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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 FIRST QUARTER RESULTS
EARNINGS PER SHARE INCREASES TO $0.11
COVINGTON, La. (April 22, 2004) – SCP Pool Corporation (the “Company” or “POOL”) (Nasdaq/NM: POOL) today reported record net sales and net income for the first quarter of 2004.
Earnings per share for the first quarter of 2004 increased to $0.11 per diluted share on net income of $4.1 million, compared to $0.04 per diluted share on net income of $1.5 million last year.
Net sales for the quarter ended March 31, 2004 increased $38.2 million, or 19%, to $234.6 million, compared to $196.4 million in the first quarter of 2003. Base business sales growth of 16% contributed $29.8 million to the increase, while acquired service centers and service centers consolidated with acquired locations accounted for the remaining increase. The increase in base business sales is due to two additional sales days in March, reasonable weather conditions, a larger installed base of swimming pools and an increase in early buy sales.
Gross profit for the first quarter of 2004 increased $12.5 million, or 24%, to $65.0 million from $52.5 million in the comparable 2003 period. This increase was primarily due to the increase in net sales. Gross profit as a percentage of net sales (gross margin) increased 100 basis points to 27.7% from 26.7% in the first quarter of 2003. The base business gross margin improved 100 basis points to 27.8% primarily due to improved selling and purchasing practices.
Operating expenses in the first quarter of 2004 increased $8.4 million, or 17%, to $57.4 million from $49.0 million in the first quarter of 2003. Operating expenses as a percentage of net sales decreased to 24.4% in 2004 from 24.9% in 2003. Base business operating expenses as a percentage of net sales decreased 60 basis points to 23.4% in the first quarter of 2004 from 24.0% in the first quarter of 2003. This decrease was primarily due to a decrease in payroll expense as a percentage of net sales as headcount increased only slightly between periods while net sales increased 19%.
Cash used in operations increased $36.2 million to $69.9 million in the first quarter of 2004 compared to $33.7 million in the same period in 2003. This change is primarily due to approximately $33 million of payments made for early-buy purchases in order to take advantage of payment discounts.
“Our ongoing improvements in execution to provide increasing value to both our customers and suppliers, together with two additional sales days in March helped us to realize record first quarter results. Despite these strong results, we believe it premature to change our earnings estimate for 2004 of $1.60 in diluted earnings per share. We remain optimistic for 2004 and are very optimistic about our long-term future in the young swimming pool industry,” commented Manuel Perez de la Mesa, President and CEO.
Concurring with Mr. Perez de la Mesa’s remarks, Wilson B. Sexton, Chairman, added “Due to the seasonal nature of our business, the results of one quarter are not necessarily a good indication of the full year's results. We must wait and see how the second quarter develops. Weather is all important, particularly in the Northern areas. Nonetheless, we are encouraged to begin the year on strong footing.”
POOL Reports Record First Quarter Results
Page 2
April 22, 2004
At March 31, 2004, 192 service centers were included in the base business calculations, and six service centers were excluded because they were acquired 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 22, 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 2003 Form 10-K filed with the Securities and Exchange Commission.
