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Craig K. Hubbard
Chief Financial Officer
985.801.5117
craig.hubbard@scppool.com
FOR IMMEDIATE RELEASE
SCP POOL CORPORATION
REPORTS RECORD FISCAL 2003 RESULTS
_________________________________________________
27% EARNINGS PER SHARE INCREASE
COVINGTON, La. (February 19, 2004) – SCP Pool Corporation (the “Company” or “POOL”) (Nasdaq/NM: POOL) today reported record net sales and net income for 2003.
Earnings per share for 2003 increased 27% to $1.37 per diluted share on net income of $50.8 million, compared to $1.08 per diluted share on net income of $41.3 million last year.
Net sales for the year ended December 31, 2003 increased $172.6 million, or 18%, to $1.16 billion, compared to $983.2 million in 2002. Base business sales growth of 11% contributed $102.4 million to the increase, while acquired service centers and service centers consolidated with acquired locations accounted for the remaining increase. Same store sales increased 9% in 2003.
Gross profit for the year ended December 31, 2003 increased $59.6 million, or 23%, to $315.1 million from $255.5 million 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 27.3% in 2003 from 26.0% in 2002. The base business gross margin improved 30 basis points to 26.6% primarily due to improved selling and purchasing practices. The remaining increase in gross margin is attributable to the business acquired in our August 2002 Fort Wayne acquisition (Fort Wayne), including the consolidation of margins from the acquired manufacturing business.
Operating expenses in 2003 increased $44.3 million, or 24%, to $227.1 million from $182.8 million in 2002. Operating expenses as a percentage of net sales increased to 19.6% in 2003 from 18.6% in 2002 primarily due to the consolidation of the manufacturing portion of the acquired Fort Wayne business. Base business operating expenses as a percentage of net sales increased 30 basis points to 18.6% in 2003 from 18.3% in 2002 as we continue to invest in our sales and marketing programs.
Cash provided by operations increased $19.9 million, or 34%, to $78.1 million in 2003 compared to $58.2 million in 2002. EBITDA (as defined in the addendum) increased to $97.0 million in 2003 from $79.5 million in 2002.
“We are excited about our opportunities in 2004 as we finished a solid 2003. We continue to make progress on many fronts, but we also understand the many opportunities for future improvement and we estimate growth to $1.60 in earnings per share for 2004,” commented Manuel Perez de la Mesa, President and CEO.
In the fourth quarter of 2003, net sales increased $30.9 million, or 19%, to $189.9 million, compared to $159.0 million in the comparable 2002 period. Base business sales growth of 18% contributed $26.4 million to the increase, while acquired service centers and locations consolidated with acquired service centers accounted for the remaining increase. Gross profit margin increased 80 basis points to
POOL Reports Record 2003 Results
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February 19, 2004
26.1% in the fourth quarter of 2003 from 25.3% for the same period last year. Base business gross margin of 26.2% was unchanged between the fourth quarter of 2003 and the fourth quarter of 2002. Operating loss for the fourth quarter was $3.9 million, or 2.1% of net sales, compared to an operating loss of $4.5 million, or 2.8% of net sales in the same period last year. Loss per share for the fourth quarter of 2003 was $0.08 on a net loss of $3.0 million, compared to $0.10 per share on a net loss of $3.4 million in the fourth quarter of 2002.
Wilson B. Sexton, Chairman, added, “2003 marks the tenth anniversary of SCP Pool. We have seen sales grow eleven fold during this time and net income increase from $1.1 million to $51 million. The Board is very pleased with these results and is further committed to continue investing to further the growth of the Company and the swimming pool industry.”
At December 31, 2003, 178 service centers were included in the base business calculations. Of the excluded service centers, six were acquired within the last 15 months and 13 were existing service centers that were consolidated with acquired locations within the last 15 months. In addition to the 19 service centers excluded from the base business calculations, the same store sales calculation also excluded six new service centers open less than 15 months and ten locations affected by new service center openings in the immediate market areas within the last 15 months.
All share and per share data for all periods presented reflect the effects of the three–for–two stock split effective September 12, 2003.
In November 2003, we purchased substantially all of the distribution assets of Hayward Iberica, S.A., an indirect wholly-owned subsidiary of Hayward Pool Products, Inc (Iberica). Iberica distributed primarily Hayward equipment from two service centers in Madrid and Valencia, Spain. “This acquisition provides an entry into Europe’s second largest pool market and furthers our distribution network to a total of 11 service centers in Europe,” noted Mr. Perez de la Mesa.
