Exhibit 99.1
FOR IMMEDIATE RELEASE
POOL CORPORATION REPORTS SECOND QUARTER RESULTS
AND UPDATES 2008 EARNINGS PROJECTION
______________________
COVINGTON, LA. (July 24, 2008) – Pool Corporation (NASDAQ/GSM:POOL) today reported results for the second quarter of 2008.
“Our second quarter results reflect continued strong performance in every facet of our business execution,” said Manuel Perez de la Mesa, President and CEO. “While sales remain pressured by the unprecedented adverse market conditions impacting our industry, we have improved margin management, controlled expenses and realized market share gains while strengthening our business foundation for the future.”
Net sales for the quarter ended June 30, 2008 decreased $33.5 million, or 5%, to $693.0 million, compared to $726.5 million in the second quarter of 2007. Base business sales declined 7% due to reduced new pool and irrigation construction activity. This reduction was partially offset by sales from acquired businesses and an increase in maintenance, repair and replacement product sales. During the quarter, complementary product sales, which are heavily weighted towards new pool construction, were down approximately 12% compared to a 9% increase in the same period in 2007.
Gross profit for the second quarter of 2008 decreased $5.1 million, or 2%, to $202.8 million from $207.9 million in the comparable 2007 period. Gross profit as a percentage of net sales (gross margin) improved to 29.3% in the second quarter of 2008 from 28.6% for the second quarter of 2007. The increase in gross margin is attributable to improved pricing management, a favorable shift in sales mix to products in the higher margin maintenance market and an increase in sales of private label products. This increase in gross margin was partially offset by lower estimated vendor incentives earned compared to the second quarter of 2007 due to lower purchase volumes.
Operating expenses increased $3.3 million, or 3%, to $112.8 million in the second quarter of 2008 from $109.5 million in the second quarter of 2007. This increase was primarily due to operating expenses related to the NPT acquisition. Base business operating expenses decreased 1% quarter over quarter.
Operating income decreased $8.4 million, or 9%, to $90.0 million from $98.4 million. Operating income as a percentage of net sales (operating margin) was 13.0% for the current quarter, down from 13.5% for the second quarter of 2007. Interest expense decreased 14% during the quarter due to a lower weighted average effective interest rate, which was partially offset by higher average debt levels compared to the second quarter of 2007. Earnings per share for the second quarter of 2008 was $1.09 per diluted share on net income of $52.9 million, compared to $1.12 per diluted share on net income of $57.8 million for the second quarter of 2007.
Net sales for the six months ended June 30, 2008 decreased $69.0 million, or 6%, to $1,031.2 million, compared to $1,100.2 million in the comparable 2007 period. Base business sales declined 8% for the first six months of 2008. Complementary product sales for the first half of 2008 were down approximately 13% due to the continued decline in new pool and irrigation construction activity. Gross margin increased 60 basis points to 28.9% in the first half of 2008 from 28.3% for the same period last year.
Operating income for the first six months of 2008 decreased 14% to $92.2 million compared to $107.1 million in the same period last year. Operating margin was 8.9% for the first half of 2008 compared to 9.7% for the first half of 2007. Earnings per share for the first six months of 2008 decreased 11% to $1.02 per diluted share on net income of $49.7 million, compared to $1.14 per diluted share on net income of $59.1 million in the comparable 2007 period.
“Based on results to date and the current external environment, we are narrowing our full year 2008 earnings guidance to a projected range of $1.26 to $1.36 per diluted share compared to our initial projected range of $1.20 to $1.50 per diluted share,” said Perez de la Mesa. “In the second half of 2008, we have more modest comparisons and anticipate continued improvement in every facet of our business execution.”
On the balance sheet, total net receivables decreased 8% compared to June 30, 2007 due to lower sales. Inventory levels decreased 1% to $385.3 million at June 30, 2008. Excluding acquired inventories of approximately $15.7 million, inventories decreased 5% year over year.
