EX-99 2 exh99-1.htm

EXHIBIT 99.1




 

FOR IMMEDIATE RELEASE

POOL CORPORATION REPORTS RECORD SECOND QUARTER RESULTS

_________________

EARNINGS PER SHARE GROWS BY 23%

COVINGTON, La. (July 20, 2006) – Pool Corporation (the “Company” or “POOL”) (Nasdaq/GSM:POOL) today reported record sales and net income for the second quarter of 2006.

Earnings per share for the second quarter of 2006 increased 23% to $1.12 per diluted share on net income of $62.1 million, compared to $0.91 per diluted share on net income of $50.7 million last year.

Net sales for the quarter ended June 30, 2006 increased $141.7 million, or 25%, to $705.7 million, compared to $564.0 million in the second quarter of 2005. Base business sales growth of 13% contributed $70.5 million to the increase due to the growth in the installed base of pools, market share gains, price inflation and the continued expansion of complementary product sales, which increased 23% over the second quarter of 2005. Much of the remaining increase in net sales is attributable to the acquisition of the Horizon business.

Gross profit for the second quarter of 2006 increased $46.3 million, or 29%, to $209.0 million from $162.7 million in the comparable 2005 period. Gross profit as a percentage of net sales (gross margin) was 29.6% for the second quarter of 2006 compared to 28.8% for the second quarter of 2005. Base business gross margins of 29.6% improved by 80 basis points over 2005. This gross margin improvement was achieved primarily through supply chain management initiatives including favorable sales mix from focus on higher margin products and the benefits of forward inventory purchases.

Operating expenses increased $24.4 million, or 30%, to $105.7 million in the second quarter of 2006 from $81.3 million in the second quarter of 2005. Base business operating expenses were relatively consistent as a percent of sales quarter over quarter.

Operating income increased $21.9 million, or 27%, to $103.3 million from $81.4 million. Operating income as a percentage of net sales (operating margin) increased to 14.6% from 14.4% in 2005. Base business operating margin increased to 15.0% of net sales, an improvement of 60 basis points over 2005.

Interest expense increased to $3.9 million for the current quarter from $1.9 million in the second quarter of 2005. This increase is attributable to higher debt levels due to funding the Horizon acquisition, forward inventory buys and second quarter share repurchases, coupled with higher interest rates.

“The second quarter provided another solid financial performance that reflects the continued success of our strategic initiatives. These strong results, combined with our recent share repurchases and increased quarterly dividend, demonstrate a comprehensive approach to creating tangible value for our shareholders,” commented Manuel Perez de la Mesa, President and CEO.

Net sales for the six months ended June 30, 2006 increased $225.2 million, or 27%, to $1,054.3 million, compared to $829.1 million in the comparable 2005 period. Base business sales increased 13%, which included growth in complementary product sales of 27% over the first six months of 2005. Gross margin increased 80 basis points to 29.1% in the first half of 2006 from 28.3% for the same period last year.

Operating income for the first six months of 2006 increased 29% to $118.4 million, or 11.2% of net sales, compared to operating income of $91.6 million, or 11.1% of net sales, in the same period last year. Base business operating margin increased 70 basis points for the year, while base business operating earnings grew by 20%. Earnings per share for the first six months of 2006 increased 24% to $1.23 per diluted share on net income of $68.5 million, compared to $0.99 per diluted share on net income of $54.8 million in the comparable 2005 period.

Pool Reports Record Second Quarter Results
Page 2
July 20, 2006


The use of cash in operations decreased $1.8 million to $49.2 million in the first six months of 2006 compared to $51.0 million in the same period in 2005. Also during the quarter the Company repurchased 1.0 million shares of its common stock, using $43.8 million in borrowing capacity to fund these purchases.

The Company has adjusted prior period financial statements to reflect the impact of share-based compensation and provide a consistent quarter-to-quarter comparison of financial results. Therefore, the results for all periods presented above include the effects of stock option expense.

Pool Corporation is the largest wholesale distributor of swimming pool and related backyard products. Currently, POOL operates 258 sales centers in North America and Europe, through which it distributes more than 100,000 national brand and private label products to roughly 68,000 wholesale customers. For more information about POOL, please visit www.poolcorp.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 POOL’s 2005 Form 10-K filed with the Securities and Exchange Commission.

