 | SCP Pool Corporation | |
Craig K. Hubbard
Chief Financial Officer
985.801.5117
craig.hubbard@scppool.com
FOR IMMEDIATE RELEASE
SCP POOL CORPORATION REPORTS FIRST QUARTER RESULTS
_________________
COVINGTON, La. (April 24, 2003) – SCP Pool Corporation (the “Company” or “SCP”) (Nasdaq/NM: POOL) today reported results for the first quarter of 2003.
Net sales for the three months ended March 31, 2003 increased $25.0 million, or 15%, to $196.4 million, compared to $171.4 million in the first quarter of 2002. Base business growth of 6% contributed $10.3 million to the increase, while service centers acquired from Fort Wayne Pools, Inc. in August 2002 and service centers consolidated with the acquired locations accounted for the remaining increase. Same store sales growth was also 6% in the first quarter of 2003.
Gross profit for the three months ended March 31, 2003 increased $9.0 million, or 21%, to $52.5 million from $43.5 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 130 basis points to 26.7% in the first quarter of 2003 from 25.4% in the comparable 2002 period. The base business gross margin improved 90 basis points to 26.2% in 2003 from 25.3% in 2002 primarily due to our reconciliation of vendor rebates and improved selling and purchasing practices. The remaining increase in gross margin is attributable to the Fort Wayne acquired business.
Operating expenses in the three months ended March 31, 2003 increased $9.8 million, or 25%, to $49.0 million from $39.2 million in the first quarter of 2002. Operating expenses as a percentage of net sales increased 200 basis points to 24.9% in 2003 from 22.9% in 2002. Base business operating expenses as a percentage of net sales increased 120 basis points to 23.5% in 2003 from 22.3% in 2002 primarily due to additional payroll, incentive compensation and other supporting expenses that increased at a rate faster than the increase in seasonal net sales in the first quarter of 2003.
Earnings per share for the first quarter of 2003 decreased to $0.06 per diluted share on net income of $1.5 million, compared to $0.07 per diluted share on net income of $1.9 million last year, primarily due to the dilutive effect of the Fort Wayne Acquisition as a result of the accentuated seasonality of its network which is predominantly located in northern markets (see addendum).
Cash used in operations in the first quarter of 2003 was $32.7 million compared to cash used in operations of $19.3 million in the same period in 2002. This $13.4 million increase is primarily due to the $12.6 million increase in accounts receivable between periods.
“Our season is off to a solid start. The seasonally dilutive impact of the Fort Wayne Acquisition was as expected and the efforts to integrate it together with our continuous investments to enhance our infrastructure and our value proposition are expected to yield positive results in 2003 and beyond. Our first quarter represented a positive first step despite the extended cold weather in most northern markets,” commented Manuel Perez de la Mesa, President and CEO.
POOL Reports First Quarter 2003 Results
Page 2
April 24, 2003
At March 31, 2003, 170 service centers were included in the base business calculations. Of the excluded service centers, eight were acquired within the last 15 months and 13 were existing service centers that were consolidated with acquired locations. In addition to the 21 service centers excluded from the base business calculations, the same store calculations also excluded ten new service centers open less than 15 months and 14 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 April 24, 2003, the Company distributes more than 60,000 national brand and private label products to over 45,000 customers through 191 service centers in North America and Europe. For more information about SCP, please visit www.scppool.com.
This news release includes “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 the Company’s 2002 Form 10-K filed with the Securities and Exchange Commission.
