POOL CORP - FORM 8-K - EX-99.1 - POOL Q2 2012 EARNINGS RELEASE

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8-K - POOL Q2 2012 EARNINGS RELEASE FORM 8-K - POOL CORP	poolq22012er8k.htm

Exhibit 99.1

FOR IMMEDIATE RELEASE

POOL CORPORATION REPORTS RECORD SECOND QUARTER RESULTS

AND TIGHTENS 2012 EARNINGS GUIDANCE RANGE

Highlights for the quarter include:

·	Sales growth of 7%, including 5% from base business

·	10% increase in operating income

·	13% increase in diluted EPS to a record $1.34

·	Updated 2012 earnings guidance range to $1.75 - $1.82 per diluted share

______________________

COVINGTON, LA. (July 19, 2012) – Pool Corporation (NASDAQ/GSM:POOL) today reported results for the second quarter of 2012.

“Overall, second quarter sales and earnings were in line with expectations. We had much stronger comparative results in both April and May as the season peaked earlier than normal in 2012 due to the unusually mild winter, while June results reflected the shift of sales into the first and early second quarter,” said Manuel Perez de la Mesa, President and CEO.

Net sales for the quarter ended June 30, 2012 increased 7% to $757.2 million, compared to $706.4 million in the second quarter of 2011. Base business sales were up 5% despite a 1% unfavorable impact from currency fluctuations. Base business sales grew 5% on the swimming pool side of the business and 11% on the irrigation side of the business, with growth attributed to market share gains, higher consumer discretionary expenditures, the larger installed base of pools and price inflation.

Gross profit for the second quarter of 2012 improved 5% to $222.4 million from $211.4 million in the comparable 2011 period. Gross profit as a percentage of net sales (gross margin) declined 50 basis points to 29.4% in the second quarter of 2012. The decrease in gross margin reflects competitive pricing pressures, a difficult comparison given the benefit last year from the impact of 2011 mid-year vendor price increases, and unfavorable changes in customer mix.

Selling and administrative expenses (operating expenses) increased less than 1% to $114.3 million in the second quarter of 2012 compared to the same period in 2011. Base business operating expenses were down 2% compared to the second quarter of 2011, as a decrease in employee incentive costs and the impact of currency fluctuations on expenses more than offset a slight increase in other variable costs related to sales growth and higher professional fees and marketing expenses.

Operating income increased 10% to $108.1 million from $97.9 million in the comparable 2011 period, despite a 1% unfavorable impact from currency fluctuations. Operating income as a percentage of net sales (operating margin) increased 40 basis points to 14.3% for the second quarter of 2012 compared to the same period in 2011. Interest expense, net was up $0.4 million quarter over quarter due primarily to higher average debt levels.

Net income increased 11% to $64.9 million in the second quarter of 2012 compared to $58.6 million in the second quarter of 2011, while earnings per share was up 13% to $1.34 per diluted share versus $1.19 per diluted share for the second quarter in 2011. Diluted EPS for the second quarter of 2012 included a negative impact of approximately $0.01 related to foreign currency fluctuations.

Net sales for the six months ended June 30, 2012 increased 10% to $1,119.1 million from $1,019.3 million in the comparable 2011 period. This growth included a 7% improvement in base business sales, which was partially offset by a 1% unfavorable foreign currency impact. Gross margin decreased 50 basis points to 29.2% in the first half of 2012 from 29.7% for the same period last year.

Operating expenses were up 4% compared to the first half of 2011, including a 1% increase in base business operating expenses. Operating income for the first six months of 2012 increased 16% to $114.2 million compared to $98.5 million in the same period last year.

Earnings per share for the first six months of 2012 increased 21% to $1.42 per diluted share on net income of $68.6 million, compared to $1.17 per diluted share on net income of $57.9 million in the comparable 2011 period. Diluted EPS for the first six months of 2012 included a negative impact of approximately $0.01 related to foreign currency fluctuations.

The balance sheet reflects solid working capital management, with increases compared to June 30, 2011 of just 2% in total net receivables and 3% in inventory levels including the impact from recent acquisitions. Total debt outstanding at June 30, 2012 was $309.8 million, up $3.8 million compared to June 30, 2011.