SCP Pool Corporation is the world’s largest wholesale distributor of swimming pool supplies and related products. As of February 19, 2004, POOL distributes more than 91,000 national brand and private label products to nearly 48,000 customers through 198 service centers in North America and Europe. For more information about POOL, please visit www.scppool.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 2002 Form 10-K and subsequent Form 10-Qs filed with the Securities and Exchange Commission.
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February 19, 2004
| Consolidated Statements of Income | |||||||||||||||||||||
| (Unaudited) | Twelve Months | Three Months | |||||||||||||||||||
| (In thousands, except per share data) | Ended | Ended | |||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||||
| 2003 | 2002(1) | 2003 | 2002 | ||||||||||||||||||
| Net sales | $ 1,155,832 | $ 983,246 | $ 189,949 | $ 159,005 | |||||||||||||||||
| Cost of sales | 840,694 | 727,714 | 140,352 | 118,739 | |||||||||||||||||
| Gross profit | 315,138 | 255,532 | 49,597 | 40,266 | |||||||||||||||||
| Percent | 27.3 | % | 26.0 | % | 26.1 | % | 25.3 | % | |||||||||||||
| Selling and administrative expenses | 227,112 | 182,845 | 53,499 | 44,732 | |||||||||||||||||
| Operating income (loss) | 88,026 | 72,687 | (3,902) | (4,466) | |||||||||||||||||
| Percent | 7.6 | % | 7.4 | % | (2.1) | % | (2.8) | % | |||||||||||||
| Interest expense | 4,669 | 4,977 | 1,007 | 1,116 | |||||||||||||||||
| Income (loss) before income taxes | 83,357 | 67,710 | (4,909) | (5,582) | |||||||||||||||||
| Provision for income taxes | 32,509 | 26,407 | (1,915) | (2,177) | |||||||||||||||||
| Net income (loss) | $ 50,848 | $ 41,303 | $ (2,994) | $ (3,405) | |||||||||||||||||
| Net income (loss) per share | |||||||||||||||||||||
| Basic | $ 1.44 | $ 1.14 | $ (0.08) | $ (0.10) | |||||||||||||||||
| Diluted | $ 1.37 | $ 1.08 | $ (0.08) | $ (0.10) | |||||||||||||||||
| Weighted average shares outstanding | |||||||||||||||||||||
| Basic | 35,372 | 36,347 | 35,452 | 34,979 | |||||||||||||||||
| Diluted | 37,182 | 38,288 | 37,564 | 36,974 | |||||||||||||||||
| (1)Audited | |||||||||||||||||||||
POOL Reports Record 2003 Results
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February 19, 2004
| Condensed Consolidated Balance Sheets | |||||||||||||||||
| (In thousands) | (Unaudited) | (Audited) | |||||||||||||||
| December 31, | |||||||||||||||||
| 2003 | 2002 | ||||||||||||||||
| Assets | |||||||||||||||||
| Current assets | |||||||||||||||||
| Cash and cash equivalents | $ 12,812 | $ 5,132 | |||||||||||||||
| Receivables, net | 83,824 | 70,142 | |||||||||||||||
| Product inventories, net | 193,905 | 183,720 | |||||||||||||||
| Prepaid expenses | 3,991 | 2,372 | |||||||||||||||
| Deferred income taxes | 1,864 | 1,708 | |||||||||||||||
| Total current assets | 296,396 | 263,074 | |||||||||||||||
| Property and equipment, net | 24,643 | 20,921 | |||||||||||||||
| Goodwill | 112,140 | 107,739 | |||||||||||||||
| Intangible assets, net | 14,631 | 7,968 | |||||||||||||||
| Other assets, net | 2,462 | 2,392 | |||||||||||||||
| Total assets | $ 450,272 | $ 402,094 | |||||||||||||||
| Liabilities and stockholders’ equity | |||||||||||||||||
| Current liabilities | |||||||||||||||||
| Accounts payable | 118,312 | 93,307 | |||||||||||||||
| Accrued and other current liabilities | 24,997 | 24,708 | |||||||||||||||
| Short-term financing | 42,418 | - | |||||||||||||||
| Current portion of long-term debt | 40,250 | 885 | |||||||||||||||
| Total current liabilities | 225,977 | 118,900 | |||||||||||||||
| Deferred income taxes | 20,958 | 12,536 | |||||||||||||||
| Long-term debt, less current portion | 3,607 | 125,175 | |||||||||||||||
| Other long-term liabilities | 4,489 | 3,542 | |||||||||||||||
| Total stockholders’ equity | 195,241 | 141,941 | |||||||||||||||
| Total liabilities and stockholders’ equity | $ 450,272 | $ 402,094 | |||||||||||||||
Accounts receivable and inventory at locations acquired during 2003 were $6.2 million and $10.6 million at December 31, 2003, respectively.