The use of cash in operations decreased $18.9 million to $35.2 million in the first six months of 2008. The decrease in cash used in operations is primarily the result of favorable impacts from changes in working capital balances, which offset the reduction in net income. Adjusted EBITDA (as defined in the addendum to this release) was $96.7 million in the second quarter of 2008 compared to $106.0 million in the second quarter of 2007 and $102.1 million for the six months ended June 30, 2008 compared to $117.6 million for the six months ended June 30, 2007.
Pool Corporation is the largest wholesale distributor of swimming pool and related backyard products. Currently, POOL operates 290 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 2007 Form 10-K and Form 10-Q for the quarter ended March 31, 2008 filed with the Securities and Exchange Commission.
CONTACT:
| | craig.hubbard@poolcorp.com |
POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
| | Three Months Ended | | Six Months Ended | |
| | June 30, | | June 30, | |
| | 2008 | | 2007 | | 2008 | | 2007 | |
| | | | | | | | | | | | |
| Net sales | $ | 692,972 | | $ | 726,472 | | $ | 1,031,187 | | $ | 1,100,178 | |
| Cost of sales | | 490,220 | | | 518,550 | | | 733,081 | | | 788,771 | |
| Gross profit | | 202,752 | | | 207,922 | | | 298,106 | | | 311,407 | |
| Percent | | 29.3 | % | | 28.6 | % | | 28.9 | % | | 28.3 | % |
| Selling and administrative expenses | | 112,762 | | | 109,489 | | | 205,919 | | | 204,342 | |
| Operating income | | 89,990 | | | 98,433 | | | 92,187 | | | 107,065 | |
| Percent | | 13.0 | % | | 13.5 | % | | 8.9 | % | | 9.7 | % |
| | | | | | | | | | | | | |
| Interest expense, net | | 5,087 | | | 5,897 | | | 10,111 | | | 10,416 | |
| Income before income taxes and equity earnings (losses) | | 84,903 | | | 92,536 | | | 82,076 | | | 96,649 | |
| Provision for income taxes | | 32,811 | | | 35,728 | | | 31,722 | | | 37,316 | |
| Equity earnings (losses) in unconsolidated investments, net | | 783 | | | 986 | | | (663 | ) | | (185 | ) |
| Net income | $ | 52,875 | | $ | 57,794 | | $ | 49,691 | | $ | 59,148 | |
| | | | | | | | | | | | | |
| Earnings per share: | | | | | | | | | | | | |
| Basic | $ | 1.11 | | $ | 1.17 | | $ | 1.04 | | $ | 1.19 | |
| Diluted | $ | 1.09 | | $ | 1.12 | | $ | 1.02 | | $ | 1.14 | |
| Weighted average shares outstanding: | | | | | | | | | | | | |
| Basic | | 47,718 | | | 49,326 | | | 47,628 | | | 49,753 | |
| Diluted | | 48,716 | | | 51,504 | | | 48,499 | | | 51,974 | |
| | | | | | | | | | | | | |
| Cash dividends declared per common share | $ | 0.13 | | $ | 0.12 | | $ | 0.25 | | $ | 0.225 | |
POOL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands)
| | | | June 30, | | | June 30, | | | Change | |
| | | | 2008 | | | 2007 | | | $ | | | % | |
| | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | |
| Current assets: | | | | | | | | | | | | |
| | Cash and cash equivalents | $ | 26,453 | | $ | 47,171 | | $ | (20,718 | ) | | (44 | )% |
| | Receivables, net | | 75,563 | | | 90,892 | | | (15,329 | ) | | (17 | ) |
| | Receivables pledged under receivables facility | | 203,091 | | | 210,373 | | | (7,282 | ) | | (3 | ) |
| | Product inventories, net | | 385,258 | | | 388,364 | | | (3,106 | ) | | (1 | ) |
| | Prepaid expenses and other current assets | | 11,376 | | | 10,705 | | | 671 | | | 6 | |
