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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
[_] Transition Report Pursuant to Section 13 or
15(d) of the
Securities Exchange Act of 1934
for the transition period from to
Commission file number 0-26640
SCP POOL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3943363
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
109 Northpark Boulevard, Covington, LA 70433-5001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 504/892-5521
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 16, 1998 was approximately $176,198,068.
As of March 16, 1998 the Registrant had 7,744,970 shares of Common Stock
outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Proxy Statement to be mailed to stockholders
on or about April 13, 1998 for the Annual Meeting to be held on May 13, 1998,
are incorporated by reference in Part III.
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PART I
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Item 1. Business.
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General
SCP Pool Corporation (the "Company") distributes swimming pool supplies and
related products to swimming pool remodelers and builders, independent retail
stores and swimming pool repair and service companies. The Company distributes
more than 34,000 national brand and private label products to approximately
23,000 customers. These products include both non-discretionary pool maintenance
products, such as chemicals and replacement parts, packaged pools (kits to build
swimming pools which include walls, liners, bracing and other materials), and
pool equipment, such as cleaners, filters, heaters, pumps and lights.
The Company is a successor to a business founded in 1980 by the Company's
current President and Chief Executive Officer, Frank J. St. Romain. The Company
and its wholly owned subsidiary, South Central Pool Supply, Inc. ("SCP Supply"),
were organized by Code, Hennessy & Simmons Limited Partnership ("CHS") and
members of the management of the Predecessor (as defined below) for the purpose
of acquiring substantially all of the assets and business of Lake Villa
Corporation (formerly known as South Central Pool Supply, Inc.), a Louisiana
corporation (the "Predecessor"). CHS had no relationship with the Predecessor
prior to such acquisition. On December 31, 1993, SCP Supply acquired
substantially all of the assets and business of the Predecessor in a leveraged
buyout (the "SCP Acquisition").
The Company currently operates 88 service centers in 31 states. Included in
this amount are 11 service centers added in January 1988 through the Bicknell
Acquisition (defined below). During 1997, the Company opened five new service
centers, while during 1996, the Company added 23 service centers through the BLN
Acquisition (as defined below), after giving effect to the consolidation of
certain service centers acquired in connection therewith, and opened two new
service centers.
The Company's net sales have grown from approximately $32.1 million in 1990
to $335.0 million in 1997. Operating income has increased from $2.1 million in
1990 to $15.7 million in 1997. The Company expects to continue its growth
strategy by opening service centers in new locations, increasing sales at
existing service centers and making strategic acquisitions.
The Acquisitions
In January 1994, the Company substantially increased its operations by
acquiring certain assets of Aqua Fab Industries, Inc. ("Aqua Fab"), including
eight service centers (three of which the Company subsequently closed and
consolidated into existing service centers) in the midwest and southeast regions
of the United States (the "Aqua Fab Acquisition").
In February 1995, the Company acquired all of the outstanding capital stock
of Orcal Pool Supplies, Inc. ("Orcal") (the "Orcal Acquisition"). In March 1995,
the Company acquired certain assets of Aqua Chemical Sales and Delivery, Inc.,
primarily inventory and a service center in Illinois. In October 1995, the
Company acquired certain assets, primarily inventory and one service center in
each of Oregon and Washington, of Crest Distribution, a division of Aman
Enterprises, Inc. In November 1995, the Company acquired the capital stock of
Steven Portnoff Corporation, which operated a service center in Scottsdale,
Arizona, and in December 1995, the Company acquired certain assets, primarily
inventory and a service center in Las Vegas, Nevada, of Pool Mart of Nevada,
Inc., an affiliate of Steven Portnoff Corporation.
In September 1996, the Company acquired certain assets (primarily
inventory, property and equipment) of The B-L Network, Inc. ("BLN"), a
wholesaler of swimming pool supplies with 39 service centers in 12 states (the
"BLN Acquisition"), for an aggregate purchase price of approximately $34.5
million. The Company subsequently consolidated
16 of the BLN service centers into existing service centers. The purchase price
for the BLN Acquisition was financed primarily through the issuance of
promissory notes payable to BLN, a portion of which have since been repaid. In
connection with the BLN Acquisition, the Company sold the chemical manufacturing
and repackaging assets of Alliance Packaging, Inc ("Alliance Packaging"), a
subsidiary of SCP Supply, to Bio-Lab, Inc. ("Bio-Lab"), the parent of BLN, for
approximately $5.4 million (the "Alliance Sale"). In addition, the Company and
Bio-Lab entered into two five-year supply agreements pursuant to which Bio-Lab
agreed to supply the Company with certain chemical products previously supplied
to it by Alliance Packaging and with certain chemical products previously
supplied to BLN by Bio-Lab (the "Bio-Lab Supply Agreements").
In January, 1998, the Company acquired certain assets of Bicknell Huston
Distributors, Inc. ("Bicknell"), a wholesaler of swimming pool supplies with
eleven service center locations in six northeastern states (the "Bicknell
Acquisition"), for an aggregate purchase price of approximately $21 million,
subject to certain adjustments. The purchase price for the Bicknell Acquisition
was financed through the offering to the public of 1,350,000 shares of the
Company's Common Stock in December 1997 (the "1997 Public Offering"). In
connection with the Bicknell Acquisition, the Company entered into a long-term
supply agreement with Pacific Industries, Inc. ("Pacific"), the sole stockholder
of Bicknell (the "Pacific Supply Agreement"). Under the terms of the Pacific
Supply Agreement, Pacific will supply the Company with polymer panels, braces,
steps, liners and other products used in the construction of in-ground vinyl
pools. The Pacific Supply Agreement has a term of eight years and is subject to
renewal options. Mr. DeMichele, a director of the Company, is also a director of
Pacific and holds certain executive positions with affiliates of Pacific. See
"Certain Relationships and Related Transactions."
Industry Overview
The swimming pool supply industry can be divided into four categories by
pool type: residential in-ground swimming pools, above-ground swimming pools,
commercial swimming pools and spas or hot tubs. The Company's strategy has been
to focus on distributing products to the residential in-ground and above-ground
and small commercial pool markets.
Management believes approximately 60% of total pool industry revenues are
based upon numerous ongoing maintenance and repair requirements associated with
pool ownership. The maintenance of proper chemical balance and the related
maintenance and repair of swimming pool equipment, such as pumps, heaters,
filters and cleaners, create a non-discretionary demand for pool chemicals and
other swimming pool supplies and services. The balance of pool supply industry
revenues is derived from sales of the parts and equipment required for pool
remodeling, overhaul and repair and from the sales and installation of new
swimming pools. Although the installation of new pools and, to a lesser extent,
the remodeling and overhaul of existing pools are affected by general economic
conditions, particularly new housing construction, management believes that most
continuing repair requirements are not as sensitive to these changes in economic
conditions.
The pool supply distribution industry is fragmented, with the majority of
sales spread among over 170 companies. The six largest distributors operate on a
national or regional basis, while the remaining distributors tend to be family-
owned operations with one to three distribution sites, typically serving a
highly localized customer base with a limited geographic focus.
During the last ten years, the industry has experienced consolidation as
certain larger distributors have acquired smaller local and regional
distributors. Such consolidation has permitted the larger pool supply
distributors to benefit from various economies of scale. Larger distributors
also have been able to take advantage of more sophisticated management
techniques and the development of management information systems specifically
designed to enhance customer service and increase operating efficiency.
Management anticipates further consolidation in the industry and increased
competition as a result.
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Growth Strategy
The Company intends to continue to make strategic acquisitions to further
penetrate existing markets and to expand into new geographic markets. The
Company continuously seeks out appropriate acquisition candidates and is
frequently engaged in discussions regarding potential acquisitions. The Company
completed one acquisition in 1994, five acquisitions in 1995, one acquisition in
1996 and one acquisition in January 1998.
The Company intends to open service centers in geographic areas which are
not currently served by, or are underserved by, the Company. In each of the last
five years, the Company has opened between one and five service centers in new
locations. Each new service center requires approximately $75,000 of capital
expenditures for leasehold improvements and office and warehouse equipment and a
minimum of $250,000 of inventory. The Company also intends to open satellite
service centers that are smaller than the Company's typical service center,
stock fewer inventory items and have fewer employees and a lower cost structure,
yet have access to the Company's full inventory through its information systems.
The Company intends to capitalize on opportunities to expand sales at its
existing service centers. Comparable service center sales increased 12%, 15%,
16%, 19% and 11% in 1993, 1994, 1995, 1996 and 1997, respectively. The Company
believes that it can increase its market share by expanding its private label
marketing programs for chemicals and in-ground vinyl pools with swimming pool
remodelers and builders and repair and service companies and by further
developing its joint marketing programs with its customers. The Company also
plans to increase the breadth of its replacement parts product offering and
periodically to add to its outside sales force.
Products
The Company offers more than 34,000 national brand and private label
products to approximately 23,000 customers. These products include both non-
discretionary pool maintenance products, such as chemicals and replacement
parts, packaged pools (kits to build swimming pools which include walls, liners,
bracing and other materials), and pool equipment, such as cleaners, filters,
heaters, pumps and lights. The Company supplies a substantial majority of the
national brand products offered by swimming pool equipment manufacturers. Sales
of national brands accounted for a majority of the Company's net sales in 1997.
Management believes that national brands are attractive to many of the Company's
customers who seek consistent product quality throughout their operations,
particularly for heaters, pumps, filters and cleaners. The Company believes it
has good relationships with all of its major suppliers of national brands, many
of which provide important sales and marketing support to the Company.
