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SCP Pool Corporation

  

Craig K. Hubbard
Chief Financial Officer
985.801.5117
craig.hubbard@scppool.com

FOR IMMEDIATE RELEASE

SCP POOL CORPORATION REPORTS
RECORD SECOND QUARTER RESULTS
_________________________________________________

27% EARNINGS PER SHARE INCREASE

COVINGTON, La. (July 24, 2003) - SCP Pool Corporation (the "Company" or "SCP") (Nasdaq/NM: POOL) today reported record results for the second quarter of 2003.

Earnings per share for the second quarter of 2003 increased 27% to $1.38 per diluted share on net income of $34.0 million, compared to $1.09 per diluted share on net income of $28.6 million last year. The increase in EPS is due to a 19% increase in net income and a decrease in the weighted average shares outstanding between quarters.

Net sales for the three months ended June 30, 2003 increased $67.8 million, or 19%, to $431.9 million, compared to $364.1 million in the second quarter of 2002. Base business sales growth of 7% contributed $22.7 million to the increase, while acquired service centers and service centers consolidated with acquired locations accounted for the remaining increase. Same store sales growth was 6% in the second quarter of 2003.

Gross profit for the three months ended June 30, 2003 increased $24.2 million, or 25%, to $120.9 million from $96.7 million in the same period in 2002. This increase was primarily due to the increase in net sales. Gross profit as a percentage of net sales (gross margin) increased 140 basis points to 28.0% in the second quarter of 2003 from 26.6% in the comparable 2002 period. The base business gross margin improved 60 basis points primarily due to improved selling and purchasing practices. The remaining increase in gross margin is attributable to the business acquired in our August 2002 Fort Wayne acquisition (Fort Wayne), including the consolidation of margins from the acquired manufacturing business.

Operating expenses in the second quarter of 2003 increased $15.4 million, or 32%, to $63.7 million from $48.3 million in the second quarter of 2002. Operating expenses as a percentage of net sales increased 140 basis points to 14.7% in 2003 from 13.3% in 2002. Base business operating expenses as a percentage of net sales increased 100 basis points to 14.1% in 2003 from 13.1% in 2002 primarily due to increased payroll expense resulting from new branches and the additional investment in support personnel and marketing programs to enhance infrastructure and increase value to customers and suppliers. Operating expenses related to Fort Wayne are typically higher due to the consolidation of the manufacturing portion of the business.

Cash provided by operations increased to $8.9 million in the first six months of 2003 compared to $8.4 million in the same period in 2002.

"We realized our record results despite generally poor weather conditions for the industry in the second quarter, and we continue to realize progress on multiple fronts while gaining an increasingly better understanding of the many profit improvement opportunities available to us," commented Manuel Perez de la Mesa, President and CEO.

POOL Reports Record Second Quarter 2003 Results
Page 2
July 24, 2003

Net sales for the six months ended June 30, 2003 increased $92.9 million, or 17%, to $628.3 million, compared to $535.4 million in the comparable 2002 period. Base business sales growth of 6% contributed $32.9 million to the increase, while acquired service centers and locations consolidated with acquired service centers accounted for the remaining increase. Same store sales growth was also 6% in the first six months of 2003. Gross profit margin increased 140 basis points to 27.6% in the first six months of 2003 from 26.2% for the same period last year with base business gross margin increasing 70 basis points between periods. Operating income for the first six months of 2003 increased 15% to $60.7 million, or 9.7% of net sales, compared to operating income of $52.7 million, or 9.8% of net sales, in the same period last year. Earnings per share for the first six months increased 24% to $1.44 per diluted share on net income of $35.4 million, compared to $1.16 per diluted share on net income of $30.5 million in the comparable 2002 period.

Wilson B. Sexton, Chairman, added, "We are pleased with the resiliency of the swimming pool industry and SCP's performance in the industry, especially in context with today's general economic environment."

At June 30, 2003, 170 service centers were included in the base business calculations. Of the excluded service centers, nine were acquired within the last 15 months and 13 were existing service centers that were consolidated with acquired locations within the last 15 months. In addition to the 22 service centers excluded from the base business calculations, the same store calculations also excluded seven new service centers open less than 15 months and 11 locations affected by new service center openings in the immediate market areas within the last 15 months.

