8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________

FORM 8-K

______________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) October 20, 2011 (October 19, 2011)

______________

POOL CORPORATION

(Exact name of registrant as specified in its charter)

______________

Delaware	0-26640	36-3943363
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

109 Northpark Boulevard, Covington, Louisiana	70433-5001
(Address of principal executive offices)	(Zip Code)
985-892-5521
(Registrant's telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

The information set forth under Item 2.03 of this report on Form 8-K is incorporated in this Item 1.01 by reference.

On October 19, 2011, Pool Corporation (the “Company”) entered into a $430 million unsecured syndicated senior credit facility (the “New Senior Credit Facility”) evidenced by a Credit Agreement (the “Credit Agreement”) among Pool Corporation, as US Borrower, SCP Distributors Canada Inc., as Canadian Borrower, SCP Pool B.V., as Dutch Borrower, Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender, JPMorgan Chase Bank, N.A., as Syndication Agent, Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint bookrunners, and certain other lenders party thereto.

The New Senior Credit Facility replaces, and refinances the outstanding balances under, the Company’s existing $240 million unsecured revolving credit facility established pursuant to the Amended and Restated Credit Agreement, dated December 20, 2007, which was scheduled to mature on December 20, 2012.  The increased borrowing capacity will be used to pay down the Company’s $100 million private placement notes that mature in February 2012, to fund future growth initiatives and for general corporate purposes.

In the ordinary course of business, the Company and its affiliates have engaged, and may in the future engage, certain parties to the Credit Agreement or the affiliates of such parties to provide commercial banking, investment banking, and other services for which the Company or its affiliates pay customary fees and commissions.

The Credit Agreement will be filed as an exhibit to the Company’s Form 10-Q for the quarter ended September 30, 2011.

Item 1.02 Termination of a Material Definitive Agreement.

In connection with entering into the New Senior Credit Facility, on October 19, 2011, Pool Corporation terminated its existing unsecured Amended and Restated Credit Agreement dated as of December 20, 2007, as amended, among Pool Corporation, as US Borrower, SCP Distributors Inc., as Canadian Borrower, with certain lenders and Wachovia Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender and JPMorgan Chase Bank, N.A., as Syndication Agent, which was scheduled to mature on December 20, 2012.

Item 2.02 Results of Operations and Financial Condition.

The following information is being provided under Form 8-K Item 2.02 and should not be deemed incorporated by reference by any general statement incorporating by reference this Current Report on Form 8-K into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates this information by reference, and none of this information should be deemed “filed” under such acts.

On October 20, 2011, Pool Corporation, a Delaware corporation, issued a press release announcing third quarter 2011 results, its New Senior Credit Facility and updating its 2011 earnings guidance range.

A copy of the press release is included herein as Exhibit 99.1.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

On October 19, 2011, Pool Corporation and certain of its subsidiaries entered into the New Senior Credit Facility with Wells Fargo Bank, National Association, as the Administrative Agent, Swingline Lender and Issuing Lender.   Additionally, JPMorgan Chase Bank, N.A. served as Syndication Agent, Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, served as joint lead arrangers and joint bookrunners, Regions Bank, Bank of America, N.A., and Capital One, N.A., served as documentation agents, and Comerica Bank, Union Bank, N.A., and Branch Banking and Trust Company also participated in the New Senior Credit Facility.

The Credit Agreement provides for increased borrowing capacity of up to $430 million under a revolving credit facility, which includes sublimits for the issuance of swingline loans in an aggregate amount of up to $25 million, standby letters of credit in an aggregate amount of up to $20 million, Euro denominated revolving loans for the Dutch Borrower of up to $10 million, and Canadian dollar loans for the Canadian Borrower of up to $20 million.  The Credit Agreement also provides for an increase option of up to $75 million.  The New Senior Credit Facility matures on October 19, 2016.  The Company may prepay amounts outstanding under the New Senior Credit Facility without penalty (other than LIBOR breakage costs) and may re-borrow any amounts prepaid.