Approximately one-half of the Company's chemical products, which include
chlorine, algicides, water clarifiers and Ph adjusters, are sold under the
Company's private brands. These brands include Regal(R) for small retail and
professional customers, Clear Choice(R) for larger retail customers and EZ-
Clor(R) for pool remodelers and builders, pool service and repair companies and
larger retail customers. Most of these chemical products are converted from bulk
to retail form by Bio-Lab and sold to the Company under the Bio-Lab Supply
Agreements. See "--Purchasing and Suppliers." The Company sells packaged in-
ground vinyl pools (which consist of prefabricated in-ground pool structures
with a vinyl liner) under the Company's Weatherking(R), Heldor(R), Signature
Pools/TM/ and Regatta Pools/TM/ brands. The Company also sells a private label
line of above-ground pool kits under the name Dream Line/TM/ and pool covers
under the Cool Covers/TM/ brand name.
Marketing
The Company's principal marketing activities are conducted by a dedicated
sales force of 67 employees and by its service center managers. The Company's
dedicated sales force has responsibility for developing and maintaining customer
relationships. These salespersons and service center managers make calls on
customers, distribute the Company's product catalog and parts manual and provide
promotional literature in the display areas of the service center. The Company's
commission program is designed to reward account profitability and promote sales
growth. Under the
3
Company's incentive program, salespersons may earn bonuses of up to 50% of their
annual salaries, based on attainment of certain sales and profitability targets.
Customers
The Company sells its products to approximately 23,000 customers, primarily
swimming pool remodelers and builders, retail swimming pool stores and swimming
pool repair and service companies. No customer accounted for more than 3% of the
Company's sales during 1997. The Company estimates that in 1997, sales to
swimming pool remodelers and builders accounted for approximately 40% of its
sales, while sales to retail pool stores accounted for approximately 30% of
sales, and sales to repair and service companies accounted for the remainder.
Swimming pool remodelers and builders purchase products to refurbish, retrofit
or overhaul existing pools and to build new pools. Customers that operate retail
pool stores tend to have a single outlet and typically purchase a relatively
broad range of products from the Company, including chemicals, maintenance
supplies, repair parts and other related products. Repair and service companies
tend to provide on-site repair and cleaning services for residential pools.
These customers tend to be very small and typically purchase chemical products,
maintenance supplies and repair parts. A substantial portion of the Company's
sales are derived from "walk-in" business, in which a customer selects the
products at the service center and transports the purchased products from the
service center immediately following the purchase. The Company also offers local
delivery service in many of the markets it serves.
The Company maintains a credit policy for qualified customers. Credit
policies and terms are established at the corporate level, and each service
center manager is responsible for overseeing and collecting from local accounts.
During each of the last three years, the Company's bad debt expense was less
than 0.25% of net sales.
Purchasing and Suppliers
The Company has a good relationship with its suppliers which generally
offer competitive pricing, rebates, return policies and promotional allowances.
The Company works closely with many of its suppliers to develop joint marketing
plans. In addition, it is common in the swimming pool supply industry for
manufacturers to offer extended dating terms on their products to qualifying
purchasers, such as the Company. Such terms are typically available to the
Company for pre-season or early season purchases.
Prior to October 31, 1996, a substantial portion of the Company's chemical
products were supplied by its subsidiary, Alliance Packaging. On October 31,
1996, Alliance Packaging sold certain of its assets to Bio-Lab and Bio-Lab and
the Company entered into the Bio-Lab Supply Agreements. Under the Bio-Lab Supply
Agreements, Bio-Lab supplies the Company with certain chemical products
previously supplied to it by Alliance Packaging and with certain chemical
products previously supplied to BLN by Bio-Lab. In addition, in connection with
the Bicknell Acquisition, the Company entered into the Pacific Supply Agreement
with Pacific, the sole stockholder of Bicknell. Under the terms of the Pacific
Supply Agreement, Pacific will supply the Company with polymer panels, braces,
steps, liners and other products used in the construction of in-ground pools.
The Pacific Supply Agreement has a term of eight years, subject to renewal
options.
The principal chemical raw materials used in the products sold by the
Company are granular chlorine compounds, which are commodity materials. The
prices of granular chlorine compounds are a function of, among other things,
manufacturing capacity and demand. Although price increases in granular chlorine
compounds generally result in higher costs of supplies to the Company, the
Company generally has passed through such increased costs to its customers.
There can be no assurance that the price of granular chlorine compounds will not
increase in the future or that the Company will be able to pass on any such
increase to its customers. The Company believes that reliable alternate sources
of supply are available for all of its products, including chlorine products.
The Company regularly evaluates supplier relationships and considers
alternate sourcing as appropriate to assure competitive costs and quality
standards. The Company's largest non-affiliated suppliers are Pac-Fab, Inc.,
Hayward Pool Products, Inc. and Bio-Lab, and these suppliers provided
approximately 15%, 11% and 10%, respectively, of the
4
Company's material purchases in 1997. Pacific is expected to supply
approximately 5% of the Company's purchases in 1998. See "Certain Relationships
and Related Transactions." The Company currently has long-term contracts with
Bio-Lab and Pacific, but does not have contracts with Pac-Fab, Inc. or Hayward
Pool Products, Inc. The Company believes that it has good relationships with all
of its suppliers.
Decisions relating to pricing, suppliers and product selection are
centralized at the Company's headquarters, with significant input from each of
the Company's service centers. Decisions relating to purchases and inventory
management are made independently by each of the Company's service center
managers using the data provided by the Company's information systems.
Competition
The Company faces intense competition from many regional and local
distributors in its markets, from several companies that distribute swimming
pool supplies on a national basis and, to a lesser extent, from mass market
retailers and large pool supply retailers. The Company believes that there are
five swimming pool supply distributors which compete with the Company on a
national or regional basis: Pool Water Products, Superior Pool Products, Inc. (a
subsidiary of Olin Corporation) Fort Wayne Pools, Hughes Supply and Benson Pump
Co. Barriers to entry in the swimming pool supply industry are relatively low.
Certain of the Company's competitors have substantially greater capital
resources than the Company.
The Company competes with other distributors for rights to distribute
brand-name products, and the loss of, or inability to obtain such rights could
have a material adverse effect on the Company. Management believes that the
competition for such distribution rights results in a competitive advantage to
larger distributors, such as the Company, and a disadvantage to small
distributors.
The Company believes that the principal competitive factors in pool supply
distribution are the quality and level of customer service, product pricing,
breadth and quality of products offered and consistency and stability of
business relationships with customers. The Company believes it competes
favorably with respect to each of these factors. Some geographic markets
serviced by the Company, particularly California, Arizona, Texas and Florida,
tend to be more competitive than others. In response to competitive pressures
from any of its current or future competitors, the Company may be required to
lower selling prices in order to maintain or increase market share, and such
measures could adversely affect the Company's gross margins and operating
results.
Seasonality and Weather
The Company's business is highly seasonal. In 1997, approximately 67% of
the Company's net sales were generated in the second and third quarters of the
year, which represent the peak months of swimming pool use, installation,
remodeling and repair, and approximately 117% of the Company's operating income
was generated in such period. Sales are substantially lower during the first and
fourth quarters of the year, when the Company typically incurs net losses. The
principal external factor affecting the Company's business is weather.
Unseasonably late warming trends can decrease the length of the pool season and
unseasonably cool weather or extraordinary rainfall during the peak season can
decrease swimming pool use, installation and maintenance, each of which
adversely affects the Company's sales and operating profit. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Quarterly Fluctuations."
Environmental, Health and Safety Regulation
The Company's business is subject to regulation under federal, state, and
local environmental and health and safety requirements, including the Emergency
Planning and Community Right-to-Know Act, the Hazardous Materials Transportation
Act and the Occupational Safety and Health Act. Most of these requirements
govern the packaging, labeling, handling, transportation, storage and sale of
pool chemicals by the Company. In addition, the algicides sold
5
by the Company are regulated as pesticides under the Federal Insecticide,
Fungicide and Rodenticide Act and state pesticide laws, which primarily relate
to labeling and annual registration. While the Company expends considerable
resources to operate in substantial compliance with environmental, health and
safety requirements, there can be no assurance that it will not be determined to
be out of compliance with, or liable under, such requirements. Such an instance
of noncompliance or liability could have a material adverse effect on the
Company and its operating results. In addition, such requirements are frequently
changing, and, depending upon the nature of any such changes, could require
material capital expenditures by the Company in the future.
The demand for the pool chemicals sold by the Company may also be affected
by changes in consumer attitudes toward pool chemical products for environmental
or safety reasons. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Fire, Safety and Casualty Issues
The Company stores chemicals at each of its service centers. Certain
chemicals the Company stores are combustible oxidizing compounds and the storage
of such chemicals is strictly regulated by local fire codes. The Company
maintains strict policies and procedures regarding chemical handling and fire
and safety regulations, and has never incurred any material liability related to
its handling of chemicals. A fire, explosion or flood affecting one of the
Company's facilities could give rise to liability claims against the Company.
Employees
As of March 1, 1998, the Company employed approximately 939 persons on a
full-time basis, of whom 190 engaged in management, administration and
accounting, and credit and collections, 67 engaged in outside sales, 191 engaged
in service center management and 491 engaged in warehouse, production and
distribution operations. Of these employees, 77 are employed at the Company's
corporate headquarters in Covington, Louisiana. In January, 1998, 150 of these
employees were added to the Company in connection with the Bicknell Acquisition.
No employees are covered by collective bargaining agreements. The Company
believes it has good relations with its employees. In connection with the peak
summer selling season, the Company typically employs additional warehouse,
production and distribution personnel during the months from May through August.
