POOL CORP - Quarter Report: 2009 June (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2009
or
|
o 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
![](https://www.sec.gov/Archives/edgar/data/0000945841/000094584109000043/newpoolcorp.jpg)
POOL
CORPORATION
|
||
(Exact
name of Registrant as specified in its charter)
|
||
Delaware
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36-3943363
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
|
109
Northpark Boulevard,
Covington,
Louisiana
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70433-5001
|
|
(Address
of principal executive offices)
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(Zip
Code)
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985-892-5521
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||
(Registrant's
telephone number, including area code)
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||
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 ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). YES ¨ NO ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer x Accelerated
filer ¨
Non-accelerated
filer ¨ (Do not check if a
smaller reporting
company) Smaller
reporting company ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES ¨ NO x
At July
24, 2009, there were 48,723,515 outstanding shares of the registrant's common
stock, $.001 par value per share.
POOL
CORPORATION
Form
10-Q
For
the Quarter Ended June 30, 2009
INDEX
PART
I. FINANCIAL INFORMATION
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|||
Item
1. Financial Statements (Unaudited)
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|||
1
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|||
2
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|||
3
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|||
4
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|||
8
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|||
19
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|||
19
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|||
PART
II. OTHER INFORMATION
|
|||
20
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|||
24
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Item 4. Submission of Matters to a Vote of Security Holders | 24 | ||
25
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26
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27
|
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
Consolidated
Statements of Income
(Unaudited)
(In
thousands, except per share data)
Three
Months Ended
|
Six
Months Ended
|
|||||||||||
June
30,
|
June
30,
|
|||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||
Net
sales
|
$
|
602,082
|
$
|
692,972
|
$
|
878,708
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$
|
1,031,187
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||||
Cost
of sales
|
424,014
|
490,220
|
619,447
|
733,081
|
||||||||
Gross
profit
|
178,068
|
202,752
|
259,261
|
298,106
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||||||||
Selling
and administrative expenses
|
96,348
|
112,762
|
181,187
|
205,919
|
||||||||
Operating
income
|
81,720
|
89,990
|
78,074
|
92,187
|
||||||||
Interest
expense, net
|
3,150
|
5,087
|
6,477
|
10,111
|
||||||||
Income
before income taxes and equity earnings (losses)
|
78,570
|
84,903
|
71,597
|
82,076
|
||||||||
Provision
for income taxes
|
30,878
|
32,811
|
28,138
|
31,722
|
||||||||
Equity
earnings (losses) in unconsolidated investments, net
|
674
|
783
|
(1,329
|
)
|
(663
|
)
|
||||||
Net
income
|
$
|
48,366
|
$
|
52,875
|
$
|
42,130
|
$
|
49,691
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||||
Earnings
per share:
|
||||||||||||
Basic
|
$
|
1.00
|
$
|
1.11
|
$
|
0.87
|
$
|
1.04
|
||||
Diluted
|
$
|
0.99
|
$
|
1.08
|
(1)
|
$
|
0.87
|
$
|
1.02
|
|||
Weighted
average shares outstanding:
|
||||||||||||
Basic
|
48,536
|
47,823
|
(1)
|
48,412
|
47,736
|
(1)
|
||||||
Diluted
|
48,844
|
48,776
|
(1)
|
48,654
|
48,562
|
(1)
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||||||
Cash
dividends declared per common share
|
$
|
0.13
|
$
|
0.13
|
$
|
0.26
|
$
|
0.25
|
(1) As adjusted – see Note 2.
The
accompanying Notes are an integral part of the Consolidated Financial
Statements
1
Consolidated
Balance Sheets
(Unaudited)
(In
thousands, except share data)
June
30,
|
June
30,
|
December
31,
|
|||||||
2009
|
2008
|
2008
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|||||||
Assets
|
|||||||||
Current
assets:
|
|||||||||
Cash
and cash equivalents
|
$
|
41,727
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$
|
26,453
|
$
|
15,762
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|||
Receivables,
net
|
50,981
|
75,563
|
16,311
|
||||||
Receivables
pledged under receivables facility
|
182,307
|
203,091
|
99,273
|
||||||
Product
inventories, net
|
325,198
|
385,258
|
405,914
|
||||||
Prepaid
expenses and other current assets
|
8,219
|
11,376
|
7,676
|
||||||
Deferred
income taxes
|
11,908
|
9,139
|
11,908
|
||||||
Total
current assets
|
620,340
|
710,880
|
556,844
|
||||||
Property
and equipment, net
|
34,163
|
33,892
|
33,048
|
||||||
Goodwill
|
170,601
|
167,352
|
169,569
|
||||||
Other
intangible assets, net
|
12,471
|
14,480
|
13,339
|
||||||
Equity
interest investments
|
28,886
|
32,839
|
31,157
|
||||||
Other
assets, net
|
28,438
|
25,612
|
26,949
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||||||
Total
assets
|
$
|
894,899
|
$
|
985,055
|
$
|
830,906
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|||
Liabilities
and stockholders’ equity
|
|||||||||
Current
liabilities:
|
|||||||||
Accounts
payable
|
$
|
194,004
|
$
|
193,663
|
$
|
173,688
|
|||
Accrued
expenses and other current liabilities
|
61,355
|
70,755
|
61,701
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||||||
Short-term
financing
|
25,000
|
121,492
|
20,792
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||||||
Current
portion of long-term debt and other long-term
liabilities
|
27,114
|
4,633
|
6,111
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||||||
Total
current liabilities
|
307,473
|
390,543
|
262,292
|
||||||
Deferred
income taxes
|
20,079
|
17,527
|
20,032
|
||||||
Long-term
debt
|
282,015
|
316,000
|
301,000
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||||||
Other
long-term liabilities
|
6,145
|
6,455
|
5,848
|
||||||
Total
liabilities
|
615,712
|
730,525
|
589,172
|
||||||
Stockholders’
equity:
|
|||||||||
Common
stock, $.001 par value; 100,000,000 shares
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|||||||||
authorized;
48,650,531, 47,840,233 and 48,218,872
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|||||||||
shares
issued and outstanding at June 30, 2009,
|
|||||||||
June
30, 2008 and December 31, 2008, respectively
|
49
|
47
|
48
|
||||||
Additional
paid-in capital
|
194,604
|
180,207
|
189,665
|
||||||
Retained
earnings
|
83,875
|
66,076
|
54,407
|
||||||
Accumulated
other comprehensive income (loss)
|
659
|
8,200
|
(2,386
|
)
|
|||||
Total
stockholders’ equity
|
279,187
|
254,530
|
241,734
|
||||||
Total
liabilities and stockholders’ equity
|
$
|
894,899
|
$
|
985,055
|
$
|
830,906
|
The
accompanying Notes are an integral part of the Consolidated Financial
Statements.
2
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
(In
thousands)
Six
Months Ended
|
|||||||
June
30,
|
|||||||
2009
|
2008
|
||||||
Operating
activities
|
|||||||
Net
income
|
$
|
42,130
|
$
|
49,691
|
|||
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
|
|||||||
Depreciation
|
4,492
|
4,804
|
|||||
Amortization
|
1,307
|
2,149
|
|||||
Share-based
compensation
|
2,935
|
4,269
|
|||||
Excess
tax benefits from share-based compensation
|
(607
|
)
|
(1,652
|
)
|
|||
Equity
losses in unconsolidated investments
|
2,230
|
1,158
|
|||||
Other
|
(4,400
|
)
|
(1,501
|
)
|
|||
Changes
in operating assets and liabilities, net of effects of
acquisitions:
|
|||||||
Receivables
|
(115,166
|
)
|
(132,735
|
)
|
|||
Product
inventories
|
80,414
|
8,995
|
|||||
Accounts
payable
|
20,316
|
(2,606
|
)
|
||||
Other
current assets and liabilities
|
1,960
|
32,266
|
|||||
Net
cash provided by (used in) operating activities
|
35,611
|
(35,162
|
)
|
||||
Investing
activities
|
|||||||
Acquisition
of businesses, net of cash acquired
|
(381
|
)
|
(32,840
|
)
|
|||
Divestiture
of business
|
—
|
724
|
|||||
Purchase
of property and equipment, net of sale proceeds
|
(5,866
|
)
|
(3,611
|
)
|
|||
Net
cash used in investing activities
|
(6,247
|
)
|
(35,727
|
)
|
|||
Financing
activities
|
|||||||
Proceeds
from revolving line of credit
|
178,237
|
190,100
|
|||||
Payments
on revolving line of credit
|
(173,222
|
)
|
(150,625
|
)
|
|||
Proceeds
from asset-backed financing
|
42,000
|
73,335
|
|||||
Payments
on asset-backed financing
|
(37,792
|
)
|
(20,170
|
)
|
|||
Payments
on long-term debt and other long-term liabilities
|
(3,076
|
)
|
(1,591
|
)
|
|||
Payments
of deferred financing costs
|
(305
|
)
|
(22
|
)
|
|||
Payments
of capital lease obligations
|
—
|
(251
|
)
|
||||
Excess
tax benefits from share-based compensation
|
607
|
1,652
|
|||||
Proceeds
from issuance of common stock under share-based compensation
plans
|
1,399
|
2,289
|
|||||
Payments
of cash dividends
|
(12,601
|
)
|
(11,951
|
)
|
|||
Purchases
of treasury stock
|
(59
|
)
|
(1,263
|
)
|
|||
Net
cash provided by (used in) financing activities
|
(4,812
|
)
|
81,503
|
||||
Effect
of exchange rate changes on cash
|
1,413
|
14
|
|||||
Change
in cash and cash equivalents
|
25,965
|
10,628
|
|||||
Cash
and cash equivalents at beginning of period
|
15,762
|
15,825
|
|||||
Cash
and cash equivalents at end of period
|
$
|
41,727
|
$
|
26,453
|
The
accompanying Notes are an integral part of the Consolidated Financial
Statements
3
Note 1 – Summary of Significant Accounting Policies
Pool
Corporation (the Company, which may be
referred to as POOL,
we, us or our) prepared the unaudited
interim Consolidated Financial Statements following U.S. generally accepted
accounting principles (GAAP) and the requirements of the Securities and Exchange
Commission (SEC) for interim financial information. As permitted under those
rules, certain footnotes and other financial information required by GAAP for
complete financial statements have been condensed or omitted. The
Consolidated Financial Statements include all normal and recurring adjustments
that are necessary for a fair presentation of our financial position and
operating results including the elimination of all significant intercompany
accounts and transactions among our wholly owned subsidiaries.
