Pool (POOL) 8-K Pool Corporation Reports Third Quarter Results

 

Exhibit 99.1

FOR IMMEDIATE RELEASE

POOL CORPORATION REPORTS THIRD QUARTER RESULTS

MAINTAINS EARNINGS GUIDANCE

______________________

COVINGTON, La. (October 23, 2007) – Pool Corporation (the “Company” or “POOL”) (NASDAQ/GSM:POOL) today reported results for the third quarter of 2007.

Earnings per share for the third quarter of 2007 was $0.43 per diluted share on net income of $21.8 million, compared to $0.58 per diluted share on net income of $31.5 million for the third quarter of 2006.

“Considering the unprecedented and very difficult real estate market, our business has held up relatively well, evidence of the resiliency of our business model in good times and bad,” commented Manuel Perez de la Mesa, President and CEO.

Despite a significant decline in new pool construction in major pool markets and less than ideal weather conditions in the quarter, net sales declined only 2% to $527.4 million in the third quarter of 2007 compared to $537.0 million in the third quarter of 2006.  During the quarter, complementary products, which are sold primarily in the new pool construction market, decreased 5% compared to a 35% increase in the same period in 2006.

Gross profit for the third quarter of 2007 decreased $10.2 million, or 7%, to $139.8 million from $150.0 million in the comparable 2006 period.  Gross profit as a percentage of net sales (gross margin) was 26.5% for the third quarter of 2007 compared to 27.9% for the third quarter of 2006.  Third quarter 2007 gross margin was comparatively lower due to competitive pricing trends, as other distributors sold off excess inventories, and unfavorable comparisons to the third quarter 2006 gross margin which had benefited from second quarter 2006 pre-price increase inventory purchases.  By comparison, gross margin in the third quarter of 2005 was 27.0%.

Operating expenses increased $3.4 million, or 3.5%, to $100.3 million in the third quarter of 2007 from $96.9 million in the third quarter of 2006.  This increase reflects the impact from investments in 27 new sales centers since the beginning of 2006 and higher expenses related to over 20 sales center expansions and relocations within the past 15 months.  These new expenses were partially offset by the impact from cost control initiatives.

Operating income was $39.5 million, down from $53.1 million in the third quarter of 2006.  Operating income as a percentage of net sales (operating margin) decreased to 7.5% for the current quarter from 9.9% for the third quarter of 2006.

Interest expense increased to $6.3 million for the current quarter from $4.3 million in the third quarter of 2006.  This increase is attributable to higher debt levels for borrowings to fund share repurchases, coupled with higher interest rates.

“While the majority of our sales are derived from the maintenance, repair and replacement market, which experienced modest gains in the quarter, the demand for new pool and irrigation construction products continued to lag,” said Perez de la Mesa.  “However, our service-oriented approach, our unrelenting focus on execution and our drive to provide increasingly greater value in the channel enabled us to gain market share, improve our competitive position and continue to help our customers outperform their competition.  Consistent with our most recent guidance, we project that 2007 earnings per share will be in the range of $1.45 to $1.55 per diluted share.”

Net sales for the nine months ended September 30, 2007 increased $36.3 million, or 2%, to $1,627.6 million, compared to $1,591.3 million in the comparable 2006 period.  Base business sales remained flat for the first nine months of 2007, which compares with base business sales growth of 12% for the first nine months of 2006.  Complementary product sales for the first nine months of 2007 decreased 2%, impacted by the decline in new pool construction activity in 2007.  Gross margin decreased 100 basis points to 27.7% in the first nine months of 2007 from 28.7% for the same period last year.

Operating income for the first nine months of 2007 was $146.6 million compared to operating income of $171.5 million in the same period last year.  Operating margin decreased to 9.0% for the first nine months of 2007 compared to 10.8% for the first nine months of 2006.  Earnings per share for the first nine months of 2007 decreased 13% to $1.58 per diluted share on net income of $81.0 million, compared to $1.82 per diluted share on net income of $100.0 million in the comparable 2006 period.  The opening of 27 new sales centers since the beginning of 2006 is estimated to have had a dilutive impact of approximately $0.09 on earnings per share for the first nine months of 2007.

On the balance sheet, total net receivables decreased 5% compared to September 30, 2006 due to lower sales compared to the year ago period and due to an increase in the allowance for doubtful accounts. The allowance for doubtful accounts was increased to reflect slower payments from customers in markets that have been adversely impacted by the decline in new pool and irrigation construction.  Our inventory levels increased 12% to $317.1 million at September 30, 2007.  The increase reflects inventory for the 12 new sales centers opened since September 2006, an earlier start of seasonal purchasing compared to 2006, inventory related to the expansion of complementary product offerings and higher inventory levels attributed to the decline in sales.  The quality of our inventory remains high as measured by the percentage of total inventory in our fastest-turning inventory classes, which increased compared to September 30, 2006.