Trademarks
The Company maintains registered trademarks in the United States, primarily
for its private label products, and intends to maintain the trademark
registrations which it deems important to its business operations.
Item 2. Properties.
As of March, 1998, the Company conducted operations through 88 service
center locations located in 31 states. Service centers are located near customer
concentrations, typically in industrial, commercial or mixed-use zones. The
Company's executive offices are located in approximately 22,000 square feet of
leased space in Covington, Louisiana.
The Company's service centers range in size from approximately 7,200 square
feet to 50,000 square feet and consist of warehouse, counter, display and office
space. The Company owns a service centers in Phoenix, Arizona. In February,
1998, the Company sold a facility in Fresno, California and leased it back from
the purchaser for a three-year period beginning March 1, 1998. All of the
Company's other properties are leased for terms which expire between 1998 and
2009, and many of such leases may be extended. In certain instances, the
Company's service centers are leased from the former owners of businesses
acquired by the Company. The Company believes that no single lease is material
to its operations, and that alternate sites are presently available at market
rates. See Item 13, "Certain Relationships and Related Transactions" and Note 7
to the Company's Consolidated Financial Statements.
6
Item 3. Legal Proceedings.
From time to time, the Company is involved in litigation and proceedings
arising in the ordinary course of its business. There are no pending material
legal proceedings to which the Company is a party or to which the property of
the Company is subject.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
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Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters.
The Common Stock of the Company began trading on the Nasdaq National Market
under the symbol "POOL" in October 1995. At March 16, 1998, there were 56
holders of record of Common Stock.
The following table sets forth, for the period indicated, the range of high
and low bid prices for the Common Stock as reported by the Nasdaq National
Market, as adjusted to reflect a three-for-two stock split in September 1997.
Fiscal Year High Low
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1996
First Quarter................. $10.167 $ 6.667
Second Quarter................ 13.333 9.333
Third Quarter................. 14.333 11.500
Fourth Quarter................ 13.833 12.000
1997
First Quarter................. 16.000 13.172
Second Quarter................ 16.672 13.000
Third Quarter................. 17.328 13.672
Fourth Quarter................ 24.000 16.500
The bid information set forth above reflects inter-dealer prices, without
retail mark-ups, markdowns or commissions and may not necessarily represent
actual transactions.
The Company currently intends to retain its earnings for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future. The Third Amended and Restated Credit Agreement dated as of
December 31, 1997, by and among SCP Supply, the institutions from time to time
party thereto as lenders, LaSalle National Bank as Agent and Co-Arranger and
Hibernia National Bank as Co-Arranger (the "Senior Loan Facility") restricts the
Company's ability to pay dividends. Any future determination to pay cash
dividends will be made by the board of directors of the Company ("the Board") in
light of the Company's earnings, financial position, capital requirements,
credit agreements and such other factors as the Board deems relevant at such
time. See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and Note 3 of the
Notes to the Company's Consolidated Financial Statements.
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Item 6. Selected Financial Data.
The following table sets forth selected financial data of the Company and
its Predecessor. This information should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Consolidated Financial Statements of the Company and
the Predecessor and related Notes thereto included herein.
The Company The Predecessor(1)
----------------------------------------------------- ------------------
Year Ended December 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Statement of Earnings Data:
Net sales............................... $335,022 $235,844 $161,095 $101,977 $67,282
Cost of sales........................... 261,645 183,814 123,974 77,488 50,861
-------- -------- -------- -------- -------
Gross profit......................... 73,377 52,030 37,121 24,489 16,421
Warehouse expense....................... 14,416 9,611 6,957 3,610 2,107
Selling and administrative expenses..... 42,355 31,139 19,907 13,518 8,618
Goodwill amortization................... 885 793 735 683 --
-------- -------- -------- -------- -------
Operating income..................... 15,721 10,487 9,522 6,678 5,696
Other income (expense):
Interest expense..................... (4,482) (3,176) (5,113) (4,171) (100)
Amortization expense................. (708) (698) (610) (498) --
Management fees paid to stockholder.. -- -- (208) (250) --
Miscellaneous income................. 852 823 228 118 121
-------- -------- -------- -------- -------
(4,338) (3,051) (5,703) (4,801) 21
-------- -------- -------- -------- -------
Income before income taxes and.......... 11,383 7,436 3,819 1,877 5,717
extraordinary loss
Provision for income taxes (1)(2)....... 4,327 2,903 1,490 770 --
-------- -------- -------- -------- -------
Income before extraordinary loss (1)(2). $ 7,056 $ 4,533 $ 2,329 $ 1,107 $ 5,717
======== ======== ======== ======== =======
Income before extraordinary loss per share
common stock
Basic (3)............................ 1.10 0.72 0.78 0.53
Diluted (3).......................... 1.07 0.70 0.75 0.50
Balance Sheet Data:
Working capital......................... $ 63,387 $ 34,602 $ 21,187 $ 8,493 $ 5,817
Total assets............................ 136,452 113,245 75,397 50,675 11,306
Total debt, including current portion... 39,889 51,277 26,476 38,025 124
Stockholders' equity.................... 66,635 36,810 32,277 3,037 6,767
(1) The Predecessor elected to be treated as an S corporation for income tax
purposes, and accordingly did not pay federal and state (except in certain
states) income taxes during such period. The Company is, and has been since
its formation, a C corporation.
(2) The Company recognized an extraordinary loss, net of tax, in 1995 of
$750,000, or $0.26 per share on a diluted basis, in connection with the
write-off of loan financing fees and a prepayment premium associated with
the application of the proceeds of the Company's initial public offering to
reduce indebtedness.
(3) Earnings per share information has been restated to reflect the three-for-
two split in September, 1997 and the adoption of FASB 128, Earnings per
Share.
8
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
The Company was formed in December 1993 to acquire substantially all of the
assets and assume certain liabilities of its Predecessor. From its inception in
1980 through the end of 1993, the Predecessor steadily increased its sales by
opening new service center locations and by increasing sales to new and existing
customers. Since the Company's acquisition of the Predecessor in December 1993
(the "SCP Acquisition"), the Company has grown through strategic acquisitions,
by opening new service centers and by increasing sales to new and existing
customers. From January 1990 to March 1998, the Company expanded from 8 service
centers in 6 states to 88 service centers in 31 states, primarily through
acquisitions. See "The Acquisitions."
The Company derives its revenues primarily from the sale of swimming pool
supplies and related products, including chemicals, cleaners, packaged pools and
liners, filters, heaters, pumps, lights, repair parts and other equipment
required to build, maintain, install and overhaul residential and small
commercial swimming pools. The Company sells its products primarily to swimming
pool remodelers and builders, independent swimming pool retailers and swimming
pool repair and service companies. These customers tend to be small, family
owned businesses with relatively limited capital resources. Losses from customer
receivables have historically been less than 0.25% of net sales.
The Company's business is highly seasonal. In general, sales and net 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 the Company may incur net losses.
The swimming pool supply industry is affected by various factors, including
general economic conditions, consumer saving and discretionary spending levels,
the level of new housing construction, weather and consumer attitudes towards
pool products for environmental or safety reasons. Although management believes
that the Company's geographic diversity could mitigate the effect of a regional
economic downturn and that the continuing maintenance and repair needs for
existing swimming pools could mitigate the effect of a general economic
downturn, there can be no assurance that the Company's results of operations and
expansion plans would not be materially adversely affected by any of such
downturns.
The principal components of the Company's expenses include the cost of
products purchased from manufacturers and sold during the year, and operating
expenses, which are primarily related to labor, occupancy, commissions and
marketing. Some geographic markets serviced by the Company, particularly
California, Arizona, Texas and Florida, tend to be more competitive than others.
In response to competitive pressures from any of its current or future
competitors, the Company may be required to lower selling prices in order to
maintain or increase market share, and such measures could adversely affect the
Company's gross margins and operating results.
The Company completed an initial public offering of its common stock in
October 1995. The net proceeds of the offering were used primarily to reduce
indebtedness and resulted in an extraordinary charge, net of tax, in the
Company's results of operations in the fourth quarter of 1995 of approximately
$750,000 to account for the write-off of deferred financing costs and the
payment of a prepayment premium associated with extinguishing such indebtedness.
In connection with the initial public offering, the management agreement between
the Company and its principal stockholder was terminated as of the consummation
of the offering and, as a result, no management fees have been paid with respect
thereto after such time.
9
Results of Operations
The following table shows, for the periods indicated, information derived
from the consolidated statements of operations of the Company expressed as a
percentage of net sales for such year.
Year Ended December 31
1997 1996 1995
--------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 78.1 77.9 77.0
--------------------------
Gross profit 21.9 22.1 23.0
Warehouse expense 4.3 4.1 4.3
Selling and administrative expenses 12.6 13.2 12.4
Goodwill amortization 0.3 0.3 0.4
--------------------------
Operating income 4.7 4.5 5.9
Interest expense (1.3) (1.3) (3.2)
Amortization expense (0.3) (0.3) (0.4)
Other income (expense): 0.3 0.3 -
--------------------------
Income before income taxes and extraordinary loss 3.4% 3.2% 2.3%
==========================
The following discussions compare the results of operations for the year
ended December 31, 1997 to the year ended December 31, 1996 and the results of
operations for the year ended December 31, 1996 to the year ended December 31,
1995.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales increased by $99.2 million, or 42.1%, to $335.0 million in the
year ended December 31, 1997 from $235.8 million in the comparable 1996 period.