| | Deferred income taxes | | 9,139 | | | 7,676 | | | 1,463 | | | 19 | |
| Total current assets | | 710,880 | | | 755,181 | | | (44,301 | ) | | (6 | ) |
| | | | | | | | | | | | | | |
| Property and equipment, net | | 33,892 | | | 36,628 | | | (2,736 | ) | | (7 | ) |
| Goodwill | | 167,352 | | | 155,231 | | | 12,121 | | | 8 | |
| Other intangible assets, net | | 14,480 | | | 16,561 | | | (2,081 | ) | | (13 | ) |
| Equity interest investments | | 32,839 | | | 32,156 | | | 683 | | | 2 | |
| Other assets, net | | 25,612 | | | 19,065 | | | 6,547 | | | 34 | |
| Total assets | $ | 985,055 | | $ | 1,014,822 | | $ | (29,767 | ) | | (3 | )% |
| | | | | | | | | | | | | | |
| Liabilities and stockholders’ equity | | | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | | |
| | Accounts payable | $ | 193,663 | | $ | 229,691 | | $ | (36,028 | ) | | (16 | )% |
| | Accrued and other current liabilities | | 70,755 | | | 62,071 | | | 8,684 | | | 14 | |
| | Short-term financing | | 121,492 | | | 150,000 | | | (28,508 | ) | | (19 | ) |
| | Current portion of long-term debt and other long-term liabilities | | 4,633 | | | 4,350 | | | 283 | | | 7 | |
| Total current liabilities | | 390,543 | | | 446,112 | | | (55,569 | ) | | (12 | ) |
| | | | | | | | | | | | | | |
| Deferred income taxes | | 17,527 | | | 15,212 | | | 2,315 | | | 15 | |
| Long-term debt | | 316,000 | | | 272,599 | | | 43,401 | | | 16 | |
| Other long-term liabilities | | 6,455 | | | 6,519 | | | (64 | ) | | (1 | ) |
| Total liabilities | | 730,525 | | | 740,442 | | | (9,917 | ) | | (1 | ) |
| Total stockholders’ equity | | 254,530 | | | 274,380 | | | (19,850 | ) | | (7 | ) |
| Total liabilities and stockholders’ equity | $ | 985,055 | | $ | 1,014,822 | | $ | (29,767 | ) | | (3 | )% |
__________________
| 1. | Total receivables at June 30, 2008 include approximately $6.7 million of acquired receivables, primarily from our acquisition of National Pool Tile (NPT). The allowance for doubtful accounts was $9.7 million at June 30, 2008 and $6.4 million at June 30, 2007, with $1.1 million of the June 30, 2008 balance related to the acauisition of NPT. |
| 2. | Total product inventories at June 30, 2008 include approximately $15.7 million of acquired inventories, primarily from our acquisition of NPT. The inventory reserve was $7.9 million June 30, 2008 and $5.0 million at June 30, 2007, with $1.2 million of the June 30, 2008 balance related to the acquisition of NPT. |
POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| | Six Months Ended June 30, | | | | | | |
| | 2008 | 2007 | | | Change | |
| Operating activities | | | | | | | | | | |
| Net income | $ | 49,691 | $ | 59,148 | | | $ | (9,457 | ) | |
| Adjustments to reconcile net income to net cash used in operating activities: | | | | | | | | | | |
| | Depreciation | | 4,804 | | 4,516 | | | | 288 | | |
| | Amortization | | 2,149 | | 2,493 | | | | (344 | ) | |
| | Share-based compensation | | 4,269 | | 3,945 | | | | 324 | | |
| | Excess tax benefits from share-based compensation | | (1,652 | ) | (6,399 | ) | | | 4,747 | | |
| | Equity losses in unconsolidated investments | | 1,158 | | 353 | | | | 805 | | |
| | Other | | (1,501 | ) | 637 | | | | (2,138 | ) | |
| Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | | | | | | |
| | Receivables | | (132,735 | ) | (147,733 | ) | | | 14,998 | | |
| | Product inventories | | 8,995 | | (56,282 | ) | | | 65,277 | | |
| | Accounts payable | | (2,606 | ) | 52,102 | | | | (54,708 | ) | |
| | Other current assets and liabilities | | 32,266 | | 33,145 | | | | (879 | ) | |
| Net cash used in operating activities | | (35,162 | ) | (54,075 | ) | | | 18,913 | | |
| | | | | | | | | | | | | |
| Investing activities | | | | | | | | | |
| Acquisition of businesses, net of cash acquired | | (32,840 | ) | (2,087 | ) | | | (30,753 | ) | |
| Divestiture of business | | 724 | | — | | | | 724 | | |
| Purchase of property and equipment, net of sale proceeds | | (3,611 | ) | (7,606 | ) | | | 3,995 | | |
| Proceeds from sale of investment | | — | | 75 | | | | (75 | ) | |
| Net cash used in investing activities | | (35,727 | ) | (9,618 | ) | | | (26,109 | ) | |
| | | | | | | | | | | |
| Financing activities | | | | | | | | | | |
| Proceeds from revolving line of credit | | 190,100 | | 215,271 | | | | (25,171 | ) | |
| Payments on revolving line of credit | | (150,625 | ) | (229,329 | ) | | | 78,704 | | |
| Proceeds from asset-backed financing | | 73,335 | | 87,479 | | | | (14,144 | ) | |
| Payments on asset-backed financing | | (20,170 | ) | (11,765 | ) | | | (8,405 | ) | |
| Proceeds from long-term debt | | — | | 100,000 | | | | (100,000 | ) | |
| Payments on long-term debt and other long-term liabilities | | (1,591 | ) | (1,547 | ) | | | (44 | ) | |
| Payments of capital lease obligations | | (251 | ) | (257 | ) | | | 6 | | |
| Payments of deferred financing costs | | (22 | ) | (397 | ) | | | 375 | | |
| Excess tax benefits from share-based compensation | | 1,652 | | 6,399 | | | | (4,747 | ) | |
| Issuance of common stock under stock option plans | | 2,289 | | 5,414 | | | | (3,125 | ) | |
| Payments of cash dividends | | (11,951 | ) | (11,185 | ) | | | (766 | ) | |
| Purchases of treasury stock | | (1,263 | ) | (67,998 | ) | | | 66,735 | | |
| Net cash provided by financing activities | | 81,503 | | 92,085 | | | | (10,582 | ) | |
| Effect of exchange rate changes on cash | | 14 | | 2,045 | | | | (2,031 | ) | |
| Change in cash and cash equivalents | | 10,628 | | 30,437 | | | | (19,809 | ) | |
| Cash and cash equivalents at beginning of period | | 15,825 | | 16,734 | | | | (909 | ) | |
| Cash and cash equivalents at end of period | $ | 26,453 | $ | 47,171 | | | $ | (20,718 | ) | |
Addendum
The following table breaks out our consolidated results into the base business component and the excluded components (sales centers excluded from base business):
| (Unaudited) | | Base Business | Excluded | | Total |
| (In thousands) | | Three Months Ended | Three Months Ended | | Three Months Ended |
| | | June 30, | June 30, | | June 30, |
| | | 2008 | | 2007 | | 2008 | | 2007 | | | 2008 | | 2007 | |
| Net sales | $ | 656,806 | $ | 702,785 | $ | 36,166 | $ | 23,687 | | $ | 692,972 | $ | 726,472 | |
| | | | | | | | | | | | | | | |
| Gross profit | | 191,219 | | 201,768 | | 11,533 | | 6,154 | | | 202,752 | | 207,922 | |
| Gross margin | | 29.1 | % | 28.7 | % | 31.9 | % | 26.0 | % | | 29.3 | % | 28.6 | % |
| | | | | | | | | | | | | | | |
| Selling and administrative expenses | | 103,628 | | 104,725 | | 9,134 | | 4,764 | | | 112,762 | | 109,489 | |
