EX-99.1 2 poolq42006er.htm POOL Q4 2006 EARNINGS RELEASE Pool Q4 2006 Earnings Release
                                                                                                EXHIBIT 99.1
                                                                                       FOR
IMMEDIATE RELEASE
 
POOL CORPORATION
REPORTS THIRTEENTH CONSECUTIVE YEAR OF RECORD RESULTS
 

20% EARNINGS PER SHARE INCREASE FOR THE YEAR

COVINGTON, La. (February 15, 2007) - Pool Corporation (the “Company” or “POOL”) (Nasdaq/GSM: POOL) today reported record net sales and net income for 2006.

Earnings per share for 2006 increased 20% to $1.74 per diluted share on net income of $95.0 million, compared to $1.45 per diluted share on net income of $80.5 million last year.

Net sales for the year ended December 31, 2006 increased $357.1 million, or 23%, to $1.91 billion, compared to $1.55 billion in 2005. The increase in net sales includes $204.7 million related to acquired sales centers and $152.4 million of base business sales growth. The 10% increase in base business sales is due to the continued growth in the installed base of swimming pools, POOL’s execution of its sales and service programs, inflationary price increases passed through the supply chain, 26% growth in complementary product sales and sales from new locations.

Gross profit for the year ended December 31, 2006 increased $107.5 million, or 25%, to $539.9 million from $432.4 million in 2005. This increase is primarily due to the increase in net sales. Gross profit as a percentage of net sales (gross margin) increased 40 basis points to 28.3% in 2006 from 27.9% in 2005. The gross margin improvement is primarily attributable to the benefits achieved through our supply chain management initiatives, including our pre-price increase inventory purchases in the fourth quarter of 2005 and second quarter of 2006.

Operating expenses in 2006 increased $75.5 million, or 25%, to $372.6 million from $297.1 million in 2005. Operating expenses as a percentage of net sales increased to 19.5% in 2006 from 19.1% in 2005 due to the higher expense ratios for acquired businesses and start-up costs and higher expense ratios for the 17 new sales centers opened in 2006.

Operating income increased $32.0 million, or 24%, to $167.4 million in 2006 from $135.4 million in 2005. Operating income as a percentage of net sales (operating margin) increased 10 basis points to 8.8% in 2006 from 8.7% in 2005. EBITDA (as defined in the addendum) increased 24% to $183.0 million in 2006 from $147.4 million in 2005.

Cash provided by operations was $69.0 million in 2006, compared to $39.5 million in 2005. The increase in 2006 cash provided by operations is primarily the result of the increase in net income.

“We are pleased with another strong year of growth in 2006. This marks our 11th consecutive year of 20% or greater earnings per share growth, which represents all of our years as a publicly traded company. In our continuing effort to provide exceptional value to both our customers and our suppliers, we made important investments in 2006 to expand our networks and value-added programs. Combined with other investments that strengthen every aspect of our organization, we have positioned the Company to leverage our industry’s unique dynamics in order to realize our long-term earnings objectives and create substantial value for our shareholders,” commented Manuel Perez de la Mesa, President and CEO.


In the fourth quarter of 2006, net sales increased $18.7 million, or 6%, to $318.5 million, compared to $299.8 million in the comparable 2005 period. This increase is due to the Wickham acquisition, growth in the Horizon business and a 1% increase in base business sales. Gross margin decreased 180 basis points to 26.0% in the fourth quarter of 2006 from 27.8% for the same period last year. This decrease is primarily attributable to a fourth quarter adjustment to the estimated amount of vendor incentives earned for the year based on our actual 2006 product purchases. Operating loss for the fourth quarter was $4.1 million compared to operating income of $2.3 million in the same period last year. Loss per share for the fourth quarter of 2006 was $0.10 per basic share on a net loss of $5.0 million, compared to a loss of $0.02 per basic share on a net loss of $0.9 million in the fourth quarter of 2005.

“We project 15% to 20% earnings growth in 2007. Given the tougher first half comps, we expect to realize the growth relative to 2006 as the year unfolds,” continued Perez de la Mesa.

POOL also announced today that it has completed the placement of $100.0 million aggregate principal amount of Floating Rate Senior Notes (the “Notes”) in a private placement offering, on February 12, 2007. The Notes are due on February 12, 2012. Net proceeds from the placement were used to pay down the Company’s revolving credit facility.