This increase was primarily due to sales at service centers acquired from BLN,
sales at newly opened service centers and increased sales at existing service
centers. Service centers acquired from BLN in September 1996 contributed $79.8
million to the increase, sales at newly opened centers accounted for $12.7
million of the total increase and an increase of approximately 11.4% in sales at
service centers open at least 15 months contributed $12.4 million to the
increase. These increases were partially offset by the loss of revenue from the
assets of Alliance Packaging, Inc., which were sold in October 1996.
Gross profit increased by $21.4 million, or 41.2%, to $73.4 million in the
year ended December 31, 1997 from $52.0 million in the comparable 1996 period.
Gross profit as a percentage of net sales remained relatively unchanged at 21.9%
in the 1997 period compared to 22.1% in the 1996 period.
Operating expenses increased by $16.2 million, or 38.8%, to $57.7 million
in the year ended December 31, 1997 from $41.5 million in the comparable 1996
period. This increase is reflective of salaries, occupancy expense and other
costs associated with new service centers, and, to a lesser extent, payroll and
other operating costs required to support the increased sales volume at existing
service centers. Operating expenses as a percentage of net sales decreased to
17.2% in the 1997 period compared to 17.6% in the 1996 period, primarily as the
result of cost savings efforts instituted by management during 1997.
Interest and other expenses increased to $4.3 million in the year ended
December 31, 1997 from $3.1 million in the comparable 1996 period. The increase
was primarily attributable to the increase in the Company's debt as a result of
the acquisition of BLN in September 1996 and to the financing of seasonal
inventory levels for a larger number of branches in the comparable 1996 period.
10
The provision for income taxes increased $1.4 million, or 49.1%, to $4.3
million for 1997 compared to $2.9 million for 1996. The Company's effective tax
rate decreased to 38.0% for 1997 from 39.0% for 1996 to reflect decreases in the
Company's blended state tax rate.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales increased by $74.7 million, or 46.4%, to $235.8 million in 1996
from $161.1 million in 1995. An increase in sales at service centers opened at
least 15 months of approximately 19.0% accounted for $26.8 million of the
increase. Service centers acquired from BLN accounted for $21.2 million of the
increase, with the remaining increase resulting from sales at service centers
acquired in 1995.
Gross profit increased by $14.9 million, or 40.2%, to $52.0 million in 1996
from $37.1 million in 1995. Gross profit as a percentage of net sales, however,
declined .9% to 22.1% in 1996 from 23.0% in 1995. A majority of the decline in
gross profit margin was attributed to lower margins realized at the service
centers in California and Florida due to the more competitive nature of those
markets. The Company significantly expanded its presence in Florida through the
BLN Acquisition. Service centers in California and Florida generated gross
profit margins of 17.2% and 17.6%, respectively, compared to 24.3% for service
centers outside these areas. The number of service centers located in California
and Florida increased from 2 on January 1, 1995 to 25 on December 31, 1996.
Operating expenses increased by $13.9 million, or 50.5%, to $41.5 million
in 1996 from $27.6 million in 1995. This increase is reflective of (i) salaries,
occupancy expense and other costs associated with the acquired service centers,
and (ii) payroll and other operating costs required to support the increased
sales volume at existing service centers. Operating expenses as a percentage of
sales increased to 17.6% in 1996 compared to 17.1% in 1995. This increase was
primarily attributable to an increase in bonuses as a percentage of sales.
Interest and other expenses decreased to $3.1 million in 1996 from $5.7
million in 1995. The decrease was primarily attributable to the reduction in the
Company's debt with the proceeds from the Company's initial public offering in
October 1995, which resulted in a decrease in interest expense in 1996.
The provision for income taxes was $2.9 million in 1996 compared to $1.5
million in 1995. The increase is consistent with the increase in income before
income taxes.
Seasonality and Quarterly Fluctuations
The Company's business is highly seasonal. In general, sales and net 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 the Company may incur net losses.
The Company experiences a build-up of inventory and accounts payable during
the first and second quarters of the year in anticipation of the peak swimming
pool supply selling season. The Company's peak borrowing occurs during the
second quarter, primarily because dated accounts payable offered by the
Company's suppliers typically are payable in April, May and June, while the
Company's peak accounts receivable collections typically occur in June, July and
August.
The principal external factor affecting the Company's business is weather.
Hot weather can increase purchases of chemicals and supplies and pool
installations. Unseasonably cool weather or extraordinary amounts of rainfall
during the peak sales season can decrease purchases of chemicals and supplies
and pool installations. In addition, unseasonably early or late warming trends
can increase or decrease the length of the pool season and, therefore, the
Company's sales.
To encourage preseason orders, the Company, like many other swimming pool
supply distributors, utilizes preseason sales programs which provide for
extended dating terms and other incentives to its customers. Some of the
Company's
11
suppliers also offer extended dating terms on certain products to the Company
for preseason or early season purchases. In offering extended dating terms to
its customers and accepting extended dating terms from its suppliers, the
Company effectively finances a portion of its receivables with extended
payables.
The Company expects that its quarterly results of operations will fluctuate
depending on the timing and amount of revenue contributed by new service centers
and acquisitions. The Company attempts to open its new stores at the end of the
fourth quarter or the beginning of the first quarter to take advantage of
preseason sales programs and the peak season.
The following table sets forth certain unaudited quarterly data for 1996
and 1997 which, in the opinion of management, reflects all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation of such data. Results of any one or more quarters are not
necessarily indicative of results for an entire fiscal year or of continuing
trends.
1997 1996
--------------------------------------- -------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- -------- ------- -------- ------- ------- ------- -------
(Dollars in thousands)
Net sales.......................... $63,565 $124,790 $98,492 48,175 $41,145 $85,867 $62,344 $46,488
Gross profit....................... 13,960 28,159 21,460 9,798 9,273 20,042 13,531 9,184
Operating income (loss)............ 104 11,496 6,847 (2,726) 743 9,843 4,176 (4,275)
Net sales as a percentage of
annual net sales.................. 19% 37% 29% 15% 18% 36% 26% 20%
Gross profit as a percentage of
annual gross profit............... 19% 39% 29% 13% 18% 38% 26% 18%
Operating income as a percentage
of annual operating income........ 1% 73% 44% (18%) 7% 94% 40% (41%)
Liquidity and Capital Resources
Currently, the Company's primary sources of working capital are cash flow
from operations and borrowings under the Senior Loan Facility. As of March 1998,
the Senior Loan Facility consisted of a term loan and a revolving line of
credit. The Senior Loan Facility was amended and restated as of December 31,
1997, to, among other things, increase the total amount of borrowings available
under the Senior Loan Facility from $80 million to $85 million, subject to a
borrowing base availability formula. In addition, in January 1998, the Company's
borrowing base increased as compared to December 1997 as a result of the
Bicknell Acquisition. As a result, considering the Company's borrowing base and
amounts outstanding as of March 1, 1998, the Company has approximately $45
million available for borrowing under the Senior Loan Facility, which amount
represents the only additional credit source currently available to the Company.
The Company's borrowings under its credit facility, together with cash flow from
operations and seller financing historically have been sufficient to support the
Company's growth and to finance acquisitions.
Borrowings under the Senior Loan Facility may, at the Company's option,
bear interest at either (i) the agent's corporate base rate or the federal funds
rate plus 0.5%, whichever is higher, plus a margin ranging from 0.0% to 0.5% or
(ii) LIBOR plus a margin ranging from 0.75% to 2.0%, in each case depending on
the Company's leverage ratio. Substantially all of the assets of the Company
(other than inventory acquired from BLN, which secures the Company's obligations
to BLN), including the capital stock of SCP Supply, secure the Company's
obligations under the Senior Loan Facility. The Senior Loan Facility has
numerous restrictive covenants which require the Company to maintain minimum
levels of interest coverage and fixed charge coverage and which also restrict
the Company's ability to pay dividends and make capital expenditures. As of
December 31, 1997, the Company was in compliance with all such covenants and
financial ratio requirements. The Senior Loan Facility expires on December 31,
2002.
12
In December 1997, the Company completed a public offering of 1,350,000
shares of Common Stock at a public offering price of $18.00 per share, resulting
in net proceeds to the Company of approximately $22.6 million. Approximately $21
million of these proceeds were used to finance the Bicknell Acquisition in
January 1998.
In connection with the BLN Acquisition, the seller of BLN provided $31.8
million of financing to the Company. This financing, which bears interest at 6%,
is due in varying monthly installments through September 1998. Approximately
$30.0 million of this financing was repaid through March 1, 1998.
During the year ended December 31, 1997, the Company borrowed $68.0 million
to meet seasonal working capital requirements and made payments of $63.9 million
under its revolving credit facility.
Excluding acquisitions, the Company made capital expenditures of
$1,105,000, $788,000 and $866,000 in the years ended December 31, 1997, 1996 and
1995, respectively.
The Company believes that its cash flow from operations and the credit
available under its line of credit will be sufficient to finance its operations
for at least the next twelve months.
To date, the Company's acquisitions have been financed primarily by
borrowings under the Senior Loan Facility and seller notes. To finance future
acquisitions, the Company expects to utilize its ability to borrow additional
funds. Depending on market conditions, the Company may also incur additional
indebtedness or issue common or preferred stock (which may be issued to third
parties or to sellers of acquired businesses).