Cash provided by operations was $33.5 million in the first half of 2012 compared to cash used in operations of $18.9 million in the first half of 2011. This favorable change reflects a more normalized inventory purchase and payment cycle in 2012. In 2011, cash used in operations included payments for tactical inventory purchases made in advance of mid-year vendor price increases. Share repurchases in the first six months of 2012 totaled $42.1 million, or 1.2 million shares. Adjusted EBITDA (as defined in the addendum to this release) was $113.5 million in the second quarter of 2012 compared to $102.8 million in the second quarter of 2011, and $124.5 million for the six months ended June 30, 2012 compared to $107.8 million for the six months ended June 30, 2011.

“We are cautious about the outlook for the second half of the year given the early peak of the 2012 season coupled with uncertainty in the economic environment. As such, we have tightened our earnings guidance range to $1.75 to $1.82 per diluted share from our most recent guidance of $1.75 to $1.85 per diluted share. We still believe, however, that we have a good shot of achieving a third straight year with greater than 20% earnings per diluted share growth,” said Perez de la Mesa.

POOLCORP is the largest wholesale distributor of swimming pool and related backyard products. Currently, POOLCORP operates 308 sales centers in North America and Europe, through which it distributes more than 160,000 national brand and private label products to roughly 80,000 wholesale customers. For more information, please visit www.poolcorp.com.

This news release includes “forward-looking” statements that involve risk and uncertainties that are generally identifiable through the use of words such as “believe,” “expect,” “intend,” “plan,” “estimate,” “project” and similar expressions and include projections of earnings. The forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date of this release, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. Actual results may differ materially due to a variety of factors, including the sensitivity of our business to weather conditions, changes in the economy and the housing market, our ability to maintain favorable relationships with suppliers and manufacturers, competition from other leisure product alternatives and mass merchants and other risks detailed in POOLCORP’s 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

CONTACT:

Craig K. Hubbard

985.801.5117

craig.hubbard@poolcorp.com

POOL CORPORATION

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011

Net sales	$	757,175		$	706,423		$	1,119,129		$	1,019,312
Cost of sales		534,770			494,984			792,161			716,463
Gross profit		222,405			211,439			326,968			302,849
Percent		29.4	%		29.9	%		29.2	%		29.7	%

Selling and administrative expenses		114,271			113,518			212,813			204,352
Operating income		108,134			97,921			114,155			98,497
Percent		14.3	%		13.9	%		10.2	%		9.7	%

Interest expense, net		2,200			1,824			3,677			3,469
Income before income taxes and equity earnings		105,934			96,097			110,478			95,028
Provision for income taxes		41,018			37,670			42,055			37,251
Equity earnings in unconsolidated investments		27			150			171			162
Net income	$	64,943		$	58,577		$	68,594		$	57,939

Earnings per share:
Basic	$	1.38		$	1.21		$	1.45		$	1.19
Diluted	$	1.34		$	1.19		$	1.42		$	1.17
Weighted average shares outstanding:
Basic		47,142			48,231			47,330			48,546
Diluted		48,288			49,116			48,430			49,352

Cash dividends declared per common share	$	0.16		$	0.14		$	0.30		$	0.27

POOL CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

			June 30,		June 30,		Change
			2012		2011		$		%

Assets
Current assets:
	Cash and cash equivalents	$	50,311	$	37,218	$	13,093		35	%
	Receivables, net		270,089		266,032		4,057		2
	Product inventories, net		402,266		389,763		12,503		3
	Prepaid expenses and other current assets		8,437		7,692		745		10
	Deferred income taxes		11,737		10,211		1,526		15
Total current assets			742,840		710,916		31,924		4

Property and equipment, net			45,409		38,732		6,677		17
Goodwill			177,103		178,516		(1,413	)	(1	)
Other intangible assets, net			11,497		12,221		(724	)	(6	)
Equity interest investments			1,089		1,052		37		4
Other assets, net			29,076		29,113		(37	)	–
Total assets		$	1,007,014	$	970,550	$	36,464		4	%

Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable	$	267,990	$	247,904	$	20,086		8	%
	Accrued expenses and other current liabilities		87,614		79,794		7,820		10
	Current portion of long-term debt and other long-term liabilities		22		100,033		(100,011	)	(100	)
Total current liabilities			355,626		427,731		(72,105	)	(17	)

Deferred income taxes			32,139		26,151		5,988		23
Long-term debt			309,813		206,049		103,764		50
Other long-term liabilities			7,058		7,663		(605	)	(8	)
Total liabilities			704,636		667,594		37,042		6
Total stockholders’ equity			302,378		302,956		(578	)	–
Total liabilities and stockholders’ equity		$	1,007,014	$	970,550	$	36,464		4	%

