REPORTS SECOND QUARTER RESULTS
______________________

$71 MILLION  IMPROVEMENT IN CASH PROVIDED BY OPERATIONS
AND A 60 BASIS POINT INCREASE IN OPERATING MARGIN

COVINGTON, LA. (July 23, 2009) – Pool Corporation (NASDAQ/GSM:POOL) today reported results for the second quarter of 2009.

“In what is arguably the most challenging market environment ever experienced by our industry, we are pleased that there are a number of positive developments to report,” said Manuel Perez de la Mesa, President and CEO.  “Our focus on optimizing gross margin, right-sizing expenses relative to sales levels and improving working capital management is evidenced by our higher operating margin and significantly better cash generation.  Additionally, we believe our dedicated team, industry leading programs and market penetration initiatives have enabled us to gain market share in these difficult times.”

Net sales for the quarter ended June 30, 2009 decreased 13% to $602.1 million, compared to $693.0 million in the second quarter of 2008.  Base business sales also declined 13% due to reduced new pool and irrigation construction activity, deferred discretionary replacement activity and unfavorable weather and currency fluctuations.  This reduction was partially offset by an increase in certain maintenance and repair product sales and sales related to regulatory changes governing pool and spa safety.

Gross profit for the second quarter of 2009 decreased 12% to $178.1 million from $202.8 million in the comparable 2008 period.  Gross profit as a percentage of net sales (gross margin) improved to 29.6% in the second quarter of 2009 from 29.3% for the second quarter of 2008.  The increase in gross margin is attributable to a favorable shift in sales mix, an increase in sales of POOLCORP branded products and specific margin improvement initiatives.

Selling and administrative expenses (operating expenses) decreased 15% to $96.4 million in the second quarter of 2009 from $112.8 million in the second quarter of 2008.  Base business operating expenses decreased 14% compared to the second quarter of 2008 due to the impact of cost control initiatives on payroll related and variable expenses, including lower incentive compensation, and reduced freight costs.

Operating income decreased 9% to $81.7 million from $90.0 million in the comparable 2008 period.  Operating income as a percentage of net sales (operating margin) increased to 13.6% for the current quarter, compared to 13.0% for the second quarter of 2008.  Average debt levels decreased by $76.1 million compared to the second quarter of 2008.  Coupled with a lower weighted average effective interest rate, interest expense declined 38%.  Earnings per share for the second quarter of 2009 was $0.99 per diluted share on net income of $48.4 million, compared to $1.08 per diluted share on net income of $52.9 million for the second quarter of 2008.

Net sales for the six months ended June 30, 2009 decreased 15% to $878.7 million from $1,031.2 million in the comparable 2008 period.  Base business sales declined 16% in the first six months of 2009 compared to the same period in 2008.  Gross margin increased 60 basis points to 29.5% in the first half of 2009 from 28.9% for the same period last year.

Operating income for the first six months of 2009 decreased 15% to $78.1 million compared to $92.2 million in the same period last year.  Operating margin was 8.9% for both the first half of 2009 and the first half of 2008.  Earnings per share for the first six months of 2009 decreased 15% to $0.87 per diluted share on net income of $42.1 million, compared to $1.02 per diluted share on net income of $49.7 million in the comparable 2008 period.
 


 
 
 
 

On the balance sheet, total net receivables decreased 16% compared to June 30, 2008 due primarily to lower sales and a shift toward more cash sales resulting from tighter credit terms.  Inventory levels also decreased 16% to $325.2 million at June 30, 2009 compared to levels at June 30, 2008.  Total debt outstanding at June 30, 2009 was $334.0 million, down $108.0 million compared to June 30, 2008.

Cash provided by operations was $35.6 million in the first six months of 2009 compared to a use of cash in operations of $35.2 million in the first six months of 2008.  The increase in cash provided by operations is due to focused management of working capital balances, primarily the reduction of inventory levels.  This improvement of  $70.8 million is net of a $30.0 million deferred federal income tax payment made in January 2009.  Adjusted EBITDA (as defined in the addendum to this release) was $87.2 million in the second quarter of 2009 compared to $96.7 million in the second quarter of 2008, and was $84.1 million for the six months ended June 30, 2009 compared to $102.1 million for the six months ended June 30, 2008.

“Given our results through the seasonally critical second quarter, we anticipate our full year 2009 earnings will be in the range of $1.00 to $1.05 per diluted share excluding any potential one-time charges,” said Perez de la Mesa.  “As we head into the second half of 2009, we expect better relative performance in the fourth quarter and are encouraged by current trends that indicate a softening of the impact of discretionary sales declines.”