Year 2000 Issue
The Company continues to assess and review its computer systems devices,
software applications and equipment (collectively, "Computer Systems") to
identify those areas that could be affected by Year 2000 noncompliance. Based on
such review, management believes that the Company's Computer Systems will
function properly when handling date-related data in the Year 2000 and
thereafter, although there can be no such assurances. The total cost to the
Company of complying with Year 2000 requirements is not known at this time,
although management does not currently expect such costs to have a material
adverse effect on the Company's business, operations or financial condition. The
Company is in the process of communicating with suppliers, service providers,
and large customers (collectively, "Third Party Businesses") regarding
compliance with Year 2000 requirements. If the Third Party Businesses fail to
comply in a timely manner with Year 2000 requirements, such failures by Third
Party Businesses could have an adverse impact on the Company's business,
operations or financial condition.
Inflation
The Company does not believe that inflation has had a significant impact on
its results of operations for the periods presented.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
With the exception of historical matters, the matters discussed in this
Annual Report on Form 10-K are forward-looking statements that involve risks and
uncertainties, including but not limited to factors related to (i) the Company's
ability to identify appropriate acquisition candidates, complete acquisitions on
satisfactory terms, or successfully integrate acquired businesses; (ii) the
sensitivity of the swimming pool supply business to cool or rainy weather; (iii)
the intense competition and low barriers to entry in the swimming pool supply
industry; (iv) the Company's ability to obtain financing on satisfactory terms
and the degree to which the Company is leveraged; (v) the sensitivity of the
swimming pool supply business to general economic conditions; (vi) the Company's
ability to remain in compliance with the numerous environmental, health and
safety requirements to which it is subject; (vii) the risk of fire, safety and
casualty
13
losses and related liabilities claims inherent in the storage and repackaging of
chemicals sold by the Company; and (viii) the other factors discussed in the
Company's filings with the Securities and Exchange Commission. Such factors
could affect the Company's actual results and could cause such results to differ
materially from the Company's expectations described above.
Item 8. Financial Statements.
See the attached Consolidated Financial Statements (pages F-1 through
F-20).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
Incorporated by reference to the Company's 1998 Proxy Statement to be filed
with the Commission.
Item 11. Executive Compensation.
Incorporated by reference to the Company's 1998 Proxy Statement to be filed
with the Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the Company's 1998 Proxy Statement to be filed
with the Commission.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference to the Company's 1998 Proxy Statement to be filed
with the Commission.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
The following documents are filed as a part of this report:
(a) (1) The Consolidated Financial Statements included in Item 8 hereof
and set forth on pages F-1 through F-20.
(2) Financial Statement Schedules. All schedules are omitted, because
they are not applicable or are not required, or because the
required information is included in the consolidated financial
statements or notes thereto.
(3) The exhibits listed in the Index to the Exhibits.
14
(b) Reports on Form 8-K.
On November 12, 1997, the Company filed a report on Form 8-K/A
(the "Form 8-K/A") in connection with the acquisition by SCP
Supply of substantially of the assets of The B-L Network, Inc.
and the sale of certain assets by the Company's indirect wholly
owned subsidiary, Alliance Packaging, Inc. to Bio-Lab, Inc. as
originally reported on Form 8-K on October 9, 1996 (the "Form
8-K"). The Form 8-K/A was filed to present certain financial
statements and pro forma unaudited financial information required
by the Form 8-K. The sale of assets by Alliance Packaging was
completed on October 31, 1996.
15
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements of SCP Pool Corporation
Report of Independent Auditors.............................................. F-2
Consolidated Balance Sheets - December 31, 1997 and 1996.................... F-3
Consolidated Statements of Income - Years Ended December 31, 1997, 1996
and 1995................................................................... F-4
Consolidated Statements of Stockholders' Equity - Years Ended December 31,
1997, 1996 and 1995........................................................ F-5
Consolidated Statements of Cash Flows - Years Ended December 31,
1997, 1996 and 1995........................................................ F-6
Notes to Consolidated Financial Statements.................................. F-7
F-1
Report of Independent Auditors
The Board of Directors
SCP Pool Corporation
We have audited the consolidated balance sheets of SCP Pool Corporation as of
December 31, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of SCP
Pool Corporation at December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
New Orleans, Louisiana
February 16, 1998
F-2
SCP Pool Corporation
Consolidated Balance Sheets
(In thousands, except share data)
December 31
1997 1996
------------------------
Assets
Current assets:
Cash and cash equivalents $ 22,296 $ 4,621
Receivables 24,775 25,293
Inventory 48,261 42,112
Prepaid expenses 562 632
Deferred income taxes 580 392
------------------------
Total current assets 96,474 73,050
Property and equipment, net 4,792 4,413
Goodwill, net 32,614 33,009
Other assets, net 2,572 2,773
------------------------
Total assets $ 136,452 $ 113,245
========================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 20,266 $ 15,132
Accrued expenses and other current liabilities 6,078 7,907
Current portion of long-term debt 6,743 15,409
------------------------
Total current liabilities 33,087 38,448
Deferred income taxes 3,584 2,119
Long-term debt, less current portion 33,146 35,868
Stockholders' equity:
Preferred stock, $.01 par value; 100,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $.001 par value; 10,000,000 shares authorized;
7,740,060 and 6,334,214 shares issued and outstanding at
December 31, 1997 and 1996, respectively 8 6
Additional paid-in capital 52,352 29,585
Retained earnings 14,275 7,219
------------------------
Total stockholders' equity 66,635 36,810
------------------------
Total liabilities and stockholders' equity $ 136,452 $ 113,245
========================
See accompanying notes.
F-3
SCP Pool Corporation
Consolidated Statements of Income
(In thousands, except per share data)
Year ended December 31
1997 1996 1995
-----------------------------------------
Net sales $335,022 $235,844 $161,095
Cost of sales 261,645 183,814 123,974
-----------------------------------------
Gross profit 73,377 52,030 37,121
Warehouse expense 14,416 9,611 6,957
Selling and administrative expenses 42,355 31,139 19,907
Goodwill amortization 885 793 735
-----------------------------------------
Operating income 15,721 10,487 9,522
Other income (expense):
Interest expense (4,482) (3,176) (5,113)
Amortization expense (708) (698) (610)
Management fees paid to majority stockholder - - (208)
Miscellaneous income, net 852 823 228
-----------------------------------------
(4,338) (3,051) (5,703)
-----------------------------------------
Income before income taxes and extraordinary loss 11,383 7,436 3,819
Income taxes 4,327 2,903 1,490
-----------------------------------------
Income before extraordinary loss 7,056 4,533 2,329
Extraordinary loss, net of applicable income taxes of $499 - - 750
-----------------------------------------
Net income $ 7,056 $ 4,533 $ 1,579
=========================================
Income per share of common stock:
Basic:
Income before extraordinary loss $ 1.10 $ .72 $ .78
Extraordinary loss - - .25
-----------------------------------------
Net income $ 1.10 $ .72 $ .53
=========================================
Diluted:
Income before extraordinary loss $ 1.07 $ .70 $ .75
Extraordinary loss - - .24
------------------------------------------
Net income $ 1.07 $ .70 $ .51
=========================================
Weighted average shares outstanding:
Basic 6,418 6,334 2,972
=========================================
Diluted 6,591 6,510 3,114
=========================================
See accompanying notes.
F-4
SCP Pool Corporation
Consolidated Statements of Stockholders' Equity
(In thousands)
Class A Class B Additional
Common Stock Common Stock Common Stock Paid-In Retained
Shares Amount Shares Amount Shares Amount Capital Earnings Total
--------------------------------------------------------------------------------------------
Balance at January 1, 1995 - $- 1,275,361 $ 1 72 - $ 1,929 $ 1,107 $ 3,037
Common stock issued - - 36,730 - - - 300 - 300
Recapitalization 3,104 3 (1,312,091) (1) (72) - 7,198 - 7,200
Initial public offering 3,080 3 - - - - 19,181 - 19,184
Exercise of overallotment
option 150 - - - - - 977 - 977
Net income - - - - - - - 1,579 1,579
--------------------------------------------------------------------------------------------
Balance at December 31, 1995 6,334 6 - - - - 29,585 2,686 32,277
Net income - - - - - - - 4,533 4,533
--------------------------------------------------------------------------------------------
Balance at December 31, 1996 6,334 6 - - - - 29,585 7,219 36,810
Common stock issued 1,350 2 - - - - 22,556 - 22,558
Exercise of stock option 27 - - - - - 182 - 182
Conversion of convertible debt 29 - - - - - 29 - 29
Net income - - - - - - - 7,056 7,056
--------------------------------------------------------------------------------------------
Balance at December 31, 1997 7,740 $8 - $ - - - $52,352 $14,275 $66,635
============================================================================================
See accompanying notes.
F-5
SCP Pool Corporation
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31
1997 1996 1995
--------------------------------
Operating activities
Net income $ 7,056 $ 4,533 $ 1,579
Adjustments to reconcile net income to net cash provided by
operating activities:
Write-off of loan financing fees - - 1,249
Depreciation and amortization 2,553 2,503 2,069
Provision for doubtful accounts receivable, net of write-offs 544 388 506
Provision for inventory obsolescence, net of write-offs 447 (86) 678
Provision for deferred income taxes 1,277 1,029 935
Loss (gain) on sale of property and equipment (28) 155 13
Changes in operating assets and liabilities, net of effects
of acquisitions and disposals:
Accounts receivable (26) (12,571) (3,686)
Inventory (7,086) 4,877 (3,667)
Prepaid expenses and other assets (437) 31 (790)
Accounts payable 5,115 2,638 1,981
Accrued expenses and other current liabilities (2,143) 4,129 (88)
--------------------------------
Net cash provided by operating activities 7,272 7,626 779
Investing activities
Acquisition of businesses - (1,664) (11,108)
Purchase of property and equipment (1,105) (788) (866)
Proceeds from sale of property and equipment 127 73 127
--------------------------------
Net cash used in investing activities (978) (2,379) (11,847)
Financing activities
Net borrowings (repayments) of revolving loan 4,050 (1,000) 6,615
Proceeds from long-term debt - - 7,200
Payments on long-term debt (15,409) (1,669) (21,799)
Issuance of common stock 22,740 - 20,461
Payment of debt prepayment premium - - (210)
--------------------------------
Net cash provided by (used in) financing activities 11,381 (2,669) 12,267
--------------------------------
Change in cash and cash equivalents 17,675 2,578 1,199
Cash and cash equivalents at beginning of year 4,621 2,043 844
--------------------------------
Cash and cash equivalents at end of year $ 22,296 $ 4,621 $ 2,043
================================
Supplemental cash flow information
Cash paid (received) during the year for:
Interest $ 4,424 $ 3,279 $ 5,883
================================
Income taxes, net of refunds $ 4,508 $ (561) $ (33)
================================
Supplemental disclosure of noncash investing and financing
activities
Long-term debt issued to acquire businesses $ - $ 31,846 $ 2,650
================================
Long-term debt reduced through sale of business $ - $ 4,376 $ -
================================
See accompanying notes.