A
description of our significant accounting policies is included in our 2008
Annual Report on Form 10-K. The Consolidated Financial Statements should be
read in conjunction with the Consolidated Financial Statements and accompanying
notes in our Annual Report. The results for the three and six month
periods ended June 30, 2009 are not necessarily indicative of the
results to be expected for the twelve months ending
December 31, 2009.
As
discussed in Note 1 to the Consolidated Financial Statements in our 2008 Annual
Report on Form 10-K, in the fourth quarter of 2008 we revised our estimation
process for determining the deferred gross profit amount related to our equity
method investment in Latham Acquisition Corporation (LAC). If we had
applied the current deferral calculation methodology to our share of LAC’s
results for the second quarter and six months ended June 30, 2008, the amount of
recognized equity earnings would have been higher by approximately $1.4
million.
On June
30, 2009, we adopted Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) 165, Subsequent Events, which
establishes standards of accounting for and disclosure of events that occur
after the balance sheet date but before the financial statements are issued or
are available to be issued. In accordance with this statement, we
have evaluated subsequent events through July 30, 2009 which is the date these
financial statements were available to be issued.
Note
2 – Earnings Per Share
We
calculate basic earnings per share (EPS) by dividing net income by the weighted
average number of common shares outstanding. Diluted EPS includes the
dilutive effects of stock option awards.
On
January 1, 2009, we adopted FASB Staff Position (FSP) Emerging Issues
Task Force (EITF) 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities. This FSP states that unvested share-based payment
awards that contain non-forfeitable rights to dividends (such as our unvested
restricted stock awards) are participating securities and should be included in
the computation of both basic and diluted earnings per
share. According to the provisions of FSP EITF 03-6-1, we
now include outstanding unvested restricted stock awards of our common stock in
the basic weighted average share calculation and have adjusted prior period
basic and diluted weighted average common shares outstanding to reflect the
retrospective adoption of this FSP. The adoption of FSP EITF 03-6-1
resulted in a $0.01 decrease in our diluted earnings per share for the second
quarter of 2008, but did not change our diluted earnings per share for the six
months ended June 30, 2008.
4
The table
below presents the reconciliation of basic and diluted weighted average number
of shares outstanding and the related EPS calculation (in thousands,
except EPS):
Three
Months Ended
June
30,
|
Six
Months Ended
June
30,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||
Net
income
|
$
|
48,366
|
$
|
52,875
|
$
|
42,130
|
$
|
49,691
|
||||||
Weighted
average common shares outstanding:
|
||||||||||||||
Basic
|
48,536
|
47,823
|
(1)
|
48,412
|
47,736
|
(1)
|
||||||||
Effect
of dilutive securities:
|
||||||||||||||
Stock
options
|
304
|
948
|
238
|
821
|
||||||||||
Employee
stock purchase plan
|
4
|
5
|
4
|
5
|
||||||||||
Diluted
|
48,844
|
48,776
|
(1)
|
48,654
|
48,562
|
(1)
|
||||||||
Basic
earnings per share
|
$
|
1.00
|
$
|
1.11
|
$
|
0.87
|
$
|
1.04
|
||||||
Diluted
earnings per share
|
$
|
0.99
|
$
|
1.08
|
(1)
|
$
|
0.87
|
$
|
1.02
|
(1) As adjusted for adoption of FSP EITF
03-6-1.
The
weighted average diluted shares outstanding for both the three and six months
ended June 30, 2009 exclude stock options to purchase 3,382,543
shares. Since these options have exercise prices that are higher than
the average market price of our common stock, including them in the calculation
would have an anti-dilutive effect on earnings per share. In 2008,
the weighted average diluted shares outstanding for the three and six months
ended June 30, 2008 excluded stock options to purchase 2,175,787
shares and 3,013,237 shares, respectively, for the same
reason.
Note
3 – Acquisitions
In
November 2008, we acquired certain assets and liabilities of Proplas
Plasticos, S.L. (Proplas), a distributor of swimming pool products and
irrigation and plumbing supplies in Madrid, Spain. We consolidated
Proplas’ business with our existing sales center operations in Madrid and have
included the results of operations for Proplas in our Consolidated Financial
Statements since the acquisition date. We have recorded initial
purchase price allocations for our acquisition of Proplas subject to adjustments
in accordance with the transaction documents finalized in April
2009. We will finalize any adjustments to these preliminary
allocations by the fourth quarter of 2009. This acquisition did not
have a material impact on our financial position or results of
operations.
Note
4 – Debt
In May 2009, we amended the
Receivables Purchase Agreement under our accounts receivable
securitization facility (the Receivables Facility) to extend the
termination date to August 19, 2009, to increase the required reserves
used in calculating the available funding amount and to loosen the delinquency
and default trigger ratios. The Receivables Facility now has a
reduced borrowing capacity of up to $25.0 million.
Please
refer to Note 6 – Fair Value Measurements and Interest Rate Swaps for discussion
of our interest rate swap agreements.
5
Note
5 – Comprehensive Income
Comprehensive
income includes net income, foreign currency translation adjustments and the
unrealized gain or loss on interest rate swaps. The table below
presents comprehensive income for the three and six months ended June 30, 2009
and 2008:
Three
Months Ended
June
30,
|
Six
Months Ended
June
30,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||
Comprehensive
income
|
$
|
51,686
|
$
|
56,285
|
$
|
45,175
|
$
|
50,187
|
||||||
A
rollforward of the components of Accumulated other comprehensive income (loss)
for the current six month period ended June 30, 2009 is presented
below (in thousands):
|
Foreign
Currency Translation
|
Unrealized
Gain (Loss) on Interest Rate Swaps (1)
|
Total
|
||||||
Balance
at December 31, 2008
|
$
|
2,821
|
$
|
(5,207
|
)
|
$
|
(2,386
|
)
|
|
Net
change
|
1,413
|
1,632
|
3,045
|
||||||
Balance
at June 30, 2009
|
$
|
4,234
|
$
|
(3,575
|
)
|
$
|
659
|
(1) Change
shown net of tax of $948.
Note
6 – Fair Value Measurements and Interest Rate Swaps
FASB
SFAS 157, Fair Value
Measurements,
provides a framework for measuring fair value and establishes a fair value
hierarchy that prioritizes the inputs used to measure fair value, giving the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 inputs), the next priority to observable market
based inputs or unobservable inputs that are corroborated by market data (Level
2 inputs) and the lowest priority to unobservable inputs (Level 3
inputs).
In
measuring the fair value of our assets and liabilities, we use significant other
observable market data or assumptions (Level 2 inputs) that we believe market
participants would use in pricing an asset or liability, including assumptions
about risk when appropriate. Our assets and liabilities that are
measured at fair value on a recurring basis include the unrealized gain or loss
on our interest rate swaps.
We have
two interest rate swap agreements currently in effect that reduce our exposure
to fluctuations in interest rates on our Floating Rate Senior Notes (the Notes)
and our variable rate Term Loan under our unsecured syndicated senior credit
facility (the Credit Facility). We have an interest rate swap
agreement that converts the variable interest rate on the Notes to a fixed rate
of 5.088% on the initial notional amount of $100.0 million, which will decrease
to a notional amount of $50.0 million in 2010. This swap
agreement terminates on February 12, 2012. Our other
interest rate swap agreement converts the variable interest rate on the Term
Loan to a fixed rate of 2.4% on the initial notional amount, which will decrease
as payments are made on the Term Loan until maturity on
December 20, 2010.
