EX-99.1 2 poolq308er.htm POOL Q32008 ER poolq308er.htm

Exhibit 99.1
 
FOR IMMEDIATE RELEASE


POOL CORPORATION REPORTS HIGHER THIRD QUARTER EARNINGS AND CASH FLOW
______________________

PROVIDES FOURTH QUARTER EARNINGS GUIDANCE
 

COVINGTON, LA. (October 23, 2008) – Pool Corporation (NASDAQ/GSM:POOL) today reported results for the third quarter of 2008.
 
“Our ongoing efforts to improve profitability and control expenses are evident in our results.  We are also pleased with our momentum in increasing our market share, as our focus on operating in a disciplined manner and continually providing exceptional value to both our customers and our suppliers has helped counter the effects of the unprecedented external market environment,” commented Manuel Perez de la Mesa, President and CEO.
 
Net sales for the quarter ended September 30, 2008 decreased 6% to $493.5 million, compared to $527.4 million in the third quarter of 2007.  Base business sales declined 8% due to the continued drop-off in new pool and irrigation construction activity and unfavorable weather.  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 were down approximately 12% compared to a 5% decrease in the same period in 2007.
 
Gross profit for the third quarter of 2008 increased $2.0 million, or 1%, to $141.8 million from $139.8 million in the comparable 2007 period.  Gross profit as a percentage of net sales (gross margin) improved to 28.7% in the third quarter of 2008 from 26.5% for the third 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, an increase in sales of Pool Corporation brands and benefits from inflationary price increases.
 
Operating expenses increased $2.9 million, or 3%, to $103.2 million in the third quarter of 2008 from $100.3 million in the third quarter of 2007.  This increase was due to operating expenses related to acquired businesses.  Base business operating expenses decreased 1% quarter over quarter.
 
Operating income decreased $0.9 million, or 2%, to $38.6 million from $39.5 million.  Operating income as a percentage of net sales (operating margin) was up slightly to 7.8% for the current quarter, compared to 7.5% for the third quarter of 2007.  Interest expense decreased 28% during the quarter due to a lower weighted average effective interest rate and lower average debt levels compared to the third quarter of 2007.  Earnings per share for the third quarter of 2008 increased to $0.45 per diluted share on net income of $22.1 million, compared to $0.43 per diluted share on net income of $21.8 million for the third quarter of 2007.

Net sales for the nine months ended September 30, 2008 decreased 6% to $1,524.7 million, compared to $1,627.6 million in the comparable 2007 period.  Base business sales declined 8% for the first nine months of 2008.  Year to date, complementary product sales were down approximately 13% due to the decline in new pool and irrigation construction activity.  Gross margin increased 120 basis points to 28.9% in the first nine months of 2008 from 27.7% for the same period last year.
 
Operating income for the first nine months of 2008 decreased 11% to $130.8 million compared to $146.6 million in the same period last year.  Operating margin was 8.6% for the first nine months of 2008 compared to 9.0% for the first nine months of 2007.  Earnings per share for the first nine months of 2008 decreased to $1.47 per diluted share on net income of $71.8 million, compared to $1.58 per diluted share on net income of $81.0 million in the comparable 2007 period.
 


 
 
 

“Given the weak external market environment and our prudent credit management practices, we are updating our annual earnings guidance and project fourth quarter earnings per diluted share to be similar to fourth quarter 2007,” said Perez de la Mesa.

On the balance sheet, total net receivables decreased 11% compared to September 30, 2007 due to lower sales and focused collection efforts.  Inventory levels increased 9% to $345.9 million at September 30, 2008.  Excluding acquired inventories of approximately $17.9 million, inventories increased approximately 3% year over year.

Cash provided by operations increased $43.0 million to $76.5 million in the first nine months of 2008 due to the deferral of a $28.0 million third quarter 2008 estimated federal tax payment as allowed by the Internal Revenue Service for taxpayers affected by Hurricane Gustav and favorable impacts from changes in working capital balances that more than offset the reduction in net income.  Adjusted EBITDA (as defined in the addendum to this release) was $46.0 million in the third quarter of 2008 compared to $47.0 million in the third quarter of 2007 and $148.0 million for the nine months ended September 30, 2008 compared to $164.6 million for the nine months ended September 30, 2007.

