EXHIBIT 99
Craig K. Hubbard
Chief Financial Officer
985.801.5117
craig.hubbard@scppool.com
FOR IMMEDIATE RELEASE
SCP POOL CORPORATION REPORTS RECORD SECOND QUARTER RESULTS
26% EARNINGS PER SHARE INCREASE
COVINGTON, La. (July 22, 2004) – SCP Pool Corporation (the “Company” or “POOL”) (Nasdaq/NM: POOL) today reported record results for the second quarter of 2004.
Earnings per share for the second quarter of 2004 increased 26% to $1.16 per diluted share on net income of $43.6 million, compared to $0.92 per diluted share on net income of $34.0 million in the second quarter last year.
Net sales for the three months ended June 30, 2004 increased $72.3 million, or 17%, to $504.2 million, compared to $431.9 million in the second quarter of 2003. Base business sales growth of 12% contributed $51.4 million to the increase, while acquired service centers accounted for the remaining increase. The increase in base business sales is primarily due to the growth in the installed base of swimming pools and the Company’s execution of its sales and service programs coupled with growth in complementary product sales.
Gross profit for the three months ended June 30, 2004 increased $24.3 million, or 20%, to $145.2 million from $120.9 million in the same period in 2003. This increase was primarily due to the increase in net sales. Gross profit as a percentage of net sales (gross margin) increased 80 basis points to 28.8% in the second quarter of 2004 from 28.0% in the comparable 2003 period. The base business gross margin improved 110 basis points primarily due to improved selling and purchasing practices.
Operating expenses in the second quarter of 2004 increased $8.9 million, or 14%, to $72.6 million from $63.7 million in the second quarter of 2003. Operating expenses as a percentage of net sales decreased 30 basis points to 14.4% in 2004 from 14.7% in 2003. Base business operating expenses as a percentage of net sales decreased 30 basis points to 14.2% in 2004 from 14.5% in 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 17%.
“Our continued improvement in the execution of our sales and service programs, which have progressively added more value to our customers and suppliers, is the principle reason for our success in what would otherwise be an “average” pool year. We believe there is significant potential for continuing to add value and to improve our execution for many years into the future,” commented Manuel Perez de la Mesa, President and CEO.
Net sales for the six months ended June 30, 2004 increased $110.5 million, or 18%, to $738.8 million, compared to $628.3 million in the comparable 2003 period. Base business sales growth of 13% contributed $81.2 million to the increase, while acquired service centers and locations consolidated with acquired service centers accounted for the remaining increase. Gross margin increased 90 basis points to 28.5% in the first six months of 2004 from 27.6% for the same period last year while base business gross margin increased 100 basis points between periods. Operating income for the first six months of 2004 increased 32% to $80.3 million, or 10.9% of net sales, compared to operating income of $60.7 million, or 9.7% of net sales in the same period last year. Earnings per share for the first six months increased 32% to $1.27 per diluted share on net income of $47.7 million, compared to $0.96 per diluted share on net income of $35.4 million in the comparable 2003 period.
POOL Reports Record Second Quarter Results
Page 2
July 22, 2004
Cash used in operating activities was $41.2 million in the first six months of 2004 compared to cash provided by operations of $8.1 million in the same period in 2003. The use of cash is primarily due to the accelerated payment of inventory purchases as days payable outstanding decreased 15 days while the Company captured a 35% increase in term discounts between periods. The balance of cash used in operations is due to a 13% increase in accounts receivable and an 11% increase in inventory between periods, both of which are consistent with the 18% increase in net sales.
Wilson B. Sexton, Chairman, added, “the Board continues to be excited by POOL’s initiatives to grow the industry and further its value to its customers and suppliers, the execution of which has continued to generate strong financial results.”
At June 30, 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 July 22, 2004, POOL distributes more than 91,000 national brand and private label products to roughly 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 and subsequent Form 10-Q filed with the Securities and Exchange Commission.
