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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON‚ D. C. 20549

FORM 10-Q

COMMISSION FILE NO.: 0-26640

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_]

At July 24, 2002, there were 23,694,321 outstanding shares of the Registrant’s common stock, $.001 par value per share.

SCP POOL CORPORATION

Form 10-Q
For the Quarter Ended June 30, 2002

SCP POOL CORPORATION

Note: The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date.

The accompanying Notes are an integral part of the Consolidated Financial Statements.

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SCP POOL CORPORATION

The accompanying Notes are an integral part of the Consolidated Financial Statements.

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SCP POOL CORPORATION

The accompanying Notes are integral part of the Consolidated Financial Statements.

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SCP POOL CORPORATION

SCP Pool Corporation (the Company, which may be referred to as we, us or our) prepared the consolidated financial statements following accounting principles generally accepted in the United States (GAAP) and the requirements of the Securities and Exchange Commission (SEC). As permitted under those rules, certain footnotes or other financial information normally required by GAAP have been condensed or omitted. The financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. The results for the interim periods are not necessarily indicative of the results to be expected for the full year.

You should also read the financial statements and notes included in the Company’s latest Annual Report on Form 10-K. Except for the adoption of Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets and SFAS 144, Accounting for the Impairment of Long-Lived Assets, as discussed in Note 3 below, the accounting policies used in preparing these financial statements are the same as those described in our Annual Report.

Certain prior year amounts have been reclassified to conform to the current year presentation.

We calculate basic earnings per share (EPS) by dividing net income by the weighted average number of common shares outstanding. Diluted EPS includes the dilutive effects of stock options and convertible notes.

On January 1, 2002, we adopted SFAS 142, Goodwill and Other Intangible Assets. Under these new rules, goodwill is no longer amortized but will be tested for impairment annually or at any other time when impairment indicators exist. Intangible assets with finite lives continue to be amortized over their useful lives. We completed the transitional goodwill impairment test in the first quarter of 2002 and determined that goodwill is not impaired.

The following table presents net income and earnings per share for the three month and six month periods ended June 30, 2002 and June 30, 2001 in a comparative format assuming there was no goodwill amortization in 2001:

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SCP POOL CORPORATION

On January 1, 2002, we adopted SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 supersedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of and Accounting Principles Board Opinion 30, Reporting on the Results of Operations for a Disposal of a Segment of a Business. The adoption of this Statement did not have a material impact on our financial position or operating results.

Comprehensive income for the three months ended June 30, 2002 and June 30, 2001 was $28.8 million and $25.3 million, respectively. Comprehensive income for the six months ended June 30, 2002 and June 30, 2001 was $31.1 million and $26.4 million, respectively.

You should read the following discussion in conjunction with Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the year ended December 31, 2001.

Results of Operations

We currently conduct operations through 177 service centers in North America and Europe.

The following table presents information derived from the Consolidated Statements of Income expressed as a percentage of net sales.

Note: Percentages may not total 100% due to rounding.

We calculate same store growth by excluding the following service centers from the calculation for 15 months:

• New service centers opened within the past 15 months,
• Service centers acquired within the past 15 months and
• Service centers located in the immediate market areas of those mentioned above. Sales often shift from an established location to a newly opened or acquired service center if it is closer in proximity or more convenient for the customer.

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SCP POOL CORPORATION

Results of Operations (continued)

The following discussion of consolidated operating results includes the operating results from service centers acquired in 2001. We accounted for the acquisitions using the purchase method of accounting and the operating results have been included in our consolidated results since the respective acquisition dates.

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

Net sales increased $32.4 million, or 10%, to $364.1 million in the three months ended June 30, 2002 from $331.7 million in the comparable 2001 period. A 7% increase in same store sales contributed approximately $18.0 million to the increase, while new locations and service centers acquired in the second half of 2001 accounted for the remaining increase. The increase in same store sales is primarily due to the following:

• a larger installed base of swimming pools resulting in increased sales of non-discretionary products
• the continued execution of our sales, marketing and service programs

Gross profit increased $8.8 million, or 10%, to $96.7 million in the three months ended June 30, 2002 from $87.9 million in the comparable 2001 period. Same store gross profit growth of 8% contributed $5.3 million to the increase while new service centers and stores acquired in the second half of 2001 accounted for the remaining increase. The increase in same store gross profit growth is primarily due to the 7% increase in same store sales.