Revolving borrowings by the Company under the New Senior Credit Facility bear interest, at the Company’s option, at either (a) a base rate, which is the highest of (i) the Wells Fargo Bank, National Association prime rate, (ii) the Federal Funds Rate plus .5%, and (iii) the LIBOR Market Index Rate plus 1% or (b) the London Interbank Offered Rate (LIBOR), in each case plus an applicable margin.  Borrowings by the Canadian Borrower bear interest, at the Canadian Borrower’s option at either (a) a base rate, which is the greatest of (i) the Canadian Reference Bank prime rate, (ii) the annual rate of interest equal to the sum of the CDOR Rate plus 1% and (iii) the LIBOR Market Index Rate plus 1% or (b) LIBOR, in each case plus an applicable margin.  Borrowings by the Dutch Borrower bear interest at LIBOR plus an applicable margin.  The interest rate margins on the borrowings and letters of credit are based on the Company’s leverage ratio and will range from 1.225% to 1.900% on LIBOR and swingline loans and from .225% to .900% on Base Rate and Canadian Base Rate loans.   Borrowings by the Company under the swingline are based on the LIBOR Market Index Rate plus any applicable margin.  The Company is also required to pay an annual facility fee ranging from .150% to .350%, with such spread in each case depending on the Company’s leverage ratio.  At closing, the New Senior Credit Facility had an outstanding balance of $166 million.

The Company’s obligations under the Credit Agreement are guaranteed by substantially all of its existing and future domestic subsidiaries pursuant to a Subsidiary Guaranty Agreement (the “Guaranty Agreement”).  The Credit Agreement and the Guaranty Agreement contain terms and provisions (including representations, covenants and conditions) customary for transactions of this type.  Financial covenants include maintenance of a maximum average total leverage ratio (average total funded debt /EBITDA) and a minimum fixed charge coverage ratio (EBITDAR/cash interest expense plus rental expense).  On the last day of each fiscal quarter, our maximum average total leverage ratio must be less than 3.25 to 1.00 and our minimum fixed charge coverage ratio must be greater than or equal to 2.25 to 1.00.  The New Senior Credit Facility limits the declaration and payment of dividends on our common stock to no more than 50% of the preceding year’s Net Income (as defined in the Credit Agreement), provided no default or event of default has occurred and is continuing or would result therefrom and the dividends are declared and paid in a manner consistent with our past practice.  The Company may repurchase shares of its common stock provided no default or event of default has occurred and is continuing or would result therefrom and our maximum average total leverage ratio (determined on a pro forma basis) is less than 2.50 to 1.00.  Other covenants include restrictions on the ability of the Company to grant liens, incur indebtedness, make investments, merge or consolidate, and sell or transfer assets.  Failure to comply with any of our financial covenants or any other terms of our New Senior Credit Facility could result in penalty payments, higher interest rates on our borrowings or the acceleration of the maturities of our outstanding debt.

The foregoing description of the New Senior Credit Facility is not complete and is qualified in its entirety by the actual terms of the Credit Agreement, a copy of which will be filed as an exhibit to the Company’s Form 10-Q for the quarter ended September 30, 2011.

Item 7.01 Regulation FD Disclosure.

On October 20, 2011, Pool Corporation issued the press release included herein as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

99.1 Press release issued by Pool Corporation on October 20, 2011, announcing third quarter 2011 results, its New Senior Credit Facility and updating its 2011 earnings guidance range.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

POOL CORPORATION

By:          /s/ Mark W. Joslin    

Mark W. Joslin

Vice President and Chief Financial Officer

Dated: October 20, 2011

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

POOL CORPORATION REPORTS THIRD QUARTER RESULTS

AND ANNOUNCES NEW SENIOR CREDIT FACILITY

Highlights for the quarter include:

·   Sales growth of 11%, including 9% from base business

·   10% increase in operating income

·   11% increase in diluted EPS to $0.50

·   Increased 2011 earnings guidance range to $1.43 - $1.47 per diluted share

______________________

COVINGTON, LA. (October 20, 2011) – Pool Corporation (NASDAQ/GSM:POOL) today reported results for the third quarter of 2011.

