SCP Pool Corporation Reports Record First Quarter Results
biz.yahoo.com.
Thursday April 20, 8:00 am ET
Earnings Per Share Grows by $0.05
COVINGTON, La.--(BUSINESS WIRE)--April 20, 2006--SCP Pool Corporation (the "Company" or "POOL") (Nasdaq/NM: POOL) today reported record net sales and net income for the first quarter of 2006.
As previously announced, the Company has elected the modified retrospective transition method under Statement of Financial Accounting Standards (SFAS) 123® - Share-Based Payment. The Company has adjusted prior period financial statements to reflect the impact of share-based compensation and provide a consistent quarter-to-quarter comparison of financial results. Therefore, the results for all periods presented below include the effects of stock option expense.
Earnings per share for the first quarter of 2006 increased 71% to $0.12 per diluted share on net income of $6.4 million, compared to $0.07 per diluted share on net income of $4.1 million in 2005.
Net sales for the quarter ended March 31, 2006 increased $83.4 million, or 31%, to $348.6 million, compared to $265.2 million in 2005. Base business sales growth of 15% contributed $39.0 million to the increase due primarily to the growth in the installed base of swimming pools, POOL's execution of its sales and service programs and 36% growth in complementary product sales. The remaining increase in net sales is attributable to acquired and new service centers, including the Horizon business acquired in October 2005.
Gross profit for the quarter ended March 31, 2006 increased $26.0 million, or 36%, to $98.0 million from $72.0 million in 2005. Gross profit as a percentage of net sales (gross margin) increased 100 basis points to 28.1% in the first quarter of 2006 from 27.1% in the first quarter of 2005. The gross margin increase is attributable primarily to the benefits achieved through our supply chain management initiatives, including the benefit of our inventory purchases in the fourth quarter.
Operating expenses increased $21.3 million, or 35%, to $83.0 million in the first quarter of 2006 from $61.7 million in the first quarter of 2005. Base business operating expenses of $69.6 million were 15% higher than prior year and consistent as a percentage of sales.
Operating income increased $4.7 million, or 46%, to $15.0 million from $10.3 million. Operating income as a percentage of net sales (operating margin) increased to 4.3% from 3.9% in 2005. Base business operating income increased to 5.2% of sales in 2006 from 4.2% of sales in 2005.
The seasonal use of cash in operations increased $9.7 million to $60.7 million in the first quarter of 2006 compared to $51.0 million in the same period of 2005.
"Our first quarter results reflect the mild winter coupled with our continued execution of our strategies and our commitment to helping our customers and suppliers leverage the opportunities in our industry. With a strong start to 2006, we are optimistic that this momentum will carry into the critical second quarter and lead to another year of solid results," commented Manuel Perez de la Mesa, President and CEO.
At March 31, 2006, 204 service centers were included in the base business calculations, and 48 service centers were excluded because they were acquired or opened in new markets within the last 15 months.
SCP Pool Corporation is the largest wholesale distributor of swimming pool and related backyard products. Currently, POOL operates 253 service centers in North America and Europe, through which it distributes more than 100,000 national brand and private label products to roughly 68,000 wholesale customers. For more information about POOL, please visit www.poolcorp.com.
This news release may include "forward-looking" statements that involve risk and uncertainties. The forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of factors, including the sensitivity of the swimming pool supply business to weather conditions and other risks detailed in POOL's 2005 Form 10-K filed with the Securities and Exchange Commission.