6
In
April 2009, we entered into a new interest rate swap agreement with an
effective date of January 27, 2010. The purpose of the swap is to
reduce our exposure to fluctuations in interest rates on our $240.0 million
five-year revolving credit facility (the Revolver), which is part of
the Credit Facility. This swap agreement will convert the
Revolver’s variable interest rate to a fixed rate of 1.725% on a notional amount
of $50.0 million, and terminates on January 27, 2012.
We record
any differences paid or received on our interest rate swaps as adjustments to
interest expense over the life of the swaps. We have designated these swaps as
cash flow hedges and we record the changes in the fair value of the swaps to
Accumulated other comprehensive income (loss). Since inception, we
have not recognized any gains or losses on these swaps through income and there
has been no effect on income from hedge ineffectiveness. The table
below presents the fair value of our swap agreements as of June 30, 2009
(in thousands):
Balance Sheet Line Items
|
Unrealized
Gains (Losses)
|
|||
Prepaid
expenses and other current assets
|
$
|
392
|
||
Accrued
expenses and other current liabilities
|
(6,279
|
)
|
Failure
of our swap counterparties would result in the loss of any potential benefit to
us under our swap agreements. In this case, we would still be obligated to pay
the variable interest payments underlying our debt
agreements. Additionally, failure of our swap counterparties would
not eliminate our obligation to continue to make payments under our existing
swap agreements if we continue to be in a net pay position.
As
discussed in Note 1 to the Consolidated Financial Statements in our 2008 Annual
Report on Form 10-K, the carrying amount of long-term debt approximates fair
value as it bears interest at variable rates.
7
You
should read the following discussion in conjunction with Management's Discussion
and Analysis included in our 2008 Annual Report on Form 10-K. For a
discussion of our base business calculations, see page 11 under the RESULTS OF
OPERATIONS section.
OVERVIEW
Financial
Results
In what
is arguably the most challenging market environment ever experienced by our
industry, our focus on optimizing gross margin, right-sizing expenses relative
to sales levels and improving working capital management is evidenced by our
higher operating margin in the second quarter of 2009 and significantly better
cash generation. We believe our dedicated team, industry leading
programs and market penetration initiatives have also enabled us to gain market
share in these difficult times.
Net sales
decreased 13% compared to the second quarter of 2008 due to reduced new pool and
irrigation construction activity, deferred discretionary replacement activity
and unfavorable weather and currency fluctuations. This reduction was
partially offset by an increase in certain maintenance and repair product
sales.
Gross
profit as a percentage of net sales (gross margin) improved 30 basis points in
the second quarter of 2009 as a result of a favorable shift in sales mix, an
increase in sales of Pool Corporation private label products and continuous
improvement in margin management practices.
Selling
and administrative expenses (operating expenses) decreased 15% in the second
quarter of 2009 compared to the second quarter of 2008, including a 14% decrease
in base business operating expenses. This decrease is attributable to
the impact of cost control initiatives on payroll related and variable expenses
(including lower incentive compensation) and reduced freight costs.
While
operating income declined 9% compared to the second quarter of 2008, operating
income as a percentage of net sales (operating margin) improved by 60 basis
points to 13.6% for the current quarter. Average debt levels
decreased by $76.1 million quarter over quarter. Coupled with a lower
weighted average effective interest rate, interest expense decreased 38%
compared to the same period in 2008.
Earnings
per share for the second quarter of 2009 was $0.99 per diluted share on net
income of $48.4 million, compared to $1.08 per diluted share on net income
of $52.9 million for the second quarter of 2008.
Financial
Position and Liquidity
Total net
receivables decreased 16% to $233.3 million at June 30, 2009 from $278.7
million at June 30, 2008 due primarily to the decrease in sales and a
shift toward more cash sales as a result of our tighter credit
policies. Our allowance for doubtful accounts balance was
approximately $12.5 million at June 30, 2009, an increase of
$2.8 million over June 30, 2008. We increased the
allowance for doubtful accounts in the second half of 2008 to reflect an
increase in our total past due receivable balances year over
year. The allowance for doubtful accounts decreased approximately
$1.2 million from December 31, 2008, primarily due to write-offs
of certain accounts that were fully reserved. Days sales outstanding
(DSO) decreased between periods to 36.1 days at June 30, 2009 compared
to 36.4 days at June 30, 2008.
Our
inventory levels decreased 16% to $325.2 million as of June 30, 2009
compared to $385.3 million as of June 30, 2008. This
decrease reflects our focus on optimizing inventory levels across all product
classes. Our inventory turns, as calculated on a trailing twelve month basis,
have decreased to 3.0 times as of June 30, 2009 compared to
3.4 times as of June 30, 2008.
8
Total
debt outstanding decreased to $334.0 million at June 30, 2009 compared to $442.0
million at June 30, 2008. This decrease is a result of our
improved cash generation, which frees up additional debt capacity and lowers our
borrowing costs.
Current
Trends
Continuing
adverse economic trends have significantly impacted our
industry. These trends include a slowdown in the domestic housing
market, with lower housing turnover, sharp drops in new home construction, home
value deflation in many markets and a significant tightening of consumer and
commercial credit. Additionally, general economic conditions are
weak, including increasing unemployment and declining Gross Domestic Product
(GDP). Some of the factors that help mitigate the impact of these
negative trends on our business include the following:
·
|
the
majority of our business is driven by the ongoing maintenance and repair
of existing pools and landscaped areas, with under 20% of our sales and
gross profits tied to new pool or irrigation construction in 2008 (as our
sales related to new construction activity have declined, the proportion
of our net sales represented by maintenance, repair and replacement (MRR)
products has increased to over 80%);
and
|
·
|
we
believe our service-oriented model helps us gain market
share.
|
Despite
these mitigating factors, the negative trends noted above have significantly
impacted a number of our key markets, including California, Florida and Arizona,
with a more recent adverse impact in Texas and other states. We estimate that
these trends resulted in the following decreases in new pool construction in the
United States since peaking in 2005 at approximately 210,000 new
units:
2008
|
2007
|
2006
|
||||
Units
|
(60,000
|
)
|
(50,000
|
)
|
(10,000
|
)
|
%
|
(40
|
)%
|
(25
|
)%
|
(5
|
)%
|
We
believe these decreases represent the first three year decline in new pool
construction in our industry history. These trends have continued in
2009 and we estimate they will result in a further decrease in new pool
construction of approximately 35,000 units, or 40%. Since these
trends worsened from 2007 through the second quarter of 2009, they had a more
pronounced impact on our results for the year ended 2008 and the first half of
2009. However, as evidenced by our second quarter sales in Florida
being flat quarter over quarter, we believe these trends have begun to level off
in the major pool markets first impacted by the housing market
downturn.
Outlook
Based on
the challenging market environment, we expect sales in the second half of 2009
will be down compared to the same period in 2008. We anticipate that
third quarter sales will decline at a similar rate to the second quarter of
2009, with a modest improvement in the fourth quarter compared to 2008 based on
easier sales comparisons. We expect third quarter 2009 gross margins
will be similar to those in the third quarter of 2008, although we believe gross
margins may drop off modestly in the fourth quarter of 2009 given tougher
comparisons to the fourth quarter of 2008. The rate of our expense
reductions should moderate in the second half of 2009 as we lap some of the
impact of cost measures implemented in 2008. For the full year, we
expect our equity losses from our investment in LAC could be
$3 to $4 million. Altogether, we anticipate our full
year 2009 earnings will be in the range of $1.00 to $1.05 per diluted share
excluding any potential one-time charges.
We expect
the improvement in cash provided by operations for the six months ended
June 30, 2009 will level off in the second half of 2009 due to the payment
of our 2009 estimated federal income tax payments and the anticipated impact of
payments on certain projected early buy purchases. Overall, we expect
cash provided by operations will approach $100.0 million for fiscal
2009.
The
forward-looking statements in this Outlook section are subject to significant
risks and uncertainties, including changes in the economy and the housing
market, the sensitivity of our business to weather conditions, our ability to
maintain
favorable relationships with suppliers and manufacturers, competition from other
leisure product alternatives and mass merchants, and other risks detailed in
Part II - Item 1A “Risk Factors” and our “Cautionary Statement for Purpose of
the ‘Safe Harbor’ Provisions of the Private Securities Litigation Reform Act of
1995”.
9
RESULTS
OF OPERATIONS
As of
June 30, 2009, we conducted operations through 287 sales centers in North
America and Europe.
The
following table presents information derived from the Consolidated Statements of
Income expressed as a percentage of net sales.