“Strong execution has significantly furthered our success in the 2011 season and resulted in solid financial results.  Our consistent focus on the fundamentals of customer service combined with our innovative support programs that enhance value throughout the supply channel have helped drive market share gains,” said Manuel Perez de la Mesa, President and CEO.

Net sales for the quarter ended September 30, 2011 increased 11% to $503.6 million, compared to $455.0 million in the third quarter of 2010.  Base business sales were up 9% due primarily to market share gains, including benefits from our focus on the retail and building materials segments of our industry and further expansion of product offerings.  Higher replacement activity attributable to the aging installed base of swimming pools, a modest improvement in consumer discretionary expenditures compared to the restrained levels experienced in 2010, the impact of inflationary product cost increases and approximately 1% growth from favorable currency fluctuations also contributed to sales growth.

Gross profit for the third quarter of 2011 improved 13% to $147.9 million from $130.9 million in the comparable 2010 period.  Gross profit as a percentage of net sales (gross margin) increased 60 basis points to 29.4% in the third quarter of 2011.  The increase in gross margin is primarily due to continued improvements in sales, pricing and purchasing discipline, with some favorable impact attributed to mid-year vendor price increases.  Higher freight out income contributed 12 basis points to the gross margin improvement and compensated for higher delivery costs included in selling and administrative expenses.

Selling and administrative expenses (operating expenses) increased 14% to $107.0 million in the third quarter of 2011 compared to the same period in 2010.   Base business operating expenses were up 12% compared to the third quarter of 2010, including increases of 7% from higher incentive expenses, 2% due to increases in other variable expenses and approximately 1% each related to higher delivery costs, bad debt expense and the impact from currency fluctuations.  Since we record annual employee incentive costs based largely on profits and profit growth, these expenses are recorded in our seasonally profitable second and third quarters with the majority of the expense recorded in the second quarter.  The relatively higher rates of growth in annual incentive costs for 2011 reflect the continued catch-up to more normalized levels of incentive costs following sharp declines during the 2007-2009 recession.  We anticipate that fourth quarter 2011 and future years’ base business operating expense increases will be very modest.

Operating income increased 10% to $40.9 million from $37.0 million in the comparable 2010 period.  Operating income as a percentage of net sales (operating margin) was flat at 8.1% for the third quarter of 2011 compared to the same period in 2010.  Interest expense, net was comparatively higher due to $1.3 million in foreign currency transaction gains recorded in the third quarter of 2010.  Despite a 13% increase in average debt levels, interest expense was down slightly quarter over quarter due to a lower weighted average effective interest rate.

Net income increased 6% to $24.2 million in the third quarter of 2011 compared to $22.8 million in the third quarter of 2010.  Earnings per share for the third quarter of 2011 increased 11% to $0.50 per diluted share compared to $0.45 per diluted share for the same period in 2010.

Net sales for the nine months ended September 30, 2011 increased 11% to $1,522.9 million from $1,372.3 million in the comparable 2010 period, driven by a 10% improvement in base business sales.  Gross margin increased 60 basis points to 29.6% in the first nine months of 2011 from 29.0% for the same period last year.

Operating expenses were up 11% compared to the first nine months of 2010, including a 10% increase in base business operating expenses.  Operating income for the first nine months of 2011 increased 18% to $139.4 million compared to $118.0 million in the same period last year.  While interest expense, net increased due to the impact in 2010 from foreign currency transaction gains, interest expense declined approximately $1.1 million in the first nine months of 2011 due to a lower weighted average effective interest rate on slightly higher average debt levels compared to the same period in 2010.

Earnings per share for the first nine months of 2011 increased 21% to $1.67 per diluted share on net income of $82.1 million, compared to $1.38 per diluted share on net income of $69.4 million in the comparable 2010 period.

