POOL CORP - Quarter Report: 2011 March (Form 10-Q)

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x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended March 31, 2011   or

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from ____________ to ____________

 

POOL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware		36-3943363
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
109 Northpark Boulevard, Covington, Louisiana		70433-5001
(Address of principal executive offices)		(Zip Code)
985-892-5521
(Registrant's telephone number, including area code)

 

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

PART I.  FINANCIAL INFORMATION
	Item 1.  Financial Statements (Unaudited)
		Consolidated Statements of Income (Loss)	1
		Consolidated Balance Sheets	2
		Condensed Consolidated Statements of Cash Flows	3
		Notes to Consolidated Financial Statements	4
	Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations		7
	Item 3.  Quantitative and Qualitative Disclosures about Market Risk		16
	Item 4.  Controls and Procedures		16
PART II.  OTHER INFORMATION
	Item 1A.  Risk Factors		17
	Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds		17
	Item 6.  Exhibits		17
Signature			18
Index to Exhibits			19

 

 

 

 

	Three Months Ended
	March 31,
		2011			2010
Net sales	$	312,889		$	269,833
Cost of sales		221,479			193,541
Gross profit		91,410			76,292
Selling and administrative expenses		90,834			84,180
Operating income (loss)		576			(7,888	)
Interest expense, net		1,645			2,354
Loss before income tax benefit and equity earnings		(1,069	)		(10,242	)
Income tax benefit		(419	)		(4,025	)
Equity earnings in unconsolidated investments		12			106
Net loss	$	(638	)	$	(6,111	)
Loss per share:
Basic	$	(0.01	)	$	(0.12	)
Diluted	$	(0.01	)	$	(0.12	)
Weighted average shares outstanding:
Basic		48,864			49,194
Diluted		48,864			49,194
Cash dividends declared per common share	$	0.13		$	0.13

 

		March 31,			March 31,			December 31,
		2011			2010			2010 (1)
		(Unaudited)			(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	11,420		$	11,494		$	9,721
Receivables, net		173,787			157,568			101,543
Product inventories, net		438,791			382,380			347,439
Prepaid expenses and other current assets		6,850			13,513			7,678
Deferred income taxes		10,211			10,681			10,211
Total current assets		641,059			575,636			476,592
Property and equipment, net		34,746			32,206			30,685
Goodwill		178,516			176,923			178,516
Other intangible assets, net		12,597			13,454			12,965
Equity interest investments		903			1,087			966
Other assets, net		28,822			28,556			28,821
Total assets	$	896,643		$	827,862		$	728,545
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	303,395		$	251,590		$	169,700
Accrued expenses and other current liabilities		29,096			25,429			41,704
Current portion of long-term debt and other long-term liabilities		100,064			36,223			134
Total current liabilities		432,555			313,242			211,538
Deferred income taxes		25,870			21,979			25,593
Long-term debt		180,157			242,150			198,700
Other long-term liabilities		7,491			7,646			7,532
Total liabilities		646,073			585,017			443,363
Stockholders’ equity:
Common stock, $.001 par value; 100,000,000 shares authorized;     48,298,621 and 49,439,423 shares issued and outstanding at     March 31, 2011 and March 31, 2010, respectively, and     49,381,678 shares issued and 49,278,578 shares outstanding     at December 31, 2010		48			49			49
Additional paid-in capital		226,554			207,803			218,744
Retained earnings		22,426			33,066			67,681
Treasury stock		–			–			(2,344	)
Accumulated other comprehensive income		1,542			1,927			1,052
Total stockholders’ equity		250,570			242,845			285,182
Total liabilities and stockholders’ equity	$	896,643		$	827,862		$	728,545

 