Three
Months Ended
|
Six
Months Ended
|
|||||||||||
June
30,
|
June
30,
|
|||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||
Net
sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
Cost
of sales
|
70.4
|
70.7
|
70.5
|
71.1
|
||||||||
Gross
profit
|
29.6
|
29.3
|
29.5
|
28.9
|
||||||||
Selling
and administrative expenses
|
16.0
|
16.3
|
20.6
|
20.0
|
||||||||
Operating
income
|
13.6
|
13.0
|
8.9
|
8.9
|
||||||||
Interest
expense, net
|
0.5
|
0.7
|
0.7
|
1.0
|
||||||||
Income
before income taxes and equity earnings (losses)
|
13.0
|
%
|
12.3
|
%
|
8.1
|
%
|
8.0
|
%
|
Note:
|
Due
to rounding, percentages may not add to income before income taxes and
equity earnings (losses).
|
Our
discussion of consolidated operating results includes the operating results from
acquisitions in 2008, 2007 and 2006. We accounted for these
acquisitions using the purchase method of accounting, and we have included the
results of operations in our consolidated results since the respective
acquisition dates.
Three
Months Ended June 30, 2009 Compared to Three Months Ended June 30,
2008
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,
|
||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||
Net
sales
|
$
|
576,870
|
$
|
666,463
|
$
|
25,212
|
$
|
26,509
|
$
|
602,082
|
$
|
692,972
|
||
Gross
profit
|
171,119
|
194,388
|
6,949
|
8,364
|
178,068
|
202,752
|
||||||||
Gross
margin
|
29.7
|
%
|
29.2
|
%
|
27.6
|
%
|
31.6
|
%
|
29.6
|
%
|
29.3
|
%
|
||
Operating
expenses
|
91,181
|
105,810
|
5,167
|
6,952
|
96,348
|
112,762
|
||||||||
Expenses
as a % of net sales
|
15.8
|
%
|
15.9
|
%
|
20.5
|
%
|
26.2
|
%
|
16.0
|
%
|
16.3
|
%
|
||
Operating
income
|
79,938
|
88,578
|
1,782
|
1,412
|
81,720
|
89,990
|
||||||||
Operating
margin
|
13.9
|
%
|
13.3
|
%
|
7.1
|
%
|
5.3
|
%
|
13.6
|
%
|
13.0
|
%
|
10
We have
excluded the following acquisitions from base business for the periods
identified, including the periods covered in the base business table on page 14
under the heading “Six Months Ended June 30, 2009 Compared to Six Months
Ended June 30, 2008”:
Acquired
|
Acquisition
Date
|
Net
Sales
Centers Acquired
|
Period
Excluded
|
|||
Proplas
Plasticos, S.L.
|
November
2008
|
0
|
January
2009 – June 2009
|
|||
National
Pool Tile (NPT) (1)
|
March
2008
|
8
|
January
– May 2009 and March – May 2008
|
|||
Canswim
Pools
|
March
2008
|
1
|
January
– May 2009 and March – May 2008
|
(1)
|
We
acquired 15 NPT sales centers and have consolidated 7 of these with
existing sales centers, including 4 in March 2008, 2 in the second quarter
of 2008 and 1 in April 2009.
|
We
exclude the following sales centers from base business results for a period of
15 months:
·
|
acquired
sales centers (see table above);
|
·
|
existing
sales centers consolidated with acquired sales
centers;
|
·
|
closed
sales centers;
|
·
|
consolidated
sales centers in cases where we do not expect to maintain the majority of
the existing business; and
|
·
|
sales
centers opened in new markets.
|
As of
June 30, 2009, four closed sales centers and one existing sales center
that was consolidated with an acquired sales center were excluded from base
business.
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 during the quarter ended June
30, 2009:
March
31, 2009
|
288
|
Consolidation
of acquired locations
|
(1)
|
June
30, 2009
|
287
|
Net
Sales
Three
Months Ended
June
30,
|
||||||||||||
(in
millions)
|
2009
|
2008
|
Change
|
|||||||||
Net
sales
|
$
|
602.1
|
$
|
693.0
|
$
|
(90.9
|
)
|
(13
|
)%
|
The
decrease in net sales is primarily due to the current adverse economic trends,
which have led to further declines in new pool and irrigation construction
activity and deferred discretionary replacement purchases by
consumers. Base business sales for the second quarter of 2009 were
down 13% compared to the second quarter of 2008. This includes
an 11% decline on the swimming pool side of the business and a 37% decline
on the irrigation side of the business, which is more heavily weighted toward
new construction and discretionary product sales. Weather was also
unfavorable during the quarter (especially in the Midwest and Northeast where a
cold and wet start to the summer season adversely impacted sales) and
unfavorable currency fluctuations resulted in a decrease in sales of
approximately 2%.
11
The
overall decrease in net sales was partially offset by the
following:
·
|
estimated
inflationary price increases of approximately 4% overall that we passed
through the supply chain;
|
·
|
increased
sales of certain maintenance and parts products, including a 9% increase
in chemical sales due to price increases and slightly higher sales
volumes; and
|
·
|
approximately
$8.0 million of increased sales for new drains and related
safety products as a result of the Virginia Graeme Baker Pool and Spa
Safety Act (VGB Act), which became effective in December 2008 and
imposes mandatory federal requirements on the manufacture, distribution
and/or sale of suction entrapment avoidance devices such as safety drain
covers, public pool drain covers and public pool drain
systems.
|
Gross
Profit
Three
Months Ended
June
30,
|
||||||||||||
(in
millions)
|
2009
|
2008
|
Change
|
|||||||||
Gross
profit
|
$
|
178.1
|
$
|
202.8
|
$
|
(24.7
|
)
|
(12
|
)%
|
|||
Gross
margin
|
29.6
|
%
|
29.3
|
%
|
Despite
the tough competitive pricing environment, gross margin increased 30 basis
points compared to the second quarter of 2008. The increase in gross
margin is attributable to a shift in sales mix to products in the higher margin
maintenance and repair market, increased sales of preferred vendor and Pool
Corporation private label products and improved pricing and purchasing
discipline.
Operating
Expenses
Three
Months Ended
June
30,
|
||||||||||||
(in
millions)
|
2009
|
2008
|
Change
|
|||||||||
Operating
expenses
|
$
|
96.4
|
$
|
112.8
|
$
|
(16.4
|
)
|
(15
|
)%
|
|||
Operating
margin
|
16.0
|
%
|
16.3
|
%
|
The
decrease in operating expenses reflects a 14% decline in base business operating
expenses compared to the second quarter of 2008. This decrease is due
primarily to the impact of our cost control initiatives including lower payroll
related, variable and discretionary expenses. Salary expenses
declined 16%, reflecting a 10% reduction in headcount compared to
June 30, 2008 and a $4.3 million decrease in incentive compensation
costs. Delivery costs decreased 28% quarter over quarter, including
$1.3 million in lower vehicle operating expenses (including lower fuel
costs and fewer delivery vehicles) and $0.7 million in reduced vehicle rental
expenses.
Interest
Expense
Interest
expense decreased 38% between periods due to the impact of much lower debt
levels combined with a lower weighted average effective interest rate for the
period. The weighted average effective interest rate decreased to 3.1% in
the second quarter of 2009 from 4.4% in the same period in 2008. Average debt
outstanding was 18% lower in the second quarter of 2009.
Income
Taxes
The
decrease in income taxes is due to the decrease in income before income taxes
and equity earnings. Our effective income tax rate was 39.30% for the
three months ended June 30, 2009 and 38.65% for the three months ended
June 30, 2008.
12
Net
Income and Earnings Per Share
Net
income decreased 9% to $48.4 million in the second quarter of 2009, while
earnings per share decreased to $0.99 per diluted share compared to $1.08 for
the second quarter of 2008.
Six
Months Ended June 30, 2009 Compared to Six Months Ended June 30,
2008
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)
|
Six
Months Ended
|
Six
Months Ended
|
Six
Months Ended
|
|||||||||||
June
30,
|
June
30,
|
June
30,
|
||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||
Net
sales
|
$
|
830,755
|
$
|
987,832
|
$
|
47,953
|
$
|
43,355
|
$
|
878,708
|
$
|
1,031,187
|
||
Gross
profit
|
246,060
|
284,926
|
13,201
|
13,180
|
259,261
|
298,106
|
||||||||
Gross
margin
|
29.6
|
%
|
28.8
|
%
|
27.5
|
%
|
30.4
|
%
|
29.5
|
%
|
28.9
|
%
|
||
Operating
expenses
|
169,358
|
193,402
|
11,829
|
12,517
|
181,187
|
205,919
|
||||||||
Expenses
as a % of net sales
|
20.4
|
%
|
19.6
|
%
|
24.7
|
%
|
28.9
|
%
|
20.6
|
%
|
20.0
|
%
|
||
Operating
income
|
76,702
|
91,524
|
1,372
|
663
|
78,074
|
92,187
|
||||||||
Operating
margin
|
9.2
|
%
|
9.3
|
%
|
2.9
|
%
|
1.5
|
%
|
8.9
|
%
|
8.9
|
%
|
For an
explanation of how we calculate base business, please refer to the discussion of
base business on page 11 under the heading “Three Months Ended June
30, 2009 Compared to Three Months Ended June 30, 2008”.
Since we
divested our pool liner manufacturing operation in France at the beginning of
April 2008, we have excluded these operations from base business for the
comparative three month period ended March 31, 2008.