F-6
SCP Pool Corporation
Notes to Consolidated Financial Statements
December 31, 1997
1. Organization and Summary of Significant Accounting Policies
Description of Business
SCP Pool Corporation and its wholly owned subsidiaries (collectively referred to
as the Company), after considering the affects of the January 1998 acquisition
discussed below, maintain 85 service centers in 30 states located throughout
the United States, from which they sell swimming pool equipment and supplies to
pool builders, retail stores, and service firms.
In September 1996, the Company acquired certain assets, primarily inventory and
property and equipment, of The B-L Network, Inc. (BLN), a wholesaler of swimming
pool supplies with 39 service centers in 12 states. $31.8 million of the
aggregate purchase price was financed by BLN, with the remaining $2.7 million
representing liabilities assumed (see Note 6) and other costs incurred by the
Company. This acquisition has been accounted for using the purchase method of
accounting and the results of operations have been included in the accompanying
consolidated financial statements since the date of acquisition.
Unaudited pro forma results of operations of the Company for the years ended
December 31, 1996 and 1995, giving effect to the BLN acquisition as if it had
occurred as of January 1, 1995, are as follows (in thousands, except per share
data):
1996 1995
-------------------------
Net sales $364,702 $301,983
Gross profit $ 74,388 $ 64,512
Operating income $ 10,095 $ 9,619
Income before extraordinary loss $ 3,098 $ 1,198
Net income $ 3,098 $ 448
Net income per share:
Basic $ .49 $ .15
Diluted $ .48 $ .15
The unaudited pro forma consolidated results of operations for the years ended
December 31, 1996 and 1995 include pro forma adjustments for the incremental
increase or decrease in amortization of goodwill and other intangible assets,
interest expense, and income taxes associated with the acquisition. It does not
reflect the anticipated savings in purchasing costs at BLN during the periods
presented, nor does it reflect cost savings from the closure of certain BLN
service centers.
F-7
SCP Pool Corporation
Notes to Consolidated Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
In January 1998, the Company acquired substantially all of the assets and
assumed certain liabilities of Bicknell Huston Distributors, Inc. (Bicknell),
which distributes swimming pool supplies and related products through its eleven
service centers in six northeastern states, for a purchase price of
approximately $21.0 million, which was paid in cash. This acquisition was
accounted for using the purchase method of accounting.
Principles of Consolidation
The consolidated financial statements include the accounts of SCP Corporation
and its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Seasonality and Weather
The Company's business is highly seasonal. Sales are substantially lower during
the first and fourth quarters of the year, when the Company may incur net
losses. The principal external factor affecting the Company's business is
weather. Unseasonably early or late warming trends can increase or decrease the
length of the pool season and unseasonably cool weather or extraordinary
rainfall during the peak season can decrease swimming pool use, installation and
maintenance, each of which can adversely affect the Company's sales and
operating profit.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
F-8
SCP Pool Corporation
Notes to Consolidated Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Credit Risk
The Company performs periodic credit evaluations of its customers and generally
does not require collateral. Receivables are generally due within 30 days,
except for winter sales under early-buy programs for which extended terms are
given. Credit losses have been within management's expectations.
Inventory
Inventory consists primarily of goods purchased for resale and are carried at
the lower of cost, using the average cost method, or market. At December 31,
1997 and 1996, the reserve for inventory obsolescence was approximately
$2,161,000 and $1,714,000, respectively. The reserve for inventory obsolescence
at each service center is based upon a number of factors, including the
experience of the manager at the service center, the previous inventory
management operating performance of the service center, geographical location,
product offerings, and other factors. The Company believes that the reserve for
inventory obsolescence may periodically require adjustment as the factors
identified above change.
Property and Equipment
Property and equipment is stated at cost. The Company provides for depreciation
principally by the straight-line method over estimated useful lives of three
years for autos and trucks, five to ten years for leasehold improvements, and
ten years for furniture and fixtures and machinery and equipment. Depreciation
expense was approximately $990,000, $1,012,000 and $724,000 in 1997, 1996 and
1995, respectively.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized over 40 years. At December 31, 1997 and 1996,
accumulated amortization was approximately $3,096,000 and $2,211,000,
respectively. The recoverability of goodwill is assessed periodically and takes
into account whether the goodwill should be completely or partially written off
or the amortization period accelerated. In evaluating the value and future
benefits of goodwill, the recoverability from operating income is measured.
Under this approach, the carrying value of goodwill would be reduced if it is
probable that management's best estimate of future operating income before
goodwill amortization will be less than the carrying amount of goodwill over the
remaining amortization period. The Company assesses long-lived assets for
impairment under FASB Statement No. 121, "Accounting for Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" (FAS 121). Under those
rules, goodwill associated with assets acquired in a purchase business
combination is included in impairment evaluations when events or circumstances
exist that indicate the carrying amounts of those assets may not be recoverable.
F-9
SCP Pool Corporation
Notes to Consolidated Financial Statements (continued)
1. Organization and Summary of Significant Accounting Policies (continued)
Other Assets
Loan financing fees are being amortized over the term of the related debt. The
noncompete agreement and organization costs are being amortized over five years.
Income Taxes
Deferred income taxes are determined by the liability method in accordance with
Statement of Financial Accounting Standards (FAS) No. 109, "Accounting for
Income Taxes." Under this method, deferred tax assets and liabilities are
determined based on differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
Stock Compensation Arrangements
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees."
F-10
SCP Pool Corporation
Notes to Consolidated Financial Statements (continued)
2. Details of Certain Balance Sheet Accounts
Additional information regarding certain balance sheet accounts is presented
below (in thousands):
December
1997 1996
-----------------------
Receivables:
Trade accounts, less allowance of $1,938 in 1997
and $1,394 in 1996 $ 19,300 $21,578
Vendor rebates 4,274 1,451
Other 1,201 2,264
-----------------------
$ 24,775 $25,293
=======================
Property and equipment:
Land $ 429 $ 475
Building 1,001 622
Autos and trucks 156 264
Machinery and equipment 1,485 1,411
Furniture and fixtures 3,434 2,648
Leasehold improvements 508 565
-----------------------
7,013 5,985
Less accumulated depreciation 2,221 1,572
-----------------------
$ 4,792 $ 4,413
=======================
Other assets:
Loan financing fees $ 2,453 $ 2,071
Noncompete agreement 500 500
Organization costs 1,366 1,168
Other 282 347
-----------------------
4,601 4,086
Less accumulated amortization 2,029 1,313
-----------------------
$ 2,572 $ 2,773
=======================
Accrued expenses and other current liabilities:
Salaries, bonuses, and commissions $ 2,880 $ 3,586
Income taxes payable 310 1,883
Other 2,888 2,438
-----------------------
$ 6,078 $ 7,907
=======================
F-11
SCP Pool Corporation
Notes to Consolidated Financial Statements (continued)
3. Debt
The components of the Company's debt were as follows (in thousands):
December 31
1997 1996
---------------------
Senior Revolving Note, variable rate (effective
interest rate of 8.5% at December 31, 1997), due in
2002 $16,050 $12,000
Senior Term Note, variable rate (effective interest
rate of 8.5% at December 31, 1997), payable in
quarterly installments of variable amounts through
2002 21,000 24,000
Promissory Notes to BLN, interest rate of 6%, payable
in monthly installments of variable amounts through
1998 1,859 13,384
8% Subordinated Notes, payable in annual installments
of $884,000 through 1998 884 1,768
10% Convertible Notes, due in 2002 96 125
---------------------
Less current portion 39,889 51,277
6,743 15,409
---------------------
$33,146 $35,868
=====================
Maturities of long-term debt for the five succeeding years are $6,743,000 in
1998, $5,000,000 in 1999, $5,000,000 in 2000, $5,000,000 in 2001 and $18,146,000
in 2002.
The credit agreements include, among other things, covenants which require the
Company to maintain minimum levels of interest coverage and fixed charge
coverage and restrict the Company's ability to pay dividends and make capital
expenditures. At December 31, 1997, the Company was in compliance with all such
covenants. Substantially all of the assets of the Company are pledged as
collateral for the Senior Revolving Note and the Senior Term Note. Available
credit under the Senior Revolving Note considering amounts currently
outstanding, is approximately $49.0 million, subject to an accounts receivable
and inventory borrowing base limit. At December 31, 1997, the unused available
credit under the Senior Revolving Note was approximately $15.5 million. The
Company pays a quarterly commitment fee of .5% per annum of the unused portion
of available credit under the Senior Revolving Note.