On the balance sheet, total net receivables increased only 3% compared to September 30, 2010 as improved customer collections partially offset the combined impact of higher September sales, a lower allowance for bad debt and balances related to recent acquisitions.  Inventory levels increased 10% to $337.7 million at September 30, 2011 compared to levels at September 30, 2010, reflecting higher inventory replenishment levels driven by sales growth, inventories related to recent acquisitions and purchases made in advance of vendor price increases.  Total debt outstanding at September 30, 2011 was $268.7 million, up $37.5 million compared to September 30, 2010.

Cash provided by operations was $32.0 million in the first nine months of 2011 compared to $65.2 million in the first nine months of 2010, with the decline reflecting the impact of higher comparative inventory balances.  Adjusted EBITDA (as defined in the addendum to this release) was $45.8 million in the third quarter of 2011 compared to $43.3 million in the third quarter of 2010, and $153.6 million for the nine months ended September 30, 2011 compared to $133.7 million for the nine months ended September 30, 2010.

“Our results to date have exceeded our expectations, strengthening our belief that 2011 has been a pivotal year and enforcing our confidence in the resiliency of our business model.  We are updating our fiscal 2011 earnings guidance to a projected range of $1.43 to $1.47 per diluted share, compared to the previous range of $1.38 to $1.45 per diluted share,” said Perez de la Mesa.  “As we turn our attention toward the 2012 season and longer term growth opportunities, we are pleased to announce the completion of a new $430.0 million unsecured senior credit facility.  This new credit facility replaces our existing $240.0 million unsecured senior credit facility.  The increased borrowing capacity will be used to pay down our $100.0 million private placement notes that mature in February 2012 and to fund future growth initiatives.”

POOLCORP is the largest wholesale distributor of swimming pool and related backyard products. Currently, POOLCORP operates 296 sales centers in North America and Europe, through which it distributes more than 160,000 national brand and private label products to roughly 80,000 wholesale customers.  For more information, 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 POOLCORP’s 2010 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

CONTACT:

Craig K. Hubbard

985.801.5117

craig.hubbard@poolcorp.com

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POOL CORPORATION

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net sales	$	503,584		$	455,020		$	1,522,896		$	1,372,320
Cost of sales		355,678			324,151			1,072,141			974,625
Gross profit		147,906			130,869			450,755			397,695
Percent		29.4	%		28.8	%		29.6	%		29.0	%
Selling and administrative expenses		106,993			93,822			311,345			279,667
Operating income		40,913			37,047			139,410			118,028
Percent		8.1	%		8.1	%		9.2	%		8.6	%
Interest expense, net		1,641			376			5,110			4,658
Income before income taxes and equity earnings		39,272			36,671			134,300			113,370
Provision for income taxes		15,126			13,902			52,377			44,044
Equity earnings in unconsolidated investments		23			15			185			117
Net income	$	24,169		$	22,784		$	82,108		$	69,443
Earnings per share:
Basic	$	0.50		$	0.46		$	1.70		$	1.40
Diluted	$	0.50		$	0.45		$	1.67		$	1.38
Weighted average shares outstanding:
Basic		47,987			49,615			48,357			49,442
Diluted		48,772			50,168			49,157			50,160
Cash dividends declared per common share	$	0.14		$	0.13		$	0.41		$	0.39

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POOL CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

			September 30,		September 30,		Change
			2011		2010		$		%
Assets
Current assets:
	Cash and cash equivalents	$	20,656	$	32,561	$	(11,905	)	(37	)%
	Receivables, net		160,647		155,252		5,395		3
	Product inventories, net		337,698		306,609		31,089		10
	Prepaid expenses and other current assets		7,354		6,915		439		6
	Deferred income taxes		10,145		10,662		(517	)	(5	)
Total current assets			536,500		511,999		24,501		5
Property and equipment, net			40,774		31,328		9,446		30
Goodwill			178,516		178,087		429		-
Other intangible assets, net			11,953		13,353		(1,400	)	(10	)
Equity interest investments			976		978		(2	)	-
Other assets, net			29,493		29,304		189		1
Total assets		$	798,212	$	765,049	$	33,163		4	%
Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable	$	120,221	$	127,995	$	(7,774	)	(6	)%
	Accrued expenses and other current liabilities		70,718		66,214		4,504		7
	Current portion of long-term debt and other long-term liabilities		22		12,193		(12,171	)	(100	)
Total current liabilities			190,961		206,402		(15,441	)	(7	)
Deferred income taxes			26,549		22,178		4,371		20
Long-term debt			268,700		219,200		49,500		23
Other long-term liabilities			7,503		7,004		499		7
Total liabilities			493,713		454,784		38,929		9
Total stockholders’ equity			304,499		310,265		(5,766	)	(2	)
Total liabilities and stockholders’ equity		$	798,212	$	765,049	$	33,163		4	%