Net
Sales
Six
Months Ended
June
30,
|
||||||||||||
(in
millions)
|
2009
|
2008
|
Change
|
|||||||||
Net
sales
|
$
|
878.7
|
$
|
1,031.2
|
$
|
(152.5
|
)
|
(15
|
)%
|
The new
pool and irrigation construction markets continue to face unprecedented adverse
conditions created by the combination of significant declines in the real estate
and mortgage-backed financing markets. Coupled with the current
severely depressed economic environment, these external factors have placed
considerable pressure on our top line results. As a result, our sales were
negatively impacted as construction activities remained depressed, fewer
customers participated in early buy purchase programs and consumers continued to
defer discretionary replacement purchases. Unfavorable weather and
currency fluctuations also had an adverse impact on sales for the first six
months of 2009.
Base
business sales for the first half of 2009 decreased 16% compared to the first
half of 2008. This includes a 13% decline on the swimming pool side
of the business and a 36% decline on the irrigation side of the business, which
is more heavily weighted toward new construction and discretionary product
sales.
13
The overall decrease in net sales was
partially offset by the following:
·
|
estimated
inflationary price increases of approximately 3% that we passed through
the supply chain;
|
·
|
approximately
$17.0 million of increased sales for new drains and related
safety products as a result of the VGB
Act;
|
·
|
higher
sales of certain maintenance and repair products, including an 8% increase
in chemical sales; and
|
·
|
approximately
$7.0 million in first quarter sales related to our 2008
acquisitions.
|
Gross
Profit
Six
Months Ended
June
30,
|
||||||||||||
(in
millions)
|
2009
|
2008
|
Change
|
|||||||||
Gross
profit
|
$
|
259.3
|
$
|
298.1
|
$
|
(38.8
|
)
|
(13
|
)%
|
|||
Gross
margin
|
29.5
|
%
|
28.9
|
%
|
Despite
the tough competitive pricing environment, gross margin improved 60 basis points
compared to the first half of 2008. The increase in gross margin is
attributable to a shift in sales mix to products in the higher margin
maintenance and repair market and specific margin improvement
initiatives. Favorable impacts compared to the same period in 2008
included the following (listed in order of estimated magnitude):
·
|
increased
sales of preferred vendor and Pool Corporation private label
products;
|
·
|
benefits
resulting from pre-price increase inventory purchases made in the second
half of 2008; and
|
·
|
higher
recognized purchase discounts due to special payment terms offered by
certain vendors for early payments we made in the first quarter of 2009
related to 2008 early buy
purchases.
|
Operating
Expenses
Six
Months Ended
June
30,
|
||||||||||||
(in
millions)
|
2009
|
2008
|
Change
|
|||||||||
Operating
expenses
|
$
|
181.2
|
$
|
205.9
|
$
|
(24.7
|
)
|
(12
|
)%
|
|||
Operating
margin
|
20.6
|
%
|
20.0
|
%
|
The
decrease in operating expenses reflects a 12% decline in base business operating
expenses due primarily to the impact of our cost control initiatives,
including lower payroll related, variable and discretionary
expenses. Total headcount as of June 30, 2009 decreased 10%
compared to June 30, 2008, driving a 13% decline in total labor and
related costs. Delivery expenses declined 26%, reflecting lower
delivery volumes and decreases in both vehicle operating expenses
(including lower fuel costs) and vehicle rental expenses.
The
decrease in operating expenses was partially offset by the impact of our
acquired sales centers, which had approximately $2.0 million in operating
expenses during the first quarter. Total operating expenses as
a percentage of net sales increased between periods due to the decrease in net
sales.
Interest
Expense
Interest
expense decreased 36% between periods due to the decrease in our weighted
average effective interest rate for the period and a 10% lower average
outstanding debt balance. The weighted average effective interest rate
decreased to 3.1% in the first six months of 2009 from 4.8% in the same period
in 2008.
14
Income
Taxes
The
decrease in income taxes is due to the decrease in income before income taxes
and equity losses. Our effective income tax rate was 39.30% for the six
months ended June 30, 2009 and 38.65% for the six months ended June 30,
2008.
Net
Income and Earnings Per Share
Net
income decreased 15% to $42.1 million in the first six months of 2009 compared
to the first six months of 2008. In the first half of 2009, we recognized
$1.4 million in net equity losses from our investment in
LAC. Earnings per share for the first six months of 2009 decreased to
$0.87 per diluted share compared to $1.02 in the first six months of
2008.
Seasonality
and Quarterly Fluctuations
Our
business is highly seasonal. In general, sales and operating income
are highest during the second and third quarters, which represent the peak
months of both swimming pool use and installation and landscape installations
and maintenance. Sales are substantially lower during the first and
fourth quarters, when we may incur net losses.
We
typically experience a build-up of product inventories and accounts payable
during the winter months in anticipation of the peak selling
season. Excluding borrowings to finance acquisitions and share
repurchases, our peak borrowing usually occurs during the second quarter,
primarily because extended payment terms offered by our suppliers typically are
payable in April, May and June, while our peak accounts receivable collections
typically occur in June, July and August. Our debt levels peaked a
little earlier in 2009 based on early payments we made in the past six months to
take advantage of pre-price increase inventory purchases and early payment
discounts offered by certain vendors.
The
following table presents certain unaudited quarterly data for the first and
second quarters of 2009, the four quarters of 2008 and the third and fourth
quarters of 2007. We have included income statement and balance sheet
data for the most recent eight quarters to allow for a meaningful comparison of
the seasonal fluctuations in these amounts. In our opinion, this
information reflects all normal and recurring adjustments considered necessary
for a fair presentation of this data. Due to the seasonal nature of
our industry, the results of any one or more quarters are not necessarily an
accurate indication of results for an entire fiscal year or of continuing
trends.
(Unaudited)
|
QUARTERS
|
|||||||||||||||||
(in
thousands)
|
2009
|
2008
|
2007
|
|||||||||||||||
|
Second
|
First
|
Fourth
|
Third
|
Second
|
First
|
Fourth
|
Third
|
||||||||||
Statement
of Income (Loss) Data
|
||||||||||||||||||
Net
sales
|
$
|
602,082
|
$
|
276,626
|
$
|
258,966
|
$
|
493,530
|
$
|
692,972
|
$
|
338,215
|
$
|
300,755
|
$
|
527,434
|
||
Gross
profit
|
178,068
|
81,193
|
75,322
|
141,800
|
202,752
|
95,354
|
79,436
|
139,803
|
||||||||||
Operating
income (loss)
|
81,720
|
(3,646
|
)
|
(15,328
|
)
|
38,617
|
89,990
|
2,197
|
(12,796
|
)
|
39,505
|
|||||||
Net
income (loss)
|
48,366
|
(6,236
|
)
|
(14,795
|
)
|
22,060
|
52,875
|
(3,184
|
)
|
(11,589
|
)
|
21,835
|
||||||
Balance
Sheet Data
|
||||||||||||||||||
Total
receivables, net
|
$
|
233,288
|
$
|
160,318
|
$
|
115,584
|
$
|
178,927
|
$
|
278,654
|
$
|
206,187
|
$
|
141,117
|
$
|
200,534
|
||
Product
inventories, net
|
325,198
|
397,863
|
405,914
|
345,944
|
385,258
|
476,758
|
379,663
|
317,110
|
||||||||||
Accounts
payable
|
194,004
|
201,300
|
173,688
|
128,329
|
193,663
|
333,104
|
194,178
|
127,889
|
||||||||||
Total
debt
|
334,015
|
381,221
|
327,792
|
337,742
|
441,992
|
396,110
|
350,852
|
406,465
|
We expect
that our quarterly results of operations will continue to fluctuate depending on
the timing and amount of revenue contributed by new and acquired sales
centers. Based on our peak summer selling season, we generally open
new sales centers and close or consolidate sales centers, when warranted, either
in the first quarter before the peak selling season starts or in the fourth
quarter after the peak selling season ends.
15
Weather
is one of the principal external factors affecting our business. The
table below presents some of the possible effects resulting from various weather
conditions.