POOL Reports Record First Quarter Results
Page 3
April 22, 2004
| Consolidated Statements of Income | |||||||||||||||||
| (Unaudited) | Three Months Ended | ||||||||||||||||
| (In thousands, except per share data) | March 31, | ||||||||||||||||
| 2004 | 2003 | ||||||||||||||||
| Net sales | $ | 234,648 | $ | 196,388 | |||||||||||||
| Cost of sales | 169,616 | 143,865 | |||||||||||||||
| Gross profit | 65,032 | 52,523 | |||||||||||||||
| Percent | 27.7 | % | 26.7 | % | |||||||||||||
| Selling and administrative expenses | 57,360 | 49,003 | |||||||||||||||
| Operating income | 7,672 | 3,520 | |||||||||||||||
| Percent | 3.3 | % | 1.8 | % | |||||||||||||
| Interest expense | 983 | 1,085 | |||||||||||||||
| Income before income taxes | 6,689 | 2,435 | |||||||||||||||
| Provision for income taxes | 2,609 | 951 | |||||||||||||||
| Net income | $ | 4,080 | $ | 1,484 | |||||||||||||
| Earnings per share | |||||||||||||||||
| Basic | $ | 0.11 | $ | 0.04 | |||||||||||||
| Diluted | $ | 0.11 | $ | 0.04 | |||||||||||||
| Weighted average shares outstanding | |||||||||||||||||
| Basic | 35,509 | 35,344 | |||||||||||||||
| Diluted | 37,593 | 36,863 | |||||||||||||||
POOL Reports Record First Quarter Results
Page 4
April 22, 2004
| Condensed Consolidated Balance Sheets | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| (In thousands) | March 31, | March 31, | ||||||||||||||||||
| 2004 | 2003 | |||||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 2,859 | $ | 3,086 | ||||||||||||||||
| Receivables, net | 147,097 | 122,629 | ||||||||||||||||||
| Product inventories, net | 241,903 | 236,483 | ||||||||||||||||||
| Prepaid expenses | 7,111 | 6,539 | ||||||||||||||||||
| Deferred income taxes | 1,600 | 1,613 | ||||||||||||||||||
| Total current assets | 400,570 | 370,350 | ||||||||||||||||||
| Property and equipment, net | 25,536 | 21,720 | ||||||||||||||||||
| Goodwill | 112,447 | 107,883 | ||||||||||||||||||
| Intangible assets, net | 13,609 | 7,245 | ||||||||||||||||||
| Other assets, net | 1,798 | 3,051 | ||||||||||||||||||
| Total assets | $ | 553,960 | $ | 510,249 | ||||||||||||||||
| Liabilities and stockholders’ equity | ||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||
| Accounts payable | 166,305 | 176,411 | ||||||||||||||||||
| Accrued and other current liabilities | 14,897 | 14,572 | ||||||||||||||||||
| Short-term financing | 49,998 | 45,595 | ||||||||||||||||||
| Current portion of long-term debt | 94,245 | 885 | ||||||||||||||||||
| Total current liabilities | 325,445 | 237,463 | ||||||||||||||||||
| Deferred income taxes | 20,901 | 12,542 | ||||||||||||||||||
| Long-term debt, less current portion | 3,472 | 115,650 | ||||||||||||||||||
| Other long-term liabilities | 4,466 | 3,542 | ||||||||||||||||||
| Total stockholders’ equity | 199,676 | 141,052 | ||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 553,960 | $ | 510,249 | ||||||||||||||||
| 1. | The allowance for doubtful accounts (AFDA) was $3.7 million at March 31, 2004 and $3.0 million at March 31, 2003. The AFDA represented 3% of the trade accounts receivable balance in March 2004 and March 2003. |
| 2. | The inventory reserve was $3.0 million at March 31, 2004 and $3.2 million at March 31, 2003. Slowest moving inventory class 13 remained relatively unchanged from March 2003 to March 2004 while fastest moving classes 1-3 increased as a percentage of total inventory. |
POOL Reports Record First Quarter Results
Page 5
April 22, 2004
| Condensed Consolidated Statements of Cash Flows | ||||||||||||||||||||||||||
| (Unaudited) | Three Months Ended | |||||||||||||||||||||||||
| (In thousands) | March 31, | |||||||||||||||||||||||||
| 2004 | 2003 | |||||||||||||||||||||||||
| Operating activities | ||||||||||||||||||||||||||
| Net income | $ | 4,080 | $ | 1,484 | ||||||||||||||||||||||
| Adjustments to reconcile net income to net cash | ||||||||||||||||||||||||||