SCP Pool Corporation is the world's largest wholesale distributor of swimming pool supplies and related products. As of July 24, 2003, SCP distributes more than 60,000 national brand and private label products to over 45,000 customers through 192 service centers in North America and Europe. For more information about SCP, please visit www.scppool.com.

This news release may include "forward-looking" statements that involve risk and uncertainties. The forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of factors, including the sensitivity of the swimming pool supply business to weather conditions and other risks detailed in SCP's 2002 Form 10-K and subsequent Form 10-Qs filed with the Securities and Exchange Commission.

POOL Reports Record Second Quarter 2003 Results
Page 3
July 24, 2003

Consolidated Statements of Income        
(Unaudited)   Three Months Six Months
(In thousands except per share data)   Ended Ended
  June 30, June 30,
    2003 2002 2003 2002
Net sales   $     431,885   $     364,088   $     628,273   $     535,442  
Cost of sales   311,023   267,393   454,888   395,245  
        Gross profit   120,862   96,695   173,385   140,197  
        Percent   28.0 % 26.6 % 27.6 % 26.2 %
 
Selling and administrative expenses   63,673   48,320   112,676   87,491  
        Operating income   57,189   48,375   60,709   52,706  
        Percent   13.2 % 13.3 % 9.7 % 9.8 %
 
Interest expense   1,514   1,486   2,599   2,699  
 
Income before income taxes   55,675   46,889   58,110   50,007  
Provision for income taxes   21,712   18,287   22,663   19,503  
Net income   $       33,963   $      28,602   $      35,447   $      30,504  
Earnings per share  
Basic   $       1.44 $       1.15 $       1.51 $       1.22
Diluted   $       1.38 $       1.09 $       1.44 $       1.16
Weighted average shares outstanding  
Basic   23,539   24,944   23,551   24,975  
Diluted   24,663   26,330   24,620   26,234  

POOL Reports Record Second Quarter 2003 Results
Page 4
July 24, 2003

Condensed Consolidated Balance Sheets        
(Unaudited)
(In thousands)   June 30, June 30,  
    2003 2002
Assets  
Current assets  
         Cash and cash equivalents   $      32,185   $      11,960  
         Receivables, net   174,974   144,594  
         Product inventories, net   197,558   168,875  
         Prepaid expenses   5,797   4,126  
         Deferred income taxes   1,359   2,788  
Total current assets   411,873   332,343  
 
Property and equipment, net   23,870   16,395  
Goodwill   108,536   73,831  
Intangible assets, net   7,181   4,837  
Other assets, net   2,456   1,505  
Total assets   $     553,916   $     428,911  
Liabilities and stockholders' equity  
Current liabilities  
         Accounts payable   156,695   120,908  
         Accrued and other current liabilities   48,606   37,810  
         Short-term financing   90,000   -  
         Current portion of long-term debt   885   91  
Total current liabilities   296,186   158,809  
 
Deferred income taxes   12,568   5,541  
Long-term debt, less current portion   65,529   97,525  
Other long-term liabilities   3,542   -  
 
Total stockholders' equity   176,091   167,036  
Total liabilities and stockholders' equity   $     553,916   $     428,911  
 
 

  1. At June 30, 2003, the estimated accounts receivable and inventory balances from the acquired Fort Wayne operations were $18.9 million and $23.1 million, respectively.

  2. The allowance for doubtful accounts (AFDA) was $3.6 million in 2003 and $3.3 million in 2002. The AFDA represented 96% and 101% of the accounts receivable greater than 60 days past due in June 2003 and June 2002, respectively.

  3. The inventory reserve was $4.0 million in June 2003 and $3.9 million in June 2002. The slowest moving class of inventory decreased by 47% from June 2002 to June 2003.