Additionally, POOL announced that its Board of Directors has declared its regular quarterly cash dividend of $0.105 per share. The dividend will be payable on March 19, 2007 to holders of record on March 5, 2007.

At December 31, 2006, 210 sales centers were included in the base business calculations, and 64 sales centers, including the Horizon and Wickham sales centers, were excluded because they were acquired or opened in new markets within the last 15 months.

Pool Corporation is the largest wholesale distributor of swimming pool and related backyard products. Currently, POOL operates 275 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 growth. 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, competition from other leisure product alternatives and mass merchants, changes in the economy and other risks detailed in POOL’s Form 10-Q for the quarter ended September 30, 2006 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 Income
(Unaudited)
(In thousands, except per share data)
 

 
 
Three Months Ended
Year Ended
  
 
 
December 31,
December 31,
  
 
 
2006
2005*
2006
2005*
  
 
Net sales
 
$
318,486
  
$
299,791
  
$
1,909,762
  
$
1,552,659
    
Cost of sales
 
  
235,581
    
216,580
    
1,369,814
    
1,120,211
    
 
        Gross profit
 
  
82,905
    
83,211
    
539,948
    
432,448
    
        Percent
 
  
26.0
%
  
27.8
%
  
28.3
%
  
27.9
%
  
 
 
                          
Selling and administrative expenses
 
  
86,975
    
80,923
    
372,566
    
297,085
    
 
        Operating income (loss)
 
  
(4,070
)
  
2,288
    
167,382
    
135,363
    
        Percent
 
  
(1.3
)%
  
0.8
%
  
8.8
%
  
8.7
%
  
 
 
                          
Interest expense, net
 
  
4,213
    
2,118
    
15,196
    
6,434
    
 
Income (loss) before income taxes and equity earnings (loss)
 
  
(8,283
)
  
170
    
152,186
    
128,929
    
Provision for income taxes
 
  
(3,198
)
  
141
    
58,759
    
49,941
    
Equity earnings (loss) in unconsolidated investments
 
  
84
    
(905
)
  
1,597
    
1,467
    
 
Net income (loss)
 
$
(5,001
)
$
(876
)
$
95,024
  
$
80,455
    
 
                             
Earnings (loss) per share:
 
                          
        Basic
 
$
(0.10
)
$
(0.02
)
$
1.83
  
$
1.53
    
        Diluted
 
$
(0.10
)
$
(0.02
)
$
1.74
  
$
1.45
    
 
Weighted average shares outstanding:
 
                          
        Basic
 
  
50,750
    
52,308
    
51,866
    
52,445
    
        Diluted
 
  
50,750
    
52,308
    
54,662
    
55,665
    
 
Cash dividends declared per common share
 
$
0.105
  
$
0.09
  
$
0.405
  
$
0.34
    
 
 
        *  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.


3

POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
 
 
     
December 31,
    
December 31,
      
Change
     
2006
    
2005*
      
$
  
%
 
                           
Assets 
                        
Current assets:
                        
 
Cash and cash equivalents
$
16,734
  
$
26,866
    
$
(10,132
)
(38
)%
 
Receivables, net
  
51,116
    
42,809
      
8,307
  
19
  
 
Receivables pledged under receivables facility
  
103,821
    
98,976
      
4,845
  
5
  
 
Product inventories, net
  
332,069
    
330,575
      
1,494
  
—
  
 
Prepaid expenses
  
8,005
    
5,190
      
2,815
  
54
  
 
Deferred income taxes
  
7,676
    
3,727
      
3,949
  
106
  
                           
Total current assets
  
519,421
    
508,143
      
11,278
  
2
  
                           
Property and equipment, net
  
33,633
    
25,598
      
8,035
  
31
  
Goodwill
  
154,244
    
139,546
      
14,698
  
11
  
Other intangible assets, net
  
18,726
    
22,838
      
(4,112
)
(18
)
Equity interest investments
  
32,509
    
29,907
      
2,602
  
9
  
Other assets, net
  
16,029
    
14,818
      
1,211
  
8
  
                           
Total assets 
$
774,562
  
$
740,850
    
$
33,712
  
5
%
                           
Liabilities and stockholders’ equity 
                        
Current liabilities:
                        