Weather
|
Possible
Effects
|
|
Hot
and dry
|
•
|
Increased
purchases of chemicals and supplies
|
for
existing swimming pools
|
||
•
|
Increased
purchases of above-ground pools and
|
|
irrigation
products
|
||
Unseasonably
cool weather or extraordinary
amounts of rain
|
•
|
Fewer
pool and landscape installations
|
•
|
Decreased
purchases of chemicals and supplies
|
|
•
|
Decreased
purchases of impulse items such as
|
|
|
above-ground
pools and accessories
|
|
Unseasonably
early warming trends in spring/late cooling trends in fall
|
•
|
A
longer pool and landscape season, thus increasing our
sales
|
(primarily
in the northern half of the US)
|
||
|
||
Unseasonably
late warming trends in spring/early cooling trends in fall
|
•
|
A
shorter pool and landscape season, thus decreasing our
sales
|
(primarily
in the northern half of the US)
|
In the second quarter of 2009, weather conditions were unfavorable overall and adversely impacted sales due to the following:
·
|
cooler
than normal temperatures in April, resulting in a slower start to the pool
season in most markets;
|
·
|
cold
and wet conditions in the Midwest and Northeast;
and
|
·
|
colder
than average temperatures and above average precipitation in the Southwest
during June.
|
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
is defined as the ability to generate adequate amounts of cash to meet
short-term and long-term cash needs. We assess our liquidity in terms of our
ability to generate cash to fund our operating activities, taking into
consideration the seasonal nature of our business. Significant factors which
could affect our liquidity include the following:
·
|
cash
flows generated from operating
activities;
|
·
|
the
adequacy of available bank lines of
credit;
|
·
|
acquisitions;
|
·
|
dividend
payments;
|
·
|
capital
expenditures;
|
·
|
the
timing and extent of share repurchases;
and
|
·
|
the
ability to attract long-term capital with satisfactory
terms.
|
Our
primary capital needs are seasonal working capital obligations and other general
corporate purposes, including acquisitions, dividend payments and share
repurchases. Our primary sources of working capital are cash from operations
supplemented by bank borrowings, which combined with seller financing have
historically been sufficient to support our growth and finance acquisitions. The
same principle applies to funds used for capital expenditures and share
repurchases.
16
We
prioritize our use of cash based on investing in our business, returning money
to our shareholders and maintaining a prudent debt structure. Our specific
priorities for the use of cash are as follows:
·
|
maintenance
and new sales center capital expenditures, which have averaged
approximately 0.5% to 0.75% of net sales historically, but dropped to 0.4%
of net sales in 2008 due to lower capacity
expansion;
|
·
|
strategic
acquisitions executed
opportunistically;
|
·
|
payment
of cash dividends as and when declared by the Board;
and
|
·
|
repayment
of debt.
|
While we
still have our Board authorized share repurchase program in place with
$53.0 million of the current authorized amount remaining available as of
July 24, 2009, this is not a current priority for the use of
cash.
Sources
and Uses of Cash
The
following table summarizes our cash flows (in thousands):
Six
Months Ended
June
30,
|
|||||||
2009
|
2008
|
||||||
Operating
activities
|
$
|
35,611
|
$
|
(35,162
|
)
|
||
Investing
activities
|
(6,247
|
)
|
(35,727
|
)
|
|||
Financing
activities
|
(4,812
|
)
|
81,503
|
Cash flow
provided by operations in the first half of 2009 reflects an increase
of $70.8 million compared to the same period in 2008. This
increase is due to favorable impacts from changes in working capital balances,
primarily the reduction of inventory levels. This increase includes
the negative impact of our $30.0 million deferred federal income tax payment
made in January 2009. During the first six months of 2008, the higher
cash used in investing activities reflects our March 2008
acquisitions. Cash used in financing activities for the first six
months of 2009 includes a decrease of approximately $85.0 million in net
debt borrowings compared to the same period in 2008, primarily due to the
improvement in cash provided by operations.
Future
Sources and Uses of Cash
Our
unsecured syndicated senior credit facility (the Credit Facility) provides for
$300.0 million in borrowing capacity including a $240.0 million
five-year revolving credit facility (the Revolver) and a term loan (the Term
Loan), with an original principal amount of $60.0 million.
At June
30, 2009, there was $158.0 million outstanding and $80.4 million
available for borrowing under the Revolver. The Revolver matures on
December 20, 2012. The weighted average effective interest
rate on the Revolver was approximately 1.8% for the six months ended
June 30, 2009. In April 2009, we entered into an interest
rate swap agreement to reduce our future exposure to fluctuations in interest
rates on the Revolver. This swap agreement will convert the
Revolver’s variable interest rate to a fixed rate of 1.725% on a notional amount
of $50.0 million. The swap has an effective date of January 27,
2010 and will terminate on January 27, 2012.
At June
30, 2009, there was $51.0 million outstanding under the Term Loan of
which $27.0 million is classified as current. The Term Loan has
remaining principal payments of $1.5 million per quarter in the second half of
2009 and $12.0 million per quarter in 2010. Our current interest
rate swap agreement reduces our exposure to fluctuations in interest rates for
the remaining outstanding period of the Term Loan by converting our variable
rate to a fixed rate basis. This swap will terminate when the Term
Loan matures on December 20, 2010. The weighted average
effective interest rate on the Term Loan was approximately 3.2% for the six
months ended June 30, 2009.
17
The
Credit Facility includes sublimits for the issuance of swingline loans and
standby letters of credit. Pursuant to an accordion feature, the
aggregate maximum principal amount of the commitments under the Revolver may be
increased at our request and with agreement by the lenders, by up to
$75.0 million, to a total of $315.0 million.
On
February 12, 2007, we issued and sold $100.0 million aggregate
principal amount of Floating Rate Senior Notes (the Notes) in a private
placement offering pursuant to a Note Purchase Agreement. The Notes are due
February 12, 2012 and accrue interest on the unpaid principal balance
at a floating rate equal to a spread of 0.600% over the three-month LIBOR, as
adjusted from time to time. In February 2007, we entered into an interest
rate swap agreement to reduce our exposure to fluctuations in interest rates on
the Notes. The swap agreement converts the Notes’ variable interest rate to a
fixed rate of 5.088% on the initial notional amount of $100.0 million,
which will decrease to a notional amount of $50.0 million
in 2010.
In May 2009, we amended the
Receivables Purchase Agreement under our accounts receivable
securitization facility (the Receivables Facility) to extend the
termination date to August 19, 2009, to increase the required reserves
used in calculating the available funding amount and to loosen the delinquency
and default trigger ratios. The Receivables Facility now has a
reduced borrowing capacity of up to $25.0 million. At June 30, 2009, there was $25.0 million outstanding
under the Receivables Facility at a weighted average effective interest rate of
2.9%. We do not expect to renew
the Receivables Facility when it expires in August 2009.
Financial
covenants on our Credit Facility, Notes and Receivables Facility are closely
aligned and include a minimum fixed charge coverage ratio and maintenance of a
maximum total leverage ratio, which are our most restrictive financial
covenants. As of June 30, 2009, the calculations of these two
covenants are detailed below:
·
|
Maximum Average Total Leverage
Ratio. On the last day of each fiscal quarter, our average total
leverage ratio must be less than or equal to 3.25 to
1.00. Average Total Leverage ratio is the ratio of the trailing
twelve months (TTM) Average Total Funded Indebtedness plus the TTM
Average Accounts Securitization Proceeds divided by the TTM EBITDA (as
those terms are defined in our amended Credit Facility). As of
June 30, 2009, our average total leverage ratio equaled 2.97 (compared to
2.92 as of March 31, 2009) and the TTM average total debt amount
used in this calculation was
$353.9 million.
|
·
|
Minimum Fixed Charge
Ratio. On the last day of each fiscal quarter, our fixed charge
ratio must be greater than 2.25 to 1.00. Fixed Charge Ratio is
the ratio of the TTM EBITDAR (as defined in our amended Credit Facility)
divided by TTM Interest Expense (as defined in our amended Credit
Facility) paid or payable in cash plus TTM Rental Expense (as defined in
our amended Credit Facility). As of June 30, 2009, our fixed
charge ratio equaled 2.43 (compared to 2.49 as of
March 31, 2009) and TTM Rental Expense was
$58.0 million.
|
The
Credit Facility also limits the declaration and payment of dividends on our
common stock to no more than 50% of the preceding year’s net income, provided no
default or event of default has occurred and is continuing and the dividends are
declared and paid in a manner consistent with our past
practice. Failure to comply with these financial covenants, scheduled
interest payments, scheduled principal repayments, or any other terms of our
amended credit facilities could result in the acceleration of the maturities of
our outstanding debt. As of June 30, 2009, we were in compliance
with all covenants and financial ratio requirements related to our Credit
Facility, our Notes and our Receivables Facility. We believe we
will remain in compliance throughout the rest of the year.
For
additional information regarding our debt arrangements, see Note 5 of “Notes to
Consolidated Financial Statements,” included in Item 8 of our 2008
Form 10-K.
We
believe we have adequate availability of capital to fund present operations and
the current capacity to finance any working capital needs that may arise. We
continually evaluate potential acquisitions and hold discussions with
acquisition candidates. If suitable acquisition opportunities arise that would
require financing, we believe that we have the capacity to finance any such
transactions.
As of
July 24, 2009, $53.0 million of the current Board authorized amount
under our share repurchase program remained available. While share repurchases
are not a current priority, we may continue to repurchase shares on the open
market from time
to time depending on market conditions. We may use cash flows from operations to
fund these purchases or we may incur additional debt.