Pool Corporation is the largest wholesale distributor of swimming pool and related backyard products.  Currently, POOL operates 287 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, changes in the economy and the housing market, our ability to maintain favorable relationships with suppliers and manufacturers, competition from other leisure product alternatives and mass merchants and other risks detailed in POOL’s Form 10-Q for the quarter ended March 31, 2009 filed with the Securities and Exchange Commission.
 

CONTACT:
 
Craig K. Hubbard
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,
  
 
2009
  
2008
  
2009
  
2008
  
                       
Net sales
$
602,082
  
$
692,972
  
$
878,708
  
$
1,031,187
  
Cost of sales
  
424,014
    
490,220
    
619,447
    
733,081
  
Gross profit
  
178,068
    
202,752
    
259,261
    
298,106
  
Percent
  
29.6
%
  
29.3
%
  
29.5
%
  
28.9
%
                         
Selling and administrative expenses
  
96,348
    
112,762
    
181,187
    
205,919
  
Operating income
  
81,720
    
89,990
    
78,074
    
92,187
  
Percent
  
13.6
%
  
13.0
%
  
8.9
%
  
8.9
%
                         
Interest expense, net
  
3,150
    
5,087
    
6,477
    
10,111
  
Income before income taxes and equity earnings (losses)
  
78,570
    
84,903
    
71,597
    
82,076
  
Provision for income taxes
  
30,878
    
32,811
    
28,138
    
31,722
  
Equity earnings (losses) in unconsolidated investments, net
  
674
    
783
    
(1,329
)
  
(663
)
Net income
$
48,366
  
$
52,875
  
$
42,130
  
$
49,691
  
                         
Earnings per share:
                        
Basic
$
1.00
  
$
1.11
  
$
0.87
  
$
1.04
  
Diluted
$
0.99
  
$
1.08
(1)
$
0.87
  
$
1.02
  
Weighted average shares outstanding:
                        
Basic
  
48,536
    
47,823
(1)
  
48,412
    
47,736
(1)
Diluted
  
48,844
    
48,776
(1)
  
48,654
    
48,562
(1)
                         
Cash dividends declared per common share
$
0.13
  
$
0.13
  
$
0.26
  
$
0.25
  


 
(1)  As adjusted for the adoption of FSP EITF 03-6-1.
 

 
 
3
 
 

POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
 

     
  June 30,
    
  June 30,
    
Change
  
     
 2009
    
  2008
    
$
    
%
  
                           
Assets
                        
Current assets:
                        
 
Cash and cash equivalents
$
41,727
  
$
26,453
  
$
15,274
    
58
%
 
Receivables, net
  
50,981
    
75,563
    
(24,582
)
  
(33
)
 
Receivables pledged under receivables facility
  
182,307
    
203,091
    
(20,784
)
  
(10
)
 
Product inventories, net
  
325,198
    
385,258
    
(60,060
)
  
(16
)
 
Prepaid expenses and other current assets
  
8,219
    
11,376
    
(3,157
)
  
(28
)
 
Deferred income taxes
  
11,908
    
9,139
    
2,769
    
30
  
Total current assets
  
620,340
    
710,880
    
(90,540
)
  
(13
)
                           
Property and equipment, net
  
34,163
    
33,892
    
271
    
1
  
Goodwill
  
170,601
    
167,352
    
3,249
    
2
  
Other intangible assets, net
  
12,471
    
14,480
    
(2,009
)
  
(14
)
Equity interest investments
  
28,886
    
32,839
    
(3,953
)
  
(12
)
Other assets, net
  
28,438
    
25,612
    
2,826
    
11
  
Total assets
$
894,899
  
$
985,055
  
$
(90,156
)
  
(9
)%
                           
Liabilities and stockholders’ equity
                        
Current liabilities:
                        
 
Accounts payable
$
194,004
  
$
193,663
  
$
341
    
-
%
 
Accrued expenses and other current liabilities
  
61,355
    
70,755
    
(9,400
)
  
(13
)
 
Short-term financing
  
25,000
    
121,492
    
(96,492
)
  
(79
)
 
Current portion of long-term debt and other long-term liabilities
  
27,114
    
4,633
    
22,481
    
>100
  
Total current liabilities
  
307,473
    
390,543
    
(83,070
)
  
(21
)
                           
Deferred income taxes
  
20,079
    
17,527
    
2,552
    
15
  
Long-term debt
  
282,015
    
316,000
    
(33,985
)
  
(11
)
Other long-term liabilities
  
6,145
    
6,455
    
(310
)
  
(5
)
Total liabilities
  
615,712
    
730,525
    
(114,813
)
  
(16
)
Total stockholders’ equity
  
279,187
    
254,530
    
24,657
    
10
  
Total liabilities and stockholders’ equity
$
894,899
  
$
985,055
  
$
(90,156
)
  