 
Accounts payable
$
177,544
  
$
174,170
    
$
3,374
  
2
%
 
Accrued and other current liabilities
  
35,610
    
73,441
      
(37,831
)
(52
)
 
Short-term financing
  
74,286
    
65,657
      
8,629
  
13
  
 
Current portion of  long-term debt and other long-term  liabilities
  
4,350
    
1,350
      
3,000
  
222
  
                           
Total current liabilities
  
291,790
    
314,618
      
(22,828
)
(7
)
                           
Deferred income taxes
  
15,023
    
13,274
      
1,749
  
13
  
Long-term debt
  
188,157
    
129,100
      
59,057
  
46
  
Other long-term liabilities
  
1,908
    
2,134
      
(226
)
(11
)
                           
Total liabilities
$
496,878
  
$
459,126
    
$
37,752
  
8
%
                           
                         
Total stockholders’ equity
  
277,684
    
281,724
      
(4,040
)
(1
)
                           
Total liabilities and stockholders’ equity
$
774,562
  
$
740,850
    
$
33,712
  
5
%
                           
 
*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 and to correct the classification of the Company’s deferred income tax balances.

    1. The allowance for doubtful accounts was $4.9 million at December 31, 2006 and $4.2 million at December 31, 2005.
    2. The inventory reserve was $4.8 million at December 31, 2006 and $3.9 million at December 31, 2005.

4

POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
             
Year Ended
December 31,
          
     
 
 
 
2006
 
 
2005*
 
  
 
Change
  
Operating activities
 
 
 
 
 
 
  
 
 
 
Net income
  
$
95,024
  
$
80,455
    
$
14,569
  
 Adjustments to reconcile net income to net cash provided by operating activities:                    
    Depreciation  
8,162
    
5,410
      
2,752
  
    Amortization  
4,742
    
3,998
      
744
  
    Share-based compensation  
7,204
    
5,966
      
1,238
  
    Excess tax benefits from share-based compensation  
(14,627
)
  
(13,473
)
    
(1,154
)
    Equity earnings in unconsolidated investments  
(2,602
)
  
(2,386
)
    
(216
)
    Other  
(2,329
)
  
(7,376
)
    
5,047
  
 Changes in operating assets and liabilities, net of effects of acquisitions:                    
    Receivables  
(5,301
)
  
(13,394
)
    
8,093
  
    Product inventories  
5,882
    
(103,579
)
    
109,461
  
    Accounts payable  
(5,269
)
  
41,932
      
(47,201
)
  
   Other current assets and liabilities
 
(21,876
)
 
41,900
 
  
 
(63,776
)
Net cash provided by operating activities
 
69,010
 
 
39,453
 
  
 
29,557
  
                             
 Investing activities                    
 Acquisition of businesses, net of cash acquired  
(26,662
)
  
(89,963
)
    
63,301
  
 Equity interest investments  
—
    
(3,539
)
    
3,539
  
 Purchase of property and equipment, net of sale proceeds
 
(14,777
)
 
(8,361
)
  
 
(6,416
)
 Net cash used in investing activities
 
(41,439
)
 
(101,863
)
  
 
60,424
 
                             
 Financing activities                    
 Proceeds from revolving line of credit  
442,495
    
364,383
      
78,112
  
 Payments on revolving line of credit  
(380,438
)
  
(345,703
)
    
(34,735
)
 Proceeds from asset-backed financing  
93,347
    
67,133
      
26,214
  
 Payments on asset-backed financing  
(84,718
)
  
(44,071
)
    
(40,647
)
 Proceeds from long-term debt  
—
    
60,000
      
(60,000
)
 Payments on long-term debt and other long-term liabilities  
(1,508
)
  
(1,350
)
    
(158
)
 Payments of capital lease obligations  
(257
)
  
—
      
(257
)
 Payments of deferred financing costs  
(156
)
  
(243
)
    
87
  
 Excess tax benefits from share-based compensation  
14,627
    
13,473
      
1,154
  
 Issuance of common stock under stock option plans  
7,220
    
4,481
      
2,739
  
 Payment of cash dividends  
(21,080
)
  