The allowance for doubtful accounts (AFDA) was $3.8 million in 2003 and $3.3 million in 2002. The AFDA represented 54% and 48% of the accounts receivable greater than 60 days past due in December 2003 and December 2002, respectively.
The inventory reserve was $3.1 million in December 2003 and December 2002. The slowest moving class of inventory decreased approximately $0.5 million from 2002 to 2003.
POOL Reports Record 2003 Results
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February 19, 2004
| Condensed Consolidated Statements of Cash Flows | ||||||||||||||||||||||||||
| (In thousands) | (Unaudited) | (Audited) | ||||||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||||||||
| 2003 | 2002 | |||||||||||||||||||||||||
| Operating activities | ||||||||||||||||||||||||||
| Net income | $ 50,848 | $ 41,303 | ||||||||||||||||||||||||
| Adjustments to reconcile net income to net cash | ||||||||||||||||||||||||||
| provided by operating activities | 17,285 | 12,550 | ||||||||||||||||||||||||
| Changes in operating assets and liabilities, | ||||||||||||||||||||||||||
| net of effects of acquisitions | ||||||||||||||||||||||||||
| Receivables | (4,976 | ) | 6,086 | |||||||||||||||||||||||
| Product inventories | 2,030 | 16,635 | ||||||||||||||||||||||||
| Accounts payable | 16,322 | (18,306 | ) | |||||||||||||||||||||||
| Other | (3,375 | ) | (106 | ) | ||||||||||||||||||||||
| Net cash provided by operating activities | 78,134 | 58,162 | ||||||||||||||||||||||||
| Investing activities | ||||||||||||||||||||||||||
| Acquisition of businesses, net of cash acquired | (21,772 | ) | (45,350 | ) | ||||||||||||||||||||||
| Purchase of property and equipment, net of sale proceeds | (8,351 | ) | (6,416 | ) | ||||||||||||||||||||||
| Net cash used in investing activities | (30,123 | ) | (51,766 | ) | ||||||||||||||||||||||
| Financing activities | ||||||||||||||||||||||||||
| Net proceeds (payments) on revolving line of credit | (88,452 | ) | 40,175 | |||||||||||||||||||||||
| Net proceeds from asset-backed financing | 42,418 | - | ||||||||||||||||||||||||
| Net proceeds from other long-term debt | 2,697 | - | ||||||||||||||||||||||||
| Issuance of common stock under stock option plans | 4,322 | 2,108 | ||||||||||||||||||||||||
| Purchase of treasury stock | (3,336 | ) | (47,505 | ) | ||||||||||||||||||||||
| Net cash used in financing activities | (42,351 | ) | (5,222 | ) | ||||||||||||||||||||||
| Effect of exchange rate changes on cash | 2,020 | 434 | ||||||||||||||||||||||||
| Increase in cash and cash equivalents | 7,680 | 1,608 | ||||||||||||||||||||||||
| Cash and cash equivalents at beginning of year | 5,132 | 3,524 | ||||||||||||||||||||||||
| Cash and cash equivalents at end of year | $ 12,812 | $ 5,132 | ||||||||||||||||||||||||
POOL Reports Record 2003 Results
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February 19, 2004
Addendum
| (Unaudited) | Base Business | Acquired and Consolidated | Total | ||||||||||||||||||||||||||||||||||||||
| (In thousands) | Three Months | Three Months | Three Months | ||||||||||||||||||||||||||||||||||||||
| Ended | Ended | Ended | |||||||||||||||||||||||||||||||||||||||
| December 31, | December 31, | December 31, | |||||||||||||||||||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||
| Net sales | $ | 170,777 | $ | 144,346 | $ | 19,172 | $ | 14,659 | $ | 189,949 | $ | 159,005 | |||||||||||||||||||||||||||||
| Gross profit | 44,668 | 37,806 | 4,929 | 2,460 | 49,597 | 40,266 | |||||||||||||||||||||||||||||||||||
| Gross margin | 26.2 | % | 26.2 | % | 25.7 | % | 16.8 | % | 26.1 | % | 25.3 | % | |||||||||||||||||||||||||||||