Pool Corporation is the largest wholesale distributor of swimming pool and related backyard products.  Currently, POOL operates 288 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 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q 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
  
Nine Months Ended
  
 
September 30,
  
September 30,
  
 
2008
  
2007
  
2008
  
2007
  
                       
Net sales
$
493,530
  
$
527,434
  
$
1,524,717
  
$
1,627,612
  
Cost of sales
  
351,730
    
387,631
    
1,084,811
    
1,176,402
  
Gross profit
  
141,800
    
139,803
    
439,906
    
451,210
  
Percent
  
28.7
%
  
26.5
%
  
28.9
%
  
27.7
%
Selling and administrative expenses
  
103,183
    
100,298
    
309,102
    
304,640
  
Operating income
  
38,617
    
39,505
    
130,804
    
146,570
  
Percent
  
7.8
%
  
7.5
%
  
8.6
%
  
9.0
%
                         
Interest expense, net
  
4,589
    
6,349
    
14,700
    
16,765
  
Income before income taxes and equity earnings
  
34,028
    
33,156
    
116,104
    
129,805
  
Provision for income taxes
  
13,675
    
12,802
    
45,397
    
50,118
  
Equity earnings in unconsolidated investments, net
  
1,707
    
1,481
    
1,044
    
1,296
  
Net income
$
22,060
  
$
21,835
  
$
71,751
  
$
80,983
  
                         
Earnings per share:
                        
Basic
$
0.46
  
$
0.45
  
$
1.50
  
$
1.64
  
Diluted
$
0.45
  
$
0.43
  
$
1.47
  
$
1.58
  
Weighted average shares outstanding:
                        
Basic
  
47,824
    
48,623
    
47,694
    
49,372
  
Diluted
  
49,060
    
50,490
    
48,735
    
51,347
  
                         
Cash dividends declared per common share
$
0.13
  
$
0.12
  
$
0.38
  
$
0.345
  


 
3
 

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

     
       September 30,
    
        September 30,
    
       Change
  
     
       2008
    
       2007
    
           $
    
           %
  
                           
Assets
                        
Current assets:
                        
 
Cash and cash equivalents
$
25,278
  
$
50,265
  
$
(24,987
)
  
(50
)%
 
Receivables, net
  
45,426
    
58,023
    
(12,597
)
  
(22
)
 
Receivables pledged under receivables facility
  
133,501
    
142,511
    
(9,010
)
  
(6
)
 
Product inventories, net
  
345,944
    
317,110
    
28,834
    
9
  
 
Prepaid expenses and other current assets
  
7,915
    
9,004
    
(1,089
)
  
(12
)
 
Deferred income taxes
  
9,139
    
7,652
    
1,487
    
19
  
Total current assets
  
567,203
    
584,565
    
(17,362
)
  
(3
)
                           
Property and equipment, net
  
32,895
    
35,518
    
(2,623
)
  
(7
)
Goodwill
  
167,376
    
155,247
    
12,129
    
8
  
Other intangible assets, net
  
13,519
    
15,459
    
(1,940
)
  
(13
)
Equity interest investments
  
35,592
    
34,561
    
1,031
    
3
  
Other assets, net
  
25,299
    
19,073
    
6,226
    
33
  
Total assets
$
841,884
  
$
844,423
  
$
(2,539
)
  
(0
)%
                           
Liabilities and stockholders’ equity
                        
Current liabilities:
                        
 
Accounts payable
$
128,329
  
$
127,889
  
$
440
    
0
%
 
Accrued and other current liabilities
  
80,636
    
53,557
    
27,079
    
51
  
 
Short-term financing
  
58,392
    
110,715
    
(52,323
)
  
(47
)
 
Current portion of long-term debt and other long-term liabilities
  
5,369
    
3,350
    
2,019
    
60
  
Total current liabilities
  
272,726
    
295,511
    
(22,785
)
  
(8
)
                           
Deferred income taxes
  
18,608
    
15,185
    
3,423
    
23
  
Long-term debt
  
274,100
    
292,750
    
(18,650
)
  
(6
)
Other long-term liabilities
  
6,225
    
6,152
    
73
    
1
  
Total liabilities
  
571,659
    
609,598
    
(37,939
)
  
(6
)
Total stockholders’ equity
  
270,225
    
234,825
    
35,400
    
15
  
Total liabilities and stockholders’ equity
$
841,884
  
$
844,423
  
$
(2,539
)
  
(0
)%
__________________

1.  
Total receivables at September 30, 2008 include approximately $4.2 million of acquired receivables, primarily from the acquisition of National Pool Tile (NPT).  The allowance for doubtful accounts was $10.6 million at September 30, 2008 and $8.7 million at September 30, 2007, with $0.6 million of the September 30, 2008 balance related to the acquisition of NPT.
 