Consolidated Statements of Income
----------------------------------------------------------------------
(Unaudited) Three Months Ended
(In thousands, except per share data) March 31,
2006 2005(a)
----------------------------------------------------------------------
Net sales $348,556 $265,161
Cost of sales 250,508 193,210
----------------------------------------------------------------------
Gross profit 98,048 71,951
Percent 28.1% 27.1%
Selling and administrative expenses 83,026 61,695
----------------------------------------------------------------------
Operating income 15,022 10,256
Percent 4.3% 3.9%
Interest expense, net 2,851 1,080
----------------------------------------------------------------------
Income before income taxes and equity losses 12,171 9,176
Provision for income taxes 4,699 3,592
Equity loss in unconsolidated investments, net (1,050) (1,482)
----------------------------------------------------------------------
Net income $ 6,422 $ 4,102
----------------------------------------------------------------------
Earnings per share:
Basic $ 0.12 $ 0.08
Diluted $ 0.12 $ 0.07
----------------------------------------------------------------------
Weighted average shares outstanding:
Basic 52,593 52,273
Diluted 55,443 55,477
----------------------------------------------------------------------
Cash dividends declared per common share $ 0.09 $ 0.07
----------------------------------------------------------------------
(a) As adjusted to reflect the impact of share-based compensation
expense related to the adoption of SFAS 123(R) using the
modified retrospective transition method.
Condensed Consolidated Balance Sheets
----------------------------------------------------------------------
(Unaudited)
(In thousands) March 31,
2006 2005(a)
----------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 5,964 $ 14,565
Receivables, net 42,988 33,646
Receivables pledged under receivables
facility 168,590 130,861
Product inventories, net 406,310 281,267
Prepaid expenses 5,193 3,841
Deferred income taxes 3,970 2,570
----------------------------------------------------------------------
Total current assets 633,015 466,750
Property and equipment, net 27,884 20,087
Goodwill 142,177 104,687
Other intangible assets, net 18,955 11,723
Equity interest investments 28,182 17,134
Other assets, net 15,413 10,570
----------------------------------------------------------------------
Total assets $865,626 $630,951
----------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $267,296 $219,290
Accrued and other current liabilities 51,827 23,038
Short-term financing 80,275 57,665
Current portion of other long-term
liabilities 2,100 1,350
----------------------------------------------------------------------
Total current liabilities 401,498 301,343
Deferred income taxes 12,786 11,624
Long-term debt 155,163 82,914
Other long-term liabilities 2,174 3,116
----------------------------------------------------------------------
Total liabilities 571,621 398,997
----------------------------------------------------------------------
Total stockholders' equity 294,005 231,954
----------------------------------------------------------------------
Total liabilities and stockholders'
equity $865,626 $630,951
----------------------------------------------------------------------
(a) As adjusted to reflect the impact of share-based compensation
expense related to the adoption of SFAS 123(R) using the
modified retrospective transition method.
1. The allowance for doubtful accounts was $4.1 million at March
31, 2006 and $2.9 million at March 31, 2005. Days sales
outstanding (DSO) was 34.0 days at March 31, 2006 compared to
33.4 days at March 31, 2005.
2. The inventory reserve was $4.5 million at March 31, 2006
and $3.4 million at March 31, 2005. The slowest moving class
of inventory as a percentage of total inventory decreased
to 1.4% at March 31, 2006 from 1.6% at March 31, 2005.