| Selling and operating expenses | 45,356 | 38,990 | 8,143 | 5,742 | 53,499 | 44,732 | |||||||||||||||||||||||||||||||||||
| Expenses as a % of net sales | 26.6 | % | 27.0 | % | 42.4 | % | 39.2 | % | 28.2 | % | 28.1 | % | |||||||||||||||||||||||||||||
| Operating loss | (688) | (1,184) | (3,214) | (3,282) | (3,902) | (4,466) | |||||||||||||||||||||||||||||||||||
| Operating loss margin | (0.4) | % | (0.8) | % | (16.8) | % | (22.4) | % | (2.1) | % | (2.8) | % | |||||||||||||||||||||||||||||
| (Unaudited) | Base Business | Acquired and Consolidated | Total | ||||||||||||||||||||||||||||||||||||||
| (In thousands) | Twelve Months | Twelve Months | Twelve Months | ||||||||||||||||||||||||||||||||||||||
| Ended | Ended | Ended | |||||||||||||||||||||||||||||||||||||||
| December 31, | December 31, | December 31, | |||||||||||||||||||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | ||||||||||||||||||||||||||||||||||||
| Net sales | $ | 1,003,403 | $ | 900,988 | $ | 152,429 | $ | 82,258 | $ | 1,155,832 | $ | 983,246 | |||||||||||||||||||||||||||||
| Gross profit | 266,686 | 236,781 | 48,452 | 18,751 | 315,138 | 255,532 | |||||||||||||||||||||||||||||||||||
| Gross margin | 26.6 | % | 26.3 | % | 31.8 | % | 22.8 | % | 27.3 | % | 26.0 | % | |||||||||||||||||||||||||||||
| Selling and operating expenses | 186,820 | 164,596 | 40,292 | 18,249 | 227,112 | 182,845 | |||||||||||||||||||||||||||||||||||
| Expenses as a % of net sales | 18.6 | % | 18.3 | % | 26.4 | % | 22.2 | % | 19.6 | % | 18.6 | % | |||||||||||||||||||||||||||||
| Operating income | 79,866 | 72,185 | 8,160 | 502 | 88,026 | 72,687 | |||||||||||||||||||||||||||||||||||
| Operating income margin | 8.0 | % | 8.0 | % | 5.4 | % | 0.6 | % | 7.6 | % | 7.4 | % | |||||||||||||||||||||||||||||
We calculate base business growth by excluding the following service centers from the calculation:
- Service centers acquired within the past 15 months;
- Service centers consolidated with acquired service centers within the past 15 months; and
- New service centers opened in new markets in the past 15 months.
POOL Reports Record 2003 Results
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February 19, 2004
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 service center acquisitions and consolidations in the tables above includes the operations of the following:
- Fort Wayne Pools - January 2003 through October 2003 and August through October 2002
- Service centers consolidated with Fort Wayne locations - January 2002 through December 2003
- Capital Pools- January 2003 and January 2002
- Les Industries R.P., Inc. - May through December 2003
- SCP Mexico S.A. de C.V.- August through December 2003
- Sud Ouest Filtration- August through December 2003
- Distribution division of Litehouse Products - October through December 2003
- SCP Pool Distributors Spain, S.L. - November and December 2003
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 and service debt. 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.
The table below presents a reconciliation of net income to EBITDA.
| (Unaudited) | Year Ended | |||||||||||||||||||||||||
| (In thousands) | December 31, | |||||||||||||||||||||||||
| 2003 | 2002 | |||||||||||||||||||||||||
| Net income | $ 50,848 | $ 41,303 | ||||||||||||||||||||||||
| Interest | 4,669 | 4,977 | ||||||||||||||||||||||||
| Taxes | 32,509 | 26,407 | ||||||||||||||||||||||||
| Depreciation | 5,523 | 4,203 | ||||||||||||||||||||||||
| Amortization | 3,417 | 2,639 | ||||||||||||||||||||||||
| EBITDA | $ 96,966 | $ 79,529 | ||||||||||||||||||||||||