__________________

1.	The allowance for doubtful accounts was $5.0 million at June 30, 2012 and $5.4 million at June 30, 2011.

2.	The inventory reserve was $9.6 million at June 30, 2012 and $7.5 million at June 30, 2011.

POOL CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

			Six Months Ended
			June 30,
			2012			2011			Change
Operating activities
Net income		$	68,594		$	57,939		$	10,655
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Depreciation		5,559			4,470			1,089
	Amortization		638			898			(260	)
	Share-based compensation		4,306			4,084			222
	Excess tax benefits from share-based compensation		(1,609	)		(2,021	)		412
	Equity earnings in unconsolidated investments		(171	)		(162	)		(9	)
	Other		1,248			(2,798	)		4,046
Changes in operating assets and liabilities, net of effects of acquisitions:
	Receivables		(157,829	)		(161,549	)		3,720
	Product inventories		(13,289	)		(40,962	)		27,673
	Prepaid expenses and other assets		2,612			17			2,595
	Accounts payable		88,946			78,192			10,754
	Accrued expenses and other current liabilities		34,516			42,953			(8,437	)
Net cash provided by (used in) operating activities			33,521			(18,939	)		52,460

Investing activities
Acquisition of businesses, net of cash acquired			(4,429	)		(2,637	)		(1,792	)
Purchase of property and equipment, net of sale proceeds			(9,520	)		(12,427	)		2,907
Other investments			(166	)		(113	)		(53	)
Net cash used in investing activities			(14,115	)		(15,177	)		1,062

Financing activities
Proceeds from revolving line of credit			345,631			345,049			582
Payments on revolving line of credit			(183,118	)		(237,700	)		54,582
Payments on long-term debt and other long-term liabilities			(100,012	)		(125	)		(99,887	)
Payments of deferred acquisition consideration			–			(500	)		500
Excess tax benefits from share-based compensation			1,609			2,021			(412	)
Proceeds from stock issued under share-based compensation plans			7,879			7,826			53
Payments of cash dividends			(14,223	)		(13,074	)		(1,149	)
Purchases of treasury stock			(43,866	)		(43,725	)		(141	)
Net cash provided by financing activities			13,900			59,772			(45,872	)
Effect of exchange rate changes on cash			(482	)		1,841			(2,323	)
Change in cash and cash equivalents			32,824			27,497			5,327
Cash and cash equivalents at beginning of period			17,487			9,721			7,766
Cash and cash equivalents at end of period		$	50,311		$	37,218		$	13,093

ADDENDUM

Base Business

The following table breaks out our consolidated results into the base business component and the excluded components (sales centers excluded from base business):

(Unaudited)		Base Business				Excluded				Total
(in thousands)		Three Months Ended				Three Months Ended				Three Months Ended
		June 30,				June 30,				June 30,
		2012		2011		2012		2011		2012		2011
Net sales	$	739,650	$	703,722	$	17,525	$	2,701	$	757,175	$	706,423

Gross profit		217,581		210,694		4,824		745		222,405		211,439
Gross margin		29.4	%	29.9	%	27.5	%	27.6	%	29.4	%	29.9	%

Operating expenses		110,329		112,539		3,942		979		114,271		113,518
Expenses as a % of net sales		14.9	%	16.0	%	22.5	%	36.2	%	15.1	%	16.1	%

Operating income (loss)		107,252		98,155		882		(234	)	108,134		97,921
Operating margin		14.5	%	13.9	%	5.0	%	(8.7	)%	14.3	%	13.9	%

(Unaudited)		Base Business				Excluded				Total
(in thousands)		Six Months Ended				Six Months Ended				Six Months Ended
		June 30,				June 30,				June 30,
		2012		2011		2012		2011		2012		2011
Net sales	$	1,090,447	$	1,015,387	$	28,682	$	3,925	$	1,119,129	$	1,019,312

Gross profit		318,856		301,751		8,112		1,098		326,968		302,849
Gross margin		29.2	%	29.7	%	28.3	%	28.0	%	29.2	%	29.7	%

Operating expenses		205,019		202,820		7,794		1,532		212,813		204,352
Expenses as a % of net sales		18.8	%	20.0	%	27.2	%	39.0	%	19.0	%	20.0	%