Cash provided by operations was $33.5 million in the first nine months of 2007 compared to $81.5 million in the same period in 2006.  This decrease is primarily due to the decrease in net income and the difference in the timing of the payment of our 2007 estimated income taxes, which were paid in the third quarter of 2007, and our 2006 estimated income taxes, which were deferred until the fourth quarter of 2006 as allowed by the Katrina Emergency Tax Relief Act of 2005.  The Company repurchased 1.8 million shares and 3.7 million shares of its common stock during the third quarter and first nine months of 2007, respectively, using $126.8 million in borrowing capacity for the year to fund these purchases.

Pool Corporation is the largest wholesale distributor of swimming pool and related backyard products.  Currently, POOL operates 285 sales centers in North America and Europe, through which it distributes more than 100,000 national brand and private label products to roughly 70,000 wholesale customers.  For more information about POOL, 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, our ability to maintain favorable relationships with suppliers and manufacturers, competition from other leisure product alternatives and mass merchants, changes in the economy and the housing market and other risks detailed in POOL’s 2006 Annual Report on Form 10-K and 2007 Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission.

CONTACT:

Craig K. Hubbard

Treasurer

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,
		2007			2006			2007			2006
Net sales	$	527,434		$	537,017		$	1,627,612		$	1,591,276
Cost of sales		387,631			387,022			1,176,402			1,134,233
Gross profit		139,803			149,995			451,210			457,043
Percent		26.5	%		27.9	%		27.7	%		28.7	%
Selling and administrative expenses		100,298			96,903			304,640			285,591
Operating income		39,505			53,092			146,570			171,452
Percent		7.5	%		9.9	%		9.0	%		10.8	%
Interest expense, net		6,349			4,276			16,765			10,983
Income before income taxes and equity earnings		33,156			48,816			129,805			160,469
Provision for income taxes		12,802			18,848			50,118			61,957
Equity earnings in unconsolidated investments, net		1,481			1,525			1,296			1,513
Net income	$	21,835		$	31,493		$	80,983		$	100,025
Earnings per share:
Basic	$	0.45		$	0.61		$	1.64		$	1.91
Diluted	$	0.43		$	0.58		$	1.58		$	1.82
Weighted average shares outstanding:
Basic		48,623			51,532			49,372			52,243
Diluted		50,490			54,277			51,347			55,092
Cash dividends declared per common share	$	0.120		$	0.105		$	0.345		$	0.300

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POOL CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

			September 30,		September 30,		Change
			2007		2006		$		%
Assets
Current assets:
	Cash and cash equivalents	$	50,265	$	40,874	$	9,391		23	%
	Receivables, net		58,023		64,540		(6,517	)	(10	)
	Receivables pledged under receivables facility		142,511		147,049		(4,538	)	(3	)
	Product inventories, net		317,110		283,930		33,180		12
	Prepaid expenses and other current assets		9,004		7,785		1,219		16
	Deferred income taxes		7,652		4,024		3,628		90
Total current assets			584,565		548,202		36,363		7
Property and equipment, net			35,518		32,201		3,317		10
Goodwill			155,247		156,123		(876	)	(1	)
Other intangible assets, net			15,459		19,964		(4,505	)	(23	)
Equity interest investments			34,561		32,383		2,178		7
Other assets, net			19,073		13,862		5,211		38
Total assets		$	844,423	$	802,735	$	41,688		5	%
Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable	$	127,889	$	111,349	$	16,540		15	%
	Accrued and other current liabilities		53,557		118,892		(65,335	)	(55	)
	Short-term financing		110,715		110,974		(259	)	—
	Current portion of long-term debt and other long-term liabilities		3,350		3,731		(381	)	(10	)
Total current liabilities			295,511		344,946		(49,435	)	(14	)
Deferred income taxes			15,185		12,760		2,425		19
Long-term debt			292,750		144,750		148,000		102
Other long-term liabilities			6,152		1,625		4,527		279
Total liabilities		$	609,598	$	504,081	$	105,517		21	%
Total stockholders’ equity			234,825		298,654		(63,829	)	(21	)
Total liabilities and stockholders’ equity		$	844,423	$	802,735	$	41,688		5	%

                                 __________________

1.   The allowance for doubtful accounts was $8.7 million at September 30, 2007 and $4.5 million at September 30, 2006.  The inventory reserve was $5.4 million at September 30, 2007 and $4.9 million at September 30, 2006.

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POOL CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