Condensed Consolidated Statements of Cash Flows
----------------------------------------------------------------------
(Unaudited) Three Months Ended
(In thousands) March 31,
2006 2005(a)
----------------------------------------------------------------------
Operating activities
Net income $ 6,422 $ 4,102
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,860 1,216
Amortization 1,328 937
Stock-based compensation 2,145 1,385
Excess tax benefits from stock-based
compensation (8,236) (4,261)
Equity losses in unconsolidated
investments 1,725 1,482
Other (1,578) (741)
Changes in operating assets and
liabilities,
net of effects of acquisitions:
Receivables (69,638) (66,706)
Product inventories (76,348) (85,750)
Accounts payable 93,145 106,176
Other (11,484) (8,807)
----------------------------------------------------------------------
Net cash used in operating activities (60,659) (50,967)
----------------------------------------------------------------------
Investing activities
Acquisition of businesses, net of cash acquired (1,446) (2)
Purchase of property and equipment, net of sale
proceeds (3,408) (2,772)
----------------------------------------------------------------------
Net cash used in investing activities (4,854) (2,774)
----------------------------------------------------------------------
Financing activities
Proceeds from revolving line of credit 71,213 77,378
Payments on revolving line of credit (44,400) (44,884)
Proceeds from asset-backed financing 23,622 19,835
Payments on asset-backed financing (9,004) (4,765)
Payments on other long-term debt (23) (23)
Payments of deferred financing costs (18) (11)
Payments of capital lease obligations (257) --
Excess tax benefits from stock-based
compensation 8,236 4,261
Issuance of common stock under stock option
plans 3,709 1,495
Payment of cash dividends (4,750) (3,672)
Purchase of treasury stock (4,071) (3,024)
----------------------------------------------------------------------
Net cash provided by financing activities 44,257 46,590
----------------------------------------------------------------------
Effect of exchange rate changes on cash 354 (46)
----------------------------------------------------------------------
Increase in cash and cash equivalents (20,902) (7,197)
Cash and cash equivalents at beginning of year 26,866 21,762
----------------------------------------------------------------------
Cash and cash equivalents at end of year $ 5,964 $ 14,565
----------------------------------------------------------------------
(a) As adjusted to reflect the impact of share-based compensation
expense related to the adoption of SFAS 123(R) using the
modified retrospective transition method.
Addendum
----------------------------------------------------------------------
(Unaudited) Base Business Acquired
(In thousands) Three Months Three Months
Ended March 31, Ended March 31,
2006 2005 2006 2005
----------------------------------------------------------------------
Net sales $302,186 $263,210 $ 46,370 $ 1,951
Gross profit 85,231 71,366 12,817 585
Gross margin 28.2% 27.1% 27.6% 30.0%
Selling and operating
expenses 69,589 60,293 13,437 1,402
Expenses as a % of net
sales 23.0% 22.9% 29.0% 71.9%
Operating income (loss) 15,642 11,073 (620) (817)
Operating income (loss)
margin 5.2% 4.2% (1.3)% (41.9)%
----------------------------------------------------------------------
(Unaudited)
(In thousands) Total Three Months
Ended March 31,
2006 2005
----------------------------------------------------------------------
Net sales $348,556 $265,161
Gross profit 98,048 71,951
Gross margin 28.1% 27.1%
Selling and operating expenses 83,026 61,695
Expenses as a % of net sales 23.8% 23.3%
Operating income (loss) 15,022 10,256
Operating income (loss) margin 4.3% 3.9%
----------------------------------------------------------------------
We exclude the following service centers from base business for 15 months:
acquired service centers;
service centers divested or consolidated with acquired service centers; and
new service centers opened in new markets.
Additionally, we generally allocate overhead expenses to acquired service centers on the basis of acquired service center net sales as a percentage of total net sales.
The effect of service center acquisitions in the table above includes the operations of the following:
B&B s.r.l (Busatta) - January through March 2006
Direct Replacements, Inc. - January through March 2006
Horizon Distributors, Inc. - January through March 2006
Pool Tech Distributors, Inc. - January through February 2006 and 2005
EBITDA is defined as net income plus interest expense, income taxes, depreciation and amortization. We consider EBITDA an important indicator of the operational strength and performance of our business, including the ability to provide cash flows to fund growth, service debt and pay dividends. EBITDA eliminates the non-cash depreciation of tangible assets and amortization of intangible assets. We believe EBITDA should be considered in addition to, not as a substitute for, operating income, net income and other measures of financial performance reported in accordance with accounting principles generally accepted in the United States (GAAP).
The table below presents a reconciliation of net income to EBITDA.
(Unaudited) Three Months Ended
(In thousands) March 31,
2006 2005
----------------------------------------------------------------------
Net income $ 6,422 $ 4,102
Add:
Interest expense, net 2,851 1,080
Provision for income taxes 4,699 3,592
Income tax benefit on equity
losses (675) --
Depreciation 1,860 1,216
Amortization (1) 1,378 1,013
----------------------------------------------------------------------
EBITDA $16,535 $11,003
----------------------------------------------------------------------
(1) Excludes amortization included in interest expense, net |