POOL Reports Record Second Quarter Results
Page 3
July 22, 2004
Consolidated Statements of Income | |||||||||||||||||||||
(Unaudited) | Three Months Ended | Six Months Ended | |||||||||||||||||||
(In thousands, except per share data) | June 30, | June 30, | |||||||||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||||||||||
Net sales | $ 504,177 | $ 431,885 | $ 738,825 | $ 628,273 | |||||||||||||||||
Cost of sales | 358,962 | 311,023 | 528,578 | 454,888 | |||||||||||||||||
Gross profit | 145,215 | 120,862 | 210,247 | 173,385 | |||||||||||||||||
Percent | 28.8 | % | 28.0 | % | 28.5 | % | 27.6 | % | |||||||||||||
Selling and administrative expenses | 72,626 | 63,673 | 129,986 | 112,676 | |||||||||||||||||
Operating income | 72,589 | 57,189 | 80,261 | 60,709 | |||||||||||||||||
Percent | 14.4 | % | 13.2 | % | 10.9 | % | 9.7 | % | |||||||||||||
Interest expense | 1,122 | 1,514 | 2,105 | 2,599 | |||||||||||||||||
Income before income taxes | 71,467 | 55,675 | 78,156 | 58,110 | |||||||||||||||||
Provision for income taxes | 27,872 | 21,712 | 30,481 | 22,663 | |||||||||||||||||
Net income | $ 43,595 | $ 33,963 | $ 47,675 | $ 35,447 | |||||||||||||||||
Earnings per share | |||||||||||||||||||||
Basic | $ 1.23 | $ 0.96 | $ 1.35 | $ 1.00 | |||||||||||||||||
Diluted | $ 1.16 | $ 0.92 | $ 1.27 | $ 0.96 | |||||||||||||||||
Weighted average shares outstanding | |||||||||||||||||||||
Basic | 35,375 | 35,309 | 35,443 | 35,326 | |||||||||||||||||
Diluted | 37,585 | 36,994 | 37,593 | 36,929 | |||||||||||||||||
Cash dividends declared per common share | $ 0.10 | $ -- | $ 0.10 | $ -- | |||||||||||||||||
POOL Reports Record Second Quarter Results
Page 4
July 22, 2004
Condensed Consolidated Balance Sheets | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(In thousands) | June 30, | June 30, | ||||||||||||||||||
2004 | 2003 | |||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 21,124 | $ | 32,185 | ||||||||||||||||
Receivables, net | 51,006 | 36,750 | ||||||||||||||||||
Receivables pledged under securitization agreement | 146,677 | 138,224 | ||||||||||||||||||
Product inventories, net | 219,711 | 197,558 | ||||||||||||||||||
Prepaid expenses | 9,494 | 5,797 | ||||||||||||||||||
Deferred income taxes | 1,818 | 1,359 | ||||||||||||||||||
Total current assets | 449,830 | 411,873 | ||||||||||||||||||
Property and equipment, net | 25,499 | 23,870 | ||||||||||||||||||
Goodwill | 112,488 | 108,536 | ||||||||||||||||||
Intangible assets, net | 12,589 | 7,181 | ||||||||||||||||||
Other assets, net | 1,626 | 2,456 | ||||||||||||||||||
Total assets | $ | 602,032 | $ | 553,916 | ||||||||||||||||
Liabilities and stockholders’ equity | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Accounts payable | 144,029 | 156,695 | ||||||||||||||||||
Accrued and other current liabilities | 50,276 | 48,606 | ||||||||||||||||||
Short-term financing | 100,000 | 90,000 | ||||||||||||||||||
Current portion of long-term debt | 53,980 | 885 | ||||||||||||||||||
Total current liabilities | 348,285 | 296,186 | ||||||||||||||||||
Deferred income taxes | 20,890 | 12,568 | ||||||||||||||||||
Long-term debt, less current portion | 3,344 | 65,529 | ||||||||||||||||||
Other long-term liabilities | 4,442 | 3,542 | ||||||||||||||||||
Total stockholders’ equity | 225,071 | 176,091 | ||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 602,032 | $ | 553,916 | ||||||||||||||||
1. | The allowance for doubtful accounts (AFDA) was $3.7 million in 2004 and $3.6 million in 2003. The AFDA represented 98% and 96% of the accounts receivable greater than 60 days past due in June 2004 and June 2003, respectively. |
2. | The inventory reserve was $3.6 million in June 2004 and $4.0 million in June 2003. The fastest moving inventory classes (classes 1-3) increased to 71.2% of total inventory in June 2004 compared to 66.9% of total inventory in June 2003. |
POOL Reports Record Second Quarter Results
Page 5
July 22, 2004
Condensed Consolidated Statements of Cash Flows | ||||||||||||||||||||||||||
(Unaudited) | Six Months Ended | |||||||||||||||||||||||||
(In thousands) | June 30, | |||||||||||||||||||||||||
2004 | 2003 | |||||||||||||||||||||||||
Operating activities | ||||||||||||||||||||||||||
Net income | $ | 47,675 | $ | 35,447 | ||||||||||||||||||||||
Adjustments to reconcile net income to net cash | ||||||||||||||||||||||||||
provided by (used in) operating activities | 4,823 | 5,330 | ||||||||||||||||||||||||
Changes in operating assets and liabilities, | ||||||||||||||||||||||||||
net of effects of acquisitions | ||||||||||||||||||||||||||
Receivables | (113,673 | ) | (101,749 | ) | ||||||||||||||||||||||
Product inventories | (26,305 | ) | (11,616 | ) | ||||||||||||||||||||||