		Nine Months Ended September 30,
			2007		2006		Change
Operating activities
Net income		$	80,983	$	100,025	$	(19,042	)
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation		6,868		5,980		888
	Amortization		3,665		3,472		193
	Share-based compensation		5,564		5,517		47
	Excess tax benefits from share-based compensation		(8,345	)	(10,619	)	2,274
	Equity earnings in unconsolidated investments		(2,087	)	(2,476	)	389
	Other		3,441		1,645		1,796
Changes in operating assets and liabilities, net of effects of acquisitions:
	Receivables		(49,373	)	(61,121	)	11,748
	Product inventories		14,580		53,889		(39,309	)
	Accounts payable		(49,743	)	(71,359	)	21,616
	Other current assets and liabilitites		27,927		56,525		(28,598	)
Net cash provided by operating activities			33,480		81,478		(47,998	)
Investing activities
Acquisition of businesses, net of cash acquired			(2,087	)	(26,662	)	24,575
Purchase of property and equipment, net of sale proceeds			(9,407	)	(11,146	)	1,739
Dividend on equity investment			35		—		35
Proceeds from sale of investment			75		—		75
Net cash used in investing activities			(11,384	)	(37,808	)	26,424
Financing activities
Proceeds from revolving line of credit			306,771		311,838		(5,067	)
Payments on revolving line of credit			(299,928	)	(293,938	)	(5,990	)
Proceeds from asset-backed financing			87,479		93,347		(5,868	)
Payments on asset-backed financing			(51,050	)	(48,030	)	(3,020	)
Proceeds from long-term debt			100,000		—		100,000
Payments on long-term debt and other long-term liabilities			(3,320	)	(1,497	)	(1,823	)
Payments of capital lease obligations			(257	)	(257	)	—
Payments of deferred financing costs			(397	)	(128	)	(269	)
Excess tax benefits from share-based compensation			8,345		10,619		(2,274	)
Issuance of common stock under stock option plans			7,154		6,335		819
Payment of cash dividends			(17,033	)	(15,734	)	(1,299	)
Purchase of treasury stock			(128,777	)	(93,495	)	(35,282	)
Net cash provided by (used in) financing activities			8,987		(30,940	)	39,927
Effect of exchange rate changes on cash			2,448		1,278		1,170
Change in cash and cash equivalents			33,531		14,008		19,523
Cash and cash equivalents at beginning of period			16,734		26,866		(10,132	)
Cash and cash equivalents at end of period		$	50,265	$	40,874	$	9,391

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Addendum

(Unaudited)		Base Business				Acquired & New Market					Total
(In thousands)		Three Months Ended				Three Months Ended					Three Months Ended
		September 30,				September 30,					September 30,
		2007		2006		2007		2006			2007		2006
Net sales	$	512,629	$	527,166	$	14,805	$	9,851		$	527,434	$	537,017
Gross profit		135,864		147,227		3,939		2,768			139,803		149,995
Gross margin		26.5	%	27.9	%	26.6	%	28.1	%		26.5	%	27.9	%
Selling and administrative expenses		96,575		95,439		3,723		1,464			100,298		96,903
Expenses as a % of net sales		18.8	%	18.1	%	25.1	%	14.9	%		19.0	%	18.0	%
Operating income		39,289		51,788		216		1,304			39,505		53,092
Operating income margin		7.7	%	9.8	%	1.5	%	13.2	%		7.5	%	9.9	%

(Unaudited)		Base Business				Acquired & New Market					Total
(In thousands)		Nine Months Ended				Nine Months Ended					Nine Months Ended
		September 30,				September 30,					September 30,
		2007		2006		2007		2006			2007		2006
Net sales	$	1,580,783	$	1,579,633	$	46,829	$	11,643		$	1,627,612	$	1,591,276
Gross profit		437,950		453,817		13,260		3,226			451,210		457,043
Gross margin		27.7	%	28.7	%	28.3	%	27.7	%		27.7	%	28.7	%
Selling and administrative expenses		293,835		283,257		10,805		2,334			304,640		285,591
Expenses as a % of net sales		18.6	%	17.9	%	23.1	%	20.0	%		18.7	%	17.9	%
Operating income		144,115		170,560		2,455		892			146,570		171,452
Operating income margin		9.1	%	10.8	%	5.2	%	7.7	%		9.0	%	10.8	%

We exclude the following sales centers from base business for 15 months:

·   acquired sales centers;

·   sales centers divested or consolidated with acquired sales centers; and

·   new sales centers opened in new markets.

Additionally, we generally allocate overhead expenses to acquired sales centers on the basis of acquired sales center net sales as a percentage of total net sales.

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There were four new sales centers opened in new markets, which have been excluded from base business at September 30, 2007.  The effect of sales center acquisitions in the tables above includes the operations of the following:

Acquired	Acquisition Date	Sales Centers Acquired	Period Excluded
Wickham Supply, Inc. and Water Zone, LP	August 2006	14	January – September 2007 and    August – September 2006
Tor-Lyn, Limited	February 2007	1	February – September 2007

We define EBITDA as net income plus interest expense, income taxes, share-based compensation, 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, service debt and pay dividends.  EBITDA eliminates the non-cash expenses related to share-based compensation, 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 (GAAP).

The table below presents a reconciliation of net income to EBITDA.

(Unaudited)			Three Months Ended			Nine Months Ended
(In thousands)			September 30,			September 30,
			2007	2006		2007	2006
Net income		$	21,835	31,493	$	80,983	100,025
	Add:
	Interest expense, net		6,349	4,276		16,765	10,983
	Provision for income taxes		12,802	18,848		50,118	61,957
	Income tax expense on equity earnings		959	976		791	963
	Share-based compensation		1,619	1,511		5,564	5,517
	Depreciation		2,352	2,147		6,868	5,980
	Amortization (1)		1,114	1,040		3,497	3,377
EBITDA		$	47,030	60,291	$	164,586	188,802

⁽¹⁾  Excludes amortization included in interest expense, net

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