(9
)%
                                __________________

1.  
The allowance for doubtful accounts was $12.5 million at June 30, 2009 and $9.7 million at June 30, 2008.
 
2.  
The inventory reserve was $7.3 million at June 30, 2009 and $7.9 million at June 30, 2008.
 

 
 
4
 
 

POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
 
 Six Months Ended
  
     
  June 30,        
 
      2009
 
  
 2008
     
    Change    
Operating activities                  
Net income
$
42,130
  
$
49,691
  
$
(7,561
)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
                  
 
Depreciation
  
4,492
    
4,804
    
(312
)
 
Amortization
  
1,307
    
2,149
    
(842
)
 
Share-based compensation
  
2,935
    
4,269
    
(1,334
)
 
Excess tax benefits from share-based compensation
  
(607
)
  
(1,652
)
  
1,045
  
 
Equity losses in unconsolidated investments
  
2,230
    
1,158
    
1,072
  
 
Other
  
(4,400
)
  
(1,501
)
  
(2,899
)
Changes in operating assets and liabilities, net of effects of acquisitions:                  
 
Receivables
  
(115,166
)
  
(132,735
)
  
17,569
  
 
Product inventories
  
80,414
    
8,995
    
71,419
  
 
Accounts payable
  
20,316
    
(2,606
)
  
22,922
  
  
Other current assets and liabilities
  
1,960
    
32,266
    
(30,306
)
Net cash provided by (used in) operating activities  
35,611
    
(35,162
)
  
70,773
  
                   
Investing activities                  
Acquisition of businesses, net of cash acquired  
(381
)
  
(32,840
)
  
32,459
  
Divestiture of business  
—
    
724
    
(724
)
Purchase of property and equipment, net of sale proceeds  
(5,866
)
  
(3,611
)
  
(2,255
)
Net cash used in investing activities  
(6,247
)
  
(35,727
)
  
29,480
  
                   
Financing activities                  
Proceeds from revolving line of credit  
178,237
    
190,100
    
(11,863
)
Payments on revolving line of credit  
(173,222
)
  
(150,625
)
  
(22,597
)
Proceeds from asset-backed financing  
42,000
    
73,335
    
(31,335
)
Payments on asset-backed financing  
(37,792
)
  
(20,170
)
  
(17,622
)
Payments on long-term debt and other long-term liabilities  
(3,076
)
  
(1,591
)
  
(1,485
)
Payments of capital lease obligations  
—
    
(251
)
  
251
  
Payments of deferred financing costs  
(305
)
  
(22
)
  
(283
)
Excess tax benefits from share-based compensation  
607
    
1,652
    
(1,045
)
Proceeds from issuance of common stock under share-based compensation plans  
1,399
    
2,289
    
(890
)
Payments of cash dividends  
(12,601
)
  
(11,951
)
  
(650
)
Purchases of treasury stock  
(59
)
  
(1,263
)
  
1,204
  
Net cash provided by (used in) financing activities  
(4,812
)
  
81,503
    
(86,315
)
Effect of exchange rate changes on cash  
1,413
    
14
    
1,399
  
Change in cash and cash equivalents  
25,965
    
10,628
    
15,337
  
Cash and cash equivalents at beginning of period  
15,762
    
15,825
    
(63
)
Cash and cash equivalents at end of period
$
41,727
  
$
26,453
  
$
15,274
  

 

 
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,
   
2009
  
2008
  
2009
  
2008
    
2009
  
2008
  
Net sales
$
576,870
$
666,463
$
25,212
$
26,509
  
$
602,082
$
692,972
  
                             
Gross profit
  
171,119
  
194,388
  
6,949
  
8,364
    
178,068
  
202,752
  
Gross margin
  
29.7
%
29.2
%
27.6
%
31.6
%
  
29.6
%
29.3
%
                             
Selling and administrative expenses
  
91,181
  
105,810
  
5,167
  
6,952
    
96,348
  
112,762
  
Expenses as a % of net sales
  
15.8
%
15.9
%
20.5
%
26.2
%
  
16.0
%
16.3
%
                             
Operating income
  
79,938
  
88,578
  
1,782
  
1,412
    
81,720
  
89,990
  
Operating margin
  
13.9
%
13.3
%
7.1
%
5.3
%
  
13.6
%
13.0
%

(Unaudited)
  
Base Business
Excluded
  
Total
(In thousands)
  