2.  
Total product inventories at September 30, 2008 include approximately $17.9 million of acquired inventories, primarily from the acquisition of NPT.  The inventory reserve was $8.7 million at September 30, 2008 and $5.4 million at September 30, 2007, with $1.2 million of the September 30, 2008 balance related to the acquisition of NPT.

 
4
 

POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
Nine Months Ended
September 30, 
            
 
         2008 
               2007 
    
  Change 
  
Operating activities
                    
Net income
$ 
 71,751
                   $
80,983
 
  
$ 
(9,232
) 
  
Adjustments to reconcile net income to net cash provided by operating activities:
                    
 
 Depreciation
  
7,182
  
6,868
      
314
    
 
 Amortization
  
3,196
  
3,665
      
(469
) 
  
 
 Share-based compensation
  
5,493
  
5,564
      
(71
 )  
 
 Excess tax benefits from share-based compensation
  
(2,452
)
(8,345
)
    
5,893
    
 
 Equity earnings in unconsolidated investments
  
(1,635
 ) 
(2,087
 )    
452
    
 
 Other
  
1,393
 
3,476
 
    
(2,083
)
  
Changes in operating assets and liabilities, net of effects of acquisitions:
                    
 
 Receivables
  
(33,908
)
(49,373
)
    
15,465
    
 
 Product inventories
  
47,545
 
14,580
 
    
32,965
 
  
 
 Accounts payable
  
(67,940
 )
(49,743
 )    
(18,197
 )
  
 
 Other current assets and liabilities
  
45,910
 
27,927
 
    
17,983
 
  
Net cash provided by operating activities
  
76,535
 
33,515
 
    
43,020
 
  
                         
Investing activities
                  
Acquisition of businesses, net of cash acquired
  
(32,891
)
(2,087
)
    
(30,804
)
  
Divestiture of business
    1,165  
— 
        1,165    
Purchase of property and equipment, net of sale proceeds
  
(4,999
)
(9,407
)
    
4,408
    
Proceeds from sale of investment
  
­—
  
75
      
(75
)
  
Net cash used in investing activities
  
(36,725
)
(11,419
)
    
(25,306
)
  
                     
Financing activities
                    
Proceeds from revolving line of credit
  
276,826
  
306,771
      
(29,945
)
  
Payments on revolving line of credit
  
(277,751
)
(299,928
)
    
22,177
    
Proceeds from asset-backed financing
  
73,335
  
87,479
      
(14,144
)
  
Payments on asset-backed financing
  
(83,270
)
(51,050
)
    
(32,220
)
  
Proceeds from long-term debt
  
—
  
100,000
      
(100,000
)
  
Payments on long-term debt and other long-term liabilities
  
(2,385
)
(3,320
)
    
935
 
  
Payments of capital lease obligations
  
(251
)
(257
)
    
6
    
Payments of deferred financing costs
  
(22
)
(397
)
    
375
    
Excess tax benefits from share-based compensation
  
2,452
  
8,345
      
(5,893
)
  
Issuance of common stock under stock option plans
  
3,736
  
7,154
      
(3,418
)
  
Payments of cash dividends
  
(18,187
)
(17,033
)
    
(1,154
)
  
Purchases of treasury stock
  
(3,244
)
(128,777
)
    
125,533
    
Net cash (used in) provided by financing activities
  
(28,761
 )
8,987
      
(37,748
 )  
Effect of exchange rate changes on cash
  
(1,596
)
2,448
 
    
(4,044
)
  
Change in cash and cash equivalents
  
9,453
 
33,531
      
(24,078
)
  
Cash and cash equivalents at beginning of period
  
15,825
  
16,734
      
(909
)
  
Cash and cash equivalents at end of period
$
25,278
$
50,265
 
  
$ 
(24,987
)
  

 
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
   
September 30,
September 30,
  
September 30,
   
2008
  
2007
  
2008
  
2007
    
2008
  
2007
  
Net sales
$
467,878
$
509,766
$
25,652
$
17,668
  
$
493,530
$
527,434
  
                             
Gross profit
  
133,771
  
135,580
  
8,029
  
4,223
    
141,800
  
139,803
  
Gross margin
  
28.6
%
26.6
%
31.3
%
23.9
%
  
28.7
%
26.5
%
                             
Selling and administrative expenses
  
95,024
  
96,056
  
8,159
  
4,242
    
103,183
  
100,298
  
Expenses as a % of net sales
  
20.3
%
18.8
%
31.8
%
24.0
%
  
20.9
%
19.0
%
                             
Operating income (loss)
  