| used in operating activities | 1,681 | 1,777 | ||||||||||||||||||||||||
| Changes in operating assets and liabilities, | ||||||||||||||||||||||||||
| net of effects of acquisitions | ||||||||||||||||||||||||||
| Receivables | (63,116 | ) | (52,227 | ) | ||||||||||||||||||||||
| Product inventories | (47,922 | ) | (52,820 | ) | ||||||||||||||||||||||
| Accounts payable | 47,993 | 83,104 | ||||||||||||||||||||||||
| Other | (12,574 | ) | (15,029 | ) | ||||||||||||||||||||||
| Net cash used in operating activities | (69,858 | ) | (33,711 | ) | ||||||||||||||||||||||
| Investing activities | ||||||||||||||||||||||||||
| Acquisition of businesses | (307 | ) | (80 | ) | ||||||||||||||||||||||
| Purchase of property and equipment, net of sale proceeds | (2,493 | ) | (1,974 | ) | ||||||||||||||||||||||
| Net cash used in investing activities | (2,800 | ) | (2,054 | ) | ||||||||||||||||||||||
| Financing activities | ||||||||||||||||||||||||||
| Net proceeds (payments) on revolving line of credit | 53,995 | (9,525 | ) | |||||||||||||||||||||||
| Net proceeds from asset-backed financing | 7,580 | 45,595 | ||||||||||||||||||||||||
| Net payments on other long-term debt | (158 | ) | — | |||||||||||||||||||||||
| Issuance of common stock under stock option plans | 1,806 | 742 | ||||||||||||||||||||||||
| Purchase of treasury stock | (1,874 | ) | (3,336 | ) | ||||||||||||||||||||||
| Net cash provided by financing activities | 61,349 | 33,476 | ||||||||||||||||||||||||
| Effect of exchange rate changes on cash | 1,356 | 243 | ||||||||||||||||||||||||
| Change in cash and cash equivalents | (9,953 | ) | (2,046 | ) | ||||||||||||||||||||||
| Cash and cash equivalents at beginning of period | 12,812 | 5,132 | ||||||||||||||||||||||||
| Cash and cash equivalents at end of period | $ | 2,859 | $ | 3,086 | ||||||||||||||||||||||
POOL Reports Record First Quarter Results
Page 6
April 22, 2004
Addendum
| (Unaudited) | Base Business | Acquired and Consolidated | Total | ||||||||||||||||||||||||||||||||||||||
| (In thousands) | Three Months | Three Months | Three Months | ||||||||||||||||||||||||||||||||||||||
| Ended | Ended | Ended | |||||||||||||||||||||||||||||||||||||||
| March 31, | March 31, | March 31, | |||||||||||||||||||||||||||||||||||||||
| 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||
| Net sales | $ | 221,464 | $ | 191,686 | $ | 13,184 | $ | 4,702 | $ | 234,648 | $ | 196,388 | |||||||||||||||||||||||||||||
| Gross profit | 61,587 | 51,270 | 3,445 | 1,253 | 65,032 | 52,523 | |||||||||||||||||||||||||||||||||||
| Gross margin | 27.8 | % | 26.8 | % | 26.1 | % | 26.6 | % | 27.7 | % | 26.7 | % | |||||||||||||||||||||||||||||
| Selling and operating expenses | 51,793 | 46,060 | 5,567 | 2,943 | 57,360 | 49,003 | |||||||||||||||||||||||||||||||||||
| Expenses as a % of net sales | 23.4 | % | 24.0 | % | 42.2 | % | 62.6 | % | 24.4 | % | 24.9 | % | |||||||||||||||||||||||||||||
| Operating income (loss) | 9,794 | 5,209 | (2,122 | ) | (1,689 | ) | 7,672 | 3,520 | |||||||||||||||||||||||||||||||||
| Operating margin | 4.4 | % | 2.7 | % | (16.1 | )% | (35.9 | )% | 3.3 | % | 1.8 | % | |||||||||||||||||||||||||||||
We calculate base business growth by excluding the following service centers from the calculation for 15 months:
- Service centers acquired;
- Service centers consolidated with acquired service centers; and
- New service centers opened in new markets.
The effect of service center acquisitions and consolidations in the table above includes the operations of the following:
- Service centers consolidated with Fort Wayne locations – January and February 2003 and January and February 2004
- Les Industries R.P., Inc – January through March 2004
- SCP Mexico S.A. de C.V. – January through March 2004
- Sud Ouest Filtration – January through March 2004
- Distribution division of Litehouse Products — January through March 2004
- SCP Pool Distributors Spain, S.L. – January through March 2004