	Three Months Ended
	March 31,
	2011				2010
Operating activities
Net loss	$	(638	)		$	(6,111	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		2,207				2,224
Amortization		444				567
Share-based compensation		1,892				1,871
Excess tax benefits from share-based compensation		(1,405	)			(795	)
Equity earnings in unconsolidated investments		(12	)			(106	)
Other		(1,192	)			(2,329	)
Changes in operating assets and liabilities, net of effects of acquisitions:
Receivables		(71,602	)			(59,755	)
Product inventories		(91,525	)			(26,576	)
Accounts payable		133,674				73,244
Other current assets and liabilities		(8,971	)			(7,518	)
Net cash used in operating activities		(37,128	)			(25,284	)
Investing activities
Purchase of property and equipment, net of sale proceeds		(6,246	)			(3,133	)
Net cash used in investing activities		(6,246	)			(3,133	)
Financing activities
Proceeds from revolving line of credit		167,257				99,050
Payments on revolving line of credit		(85,800	)			(57,600	)
Payments on long-term debt and other long-term liabilities		(89	)			(12,043	)
Payments of deferred financing costs		–				(145	)
Excess tax benefits from share-based compensation		1,405				795
Proceeds from stock issued under share-based compensation plans		4,512				2,353
Payments of cash dividends		(6,321	)			(6,418	)
Purchases of treasury stock		(35,953	)			(1,533	)
Net cash provided by financing activities		45,011				24,459
Effect of exchange rate changes on cash and cash equivalents		62				(391	)
Change in cash and cash equivalents		1,699				(4,349	)
Cash and cash equivalents at beginning of period		9,721				15,843
Cash and cash equivalents at end of period	$	11,420			$	11,494

 

 

 

				Three Months Ended
				March 31,
				2011			2010
Weighted average shares outstanding:
	Basic			48,864			49,194
	Effect of dilutive securities:
		Stock options		816			611
		Employee stock purchase plan		2			3
	Diluted			49,682			49,808

	Three Months Ended March 31,
		2011			2010
Net loss	$	(638	)	$	(6,111	)
Foreign currency translation adjustments		62			(391	)
Unrealized gains on interest rate swaps (1)		428			92
Comprehensive loss	$	(148	)	$	(6,410	)

(1)	Amounts are shown net of tax.

		Foreign Currency Translation			Unrealized Gains (Losses) on Interest Rate Swaps (1)			Total
Balance at December 31, 2010	$	3,085		$	(2,033	)	$	1,052
Net change		62			428			490
Balance at March 31, 2011	$	3,147		$	(1,605	)	$	1,542

 

(1)	Amounts are shown net of tax.

 

		Unrealized Losses at March 31,
Balance Sheet Line Item			2011			2010
Accrued expenses and other current liabilities		$	(2,645	)	$	(4,838	)

 

 

 

 

 

	Three Months Ended
	March 31,
	2011			2010
Net sales	100.0	%		100.0	%
Cost of sales	70.8			71.7
Gross profit	29.2			28.3
Operating expenses	29.0			31.2
Operating income (loss)	0.2			(2.9	)
Interest expense, net	0.5			0.9
Loss before income tax benefit and equity earnings	(0.3	)		(3.8	)

Acquired		Acquisition Date		Net Sales Centers Acquired		Periods Excluded
Turf Equipment Supply Co.		December 2010		3		January 2011–March 2011
Pool Boat and Leisure, S.A.		December 2010		1		January 2011–March 2011
Les Produits de Piscine Metrinox Inc.		April 2010		2		January 2011–March 2011

December 31, 2010	291
Opened (1)	3
Consolidated	(1	)
March 31, 2011	293

(1)	Includes two new sales centers in Florida and one sales center in Oregon that reopened (a previous SCP network location that closed in December 2007 and has operated within a Horizon network sales center since then).

		Three Months Ended March 31,
(in millions)		2011			2010				Change
Net sales		$	312.9		$	269.8		$	43.1		16	%

·	much more favorable weather conditions across most of the sunbelt markets during the first quarter of 2011;

·	market share gains evidenced by both sales growth in expanded product offerings such as tile and an expanded customer base; and

·	somewhat higher consumer discretionary expenditures as a result of improving external market trends.

		Three Months Ended March 31,
(in millions)		2011			2010				Change
Gross profit		$	91.4		$	76.3		$	15.1		20	%
Gross margin			29.2	%		28.3	%

		Three Months Ended March 31,
(in millions)		2011			2010				Change
Operating expenses		$	90.8		$	84.2		$	6.6		8	%
Operating expenses as a % of net sales			29.0	%		31.2	%

 

 

 