Operating income (loss)		113,837		98,931		318		(434	)	114,155		98,497
Operating margin		10.4	%	9.7	%	1.1	%	(11.1	)%	10.2	%	9.7	%

We have excluded the following acquisitions from base business for the periods identified:

Acquired (1)	Acquisition Date	Net Sales Centers Acquired	Periods Excluded
CCR Distribution	March 2012	1	March–June 2012
Ideal Distributors Ltd.	February 2012	4	February–June 2012
G.L. Cornell Company	December 2011	1	January–June 2012
Poolway Schwimmbadtechnik GmbH	November 2011	1	January–June 2012
The Kilpatrick Company, Inc.	May 2011	4	January–June 2012 and May–June 2011
Turf Equipment Supply Co.	December 2010	3	January–February 2012 and January–February 2011
Pool Boat and Leisure, S.A.	December 2010	1	January–February 2012 and January–February 2011

(1)	We acquired certain distribution assets of each of these companies.

We exclude the following sales centers from base business results for a period of 15 months (parenthetical numbers for each category indicate the number of sales centers excluded as of June 30, 2012):

·	acquired sales centers (see table above);

·	existing sales centers consolidated with acquired sales centers (0);

·	closed sales centers (0);

·	consolidated sales centers in cases where we do not expect to maintain the majority of the existing business (0); and

·	sales centers opened in new markets (3).

We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales. After 15 months of operations, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.

The table below summarizes the changes in our sales centers in the first half of 2012:

December 31, 2011	298
Acquired	5
New locations	5
June 30, 2012	308

Adjusted EBITDA

We define Adjusted EBITDA as net income or net loss plus interest expense, income taxes, depreciation, amortization, share-based compensation, goodwill and other non-cash impairments and equity earnings or loss in unconsolidated investments. Adjusted EBITDA is not a measure of cash flow or liquidity as determined by generally accepted accounting principles (GAAP). We have included Adjusted EBITDA as a supplemental disclosure because we believe that it is widely used by our investors, industry analysts and others as a useful supplemental liquidity measure in conjunction with cash flows provided by or used in operating activities to help investors understand our ability to provide cash flows to fund growth, service debt and pay dividends as well as compare our cash flow generating capacity from year to year.

We believe Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, cash flows provided by or used in operating, investing and financing activities or other income statement or cash flow statement line items reported in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.

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

(Unaudited)			Three Months Ended						Six Months Ended
(In thousands)			June 30,						June 30,
			2012			2011			2012			2011
Net income		$	64,943		$	58,577		$	68,594		$	57,939
	Add:
	Interest expense (1)		2,200			1,824			3,677			3,469
	Provision for income taxes		41,018			37,670			42,055			37,251
	Share-based compensation		2,205			2,192			4,306			4,084
	Equity earnings in unconsolidated investments		(27	)		(150	)		(171	)		(162	)
	Depreciation		2,895			2,263			5,559			4,470
	Amortization (2)		222			380			443			750
Adjusted EBITDA		$	113,456		$	102,756		$	124,463		$	107,801

(1)	Shown net of interest income and includes amortization of deferred financing costs as discussed below.

(2)	Excludes amortization of deferred financing costs of $96 and $74 for the three months ended June 30, 2012 and June 30, 2011, respectively, and $195 and $148 for the six months ended June 30, 2012 and June 30, 2011, respectively.

The table below presents a reconciliation of Adjusted EBITDA to net cash provided by (used in) operating activities. Please see page 5 for our Condensed Consolidated Statements of Cash Flows.

(Unaudited)			Three Months Ended						Six Months Ended
(In thousands)			June 30,						June 30,
			2012			2011			2012			2011
Adjusted EBITDA		$	113,456		$	102,756		$	124,463		$	107,801
	Add:
	Interest expense, net of interest income		(2,104	)		(1,750	)		(3,482	)		(3,321	)
	Provision for income taxes		(41,018	)		(37,670	)		(42,055	)		(37,251	)
	Excess tax benefits from share-based compensation		(471	)		(616	)		(1,609	)		(2,021	)
	Other		307			(1,606	)		1,248			(2,798	)
	Change in operating assets and liabilities		(2,622	)		(42,925	)		(45,044	)		(81,349	)
Net cash provided by (used in) operating activities		$	67,548		$	18,189		$	33,521		$	(18,939	)

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