POOL Reports First Quarter 2003 Results
Page 3
April 24, 2003
| Consolidated Statements of Income | |||||||||||||||||
| (Unaudited) | Three Months Ended | ||||||||||||||||
| (In thousands, except per share data) | March 31, | ||||||||||||||||
| 2003 | 2002 | ||||||||||||||||
| Net sales | $ | 196,388 | $ | 171,354 | |||||||||||||
| Cost of sales | 143,865 | 127,852 | |||||||||||||||
| Gross profit | 52,523 | 43,502 | |||||||||||||||
| Percent | 26.7 | % | 25.4 | % | |||||||||||||
| Selling and administrative expenses | 49,003 | 39,171 | |||||||||||||||
| Operating income | 3,520 | 4,331 | |||||||||||||||
| Percent | 1.8 | % | 2.5 | % | |||||||||||||
| Interest expense | 1,085 | 1,213 | |||||||||||||||
| Income before income taxes | 2,435 | 3,118 | |||||||||||||||
| Provision for income taxes | 951 | 1,216 | |||||||||||||||
| Net income | $ | 1,484 | $ | 1,902 | |||||||||||||
| Earnings per share | |||||||||||||||||
| Basic | $ | 0.06 | $ | 0.08 | |||||||||||||
| Diluted | $ | 0.06 | $ | 0.07 | |||||||||||||
| Weighted average shares outstanding | |||||||||||||||||
| Basic | 23,563 | 25,005 | |||||||||||||||
| Diluted | 24,575 | 26,137 | |||||||||||||||
POOL Reports First Quarter 2003 Results
Page 4
April 24, 2003
| Condensed Consolidated Balance Sheets | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| (In thousands) | March 31, | March 31, | ||||||||||||||||||
| 2003 | 2002 | |||||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 3,086 | $ | 7,255 | ||||||||||||||||
| Receivables, net | 122,629 | 99,779 | ||||||||||||||||||
| Product inventories, net | 236,483 | 215,077 | ||||||||||||||||||
| Prepaid expenses | 6,539 | 5,829 | ||||||||||||||||||
| Deferred income taxes | 1,613 | 2,897 | ||||||||||||||||||
| Total current assets | 370,350 | 330,837 | ||||||||||||||||||
| Property and equipment, net | 21,720 | 16,141 | ||||||||||||||||||
| Goodwill | 107,883 | 73,831 | ||||||||||||||||||
| Intangible assets, net | 8,155 | 5,901 | ||||||||||||||||||
| Other assets, net | 2,141 | 1,105 | ||||||||||||||||||
| Total assets | $ | 510,249 | $ | 427,815 | ||||||||||||||||
| Liabilities and stockholders’ equity | ||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||
| Accounts payable | 176,411 | 153,284 | ||||||||||||||||||
| Accrued and other current liabilities | 14,572 | 11,879 | ||||||||||||||||||
| Short-term financing | 45,595 | — | ||||||||||||||||||
| Current portion of long-term debt and note payable | 885 | 1,091 | ||||||||||||||||||
| Total current liabilities | 237,463 | 166,254 | ||||||||||||||||||
| Deferred income taxes | 12,542 | 5,541 | ||||||||||||||||||
| Long-term debt, less current portion | 115,650 | 108,000 | ||||||||||||||||||
| Other long-term liabilities | 3,542 | — | ||||||||||||||||||
| Total stockholders’ equity | 141,052 | 148,020 | ||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 510,249 | $ | 427,815 | ||||||||||||||||
| 1. | At March 31, 2003, the estimated accounts receivable and inventory balances from the acquired Fort Wayne operations were $12.8 million and $29.5 million, respectively. |
| 2. | The allowance for doubtful accounts (AFDA) was $3.0 million in 2003 and $2.9 million in 2002. The AFDA represented 55% and 58% of the accounts receivable greater than 60 days past due in March 2003 and March 2002, respectively. |
| 3. | The inventory reserve was $3.2 million in 2003 and $4.3 million in 2002. Estimated slowest moving class 13 inventory decreased by 25% from March 2002 to March 2003. |
POOL Reports First Quarter 2003 Results
Page 5
April 24, 2003
| Condensed Consolidated Statements of Cash Flows | ||||||||||||||||||||||||||
| (Unaudited) | Three Months Ended | |||||||||||||||||||||||||
| (In thousands) | March 31, | |||||||||||||||||||||||||
| 2003 | 2002 | |||||||||||||||||||||||||
| Operating activities | ||||||||||||||||||||||||||