Gross profit as a percentage of net sales (gross margin) increased slightly to 26.6% in the second quarter of 2002 compared to 26.5% in the second quarter of 2001.

Operating expenses, which consist of selling and administrative expenses, increased $3.2 million, or 7%, to $48.3 million for the three months ended June 30, 2002 compared to $45.1 million in 2001. Operating expenses as a percentage of net sales decreased 30 basis points to 13.3% in 2002 from 13.6% in 2001. Pro forma operating expenses excluding 2001 goodwill amortization increased $3.8 million, or 9%, to $48.3 million for the three months ended June 30, 2002 compared to $44.5 million in 2001. On a pro forma basis, operating expenses as a percentage of net sales decreased 10 basis points to 13.3% for the quarter from 13.4% in the second quarter of 2001.

In the second quarter of 2002, interest expense increased slightly to $1.5 million from $1.4 million in the second quarter of 2001. Although average debt outstanding was higher in the second quarter of 2002, the effective interest rate was approximately 134 basis points lower than last year, which is consistent with the overall decline in interest rates over the past year.

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SCP POOL CORPORATION

Results of Operations (continued)

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

Net sales increased $48.5 million, or 10%, to $535.4 million in the six months ended June 30, 2002 from $486.9 million in the comparable 2001 period. A 7% increase in same store sales contributed approximately $27.0 million to the increase, while new service centers and stores acquired in the second half of 2001 accounted for the remaining increase. The increase in same store sales is primarily due to the following:

• a larger installed base of swimming pools resulting in increased sales of non-discretionary products
• the continued execution of our sales, marketing and service programs

Gross profit increased $14.2 million, or 11%, to $140.2 million in the six months ended June 30, 2002 from $126.0 million in the comparable 2001 period. Same store gross profit growth of 8% contributed $7.6 million to the increase, while new service centers and stores acquired in the second half of 2001 accounted for the remaining increase. The increase in same store gross profit growth is primarily due to the 7% increase in same store sales.

Gross margin increased 30 basis points to 26.2% in the first six months of 2002 from 25.9% in the comparable 2001 period, primarily due to continued improvements in pricing accuracy and greater pricing discipline at the point of sale.

Operating expenses, which consist of selling and administrative expenses, increased $7.6 million, or 10%, to $87.5 million in the six months ended June 30, 2002 from $79.9 million in the comparable 2001 period. Operating expenses as a percentage of net sales decreased 10 basis points to 16.3% in the first six months of 2002 from 16.4% in the comparable 2001 period. Pro forma operating expenses excluding 2001 goodwill amortization increased $8.7 million, or 11%, to $87.5 million in the six months ended June 30, 2002 compared to $78.8 million in 2001. On a pro forma basis, operating expenses as a percentage of net sales increased 10 basis points to 16.3% in the first six months of 2002 from 16.2% in the comparable 2001 period.

In the first six months of 2002, interest expense decreased slightly to $2.7 million from $2.9 million in the same period of 2001. Although average debt outstanding was higher in the first six months of 2002, the effective interest rate was approximately 196 basis points lower than last year, which is consistent with the overall decline in interest rates over the past year.

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SCP POOL CORPORATION

Results of Operations (continued)

Seasonality and Quarterly Fluctuations

Our business is highly seasonal, and weather is the principal external factor affecting our business. The following table presents some of the possible effects resulting from various weather conditions.

In general, sales and operating income are highest during the second and third quarters, which represent the peak months of swimming pool use and installation. Sales are substantially lower during the first and fourth quarters when we may incur net losses.

We typically experience a build-up of product inventories and accounts payable during the winter months in anticipation of the following peak selling season. Excluding borrowings to finance acquisitions, our peak borrowing usually occurs during the second quarter, primarily because extended payment terms offered by our suppliers typically are payable in April, May and June, while our peak accounts receivable collections typically occur in June, July and August.