Accounts payable | 25,717 | 60,352 | ||||||||||||||||||||||||
Other | 20,596 | 20,377 | ||||||||||||||||||||||||
Net cash provided by (used in) operating activities | (41,167 | ) | 8,141 | |||||||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||
Acquisition of businesses, net of cash acquired | (348 | ) | (3,355 | ) | ||||||||||||||||||||||
Purchase of property and equipment, net of sale proceeds | (3,919 | ) | (4,955 | ) | ||||||||||||||||||||||
Net cash used in investing activities | (4,267 | ) | (8,310 | ) | ||||||||||||||||||||||
Financing activities | ||||||||||||||||||||||||||
Proceeds from revolving line of credit | 169,640 | 98,900 | ||||||||||||||||||||||||
Payments on revolving line of credit | (155,910 | ) | (160,435 | ) | ||||||||||||||||||||||
Proceeds from asset-backed financing | 66,522 | 90,000 | ||||||||||||||||||||||||
Payments on asset-backed financing | (8,940 | ) | — | |||||||||||||||||||||||
Proceeds from other long-term debt | — | 1,889 | ||||||||||||||||||||||||
Payments on other long-term debt | (310 | ) | — | |||||||||||||||||||||||
Payments on other short-term debt | — | (2,100 | ) | |||||||||||||||||||||||
Issuance of common stock under stock option plans | 3,713 | 1,347 | ||||||||||||||||||||||||
Payment of cash dividends | (3,528 | ) | — | |||||||||||||||||||||||
Purchase of treasury stock | (18,225 | ) | (3,336 | ) | ||||||||||||||||||||||
Net cash provided by financing activities | 52,962 | 26,265 | ||||||||||||||||||||||||
Effect of exchange rate changes on cash | 784 | 957 | ||||||||||||||||||||||||
Change in cash and cash equivalents | 8,312 | 27,053 | ||||||||||||||||||||||||
Cash and cash equivalents at beginning of period | 12,812 | 5,132 | ||||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 21,124 | $ | 32,185 | ||||||||||||||||||||||
POOL Reports Record Second Quarter Results
Page 6
July 22, 2004
Addendum
(In thousands) | Base Business | Acquired Service Centers | Total | ||||||||||||||||||||||||||||||||||||||
(Unaudited) | Three Months | Three Months | Three Months | ||||||||||||||||||||||||||||||||||||||
Ended | Ended | Ended | |||||||||||||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||
Net sales | $ | 479,441 | $ | 428,085 | $ | 24,736 | $ | 3,800 | $ | 504,177 | $ | 431,885 | |||||||||||||||||||||||||||||
Gross profit | 138,826 | 119,490 | 6,389 | 1,372 | 145,215 | 120,862 | |||||||||||||||||||||||||||||||||||
Gross margin | 29.0 | % | 27.9 | % | 25.8 | % | 36.1 | % | 28.8 | % | 28.0 | % | |||||||||||||||||||||||||||||
Selling and operating expenses | 67,971 | 62,254 | 4,655 | 1,419 | 72,626 | 63,673 | |||||||||||||||||||||||||||||||||||
Expenses as a % of net sales | 14.2 | % | 14.5 | % | 18.8 | % | 37.3 | % | 14.4 | % | 14.7 | % | |||||||||||||||||||||||||||||
Operating income (loss) | 70,855 | 57,236 | 1,734 | (47 | ) | 72,589 | 57,189 | ||||||||||||||||||||||||||||||||||
Operating margin | 14.8 | % | 13.4 | % | 7.0 | % | (1.2 | )% | 14.4 | % | 13.2 | % | |||||||||||||||||||||||||||||
(In thousands) | Base Business | Acquired and Consolidated | Total | ||||||||||||||||||||||||||||||||||||||
(Unaudited) | Six Months | Six Months | Six Months | ||||||||||||||||||||||||||||||||||||||
Ended | Ended | Ended | |||||||||||||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||
Net sales | $ | 700,989 | $ | 619,771 | $ | 37,836 | $ | 8,502 | $ | 738,825 | $ | 628,273 | |||||||||||||||||||||||||||||
Gross profit | 200,528 | 170,789 | 9,719 | 2,596 | 210,247 | 173,385 | |||||||||||||||||||||||||||||||||||
Gross margin | 28.6 | % | 27.6 | % | 25.7 | % | 30.5 | % | 28.5 | % | 27.6 | % | |||||||||||||||||||||||||||||
Selling and operating expenses | 119,823 | 108,436 | 10,163 | 4,240 | 129,986 | 112,676 | |||||||||||||||||||||||||||||||||||
Expenses as a % of net sales | 17.1 | % | 17.5 | % | 26.9 | % | 49.9 | % | 17.6 | % | 17.9 | % | |||||||||||||||||||||||||||||
Operating income (loss) | 80,705 | 62,353 | (444 | ) | (1,644 | ) | 80,261 | 60,709 | |||||||||||||||||||||||||||||||||
Operating margin | 11.5 | % | 10.1 | % | (1.2 | )% | (19.3 | )% | 10.9 | % | 9.7 | % | |||||||||||||||||||||||||||||
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.
POOL Reports Record Second Quarter Results
Page 7
July 22, 2004
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:
- Service centers consolidated with Fort Wayne locations – January and February 2003 and January and February 2004
- Les Industries R.P., Inc – January through June 2004 and May through June 2003
- SCP Mexico S.A. de C.V. – January through June 2004
- Sud Ouest Filtration – January through June 2004
- Distribution division of Litehouse Products — January through June 2004
- SCP Pool Distributors Spain, S.L. – January through June 2004