<PAGE>
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 MARCH 31, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
COMMISSION FILE NO.: 0-26640
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SCP POOL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3943363
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(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)
504-892-5521
----------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------------------------------------
(former name, former address and former fiscal year, if changed since last
report)
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 __ NO X
---
At April 30, 1997, there were 4,225,189 outstanding shares of the Registrant's
Common Stock, $.001 par value per share.
<PAGE>
SCP POOL CORPORATION
TABLE OF CONTENTS
Part I. Financial Information Page
----
Item 1. Financial Statements
Consolidated Balance Sheets -- March 31, 1997
(Unaudited) and December 31, 1996.................. 1
Consolidated Statements of Operations -- Three Months
Ended March 31, 1997 and 1996 (Unaudited).......... 2
Consolidated Statements of Cash Flows -- Three Months
Ended March 31, 1997 and 1996 (Unaudited).......... 3
Notes to Consolidated Financial Statements
(Unaudited) -- March 31, 1997...................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 5
Part II. Other Information
Items 1. - 6.................................................. 11
<PAGE>
SCP POOL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
-------------- -------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,285 $ 4,621
Receivables 41,768 25,293
Inventory, primarily goods purchased for resale 66,892 42,112
Prepaid expenses 1,965 632
Deferred income taxes 584 392
----------- ----------
Total current assets 120,494 73,050
Property and equipment, net 4,790 4,413
Goodwill, net 32,484 33,009
Other assets, net 2,946 2,773
----------- ----------
Total assets $160,714 $113,245
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 69,836 $ 15,132
Accrued and other current liabilities 3,834 7,907
Current portion of long-term debt 10,905 15,409
----------- ----------
Total current liabilities 84,575 38,448
Deferred income taxes 2,059 2,119
Long-term debt, less current portion 37,868 35,868
Stockholders' equity:
Preferred stock, $.01 par value; 100,000 shares authorized - -
Common stock, $.001 par value; 10,000,000 shares authorized;
4,223,829 and 4,222,809 shares issued and outstanding in 1997
and 1996, respectively 4 4
Additional paid-in capital 29,592 29,587
Retained earnings 6,616 7,219
----------- ----------
Total stockholders' equity 36,212 36,810
----------- ----------
Total liabilities and stockholders' equity $160,714 $113,245
=========== ==========
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived
from the audited financial statements at that date but does not
include all of the information and footnotes required by
generally accepted accounting principles for complete finan-
cial statements.
See accompanying notes. 1
<PAGE>
SCP POOL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
-------- ---------
(Unaudited)
<S> <C> <C>
Net sales $63,565 $41,145
Cost of sales 49,605 31,872
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Gross profit 13,960 9,273
Warehouse expense 3,229 1,971
Selling and administrative expenses 10,416 6,367
Goodwill amortization 211 192
------- -------
Operating income 104 743
Other income (expense):
Interest expense (1,057) (588)
Amortization expense (179) (132)
Miscellaneous income 159 106
------- -------
(1,077) (614)
------- -------
Income (loss) before income taxes (973) 129
Income tax provision (benefit) (370) 51
------- -------
Net income (loss) $ (603) $ 78
======= =======
Net income (loss) per share of common stock:
Primary $ (.14) $ .02
======= =======
Fully diluted $ (.14) $ .02
======= =======
Average shares outstanding:
Primary 4,223 4,223
======= =======
Fully diluted 4,308 4,308
======= =======
</TABLE>
See accompanying notes.
2
<PAGE>
SCP POOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------- ----------
<S> <C> <C>
(Unaudited)
OPERATING ACTIVITIES
Net income (loss) $ (603) $ 78
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities 8,021 (2,552)
------- -------
Net cash provided by (used in) operating activities 7,418 (2,474)
INVESTING ACTIVITIES
Purchase of property and equipment (284) (302)
Proceeds from sale of property and equipment 29 26
------- -------
Net cash used in investing activities (255) (276)
FINANCING ACTIVITIES
Net borrowings on revolving loan 3,000 5,500
Payments on long-term debt (5,504) (375)
Issuance of common stock 5 -
------- -------
Net cash provided by (used in) financing activities (2,499) 5,125
------- -------
Change in cash and cash equivalents 4,664 2,375
Cash and cash equivalents at beginning of period 4,621 2,043
------- -------
Cash and cash equivalents at end of period $ 9,285 $ 4,418
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 1,044 $ 529
======= =======
Income taxes $ 2,242 $ -
======= =======
</TABLE>
See accompanying notes. 3
<PAGE>
SCP POOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. In the opinion of
management, the accompanying unaudited interim financial statements reflect all
adjustments, of a normal recurring nature, necessary for a fair presentation of
the results of the interim periods.