(Unaudited)		QUARTERS
(in thousands)			2011		2010								2009
			First		Fourth		Third		Second		First		Fourth		Third		Second
Statement of Income (Loss) Data
Net sales		$	312,889	$	241,426	$	455,020	$	647,467	$	269,833	$	231,032	$	430,054	$	602,082
Gross profit			91,410		73,567		130,869		190,534		76,292		67,069		123,394		178,068
Operating income (loss)			576		(16,783	)	37,047		88,869		(7,888	)	(21,776	)	32,142		81,720
Net income (loss)			(638	)	(11,805	)	22,784		52,770		(6,111	)	(13,606	)	(9,322	) (1)	48,366
Balance Sheet Data
Total receivables, net		$	173,787	$	101,543	$	155,252	$	238,638	$	157,568	$	96,364	$	149,733	$	233,288
Product inventories, net			438,791		347,439		306,609		331,537		382,380		355,528		318,177		325,198
Accounts payable			303,395		169,700		127,995		221,374		251,590		178,391		137,761		194,004
Total debt			280,157		198,700		231,200		266,131		278,150		248,700		273,300		334,015

(1)

Includes the impact of a $26.5 million equity loss that we recognized in September 2009 related to our pro rata share of Latham Acquisition Corporation’s (LAC) non-cash goodwill and other intangible asset impairment charge.  The recognized loss resulted in the full write-off of our equity method investment in LAC.

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 positively impacting our sales
(primarily in the northern half of the US and Canada)
Unseasonably late warming trends in spring/early cooling trends in fall	•	A shorter pool and landscape season, thus negatively impacting our sales
(primarily in the northern half of the US and Canada)

·	cash flows generated from operating activities;

·	the adequacy of available bank lines of credit;

·	acquisitions;

·	scheduled debt payments;

·	dividend payments;

·	capital expenditures;

·	the timing and extent of share repurchases; and

·	the ability to attract long-term capital with satisfactory terms.

·	maintenance and new sales center capital expenditures, which have averaged approximately 0.5% to 0.75% of net sales historically, but was below and at the bottom of this range for the past three years due to lower capacity expansion;

·	strategic acquisitions executed opportunistically;

·	payment of cash dividends as and when declared by our Board of Directors (Board);

·	repurchase of common stock at Board-defined parameters; and

·	repayment of debt.

		Three Months Ended March 31,
		2011			2010
Operating activities		$	(37,128	)	$	(25,284	)
Investing activities			(6,246	)		(3,133	)
Financing activities			45,011			24,459

·

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 March 31, 2011, our average total leverage ratio equaled 1.81 (compared to 1.99 as of December 31, 2010) and the TTM average total debt amount used in this calculation was $235.3 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 March 31, 2011, our fixed charge ratio equaled 2.96 (compared to 2.78 as of December 31, 2010) and TTM Rental Expense was $55.2 million.

·	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.

 

 

 

							Total Number of		Maximum Approximate
		Total Number					Shares Purchased		Dollar Value of Shares
		of Shares		Average Price			as Part of Publicly		That May Yet be
Period		Purchased (1)		Paid per Share			Announced Plan (2)		Purchased Under the Plan (3)
January 1-31, 2011		389,720		$	23.21		386,497		$	31,865,669
February 1-28, 2011		487,834		$	24.77		346,388		$	23,283,874
March 1-31, 2011		605,776		$	24.47		605,776		$	8,459,961
Total		1,483,330		$	24.24		1,338,661

(1)

These shares 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.  Shares surrendered totaled 3,223 shares in January and 141,446 shares in February.  No shares were surrendered for this purpose in March.

(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 April 22, 2011, $4.2 million of the authorized amount remained available under our share repurchase program.

 

		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

 

						Incorporated by Reference
No.		Description		Filed or Furnished 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
31.1		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.		ü
31.2		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.		ü
32.1		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.		ü
101.INS	+	XBRL Instance Document		ü
101.SCH	+	XBRL Taxonomy Extension Schema Document		ü
101.CAL	+	XBRL Taxonomy Extension Calculation Linkbase Document		ü
101.LAB	+	XBRL Taxonomy Extension Label Linkbase Document		ü
101.PRE	+	XBRL Taxonomy Extension Presentation Linkbase Document		ü

+	Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):

1.	Consolidated Statements of Income (Loss) for the three months ended March 31, 2011 and March 31, 2010;

2.	Consolidated Balance Sheets at March 31, 2011, March 31, 2010 and December 31, 2010;

3.	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and March 31, 2010; and

4.	Notes to Consolidated Financial Statements.