F-12
SCP Pool Corporation
Notes to Consolidated Financial Statements (continued)
3. Debt (continued)
The Convertible Notes may be converted at any time through December 31, 2002
into shares of the Company's common stock at a conversion price of $.98 per
share. At December 31, 1997, the conversion of these notes would result in the
issuance of 98,166 shares of the Company's common stock. Such shares have been
reserved by the Company.
The carrying amount of long-term debt approximates fair value. The fair value of
long-term debt was estimated using a discounted cash flow analysis based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements.
The net proceeds of the Company's initial public offering were used primarily to
reduce indebtedness and resulted in an extraordinary charge, net of tax in 1995
of approximately $750,000 ($.25 per share) for the write-off of loan financing
fees and a prepayment premium associated with extinguishing such indebtedness.
4. Income Taxes
Significant components of the Company's deferred tax liabilities and assets were
as follows (in thousands):
December 31
1997 1996
-----------------
Deferred tax liabilities: $3,544 $2,094
Goodwill 157 45
Trade discounts on purchases 205 119
Prepaid expenses 906 383
Other -----------------
4,812 2,641
Total deferred tax liabilities
Deferred tax assets: 764 134
Inventory 736 544
Allowance for doubtful accounts 308 236
-----------------
Other 1,808 914
Total deferred tax assets -----------------
$3,004 $1,727
Net deferred tax liabilities =================
F-13
SCP Pool Corporation
Notes to Consolidated Financial Statements (continued)
4. Income Taxes (continued)
Significant components of income taxes, before the income tax effect of the
extraordinary loss, were as follows (in thousands):
December 31
1997 1996 1995
---------------------
Current:
Federal $2,644 $1,634 $ 484
State 406 240 70
----------------------
3,050 1,874 554
Deferred:
Federal 1,142 898 816
State 135 131 120
----------------------
1,277 1,029 936
----------------------
Total $4,327 $2,903 $1,490
======================
The reconciliation of income taxes computed at the federal statutory rates to
income taxes, before the income tax effect of the extraordinary loss,
was (in thousands):
December 31
1997 1996 1995
----------------------
Tax at statutory rates $3,884 $2,528 $1,298
Other, primarily state income taxes 443 375 192
----------------------
Total $4,327 $2,903 $1,490
======================
5. Common Stock and Earnings Per Share
In September 1997, the board of directors declared a three-for-two stock split
of the Company's common stock, which was paid in the form of a stock
distribution on September 29, 1997 to the stockholders of record at the close of
business on September 15, 1997. Accordingly, shares, per-share data and
related capital amounts for all periods presented reflect the effects of this
split.
In connection with the Company's initial public offering of its common stock in
October 1995, a recapitalization occurred which included (i) the conversion of
all outstanding shares of the Company's Class B common stock to Class A common
stock, (ii) the exchange of $7,200,000 of Junior Subordinated Notes for Class A
common stock, (iii) reclassification of the Company's Class A common stock to
common stock, and (iv) a stock split in the ratio of approximately 2.04-to-1.
F-14
SCP Pool Corporation
Notes to Consolidated Financial Statements (continued)
5. Common Stock and Earnings Per Share (continued)
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share." Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements.
In accordance with FAS 128, the Company has presented basic earnings per share,
computed on the basis of the weighted average number of shares outstanding
during the period, and diluted earnings per share, computed on the basis of the
weighted average number of shares and all dilutive potential shares outstanding
during the year. A reconciliation between basic and diluted weighted average
number of shares outstanding and the related earnings per share calculation is
presented below for each of the years ended December 31:
1997 1996 1995
-------------------------------------
Numerator:
Net income before extraordinary loss $7,056 $4,533 $2,329
Adjustment for interest expense, net of tax,
on convertible notes 8 8 8
-------------------------------------
Numerator for diluted earnings per share $7,064 $4,541 $2,337
=====================================
Denominator:
Denominator for basic earnings per share--
weighted-average shares 6,418 6,334 2,972
Effect of dilutive securities:
Employee stock options 62 48 14
Convertible notes 111 128 128
-------------------------------------
Denominator for diluted earnings per share 6,591 6,510 3,114
=====================================
Basic earnings per share before extraordinary loss $ 1.10 $ .72 $ .78
=====================================
Diluted earnings per share before extraordinary loss $ 1.07 $ .70 $ .75
=====================================
F-15
SCP Pool Corporation
Notes to Consolidated Financial Statements (continued)
6. Commitments and Contingencies
The Company leases facilities for its service centers and corporate office and
vehicles under noncancelable operating leases that expire in various years
through 2009 but which have options to extend for various terms. Rental expense
under such operating leases was approximately $7,747,000 in 1997, $4,815,000 in
1996 and $3,174,000 in 1995. The future minimum lease payments as of December
31, 1997 related to noncancelable operating leases with initial terms of one
year or more are set forth below (in thousands):
1998 $ 5,591
1999 4,799
2000 3,320
2001 1,617
2002 903
Thereafter 1,489
-------
$17,719
=======
In connection with the acquisition of BLN, the Company recorded liabilities at
the date of acquisition of approximately $1,200,000 for lease buyouts, occupancy
costs and employee termination costs related to the planned closing of 16
acquired facilities. During 1997, the Company recorded an additional increase of
approximately $333,000 to goodwill for expected additional lease buyouts and
occupancy costs related to these acquired facilities. As of December 31, 1997,
the Company has closed all of the above-mentioned facilities, having paid
$513,000 of such liabilities, and has a remaining accrual of approximately
$1,020,000 to settle the remaining leases.
In connection with the acquisition of BLN in 1996, the Company entered into
certain vendor supply agreements which require the Company to purchase a
certain percentage of its annual requirements for certain products at prices
defined by the supply agreement. These supply agreements have an initial term
which expires September 26, 2001, with an indefinite number of three-year
renewal periods until terminated by either party.
In the normal course of business, the Company becomes involved as a defendant or
plaintiff in various lawsuits. Although a successful claim for which the Company
is not fully insured could have a material effect on the Company's financial
condition, management is of the opinion that it maintains insurance coverage at
levels generally consistent with industry standards to insure itself against the
normal risks of operations.
F-16
SCP Pool Corporation
Notes to Consolidated Financial Statements (continued)
7. Employee Benefit Plans
The Company's employees participate in a Company-sponsored savings and
retirement plan which provides for discretionary Company contributions under a
profit-sharing provision. Employees who are eligible to participate in the
savings plan are able to contribute a percentage of their base compensation not
to exceed 10%, subject to a dollar limit. The Company contributes an amount
equal to 25% of employee contributions up to 6% of their base compensation.
Employee contributions are invested in certain equity and fixed income
securities based on employee elections. Matching contributions and profit-
sharing contributions made by the Company were $197,000 and $934,000,
respectively, in 1997, $113,000 and $650,000, respectively, in 1996, and $77,000
and $485,000, respectively, in 1995.
8. Stock Option Plans
In 1995, the Company's board of directors adopted the 1995 Stock Option Plan
under which the board of directors is authorized to grant, at its discretion, to
employees, agents, consultants or independent contractors of the Company,
options to purchase shares of common stock. The number of shares granted under
this plan is limited to an aggregate amount of 600,000. Granted options have an
exercise price of not less than the fair market value of the stock on the date
of grant. Options generally are exercisable two years after the date of grant
and expire December 31, 2003.
In April 1996, the Company's board of directors adopted the SCP Pool Corporation
Non-Employee Directors Equity Incentive Plan, under which the Company grants to
each nonemployee director options to purchase shares of the Company's common
stock. The number of shares granted under this plan is limited to an aggregate
amount of 300,000. The options will have an exercise price of not less than the
fair market value of the stock on the date of grant, and generally are
exercisable one year after the date of grant and expire December 31, 2003.
F-17
SCP Pool Corporation
Notes to Consolidated Financial Statements (continued)
8. Stock Option Plans (continued)
FASB Statement No. 123,"Accounting for Stock-Based Compensation", requires the
Company to disclose pro forma information regarding net income and earnings per
share as if the Company had accounted for its employee stock options under the
fair value method. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions:
1997 1996 1995
-------------------------------------
Risk-free interest rate 6.2% 6.7% 5.9%
Expected dividend yield - - -
Expected volatility .38 .32 .32
Weighted average expected life 4.1 years 3.4 years 2.5 years
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. As the Company
accounts for stock compensation under APB 25, no compensation cost has been
recognized for its stock options in the financial statements. Had the Company's
stock-based compensation plan been determined based on the fair value at the
grant dates, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below (in thousands, except per share
data):
1997 1996 1995
----------------------------
Pro forma net income $6,632 $4,392 $1,568
Pro forma earnings per share:
Basic Primary $ 1.03 $ .69 $ .53
Diluted Fully diluted $ 1.01 $ .68 $ .51
F-18
SCP Pool Corporation
Notes to Consolidated Financial Statements (continued)
8. Stock Option Plans (continued)
A summary of the Company's stock option activity and related information for the
plans described above is as follows:
1997 1996 1995
------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------------------------------------------------------
Outstanding--Beginning of year 168,801 $ 6.82 46,926 $3.43 - $ -
Granted 150,750 13.87 121,875 8.13 46,926 3.43
Exercised 26,523 3.43 - - - $ 3.43
------- ------- ------
Outstanding--End of year 293,028 $10.75 168,801 $6.82 46,926 $ -
======= ======= ======
Exercisable at end of year 110,403 $ 9.06 45,000 $7.50 -
======= ======= ======
Weighted average fair value of
options granted during the year $ 5.46 $ 2.41 $ 0.92
======= ======= ======
Exercise prices for options outstanding as of December 31, 1997 ranged from
$3.43 to $15.25, and had a weighted average remaining contractual life of 5.9
years.