We expect that our quarterly operating results will continue to fluctuate depending on the timing and amount of revenue contributed by new service centers and acquisitions. We attempt to open new service centers at the end of the fourth quarter or the first quarter of the subsequent year to take advantage of preseason sales programs and the following peak selling season.

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SCP POOL CORPORATION

Results of Operations (continued)

Seasonality and Quarterly Fluctuations (continued)

The following table presents certain unaudited quarterly data for the first and second quarters of 2002 and the four quarters of 2001. In our opinion, this information reflects all normal and recurring adjustments considered necessary for a fair presentation of this data. The results of any of these quarters are not necessarily a good indication of results for an entire fiscal year or of continuing trends.

Financial Condition

Liquidity and Capital Resources

Our primary sources of working capital are cash from operations supplemented by bank borrowings under a credit agreement (the Credit Agreement) with a group of banks. Our primary capital needs are seasonal working capital obligations and other general corporate purposes, including acquisitions. Borrowings, together with cash from operations and seller financing, historically have been sufficient to support our growth and finance acquisitions.

Net cash provided by operating activities was $8.4 million for the six months ended June 30, 2002 compared to $2.0 million in the same period last year. We expect cash flows from operations will continue to increase in the third quarter of 2002 as we collect the seasonal build-up in accounts receivable with reductions in inventory and accounts payable largely offsetting one another.

The Credit Agreement, which matures on November 27, 2004, allows us to borrow up to $110.0 million under a revolving line of credit (the Revolving Credit Facility). The Credit Agreement also has an “accordion” feature that permits us, under certain circumstances, to increase the Revolving Credit Facility to $150.0 million.

During the six months ended June 30, 2002, we received net proceeds of $12.5 million from the Revolving Credit Facility. At June 30, 2002, there was $97.5 million outstanding and $12.5 million available for borrowing under the Revolving Credit Facility.

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SCP POOL CORPORATION

Financial Condition (continued)

Liquidity and Capital Resources (continued)

Interest on borrowings under the Revolving Credit Facility may be paid at either of the following rates, in each case depending on our leverage ratio:

1. the agent's corporate base rate or the federal funds rate plus 0.5%, whichever is higher, plus a margin ranging from 0.125% to 0.375%, or
   
   
2. the current Eurodollar Rate plus a margin ranging from 1.125% to 1.750%

Substantially all of our assets, including the capital stock of our wholly-owned subsidiaries, secure our obligations under the Revolving Credit Facility. The Revolving Credit Facility has numerous restrictive covenants, which require that we maintain a minimum net worth and fixed charge coverage and which also restrict our ability to pay dividends. As of June 30, 2002, we were in compliance with all covenants and financial ratio requirements. The effective interest rate of the Revolving Credit Facility was 4.2% at June 30, 2002.

We believe we have adequate availability of capital to fund our current operations and anticipated growth, including expansion in existing and targeted market areas. We continually evaluate potential acquisitions and we have held discussions with a number of acquisition candidates. However, we currently have no binding agreement with respect to any material acquisition candidate. If suitable acquisition opportunities or working capital needs arise that would require additional financing, we believe that our current financial position and earnings history provide a solid basis for obtaining additional financing resources at competitive rates and terms. Additionally, we may issue common or preferred stock in connection with any such acquisition.

Accounts Receivable and the Allowance for Doubtful Accounts

Accounts receivable increased $10.2 million, or 8%, to $144.6 million at June 30, 2002 compared to $134.4 million at June 30, 2001. This increase is commensurate with the increase in sales, and approximately 96% of the accounts receivable balance at June 30, 2002 was included in the “current” or “under 30 days past due” categories of the aging compared to 94% at June 30, 2001. Less than 3% of the accounts receivable balance at June 30, 2002 was included in the “greater than 60 days past due” category of the aging compared to nearly 4% at June 30, 2001.

As we have improved the quality of our accounts receivable aging, the allowance for doubtful accounts decreased to $3.3 million at June 30, 2002 compared to $3.6 million in 2001. In 2002, we reserved approximately 96% of the accounts receivable in the “greater than 60 days” aging category, compared to 81% in 2001.