18
CRITICAL
ACCOUNTING ESTIMATES
We
prepare our Consolidated Financial Statements in accordance with accounting
principles generally accepted in the United States (GAAP), which requires
management to make estimates and assumptions that affect reported amounts and
related disclosures. Management identifies critical accounting
estimates as:
·
|
those
that require the use of assumptions about matters that are inherently and
highly uncertain at the time the estimates are made;
and
|
·
|
those
for which changes in the estimate or assumptions, or the use of different
estimates and assumptions, could have a material impact on our
consolidated results of operations or financial
condition.
|
Management
has discussed the development, selection and disclosure of our critical
accounting estimates with the Audit Committee of our Board of
Directors. For a description of our critical accounting estimates
that require us to make the most difficult, subjective or complex judgments,
please see our Annual Report on Form 10-K for the year ended
December 31, 2008. We have not changed these policies from
those previously disclosed.
Interest
Rate Risk
There
have been no material changes from what we reported in our Form 10-K for the
year ended December 31, 2008 that affect fiscal 2009.
In
April 2009, we entered into a new interest rate swap agreement with an
effective date of January 27, 2010. The purpose of the swap is to
reduce our exposure to fluctuations in interest rates on the
Revolver. This swap agreement will convert the Revolver’s
variable interest rate to a fixed rate of 1.725% on a notional amount of
$50.0 million, and terminates on January 27, 2012.
Foreign
Exchange Risk
There
have been no material changes from what we reported in our Form 10-K for the
year ended December 31, 2008.
The term
“disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934 (the Act). The rules refer to
the controls and other procedures designed to ensure that information required
to be disclosed in reports that we file or submit under the Act is (1) recorded,
processed, summarized and reported within the time periods specified in the
Commission’s rules and forms and (2) accumulated and communicated to our
management, including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure. As of June 30, 2009, management, including the
CEO and CFO, performed an evaluation of the effectiveness of our disclosure
controls and procedures. Based on that evaluation, management,
including the CEO and CFO, concluded that as of June 30, 2009, our
disclosure controls and procedures were effective.
We
maintain a system of internal control over financial reporting that is designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United
States. Based on the most recent evaluation, we have concluded that
no change in our internal control over financial reporting occurred during the
last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
19
PART
II. OTHER INFORMATION
Cautionary
Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
Our
disclosure and analysis in this report contains forward-looking information that
involves risks and uncertainties. Our forward-looking statements express our
current expectations or forecasts of possible future results or events,
including projections of future performance, statements of management’s plans
and objectives, future contracts, and forecasts of trends and other matters.
Forward-looking statements speak only as of the date of this filing, and we
undertake no obligation to update or revise such statements to reflect new
circumstances or unanticipated events as they occur. You can identify these
statements by the fact that they do not relate strictly to historic or current
facts and often use words such as “anticipate”, “estimate”, “expect”, “believe,”
“will likely result,” “outlook,” “project” and other words and expressions of
similar meaning. No assurance can be given that the results in any
forward-looking statements will be achieved and actual results could be affected
by one or more factors, which could cause them to differ materially. For these
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform
Act.
Risk
Factors
Certain
factors that may affect our business and could cause actual results to differ
materially from those expressed in any forward-looking statements include the
following:
The
demand for our swimming pool and related outdoor lifestyle products has been and
may continue to be adversely affected by unfavorable economic
conditions.
In
economic downturns, the demand for swimming pool or leisure related products may
decline as discretionary consumer spending, the growth rate of pool eligible
households and swimming pool construction decline. Although maintenance
products and repair and replacement equipment that must be purchased by pool
owners to maintain existing swimming pools currently account for more than 80%
of our net sales and gross profits, the growth of this portion of our business
depends on the expansion of the installed pool base and could also be adversely
affected by decreases in construction activities similar to the trends between
2007 and the first half of 2009. A weakening economy may also cause
deferrals of discretionary replacement and refurbish activity. In
addition, even in generally favorable economic conditions, severe and/or
prolonged downturns in the housing market could have a material adverse impact
on our financial performance. Such downturns expose us to certain
additional risks, including but not limited to the risk of customer closures or
bankruptcies, which could shrink our potential customer base and inhibit our
ability to collect on those customers’ receivables.
We
believe that homeowners’ access to consumer credit, particularly as facilitated
by mortgage-backed financing markets, is a critical enabling factor in the
purchase of new pool and irrigation systems. The recent unfavorable
economic conditions and downturn in the housing market have resulted in
significant tightening of credit markets, which has limited the ability of
consumers to access financing for new swimming pool and irrigation
systems. If these trends continue or worsen, many consumers will
likely not be able to obtain financing for pool and irrigation projects, which
could negatively impact our sales of construction related products.
We
are susceptible to adverse weather conditions.
Weather
is one of the principal external factors affecting our business. For example,
unseasonably late warming trends in the spring or early cooling trends in the
fall can shorten the length of the pool season. Also, unseasonably cool weather
or extraordinary rainfall during the peak season can decrease swimming pool use,
installation and maintenance, as well as landscape installations and
maintenance. These weather conditions adversely affect sales of our products.
For a discussion regarding seasonality and weather, see Part 1,
Item 2, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations - Seasonality and Quarterly Fluctuations,” of this
Form 10-Q.
20
Our
distribution business is highly dependent on our ability to maintain favorable
relationships with suppliers.
As a
distribution company, maintaining favorable relationships with our suppliers is
critical to the success of our business. We believe that we add considerable
value to the swimming pool supply chain and landscape supply chain by purchasing
products from a large number of manufacturers and distributing the products to a
highly fragmented customer base on conditions that are more favorable than these
customers could obtain on their own. We believe that we currently enjoy good
relationships with our suppliers, who generally offer us competitive pricing,
return policies and promotional allowances. However, our inability to maintain
favorable relationships with our suppliers could have an adverse effect on our
business.
Our
largest suppliers are Pentair Corporation, Hayward Pool Products, Inc. and
Zodiac Pool Systems, Inc., which accounted for approximately 15%, 10% and 9%,
respectively, of the costs of products we sold in 2008. A decision by several
suppliers, acting in concert, to sell their products directly to retail
customers and other end users of their products, bypassing distribution
companies like ours, would have an adverse effect on our business. Additionally,
the loss of a single significant supplier due to financial failure or a decision
to sell exclusively to other distributors, retail customers or end user
consumers could also adversely affect our business. We dedicate significant
resources to promote the benefits and affordability of pool ownership, which we
believe greatly benefits our swimming pool customers and suppliers.
We
face intense competition both from within our industry and from other leisure
product alternatives.
We face
competition from both inside and outside of our industry. Within our industry,
we compete against various regional and local distributors and, to a lesser
extent, mass market retailers and large pool or landscape supply retailers.
Outside of our industry, we compete with sellers of other leisure product
alternatives, such as boats and motor homes, and with other companies who rely
on discretionary homeowner expenditures, such as home remodelers. New
competitors may emerge as there are low barriers to entry in our industry. Some
geographic markets that we serve, particularly our four largest, higher density
markets in California, Florida, Texas and Arizona, representing approximately
55% of our net sales in 2008, also tend to be more competitive than
others.
More
aggressive competition by mass merchants and large pool or landscape supply
retailers could adversely affect our sales.
Mass market
retailers today carry a limited range of, and devote a limited amount of
shelf space to, merchandise and products targeted to our industry. Historically,
mass market retailers have generally expanded by adding new stores and
product breadth, but their product offering of pool and landscape related
products has remained relatively constant. Should mass market
retailers increase their focus on the pool or professional landscape industries,
or increase the breadth of their pool and landscape related product offerings,
they may become a more significant competitor for direct and
end-use customers which could have an adverse impact on our business. We
may face additional competitive pressures if large pool or landscape supply
retailers look to expand their customer base to compete more directly within the
distribution channel.
We
depend on key personnel.
We
consider our employees to be the foundation for our growth and success. As such,
our future success depends in large part on our ability to attract, retain and
motivate qualified personnel, including our executive officers and key
management personnel. If we are unable to attract and retain key personnel, our
operating results could be adversely affected.
21
Past
growth may not be indicative of future growth.
We have
experienced substantial sales growth through acquisitions, market share gains
and new sales center openings that have increased our size, scope and geographic
distribution. During the past five years, we have opened 29 new sales centers
(net of subsequent closings and consolidations of new sales centers) and have
completed 9 acquisitions. These acquisitions have added 69 sales centers, net of
sales center closings and consolidations within one year of acquisition, and 3
centralized shipping locations to our distribution networks. In 2007 and 2008,
we also closed 6 existing sales centers. While we contemplate continued growth
through acquisitions and internal expansion, no assurance can be made as to our
ability to:
·
|
penetrate
new markets;
|
·
|
identify
appropriate acquisition candidates;
|
·
|
complete
acquisitions on satisfactory terms and successfully integrate acquired
businesses;
|
·
|
obtain
financing;
|
·
|
generate
sufficient cash flows to support expansion plans and general operating
activities;
|
·
|
maintain
favorable supplier arrangements and relationships;
and
|
·
|
identify
and divest assets which do not continue to create value consistent with
our objectives.
|
If we do
not manage these potential difficulties successfully, our operating results
could be adversely affected.