      __________________

1.   The allowance for doubtful accounts was $5.2 million at September 30, 2011 and $7.3 million at September 30, 2010.

2.   The inventory reserve was $7.4 million at September 30, 2011 and September 30, 2010.

4

POOL CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

			Nine Months Ended
			September 30,
			2011			2010			Change
Operating activities
Net income		$	82,108		$	69,443		$	12,665
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation		7,071			6,732			339
	Amortization		1,243			1,827			(584	)
	Share-based compensation		6,143			5,912			231
	Excess tax benefits from share-based compensation		(2,229	)		(1,271	)		(958	)
	Equity earnings in unconsolidated investments		(185	)		(117	)		(68	)
	Other		(3,892	)		(7,673	)		3,781
Changes in operating assets and liabilities, net of effects of acquisitions:
	Receivables		(55,941	)		(49,043	)		(6,898	)
	Product inventories		10,999			55,482			(44,483	)
	Accounts payable		(49,542	)		(55,586	)		6,044
	Other current assets and liabilities		36,199			39,536			(3,337	)
Net cash provided by operating activities			31,974			65,242			(33,268	)
Investing activities
Acquisition of businesses, net of cash acquired			(2,961	)		(4,872	)		1,911
Purchase of property and equipment, net of sale proceeds			(16,959	)		(6,600	)		(10,359	)
Other investments			(177	)		-			(177	)
Net cash used in investing activities			(20,097	)		(11,472	)		(8,625	)
Financing activities
Proceeds from revolving line of credit			446,649			370,639			76,010
Payments on revolving line of credit			(376,649	)		(354,668	)		(21,981	)
Payments on long-term debt and other long-term liabilities			(145	)		(36,160	)		36,015
Payments of deferred acquisition consideration			(500	)		(500	)		-
Payments of deferred financing costs			-			(145	)		145
Excess tax benefits from share-based compensation			2,229			1,271			958
Proceeds from stock issued under share-based compensation plans			9,506			4,717			4,789
Payments of cash dividends			(19,798	)		(19,308	)		(490	)
Purchases of treasury stock			(62,842	)		(1,534	)		(61,308	)
Net cash used in financing activities			(1,550	)		(35,688	)		34,138
Effect of exchange rate changes on cash and cash equivalents			608			(1,364	)		1,972
Change in cash and cash equivalents			10,935			16,718			(5,783	)
Cash and cash equivalents at beginning of period			9,721			15,843			(6,122	)
Cash and cash equivalents at end of period		$	20,656		$	32,561		$	(11,905	)

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ADDENDUM

Base Business Results

The following tables break 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,
		2011		2010		2011		2010			2011		2010
Net sales	$	497,464	$	454,781	$	6,120	$	239		$	503,584	$	455,020
Gross profit		146,083		130,788		1,823		81			147,906		130,869
Gross margin		29.4	%	28.8	%	29.8	%	33.9	%		29.4	%	28.8	%
Operating expenses		105,046		93,663		1,947		159			106,993		93,822
Expenses as a % of net sales		21.1	%	20.6	%	31.8	%	66.5	%		21.2	%	20.6	%
Operating income (loss)		41,037		37,125		(124	)	(78	)		40,913		37,047
Operating margin		8.2	%	8.2	%	(2.0	)%	(32.6	)%		8.1	%	8.1	%