| Expenses as a % of net sales | | 15.8 | % | 14.9 | % | 25.3 | % | 20.1 | % | | 16.3 | % | 15.1 | % |
| | | | | | | | | | | | | | | |
| Operating income | | 87,591 | | 97,043 | | 2,399 | | 1,390 | | | 89,990 | | 98,433 | |
| Operating margin | | 13.3 | % | 13.8 | % | 6.6 | % | 5.9 | % | | 13.0 | % | 13.5 | % |
| (Unaudited) | | Base Business | Excluded | | Total |
| (In thousands) | | Six Months Ended | Six Months Ended | | Six Months Ended |
| | | June 30, | June 30, | | June 30, |
| | | 2008 | | 2007 | | 2008 | | 2007 | | | 2008 | | 2007 | |
| Net sales | $ | 989,307 | $ | 1,074,606 | $ | 41,880 | $ | 25,572 | | $ | 1,031,187 | $ | 1,100,178 | |
| | | | | | | | | | | | | | | |
| Gross profit | | 284,771 | | 304,787 | | 13,335 | | 6,620 | | | 298,106 | | 311,407 | |
| Gross margin | | 28.8 | % | 28.4 | % | 31.8 | % | 25.9 | % | | 28.9 | % | 28.3 | % |
| | | | | | | | | | | | | | | |
| Selling and administrative expenses | | 194,229 | | 198,104 | | 11,690 | | 6,238 | | | 205,919 | | 204,342 | |
| Expenses as a % of net sales | | 19.6 | % | 18.4 | % | 27.9 | % | 24.4 | % | | 20.0 | % | 18.6 | % |
| | | | | | | | | | | | | | | |
| Operating income | | 90,542 | | 106,683 | | 1,645 | | 382 | | | 92,187 | | 107,065 | |
| Operating margin | | 9.2 | % | 9.9 | % | 3.9 | % | 1.5 | % | | 8.9 | % | 9.7 | % |
We exclude the following sales centers from base business results for a period of 15 months (parenthetical numbers for each category indicate the number of sales centers excluded as of June 30, 2008):
| · | acquired sales centers (10, net of consolidations – see table below); |
| · | existing sales centers consolidated with acquired sales centers (6); |
| · | closed sales centers (3); |
| · | consolidated sales centers in cases where we do not expect to maintain the majority of the existing business (1); and |
| · | sales centers opened in new markets (0). |
We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales. After 15 months of operations, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.
In addition to the 20 sales centers excluded from base business as of June 30, 2008, there were 2 new market sales centers excluded until they became base business sales centers in June 2008. We also divested our pool liner fabrication operation in France as of April 2008, and therefore we have excluded the results from base business for the three month period ended June 30, 2007.
We have excluded the following acquisitions from base business for the periods identified:
Acquired | | Acquisition Date | | Net Sales Centers Acquired | | Period Excluded |
National Pool Tile (NPT) (1) | | March 2008 | | 9 | | March – June 2008 |
| Canswim Pools | | March 2008 | | 1 | | March – June 2008 |
| Tor-Lyn, Limited | | February 2007 | | 1 | | February – April 2007 and January – April 2008 |
The table below summarizes the changes in our sales centers in the first half of 2008:
| December 31, 2007 | 281 |
Acquired, net of consolidations (1) | 12 |
| Consolidated | (1) |
| Closed | (1) |
| March 31, 2008 | 291 |
| New locations | 1 |
Consolidation of acquired locations (1) | (2) |
| June 30, 2008 | 290 |
(1) We acquired 15 NPT sales centers and have consolidated 6 of these with existing sales centers, including 4 in March 2008 and 2 in the second quarter of 2008.