CONTACT:

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



Pool Reports Record Second Quarter Results
Page 3
July 20, 2006


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

  Three Months Ended Six Months Ended
June 30,
 June 30,
2006
 2005*
 2006
 2005*
Net sales     $ 705,703   $ 563,978   $ 1,054,259   $ 829,139  
Cost of sales    496,703    401,297    747,211    594,507  
        Gross profit    209,000    162,681    307,048    234,632  
        Percent    29.6 %  28.8 %  29.1 % 28.3 %
       
Selling and administrative expenses    105,662    81,292    188,688    142,987  
        Operating income    103,338    81,389    118,360    91,645  
        Percent    14.6 %  14.4 %  11.2 %  11.1 %
       
Interest expense, net    3,856    1,905    6,707    2,985  
Income before income taxes and equity earnings (loss)    99,482    79,484    111,653    88,660  
Provision for income taxes    38,410    30,717    43,109    34,309  
Equity earnings (loss) in unconsolidated interests    1,038    1,942    (12 )  460  
Net income   $ 62,110   $ 50,709   $ 68,532   $ 54,811  
       
Earnings per share:                       
        Basic   $ 1.18   $ 0.97   $ 1.30   $ 1.05  
        Diluted   $ 1.12   $ 0.91   $ 1.23   $ 0.99  
Weighted average shares outstanding:  
        Basic    52,608    52,491    52,602    52,383  
        Diluted    55,544    55,782    55,499    55,633  
Cash dividends declared per common share   $ 0.105   $ 0.090   $ 0.195   $ 0.160  

      *   As adjusted to reflect the impact of share-based compensation expense related to the adoption of SFAS 123(R) using the modified retrospective transition method.


Pool Reports Record Second Quarter Results
Page 4
July 20, 2006


POOL CORPORATION
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)

  June 30, June 30,
 
 2006
 2005*
Assets            
Current assets:  
           Cash and cash equivalents   $ 32,507   $ 36,652  
           Receivables, net    76,407    59,540  
           Receivables pledged under receivables facility    219,315    172,196  
           Product inventories, net    367,096    247,350  
           Prepaid expenses    8,493    4,466  
           Deferred income taxes    4,004    4,395  
Total current assets    707,822    524,599  
   
Property and equipment, net    30,289    21,761  
Goodwill    142,177    104,602  
Other intangible assets, net    17,933    10,826  
Equity interest investments    29,882    20,197  
Other assets, net    12,561    10,833  
Total assets   $ 940,664   $ 692,818  
   
Liabilities and stockholders' equity  
Current liabilities:                
           Accounts payable   $ 207,727   $ 165,872  
           Accrued and other current liabilities    101,300    57,997  
           Short-term financing    150,000    100,000  
           Current portion of other long-term liabilities    2,850    1,350  
Total current liabilities    461,877    325,219  
   
Deferred income taxes    14,048    13,123  
Long-term debt    151,500    70,191  
Other long-term liabilities    2,268    3,202  
Total liabilities    629,693    411,735  
   
Total stockholders' equity    310,971    281,083  
Total liabilities and stockholders' equity   $ 940,664   $ 692,818  

      *   As adjusted to reflect the impact of share-based compensation expense related to the adoption of SFAS 123(R) using the modified retrospective transition method.

_________________

1.

The allowance for doubtful accounts (AFDA) was $4.2 million at June 30, 2006 and $3.0 million at June 30, 2005.


2.

The inventory reserve was $4.9 million, or 1.3% of total inventory at June 30, 2006 and $4.1 million, or 1.6% of total inventory at June 30, 2005. The slowest moving class of inventory as a percentage of total inventory increased slightly between periods.