| Net income | $ | 1,484 | $ | 1,902 | ||||||||||||||||||||||
| Adjustments to reconcile net income to net cash used in | ||||||||||||||||||||||||||
| operating activities | 2,342 | 2,064 | ||||||||||||||||||||||||
| Changes in operating assets and liabilities, net of effects | ||||||||||||||||||||||||||
| of acquisitions | ||||||||||||||||||||||||||
| Receivables | (52,227 | ) | (39,648 | ) | ||||||||||||||||||||||
| Product inventories | (52,820 | ) | (34,021 | ) | ||||||||||||||||||||||
| Accounts payable | 83,104 | 57,697 | ||||||||||||||||||||||||
| Other assets and liabilities | (14,626 | ) | (7,247 | ) | ||||||||||||||||||||||
| Net cash used in operating activities | (32,743 | ) | (19,253 | ) | ||||||||||||||||||||||
| Investing activities | ||||||||||||||||||||||||||
| Acquisition of businesses, net of cash acquired | (80 | ) | (28 | ) | ||||||||||||||||||||||
| Purchase of property and equipment | (2,539 | ) | (1,271 | ) | ||||||||||||||||||||||
| Net cash used in investing activities | (2,619 | ) | (1,299 | ) | ||||||||||||||||||||||
| Financing activities | ||||||||||||||||||||||||||
| Net proceeds (payments) on revolving line of credit | (9,525 | ) | 23,000 | |||||||||||||||||||||||
| Net proceeds from asset-backed financing | 45,595 | — | ||||||||||||||||||||||||
| Net proceeds from short-term note | — | 1,000 | ||||||||||||||||||||||||
| Issuance of common stock under stock option plans | 339 | 386 | ||||||||||||||||||||||||
| Purchase of treasury stock | (3,336 | ) | — | |||||||||||||||||||||||
| Net cash provided by financing activities | 33,073 | 24,386 | ||||||||||||||||||||||||
| Effect of exchange rate changes on cash | 243 | (103 | ) | |||||||||||||||||||||||
| Change in cash and cash equivalents | (2,046 | ) | 3,731 | |||||||||||||||||||||||
| Cash and cash equivalents at beginning of period | 5,132 | 3,524 | ||||||||||||||||||||||||
| Cash and cash equivalents at end of period | $ | 3,086 | $ | 7,255 | ||||||||||||||||||||||
POOL Reports First Quarter 2003 Results
Page 6
April 24, 2003
Addendum
| (In thousands) | Base Business | Acquisitions | Total | ||||||||||||||||||||||||||||||||||||||
| Three Months | Three Months | Three Months | |||||||||||||||||||||||||||||||||||||||
| Ended | Ended | Ended | |||||||||||||||||||||||||||||||||||||||
| March 31, | March 31, | March 31, | |||||||||||||||||||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||
| Net sales | $ | 175,421 | $ | 165,088 | $ | 20,967 | $ | 6,266 | $ | 196,388 | $ | 171,354 | |||||||||||||||||||||||||||||
| Gross profit | 46,030 | 41,812 | 6,493 | 1,690 | 52,523 | 43,502 | |||||||||||||||||||||||||||||||||||
| Gross margin | 26.2 | % | 25.3 | % | 31.0 | % | 27.0 | % | 26.7 | % | 25.4 | % | |||||||||||||||||||||||||||||
| Selling and operating expenses | 41,346 | 36,858 | 7,657 | 2,313 | 49,003 | 39,171 | |||||||||||||||||||||||||||||||||||
| Expenses as a % of net sales | 23.5 | % | 22.3 | % | 36.5 | % | 36.9 | % | 24.9 | % | 22.9 | % | |||||||||||||||||||||||||||||
| Operating income (loss) | 4,684 | 4,954 | (1,164 | ) | (623 | ) | 3,520 | 4,331 | |||||||||||||||||||||||||||||||||
| Operating margin | 2.7 | % | 3.0 | % | (5.6 | )% | (9.9 | )% | 1.8 | % | 2.5 | % | |||||||||||||||||||||||||||||
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 for 15 months:
- Service centers acquired within the past 15 months ;
- Service centers consolidated with acquired service centers; and
- New service centers opened in new markets in the past 15 months.
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 acquisitions in the table above includes the operations of the following:
- Fort Wayne Pools - January 2003 through March 2003
- Service centers consolidated with Fort Wayne locations - January 2003 through March 2003 and January 2002 through March 2002
- Capital Pools (Canada) - January 2003 and January 2002