The
growth of our business depends on effective marketing programs.
The
growth of our business depends on the expansion of the installed pool base.
Thus, an important part of our strategy is to promote the growth of the pool
industry through our extensive advertising and promotional programs that attempt
to raise consumer awareness regarding the benefits and affordability of pool
ownership, the ease of pool maintenance and the many ways in which a pool may be
enjoyed beyond swimming. These programs include media advertising, website
development such as www.swimmingpool.com™
and public relations campaigns. We believe these programs benefit the entire
supply chain from our suppliers to our customers.
We also
promote the growth of our customers’ businesses through comprehensive support
programs that offer promotional tools and marketing support to help generate
increased sales for our customers. Our programs include such features as
personalized websites, brochures, marketing campaigns and business development
training. We also provide certain retail store customers with assistance in site
selection, store layout and design and business management system
implementation. Our inability to sufficiently develop effective advertising,
marketing and promotional programs to succeed in a weakened economic environment
and an increasingly competitive marketplace, in which we (and our entire supply
chain) also compete with other luxury product alternatives, could have a
material adverse effect on our business.
Our
business is highly seasonal.
In 2008,
approximately 67% of our net sales and over 100% of our operating income were
generated in the second and third quarters of the year, which represent the peak
months of swimming pool use, installation, remodeling and repair. Our sales are
substantially lower during the first and fourth quarters of the year, when we
may incur net losses.
The
nature of our business subjects us to compliance with Environmental, Health,
Transportation and Safety Regulations.
We are
subject to regulation under federal, state and local environmental, health,
transportation and safety requirements, which govern such things as packaging,
labeling, handling, transportation, storage and sale of chemicals and
fertilizers. For example, we sell algaecides and pest control products that are
regulated as pesticides under the Federal Insecticide, Fungicide and Rodenticide
Act and various state pesticide laws. These laws are primarily related to
labeling, annual registration and licensing.
22
Failure
to comply with these laws and regulations may result in the assessment of
administrative, civil and criminal penalties or the imposition of injunctive
relief. Moreover, compliance with such laws and regulations in the future could
prove to be costly, and there can be no assurance that we will not incur such
costs in material amounts. These laws and regulations have changed substantially
and rapidly over the last 20 years and we anticipate that there will be
continuing changes. The clear trend in environmental, health, transportation and
safety regulation is to place more restrictions and limitations on activities
that impact the environment, such as the use and handling of chemical
substances. Increasingly, strict restrictions and limitations have resulted in
higher operating costs for us and it is possible that the costs of compliance
with such laws and regulations will continue to increase. We will attempt to
anticipate future regulatory requirements that might be imposed and we will plan
accordingly to remain in compliance with changing regulations and to minimize
the costs of such compliance.
We
store chemicals, fertilizers and other combustible materials that involve fire,
safety and casualty risks.
We store
chemicals and fertilizers, including certain combustible, oxidizing compounds,
at our sales centers. A fire, explosion or flood affecting one of our facilities
could give rise to fire, safety and casualty losses and related liability
claims. We maintain what we believe is prudent insurance protection. However, we
cannot guarantee that our insurance coverage will be adequate to cover future
claims that may arise or that we will be able to maintain adequate insurance in
the future at rates we consider reasonable. Successful claims for which we are
not fully insured may adversely affect our working capital and profitability. In
addition, changes in the insurance industry have generally led to higher
insurance costs and decreased availability of coverage.
We
conduct business internationally, which exposes us to additional
risks.
Our
international operations expose us to certain additional risks,
including:
·
|
difficulty
in staffing international subsidiary
operations;
|
·
|
different
political and regulatory
conditions;
|
·
|
currency
fluctuations;
|
·
|
adverse
tax consequences; and
|
·
|
dependence
on other economies.
|
We source
certain products we sell, including our private label products, from Asia and
other international sources. There is a greater risk that we may not be able to
access products in a timely and efficient manner, and we may also be subject to
certain trade restrictions that prevent us from obtaining products. Fluctuations
in other factors relating to international trade, such as tariffs, currency
exchange rates, transportation costs and inflation are additional risks for our
international operations.
A
terrorist attack or the threat of a terrorist attack could have a material
adverse effect on our business.
Discretionary
spending on leisure product offerings such as ours is generally adversely
affected during times of economic or political uncertainty. The potential for
terrorist attacks, the national and international responses to terrorist
attacks, and other acts of war or hostility could create these types of
uncertainties and negatively impact our business for the short or long-term in
ways that cannot presently be predicted.
23
The table
below summarizes the repurchases of our common stock in the second quarter of
2009:
Maximum
approximate
|
||||||||||
Total
number of shares
|
dollar
value of shares
|
|||||||||
Total
number of
|
Average
price
|
purchased
as part of
|
that
may yet be
|
|||||||
Period
|
shares
purchased(1)
|
paid
per share
|
publicly
announced plan(2)
|
purchased
under the plan(3)
|
||||||
April
1-30, 2009
|
—
|
$
|
—
|
—
|
$
|
52,987,067
|
||||
May
1-31, 2009
|
—
|
$
|
—
|
—
|
$
|
52,987,067
|
||||
June
1-30, 2009
|
—
|
$
|
—
|
—
|
$
|
52,987,067
|
||||
Total
|
—
|
$
|
—
|
—
|
(1)
|
These
shares may include shares of our common stock surrendered to us by
employees in order to satisfy tax withholding obligations in connection
with certain exercises of employee stock options and/or the exercise price
of such options granted under our share-based compensation
plans. There were no shares surrendered for this purpose in the
second quarter of 2009.
|
(2)
|
In
July 2002, our Board authorized $50.0 million for the repurchase of
shares of our common stock in the open market. In August 2004, November
2005 and August 2006, our Board increased the authorization for the
repurchase of shares of our common stock in the open market to a total of
$50.0 million from the amounts remaining at each of those dates. In
November 2006 and August 2007, our Board increased the authorization
for the repurchase of shares of our common stock in the open market to
$100.0 million from the amounts remaining at each of those
dates.
|
(3)
|
As
of July 24, 2009, $53.0 million of the authorized amount remained
available under our share repurchase
program.
|
At the
Annual Meeting of Stockholders held on May 5, 2009, the following
proposals were adopted by the margins indicated:
1.
|
To
elect a Board of Directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected and
qualified.
|
Number
of Shares
|
||||
For
|
Withheld
|
|||
Andrew
W. Code
|
44,123,266
|
1,131,046
|
||
James
J. Gaffney
|
44,264,262
|
990,049
|
||
George
T. Haymaker
|
44,593,099
|
661,213
|
||
Manuel
J. Perez de la Mesa
|
44,497,265
|
757,046
|
||
Wilson
B. Sexton
|
44,318,594
|
935,718
|
||
Harlan
F. Seymour
|
44,967,234
|
287,078
|
||
Robert
C. Sledd
|
44,103,872
|
1,150,439
|
||
John
E. Stokely
|
44,779,885
|
474,426
|
24
2.
|
To
approve an amendment to the 2007 Long-Term Incentive Plan of Pool
Corporation.
|
For
|
28,318,427
|
Against
|
11,239,737
|
Abstain
|
2,081,599
|
3.
|
To
ratify the appointment of Ernst & Young LLP, certified public
accountants, as our independent registered public accounting firm for the
fiscal year ending
December 31, 2009.
|
For
|
44,641,691
|
Against
|
605,720
|
Abstain
|
6,900
|
Exhibits
filed as part of this report are listed in the Index to Exhibits appearing on
page 27.
25
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized on July 30, 2009.
POOL
CORPORATION
|
||
By:
|
/s/ Mark W. Joslin | |
Mark
W. Joslin
Vice
President and Chief Financial Officer, and duly authorized signatory on
behalf of the Registrant
|
26
Incorporated
by Reference
|
||||||||||
No.
|
Description
|
Filed
with this Form 10-Q
|
Form
|
File
No.
|
Date
Filed
|
|||||
3.1
|
Restated
Certificate of Incorporation of the Company.
|
10-Q
|
000-26640
|
08/09/2006
|
||||||
3.2
|
Restated
Composite Bylaws of the Company.
|
10-Q
|
000-26640
|
08/09/2006
|
||||||
4.1
|
Form
of certificate representing shares of common stock of the
Company.
|
8-K
|
000-26640
|
05/19/2006
|
||||||
10.1
|
Amendment
No. 14 to Receivables Purchase Agreement dated as of May 19, 2009, among
SCP Distributors LLC, Superior Commerce LLC, JS Siloed Trust, and JPMorgan
Chase Bank, N.A. f/k/a Bank One, NA (Main Office Chicago).
|
8-K
|
000-26640
|
05/19/2009
|
||||||
Certification
by Mark W. Joslin pursuant to Rule 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
X
|
|||||||||
Certification
by Manuel J. Perez de la Mesa pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
X
|
|||||||||
Certification
by Manuel J. Perez de la Mesa and Mark W. Joslin pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
X
|
27