We define Adjusted EBITDA as net income or net loss plus interest expense, income taxes, depreciation, amortization and share-based compensation. Adjusted EBITDA is not a measure of cash flow or liquidity as determined by generally accepted accounting principles (GAAP). We have included Adjusted EBITDA as a supplemental disclosure because we believe that it is widely used by our investors, industry analysts and others as a useful supplemental liquidity measure in conjunction with cash flows provided by or used in operating activities to help investors understand our ability to provide cash flows to fund growth, service debt and pay dividends as well as compare our cash flow generating capacity from year to year.
We believe Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income, net income or loss, cash flows provided by or used in operating, investing, and financing activities or other income statement or cash flow statement line items reported in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.
The table below presents a reconciliation of net income to Adjusted EBITDA.
| (Unaudited) | | Three Months Ended | | | Six Months Ended | |
| (In thousands) | | June 30, | | | June 30, | |
| | | | 2008 | | 2007 | | | 2008 | | 2007 | |
| Net income | $ | 52,875 | $ | 57,794 | | $ | 49,691 | $ | 59,148 | |
| | Add: | | | | | | | | | | |
| | Interest expense, net | | 5,087 | | 5,897 | | | 10,111 | | 10,416 | |
| | Provision for income taxes | | 32,811 | | 35,728 | | | 31,722 | | 37,316 | |
| | Income tax expense (benefit) on equity (earnings) losses | | 507 | | 648 | | | (495 | ) | (168 | ) |
| | Share-based compensation | | 1,999 | | 2,402 | | | 4,269 | | 3,945 | |
| | Depreciation | | 2,417 | | 2,332 | | | 4,804 | | 4,516 | |
| | Amortization (1) | | 996 | | 1,213 | | | 1,949 | | 2,383 | |
| Adjusted EBITDA | $ | 96,692 | $ | 106,014 | | $ | 102,051 | $ | 117,556 | |
(1) Excludes amortization included in interest expense, net
The table below presents a reconciliation of Adjusted EBITDA to cash used in operating activities.
| (Unaudited) | | Three Months Ended | | | Six Months Ended | |
| (In thousands) | | June 30, | | | June 30, | |
| | | | 2008 | | 2007 | | | 2008 | | 2007 | |
| Adjusted EBITDA | $ | 96,692 | $ | 106,014 | | $ | 102,051 | $ | 117,556 | |
| | Add: | | | | | | | | | | |
| | Interest expense, net(1) | | (4,998 | ) | (5,837 | ) | | (9,911 | ) | (10,306 | ) |
| | Provision for income taxes | | (32,811 | ) | (35,728 | ) | | (31,722 | ) | (37,316 | ) |
| | Income tax (expense) benefit on equity (earnings) losses | | (507 | ) | (648 | ) | | 495 | | 168 | |
| | Excess tax benefits on share-based compensation | | (112 | ) | (3,565 | ) | | (1,652 | ) | (6,399 | ) |
| | Equity (earnings) losses in unconsolidated investments, net | | (1,288 | ) | (1,634 | ) | | 1,158 | | 353 | |
| | Other | | 1,111 | | 2,557 | | | (1,501 | ) | 637 | |
| | Change in operating assets and liabilities | | (77,809 | ) | (101,927 | ) | | (94,080 | ) | (118,768 | ) |
| Net cash used in operating activities | $ | (19,722 | ) | $ | (40,768 | ) | $ | (35,162 | ) | $ | (54,075 | ) |
(1) Excludes amortization of deferred financing costs of $89 and $60 for the three months ended June 30, 2008 and June 30, 2007, respectively, and $200 and $110 for the six months ended June 30, 2008 and June 30, 2007, respectively. This non-cash expense is included in interest expense, net on the Consolidated Statements of Income.