POOL Reports Record Second Quarter 2003 Results
Page 5
July 24, 2003

Condensed Consolidated Statements of Cash Flows        
(Unaudited)   Six Months Ended
(In thousands)   June 30,
    2003 2002
Operating activities  
Net income   $       35,447   $       30,504  
Adjustments to reconcile net income to net cash provided by  
        operating activities   5,330   3,636  
Changes in operating assets and liabilities, net of effects  
        of acquisitions  
             Receivables   (101,749 ) (84,911 )
             Product inventories   (11,616 ) 12,647  
             Accounts payable   60,352   25,321  
             Other   21,094   21,181  
Net cash provided by operating activities   8,858   8,378  
 
Investing activities  
Acquisition of businesses, net of cash acquired   (3,355 ) (28 )
Purchase of property and equipment   (4,957 ) (2,539 )
Proceeds from the sale of property and equipment   2   10  
Net cash used in investing activities   (8,310 ) (2,557 )
 
Financing activities  
Net proceeds (payments) on revolving line of credit   (63,635 ) 12,525  
Net proceeds from other long-term debt   1,889   -
Net proceeds from asset-backed financing   90,000   -
Issuance of common stock under stock option plans   630   607  
Purchase of treasury stock   (3,336 ) (10,450 )
Net cash provided by financing activities   25,548   2,682  
Effect of exchange rate changes on cash   957 (67 )
Change in cash and cash equivalents   27,053   8,436
Cash and cash equivalents at beginning of period   5,132   3,524  
Cash and cash equivalents at end of period   $       32,185   $       11,960  

POOL Reports Record Second Quarter 2003 Results
Page 6
July 24, 2003

Addendum

(In thousands) Base Business Acquired and Consolidated Total
(Unaudited) Three Months Three Months Three Months
Ended Ended Ended
June 30, June 30, June 30,
  2003   2002   2003   2002   2003   2002
Net sales $ 366,287   $ 343,600   $ 65,598   $ 20,488   $ 431,885   $ 364,088  
 
Gross profit 98,921     90,670     21,941     6,025     120,862     96,695  
Gross margin 27.0 %   26.4 %   33.4 %   29.4 %   28.0 %   26.6 %
 
Selling and operating expenses 51,576     45,008     12,097     3,312     63,673     48,320  
Expenses as a % of net sales 14.1 %   13.1 %   18.4 %   16.2 %   14.7 %   13.3 %
 
Operating income 47,345     45,662     9,844   2,713   57,189     48,375  
Operating margin 12.9 %   13.3 %   15.0 %   13.2 %   13.2 %   13.3 %


(In thousands) Base Business Acquired and Consolidated Total
(Unaudited) Six Months Six Months Six Months
Ended Ended Ended
June 30, June 30, June 30,
  2003   2002   2003   2002   2003   2002
Net sales $ 541,966   $ 509,032   $ 86,307   $ 26,410   $ 628,273   $ 535,442  
 
Gross profit 144,853     132,471     28,532     7,726     173,385     140,197  
Gross margin 26.7 %   26.0 %   33.1 %   29.3 %   27.6 %   26.2 %
 
Selling and operating expenses 92,186     81,745     20,490     5,746     112,676     87,491  
Expenses as a % of net sales 17.0 %   16.1 %   23.7 %   21.8 %   17.9 %   16.3 %
 
Operating income 52,667     50,726     8,042   1,980   60,709     52,706  
Operating margin 9.7 %   10.0 %   9.3 %   7.5 %   9.7 %   9.8 %

Beginning in the fourth quarter of 2002, we began calculating our "base business" growth, which is consistent with measures used by other distributors. We believe the base business measure is useful to explain the period to period changes in our operating results. We calculate base business growth by excluding the following service centers from the calculation:

  • Service centers acquired within the past 15 months;
  • Service centers consolidated with acquired service centers within the past 15 months; and
  • New service centers opened in new markets in the past 15 months.

POOL Reports Record Second Quarter 2003 Results
Page 7
July 24, 2003

The base business calculation differs slightly from the same store calculation because base business includes (i) new service centers opened in existing markets and (ii) service centers affected due to their location in the immediate market areas of newly opened or acquired locations. Additionally, we allocate overhead expenses to the base business by considering base business net sales as a percentage of total net sales.

The effect of service center acquisitions and consolidations in the table above includes the operations of the following:

  • Fort Wayne Pools - January 2003 through June 2003
  • Service centers consolidated with Fort Wayne locations - January 2003 through June 2003 and January 2002 through June 2002
  • Capital Pools (Canada) - January 2003 and January 2002
  • Les Industries R.P., Inc. - May and June 2003