Pool Reports Record Second Quarter Results
Page 5
July 20, 2006


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

  Six Months Ended
 
 June 30,
2006
 2005*
Operating activities            
Net income   $ 68,532   $ 54,811  
Adjustments to reconcile net income to net cash used in operating activities:                
                  Depreciation    3,833    2,444  
                  Amortization    2,398    1,868  
                  Share-based compensation    4,007    3,007  
                  Excess tax benefit from share-based compensation    (9,363 )  (5,554 )
                  Equity losses (earnings) in unconsolidated investments    25    (460 )
                  Other    99    (865 )
Changes in operating assets and liabilities, net of effects of acquisitions:  
                  Receivables    (153,883 )  (134,018 )
                  Product inventories    (37,531 )  (52,530 )
                  Accounts payable    33,541    52,758  
                  Other current assets and liabilities    39,137    27,531  
Net cash used in operating activities    (49,205 )  (51,008 )
Investing activities  
Acquisition of businesses    (1,446 )  (3 )
Equity interest investment    --    (1,121 )
Purchase of property and equipment, net of sale proceeds    (7,723 )  (5,575 )
Net cash used in investing activities    (9,169 )  (6,699 )
Financing activities                
Proceeds from revolving line of credit    177,038    147,238  
Payments on revolving line of credit    (153,138 )  (127,467 )
Proceeds from asset-backed financing    93,347    62,170  
Payments on asset-backed financing    (9,004 )  (4,765 )
Payments on other long-term debt    (47 )  (47 )
Payments of capital lease obligations    (257 )  --  
Payments of deferred financing costs    (18 )  (11 )
Excess tax benefits from share-based compensation    9,363    5,554  
Issuance of common stock under stock option plans    4,513    1,885  
Payment of cash dividends    (10,290 )  (8,401 )
Purchase of treasury stock    (48,423 )  (3,072 )
Net cash provided by financing activities    63,084    73,084  
Effect of exchange rate changes on cash    931    (487 )
Change in cash and cash equivalents    5,641    14,890  
Cash and cash equivalents at beginning of period    26,866    21,762  
Cash and cash equivalents at end of period   $ 32,507   $ 36,652  

      *   As adjusted to reflect the impact of share-based compensation expense related to the adoption of SFAS 123(R) using the modified retrospective transition method.


Pool Reports Record Second Quarter Results
Page 6
July 20, 2006


Addendum

(Unaudited) Base Business Acquired Total
(In thousands) Three Months Ended Three Months Ended Three Months Ended
  June 30,
 June 30,
 June 30,
  2006
 2005
 2006
 2005
 2006
 2005
Net sales     $ 634,489   $ 563,978   $ 71,214   $ --   $ 705,703   $ 563,978  
   
Gross profit    187,554    162,681    21,446   --   209,000    162,681  
Gross margin    29.6 %  28.8 %  30.1 %      29.6 %  28.8 %
   
Selling and operating expenses    92,286    81,292    13,376   --   105,662    81,292  
Expenses as a % of net sales    14.6 %  14.4 %  18.8 %      15.0 %  14.4 %
   
Operating income    95,268    81,388    8,070   --   103,338    81,389  
Operating income margin    15.0 %  14.4 %  11.3 %      14.6 %  14.4 %

(Unaudited) Base Business Acquired Total
(In thousands) Six Months Ended Six Months Ended Six Months Ended
  June 30,
 June 30,
 June 30,
  2006
 2005
 2006
 2005
 2006
 2005
Net sales     $ 936,674   $ 827,345   $ 117,585   $ 1,794   $ 1,054,259   $ 829,139  
   
Gross profit    272,907    234,137    34,141    495    307,048    234,632  
Gross margin    29.1 %  28.3 %  29.0 %  27.6 %  29.1 %  28.3 %
   
Selling and operating expenses    162,857    142,430    25,831    557    188,688    142,987  
Expenses as a % of net sales    17.4 %  17.2 %  22.0 %  31.0 %  17.9 %  17.2 %
   
Operating income (loss)    110,050    91,707    8,310    (62 )  118,360    91,645  
Operating income (loss) margin    11.8 %  11.1 %  7.1 %  (3.5 )%  11.2 %  11.1 %

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.

The effect of sales center acquisitions in the tables above includes the operations of the following:

  •   B&B s.r.l (Busatta) - January through June 2006
  •   Direct Replacements, Inc. - January through June 2006
  •   Horizon Distributors, Inc. - January through June 2006

Pool Reports Record Second Quarter Results
Page 7
July 20, 2006


EBITDA is defined as net income plus interest expense, income taxes, 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 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 Six Months Ended
(In thousands)
 June 30,
 June 30,
2006
 2005
 2006
 2005
Net income     $ 62,110   $ 50,709   $ 68,532   $ 54,811  
      Add:  
           Interest expense, net    3,856    1,905    6,707    2,985  
           Provision for income taxes    38,410    30,717    43,109    34,309  
           Income tax expense (benefit) on equity earnings (loss)    662    --    (13 )  --  
           Depreciation    1,973    1,248    3,833    2,444  
           Amortization (1)    1,124    1,012    2,482    2,027  
EBITDA   $ 108,135   $ 85,591   $ 124,650   $ 96,576  

    (1)        Excludes amortization included in interest expense, net