38,747
  
39,524
  
(130
)
(19
)
  
38,617
  
39,505
  
Operating margin
  
8.3
%
7.8
%
(0.5
)%
(0.1
)%
  
7.8
%
7.5
%

(Unaudited)
  
Base Business
Excluded
  
Total
(In thousands)
  
Nine Months Ended
Nine Months Ended
  
Nine Months Ended
   
September 30,
September 30,
  
September 30,
   
2008
  
2007
  
2008
  
2007
    
2008
  
2007
  
Net sales
$
1,456,763
$
1,584,377
$
67,954
$
43,235
  
$
1,524,717
$
1,627,612
  
                             
Gross profit
  
418,414
  
440,338
  
21,492
  
10,872
    
439,906
  
451,210
  
Gross margin
  
28.7
%
27.8
%
31.6
%
25.1
%
  
28.9
%
27.7
%
                             
Selling and administrative expenses
  
289,165
  
294,146
  
19,937
  
10,494
    
309,102
  
304,640
  
Expenses as a % of net sales
  
19.8
%
18.6
%
29.3
%
24.3
%
  
20.3
%
18.7
%
                             
Operating income
  
129,249
  
146,192
  
1,555
  
378
    
130,804
  
146,570
  
Operating margin
  
8.9
%
9.2
%
2.3
%
0.9
%
  
8.6
%
9.0
%

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 September 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).

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.

6
 
In addition to the 20 sales centers excluded from base business as of September 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 these results from base business for the second and third quarters of 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 – September 2008
Canswim Pools
  
March 2008
  
1
  
March – September 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 nine months 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 and September 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
    
Nine Months Ended
  
(In thousands)
  
September 30,
    
September 30,
  
     
2008
  
2007
    
2008
  
2007
  
Net income
$
22,060
$
21,835
  
$
71,751
$
80,983
  
 
Add:
                    
 
Interest expense, net
  
4,589
  
6,349
    
14,700
  
16,765
  
 
Provision for income taxes
  
13,675
  
12,802
    
45,397
  
50,118
  
 
Income tax expense on equity earnings
  
1,086
  
959
    
591
  
791
  
 
Share-based compensation
  
1,224
  
1,619
    
5,493
  
5,564
  
 
Depreciation
  
2,378
  
2,352
    
7,182
  
6,868
  
 
Amortization (1)
  
975
  
1,114
    
2,924
  
3,497
  
Adjusted EBITDA
$
45,987
$
47,030
  
$
148,038
$
164,586
  

(1)  Excludes amortization included in interest expense, net

The table below presents a reconciliation of Adjusted EBITDA to cash provided by operating activities.  Please see page 5 for our Condensed Consolidated Statements of Cash Flows.

(Unaudited)
  
Three Months Ended
    
Nine Months Ended
  
(In thousands)
  
September 30,
    
September 30,
  
     
2008
  
2007
    
2008
  
2007
  
Adjusted EBITDA
$
45,987
$
47,030
  
$
148,038
$
164,586
  
 
Add:
                    
 
Interest expense, net(1)
  
(4,517
)
(6,291
)
  
(14,428
)
(16,597
)
 
Provision for income taxes
  
(13,675
)
(12,802
)
  
(45,397
)
(50,118
)
 
Income tax expense on equity earnings
  
(1,086
)
(959
)
  
(591
)
(791
)
 
Excess tax benefits on share-based compensation
  
(800
)
(1,946
)
  
(2,452
)
(8,345
)
 
Equity earnings in unconsolidated investments
  
(2,793
)
(2,440
)
  
(1,635
)
(2,087
)
 
Other
  
2,894
  
2,839
    
1,393
  
3,476
  
 
Change in operating assets and liabilities
  
85,687
  
62,159
    
(8,393
)
(56,609
)
Net cash provided by operating activities
$
111,697
 $
87,590
  
$
76,535
 $
33,515
  

 
(1)  Excludes amortization of deferred financing costs of $72 and $58 for the three months ended September 30, 2008 and September 30, 2007, respectively, and $272 and $168 for the nine months ended September 30, 2008 and September 30, 2007, respectively.  This non-cash expense is included in interest expense, net on the Consolidated Statements of Income.

 
8