(17,862
)
    
(3,218
)
 Purchase of treasury stock
 
(111,118
)
 
(32,091
)
  
 
(79,027
)
 Net cash provided by (used in) financing activities
 
(41,586
)
 
68,150
 
  
 
(109,736
)
 Effect of exchange rate changes on cash
 
3,883
 
 
(636
)
  
 
4,519
 
 Change in cash and cash equivalents
 
(10,132
)
 
5,104
 
  
 
(15,236
)
 Cash and cash equivalents at beginning of period
 
26,866
 
 
21,762
 
  
 
5,104
 
 Cash and cash equivalents at end of period
$
16,734
 
$
26,866
 
  
$
(10,132
)
 
*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.

 


5


Addendum


(Unaudited)
 
Base Business
Acquired
 
Total
(In thousands)
  
Three Months
Three Months
  
Three Months
   
Ended
Ended
  
Ended
   
December 31,
December 31,
  
December 31,
 
 
2006
 
2005
 
2006
 
2005
 
 
2006
 
2005
 
Net sales
$
252,983
$
250,597
$
65,503
$
49,194
  
$
318,486
$
299,791
  
                             
Gross profit
  
64,247
  
68,479
  
18,658
  
14,732
    
82,905
  
83,211
  
Gross margin
  
25.4
%
27.3
%
28.5
%
29.9
%
  
26.0
%
27.8
%
                             
Selling and administrative expenses
  
71,367
  
68,847
  
15,608
  
12,076
    
86,975
  
80,923
  
Expenses as a % of net sales
  
28.2
%
27.5
%
23.8
%
24.5
%
  
27.3
%
27.0
%
                             
Operating income (loss)
 
(7,120
)
(368
)
3,050
  
2,656
    
(4,070
)
2,288
  
Operating income (loss) margin
 
(2.8
)%
(0.1
)%
4.7
%
5.4
%
 
(1.3
)%
0.8
%


(Unaudited)
 
Base Business
Acquired
 
Total
(In thousands)
  
Year
Year
  
Year
   
Ended
Ended
  
Ended
   
December 31,
December 31,
  
December 31,
 
 
2006
 
2005
 
2006
 
2005
 
 
2006
 
2005
 
Net sales
$
1,653,475
$
1,501,096
$
256,287
$
51,563
  
$
1,909,762
$
1,552,659
  
                             
Gross profit
  
465,942
  
417,195
  
74,006
  
15,253
    
539,948
  
432,448
  
Gross margin
  
28.2
%
27.8
%
28.9
%
29.6
%
  
28.3
%
27.9
%
                             
Selling and administrative expenses
  
316,617
  
284,443
  
55,949
  
12,642
    
372,566
  
297,085
  
Expenses as a % of net sales
  
19.1
%
18.9
%
21.8
%
24.5
%
  
19.5
%
19.1
%
                             
Operating income
 
149,325
  
132,752
  
18,057
  
2,611
    
167,382
  
135,363
  
Operating income margin
 
9.0
%
8.8
%
7.0
%
5.1
%
 
8.8
%
8.7
%

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.


6


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

Acquired
  
Acquisition Date
  
Period Excluded
Pool Tech Distributors, Inc.
  
December 2004
  
January - February 2006 and 2005
B&B s.r.l. (Busatta)
  
October 2005
  
January - December 2006 and October - December 2005
Direct Replacements, Inc.
  
October 2005
  
January - December 2006 and October - December 2005
Horizon Distributors, Inc.
  
October 2005
  
January - December 2006 and October - December 2005
Wickham Supply, Inc. and Water Zone, LP
  
August 2006
  
August - December 2006

EBITDA, as discussed above, 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 non-cash 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,
 
 
 
2006
 
2005
Net income
$
95,024
$
80,455
 
Add:
        
 
Interest expense, net
  
15,196
  
6,434
 
Provision for income taxes
  
58,759
  
49,941
 
Income taxes on equity earnings
  
1,005
  
919
 
Depreciation
  
8,162
  
5,410
 
Amortization (1)
 
4,871
  
4,290
EBITDA
$
183,017
$
147,449
 
                  (1) Excludes amortization included in interest expense, net
 
 
7