Six Months Ended
Six Months Ended
  
Six Months Ended
   
June 30,
June 30,
  
June 30,
   
2009
  
2008
  
2009
  
2008
    
2009
  
2008
  
Net sales
$
830,755
$
987,832
$
47,953
$
43,355
  
$
878,708
$
1,031,187
  
                             
Gross profit
  
246,060
  
284,926
  
13,201
  
13,180
    
259,261
  
298,106
  
Gross margin
  
29.6
%
28.8
%
27.5
%
30.4
%
  
29.5
%
28.9
%
                             
Selling and administrative expenses
  
169,358
  
193,402
  
11,829
  
12,517
    
181,187
  
205,919
  
Expenses as a % of net sales
  
20.4
%
19.6
%
24.7
%
28.9
%
  
20.6
%
20.0
%
                             
Operating income
  
76,702
  
91,524
  
1,372
  
663
    
78,074
  
92,187
  
Operating margin
  
9.2
%
9.3
%
2.9
%
1.5
%
  
8.9
%
8.9
%

We have excluded the following acquisitions from base business for the periods identified:

 
 
Acquired
  
 
Acquisition
Date
  
Net
Sales Centers Acquired
  
 
Period
Excluded
Proplas Plasticos, S.L.
  
November 2008
  
0
  
January 2009 – June 2009
National Pool Tile (NPT) (1)
  
March 2008
  
8
  
January – May 2009 and March – May 2008
Canswim Pools
  
March 2008
  
1
  
January – May 2009 and March – May 2008

 
(1)     We acquired 15 NPT sales centers and have consolidated 7 of these with existing sales centers, including 4 in March 2008, 2 in the second quarter of 2008
 and 1 in April 2009.
 

 
 
6
 
 

We exclude the following sales centers from base business results for a period of 15 months:

·  
acquired sales centers (see table above);
·  
existing sales centers consolidated with acquired sales centers;
·  
closed sales centers;
·  
consolidated sales centers in cases where we do not expect to maintain the majority of the existing business; and
·  
sales centers opened in new markets.

As of June 30, 2009, four closed sales centers and one existing sales center that was consolidated with an acquired sales center were excluded from base business.

The table below summarizes the changes in our sales centers in the first half of 2009:

December 31, 2008
288
  Consolidation of acquired locations
  (1)
June 30, 2009
287

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.

Since we divested our pool liner manufacturing operation in France at the beginning of April 2008, we have excluded these operations from base business for the comparative three month period ended March 31, 2008.

 

 
7
 
 

We define Adjusted EBITDA as net income or net loss plus interest expense, income taxes, depreciation, amortization, share-based compensation and goodwill impairment.  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 or loss, 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,
  
       
2009
    
2008
    
2009
    
2008
  
  Net income
$
48,366
  
$
52,875
  
$
42,130
  
$
49,691
  
 
Add:
                        
 
Interest expense, net
  
3,150
    
5,087
    
6,477
    
10,111
  
 
Provision for income taxes
  
30,878
    
32,811
    
28,138
    
31,722
  
 
Income tax expense (benefit) on equity (earnings) losses
  
449
    
507
    
(901
)
  
(495
)
 
Share-based compensation
  
1,614
    
1,999
    
2,935
    
4,269
  
 
Depreciation
  
2,283
    
2,417
    
4,492
    
4,804
  
 
Amortization (1)
  
424
    
996
    
877
    
1,949
  
  Adjusted EBITDA
$
87,164
  
$
96,692
  
$
84,148
  
$
102,051
  

                                                (1)  Excludes amortization included in interest expense, net

The table below presents a reconciliation of Adjusted EBITDA to net cash provided by (used in) operating activities.

(Unaudited)
  
  Three Months Ended
  
  Six Months Ended
  
(In thousands)
  
  June 30,
  
  June 30,
  
     
2009 
    
2008 
    
2009 
    
2008 
  
  Adjusted EBITDA
$
87,164
  
$
96,692
  
$
84,148
  
$
102,051
  
 
Add:
                        
 
Interest expense, net (1)
  
(2,929
)
  
(4,998
)
  
(6,047
)
  
(9,911
)
 
Provision for income taxes
  
(30,878
)
  
(32,811
)
  
(28,138
)
  
(31,722
)
 
Income tax (expense) benefit on equity (earnings) losses
  
(449
)
  
(507
)
  
901
    
495
  
 
Excess tax benefits on share-based compensation
  
(332
)
  
(112
)
  
(607
)
  
(1,652
)
 
Equity (earnings) losses in unconsolidated investments
  
(1,123
)
  
(1,288
)
  
2,230
    
1,158
  
 
Other
  
(1,942
)
  
1,111
    
(4,400
)
  
(1,501
)
 
Change in operating assets and liabilities
  
32,067
    
(77,809
)
  
(12,476
)
  
(94,080
)
  Net cash provided by (used in) operating activities
$
81,578
  
$
(19,722
)
$
35,611
  
$
(35,162
)

 
(1)    Excludes amortization of deferred financing costs of $221 and $89 for the three months ended June 30, 2009 and June 30, 2008, respectively, and $430 and $200 for the six months ended June 30, 2009 and June 30, 2008, respectively.  This non-cash expense is included in interest expense, net on the Consolidated Statements of Income.
 

 
 
8