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SCP POOL CORPORATION

Financial Condition (continued)

Product Inventories and the Reserve for Shrink and Obsolescence

Product inventories represent the largest asset on our balance sheet. Our goal is to manage our inventory such that we minimize stock-outs, thus providing the highest level of service to our customers. This requires maintaining at each service center the inventory SKUs with the highest sales volume. Inventory per service center has increased approximately 7% as we improve the availability of our high velocity items such as chemicals, accessories and whole goods such as pumps, filters, heaters and cleaners. At the same time, we are continuously working to better manage our slower moving classes of inventory which are not as important to our customers and thus inherently have lower velocity. We refer to our highest velocity goods as inventory classes 1 – 3. These products represent approximately 80% of our net sales. Inventory classes 4 – 12 consist of lower velocity goods that we stock to maintain a high level of customer service. Class 13 inventory consists of items with no sales at a particular service center for a period of twelve months or longer.

Product inventories increased $31.1 million, or 23%, to $168.9 million at June 30, 2002 from $137.8 million at June 30, 2001. This increase reflects the following:

• Fifteen service centers added to our distribution network in the past twelve months
• A 10% increase in sales in 2002 compared to 2001

At June 30, 2002, the inventory balance was approximately $10.0 million higher than our targeted balance for the end of the second quarter. Strong April sales drove inventory purchases in May and June, when the weather proved to be milder than expected. This additional inventory is primarily comprised of high velocity goods with little or no risk of obsolescence.

As we have improved the quality of our inventory, the inventory reserve has decreased to $3.9 million at June 30, 2002 from $6.0 million at June 30, 2001. The balance of class 13 inventory has decreased from 8.0% of total inventory at the end of the 2001 pool season to 4.2% at June 30, 2002. Our reserve as a percentage of class 13 inventory has remained consistent between periods. At June 30, 2002, approximately 70% of our inventory balance was comprised of high velocity inventory classes 1 – 3.

Share Repurchases

From June 1 through July 24, 2002, we repurchased 1.4 million shares of our common stock at an average price of $26.49 per share.

Since October 1998, we have repurchased a total of 3.4 million shares of our common stock at an average price of $18.94 per share. On July 23, 2002, the Board of Directors authorized an additional $50.0 million for the repurchase of our common stock in the open market.

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SCP POOL CORPORATION

Interest Rate Risk

There have been no material changes from what we reported in our Form 10-K for the year ended December 31, 2001.

Foreign Exchange Risk

There have been no material changes from what we reported in our Form 10-K for the year ended December 31, 2001.

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SCP POOL CORPORATION

Our disclosure and analysis in this report contains forward-looking information that involves risks and uncertainties. From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Forward-looking statements give our current expectations or forecasts of possible future results or events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. We often use words such as “anticipate”, “estimate”, “expect”, “believe” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance.

Among the factors that could cause actual results to differ materially are the following:

• the sensitivity of the industry to weather conditions
• the intense competition and low barriers to entry in the industry
• the sensitivity of the industry to general economic and market conditions
• our ability to:

• the effectiveness of our advertising, marketing and promotional programs
• changes in laws and regulations, including changes in accounting standards and taxation requirements (including tax rate changes, new tax laws and revised tax law interpretations)
• the risk of fire, safety and casualty losses and related liability claims inherent in the storage of the chemicals that we sell

We cannot guarantee that any future event or result will be realized, although we believe we have been prudent in our plans and assumptions. Should additional risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from those anticipated. Investors should bear this in mind as they consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of subsequent events, new information or otherwise.

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SCP POOL CORPORATION

At the Annual Meeting of Stockholders held on May 8, 2002, the following proposals were adopted by the margins indicated:

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SCP POOL CORPORATION

Items 1, 2, 3 and 5 are not applicable and have been omitted.

_________________

1. Incorporated by reference to the respective exhibit to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2001.
2. Incorporated by reference to the respective exhibit to the Company's Registration Statement No. 33-92738.

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SCP POOL CORPORATION

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on July 26, 2002.

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