F-19
SCP Pool Corporation
Notes to Consolidated Financial Statements (continued)
9. Quarterly Financial Data (Unaudited)
The following is a tabulation of the Company's unaudited quarterly results of
operations for the years ended December 31, 1997 and 1996 (in thousands, except
per share data):
Quarter Ended
3/97 6/97 9/97 12/97 3/96 6/96 9/96 12/96
-----------------------------------------------------------------------------------------------
Net sales $63,565 $124,907 $98,492 $48,175 $41,145 $85,867 $62,344 $46,488
Gross profit 13,960 28,159 21,460 9,798 9,273 20,042 13,531 9,184
Net income (loss) (603) 6,394 3,471 (2,206) 78 5,615 2,168 (3,328)
Net income (loss)
per share:
Basic $ (.10) $ 1.01 $ .54 $ (.33) $ .01 $ .89 $ .34 $ (.53)
Diluted (.10) .99 .53 (.33) .01 .87 .34 (.53)
The 1996 and first three quarters of 1997 earnings per share amounts have been
restated to comply with Statement of Financial Accounting Standards No. 128,
"Earnings per Share." As a result of differences in the way in-the-money stock
options are considered from quarter-to-quarter under the requirements of FAS
128, diluted EPS for annual periods may not equal the sum of the individual
quarter's diluted EPS amount.
F-20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 March 25, 1998.
SCP POOL CORPORATION
By: /S/ WILSON B. SEXTON
--------------------------------
Wilson B. Sexton, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on March 25, 1998.
Signature Title
--------- -----
/S/ WILSON B. SEXTON Chairman and Director
- ------------------------
Wilson B. Sexton
/S/ FRANK J. ST. ROMAIN President, Chief Executive Officer and Director
- ------------------------
Frank J. St. Romain
/S/ CRAIG K. HUBBARD Chief Financial Officer, Treasurer and Secretary
- ------------------------
Craig K. Hubbard
/S/ ANDREW W. CODE Director
- ------------------------
Andrew W. Code
/S/ PETER M. GOTSCH Director
- ------------------------
Peter M. Gotsch
/S/ DOMINICK DEMICHELE Director
- ------------------------
Dominick DeMichele
/S/ ROBERT C. SLEDD Director
- ------------------------
Robert C. Sledd
Sequential
Exhibit Page
Number Document Description Number
- ------- -------------------- ------
3.1 Restated Certificate of Incorporation of the Company. (1)
3.2 Restated Bylaws of the Company. (1)
4.1 Form of certificate representing shares of Common Stock of the Company. (1)
4.2 Credit Agreement, dated as of December 31, 1993, by and among South Central Pool (1)
Supply, Inc. (previously known as SCP Acquisition Corp.), The First National Bank of
Chicago, as agent, and various lenders from time to time party thereto.
4.3 Amendment No. 1 to Credit Agreement, dated as of September 1, 1994, by and among (1)
South Central Pool Supply, Inc. ("SCP Supply"), The First National Bank of Chicago,
as agent, and various lenders from time to time party thereto.
4.4 Amendment No. 2 to Credit Agreement, dated as of January 20, 1995, by and among (1)
SCP Supply, The First National Bank of Chicago, as agent, and various lenders from
time to time party thereto.
4.5 Amendment No. 3 to Credit Agreement, dated as of February 28, 1995, by and among (1)
South Central Pool Supply, Inc., The First National Bank of Chicago, as agent, and
various lenders from time to time party thereto.
10.1 Asset Purchase Agreement, dated as of December 31, 1993, by and among the (1)
Company, SCP Acquisition Corp., and South Central Pool Supply, Inc.
10.2 Registration Agreement, dated as of December 31, 1993, by and among the Company, (1)
CHS, various management and outside investors, Berkeley Atlantic Income Limited,
BG Services Limited, and PNC Equity Management Corp.
10.3 Asset Purchase Agreement, dated as of January 4, 1994, by and between Aqua Fab (1)
Industries, Inc. and South Central Pool Supply, Inc.
10.4 Amendment No. 1 to Asset Purchase Agreement, dated as of January 7, 1994, by and (1)
among Aqua Fab Industries, Inc. and South Central Pool Supply Industries, Inc.
10.5 Amendment No. 2 to Asset Purchase Agreement, dated as of January 18, 1994, by and (1)
among Aqua Fab Industries, Inc. and South Central Pool Supply, Inc.
10.6 Amendment No. 3 to Asset Purchase Agreement, dated as of February 17, 1994, by and (1)
among Aqua Fab Industries, Inc. and South Central Pool Supply, Inc.
10.7 Asset Purchase Agreement, dated as of January 20, 1995, by and among Alliance (1)
Packaging, Inc., York Chemical Corporation and Wexco Incorporated.
10.8 Stock Purchase Agreement, dated as of February 15, 1995, by and among the Company, (1)
Orcal Pool Supplies, Inc. and Ronald Hetzner.
10.9 Agreement, dated as of March 31, 1992, by and between Wexco and W.B. Sexton. (1)
10.10 Patent Assignment, dated as of January 20, 1995, between Wexco Incorporated and (1)
Alliance Packaging, Inc.
10.11 Management Agreement, dated as of December 31, 1993, by and between CHS (1)
Management Limited Partnership, an Illinois limited partnership, and SCP Acquisition
Corp.
10.12 Management Agreement, dated as of February 28, 1995, by and between SCP Supply (1)
and Ronald Hetzner.
10.13 SCP Pool Corporation 1995 Stock Option Plan.* (1)
10.14 Form of Individual Stock Option Agreement.* (1)
10.15 Form of Convertible Subordinated Note dated as of December 31, 1993 issued by SCP (1)
Holding Corp.
Sequential
Exhibit Page
Number Document Description Number
- ------- -------------------- ------
10.16 Form of Junior Subordinated Note, dated as of December 31, 1993, issued by SCP (1)
Holding Corp.
10.17 Form of Executive Securities Agreement, dated as of December 31, 1993, among SCP (1)
Holding Corp., Code Hennessy & Simmons Limited Partnership and certain executives.
10.18 Form of Lease, dated as of February 28, 1995, by and between Ronald Hetzner and (1)
South Central Pool Supply, Inc.
10.19 Lease, dated as of November 8, 1993, by and between Northpark Alliance, LLC and (1)
South Central Pool Supply, Inc.
10.20 Lease, dated as of November 7, 1991, by and between St. Romain Children's Trust and (1)
South Central Pool Supply, Inc.
+10.21 Sales Agreement, dated as of October 1, 1993, between PPG Industries, Inc. and SCP (1)
Supply.
10.22 Asset Purchase Agreement, dated as of September 7, 1995, by and among SCP Supply, (2)
Aman Enterprises, Inc., Stephen Aman and Walter Aman.
10.23 Stock Purchase Agreement, dated as of November 10, 1995, by and among SCP (2)
Supply, Steven Portnoff Corporation and Steven Portnoff
10.24 Asset Purchase Agreement, dated as of December 12, 1995, by and among SCP Supply, (2)
Pool Mart of Nevada, Inc., Robert Portnoff, Sarah Portnoff and Steven Portnoff
10.25 SCP Pool Corporation 1996 Non-Employee Director Equity Incentive Plan* (2)
10.26 Second Amended and Restated Credit Agreement, dated as of September 26, 1996, (3)
among South Central Pool Supply, Inc., the First National Bank of Chicago and the
Institutions party thereto as lenders
10.27 Asset Purchase Agreement, dated as of September 26, 1996, among South Central Pool (3)
Supply, Inc., SCP Pool Corporation, The B-L Network, Inc. and Bio-Lab, Inc.
10.28 Asset Purchase Agreement, dated as of September 26, 1996, among Alliance (3)
Packaging, Inc., SCP Pool Corporation, South Central Pool Supply, Inc. and Bio-Lab,
Inc.
+ 10.29 Supply Agreement, among Bio-Lab, Inc., South Central Pool Supply, Inc., and SCP (3)
Pool Corporation
+ 10.30 Supply Agreement, dated as of September 26, 1996, among Bio-Lab, Inc., South (3)
Central Pool Supply, Inc., and SCP Pool Corporation
++10.31 Asset Purchase Agreement, dated as of November 13, 1997, among SCP Pool (4)
Corporation, South Central Pool Supply, Inc., Bicknell Huston Distributors, Inc.,
Pacific Industries, Inc. and Cookson America, Inc.
10.32 Third Amended and Restated Credit Agreement, dated as of December 31, 1997, by and
among South Central Pool Supply, Inc., the institutions from time to time party thereto
as lenders, LaSalle National Bank, as Agent and Co-Arranger and Hibernia National
Bank as Co-Arranger.
10.33 Amendment, dated December 31, 1997, to the Asset Purchase Agreement, dated as of
November 13, 1997, among SCP Pool Corporation, South Central Pool Supply, Inc.,
Bicknell Huston Distributors, Inc., Pacific Industries, Inc. and Cookson America, Inc.
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
- ----------
+ Confidential Treatment Granted.
++ Confidential Treatment Granted for portions of Exhibit C to this Agreement.
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the respective exhibit to the Company's
Registration Statement No. 33-92738.
(2) Incorporated by reference to the respective exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(3) Incorporated by reference to the respective exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1996.
(4) Incorporated by reference to the respective exhibit to the Company's
Registration Statement No. 333-40245.