(Unaudited)		Base Business				Excluded					Total
(In thousands)		Nine Months Ended				Nine Months Ended					Nine Months Ended
		September 30,				September 30,					September 30,
		2011		2010		2011		2010			2011		2010
Net sales	$	1,501,733	$	1,366,901	$	21,163	$	5,419		$	1,522,896	$	1,372,320
Gross profit		444,594		396,045		6,161		1,650			450,755		397,695
Gross margin		29.6	%	29.0	%	29.1	%	30.4	%		29.6	%	29.0	%
Operating expenses		304,965		278,500		6,380		1,167			311,345		279,667
Expenses as a % of net sales		20.3	%	20.4	%	30.1	%	21.5	%		20.4	%	20.4	%
Operating income (loss)		139,629		117,545		(219	)	483			139,410		118,028
Operating margin		9.3	%	8.6	%	(1.0	)%	8.9	%		9.2	%	8.6	%

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

Acquired	Acquisition Date	Net Sales Centers Acquired	Periods Excluded
The Kilpatrick Company, Inc.	May 2011	4	May 2011 – September 2011
Turf Equipment Supply Co.	December 2010	3	January 2011 – September 2011
Pool Boat and Leisure, S.A.	December 2010	1	January 2011 – September 2011
Les Produits de Piscine Metrinox Inc.	April 2010	2	January 2011 – June 2011 and   April 2010 – June 2010

As of September 30, 2011, the base business results also excluded one new market sales center that opened in the second quarter of 2011 and one existing sales center that was consolidated into an acquired sales center in May 2011.

6

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.

The table below summarizes the changes in our sales centers in the first nine months of 2011:

December 31, 2010	291
Acquired	4
New locations (1)	4
Consolidated	(3	)
September 30, 2011	296

(1)   Includes two new sales centers in Florida, one new sales center in Puerto Rico and one sales center in Oregon that reopened (a previous SCP network location that closed in December 2007 and has operated within a Horizon network sales center since then).

7

Adjusted EBITDA

We define Adjusted EBITDA as net income or net loss plus interest expense, income taxes, depreciation, amortization, share-based compensation, goodwill and other non-cash impairments and equity earnings or loss in unconsolidated investments.  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						Nine Months Ended
(In thousands)			September 30,						September 30,
			2011			2010			2011			2010
Net income		$	24,169		$	22,784		$	82,108		$	69,443
	Add:
	Interest expense (1)		1,641			1,933			5,110			6,215
	Provision for income taxes		15,126			13,902			52,377			44,044
	Share-based compensation		2,059			1,878			6,143			5,912
	Equity earnings in unconsolidated investments		(23	)		(15	)		(185	)		(117	)
	Depreciation		2,601			2,263			7,071			6,732
	Amortization (2)		271			507			1,021			1,465
Adjusted EBITDA		$	45,844		$	43,252		$	153,645		$	133,694

(1)   Shown net of interest income and includes amortization of deferred financing costs as discussed below.

(2)   Excludes amortization of deferred financing costs of $74 and $130 for the three months ended September 30, 2011 and September 30, 2010, respectively, and $222 and $362 for the nine months ended September 30, 2011 and September 30, 2010, respectively.

The table below presents a reconciliation of Adjusted EBITDA to net 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,
			2011			2010			2011			2010
Adjusted EBITDA		$	45,844		$	43,252		$	153,645		$	133,694
	Add:
	Interest expense, net of interest income		(1,567	)		(1,803	)		(4,888	)		(5,853	)
	Provision for income taxes		(15,126	)		(13,902	)		(52,377	)		(44,044	)
	Excess tax benefits from share-based compensation		(208	)		(169	)		(2,229	)		(1,271	)
	Other		(1,094	)		(3,759	)		(3,892	)		(7,673	)
	Change in operating assets and liabilities		23,064			12,908			(58,285	)		(9,611	)
Net cash provided by operating activities		$	50,913		$	36,527		$	31,974		$	65,242

8