The Company's business is highly seasonal. In general, sales and net income are
highest during the second and third quarters, which represent the peak months of
swimming pool use and installation. Operating results for the three-month period
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information, refer
to the consolidated financial statements for the year ended December 31, 1996
and footnotes thereto included in the annual report on Form 10-K filed by the
Company with the Securities and Exchange Commission.
2. DESCRIPTION OF BUSINESS
As of March 31, 1997, SCP Pool Corporation and its wholly owned subsidiaries
(collectively referred to as the Company) maintain 71 service centers in 22
states located throughout the United States, except in the Northeast, from which
they sell swimming pool equipment and supplies to pool builders, retail stores,
and service firms.
3. EARNINGS PER SHARE
Primary income (loss) per common share equals net income (loss) divided by the
weighted average number of common shares outstanding during the period. Fully
diluted income per common share equals net income (loss) plus the after-tax
interest incurred on the Company's convertible notes, divided by common shares
outstanding after giving effect to shares assumed to be issued on conversion of
those notes. For both 1997 and 1996, the effect of stock options outstanding are
immaterial.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, which the Company will be required to adopt during the
three-month period ending December 31, 1997. The adoption of this statement is
not expected to have a material effect on the calculation of earnings per
share.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was formed in December 1993 to acquire substantially all of the
assets and assume certain liabilities of its Predecessor (Predecessor). From its
inception in 1980 through the end of 1993, the Predecessor increased its sales
by opening new service center locations and by increasing sales to new and
existing customers. Since the Company's acquisition of the Predecessor in
December 1993 (the "SCP Acquisition"), the Company has grown by opening new
service centers and increasing sales to new and existing customers, and through
strategic acquisitions. From January 1, 1990 to March 31, 1997, the Company
expanded from 8 service centers in 6 states to 71 service centers in 22 states,
primarily through acquisitions.
The Company derives its revenues primarily from the sale of swimming pool
supplies and related products, including chemicals, cleaners, packaged pools and
liners, filters, heaters, pumps, lights, repair parts and other equipment
required to build, maintain, install and overhaul residential and small
commercial swimming pools. The Company sells its products primarily to swimming
pool remodelers and builders, independent swimming pool retailers and swimming
pool repair and service companies. These customers tend to be small, family
owned businesses with relatively limited capital resources. The Company
maintains a strict credit policy. Losses from customer receivables have
historically been within management's expectations.
The swimming pool supply industry is affected by various factors, including
general economic conditions, the level of new housing construction, weather
and consumer attitudes towards pool chemical products for environmental or
safety reasons. Although management believes that the Company's geographic
diversity could mitigate the effect of a regional economic downturn and that the
continuing maintenance and repair needs for existing swimming pools could
mitigate the effect of a general economic downturn, there can be no assurance
that the Company's results of operations and expansion plans would not be
materially adversely affected by any of such downturns.
The principal components of the Company's expenses include the cost of products
purchased from manufacturers and sold during the year and operating expenses,
which are primarily related to labor, occupancy, commissions and marketing. Some
geographic markets serviced by the Company, particularly California, Texas and
Florida, tend to be more competitive than others. In response to competitive
pressures from any of its current or future competitors, the Company may be
required to lower selling prices in order to maintain or increase market share,
and such measures could adversely affect the Company's gross margins and
operating results.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
The following table shows, for the periods indicated, information derived from
the consolidated statements of operations of the Company expressed as a
percentage of net sales for such period.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
1997 1996
------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 78.0 77.5
------------------
Gross profit 22.0 22.5
Warehouse expense 5.1 4.8
Selling and administrative expenses 16.4 15.5
Goodwill amortization .3 .5
------------------
Operating income .2 1.7
Other income (expense):
Interest expense (1.7) (1.4)
Amortization expense (.3) (.3)
Miscellaneous .3 .3
------------------
Income (loss) before income taxes (1.5)% .3%
==================
</TABLE>
The following discussions compare the results of operations of the Company for
the three-month periods ended March 31, 1997 and 1996.
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Net sales increased by $22.4 million, or 54.5%, to $63.6 million in the three
months ended March 31, 1997 from $41.1 million in the comparable 1996 period. An
increase of approximately 14.5% in sales at service centers open at least 15
months contributed $3.0 million to the increase, while service centers acquired
from The B-L Network, Inc. (BLN) in September 1996 contributed $22.3 million to
the increase. These increases were offset by the loss of revenues from Alliance
Packaging which was sold in October 1996. Revenues attributable to Alliance
Packaging in the 1996 period were $3.5 million.
Gross profit increased by $4.7 million, or 50.5%, to $14.0 million in the three
months ended March 31, 1997 from $9.3 million in the comparable 1996 period.
Gross profit as a percentage of net sales remained relatively unchanged, at
22.0% in the 1997 period compared to 22.5% in the 1996 period.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Operating expenses increased by $5.3 million, or 62.4%, to $13.9 million in the
three months ended March 31, 1997 from $8.5 million in the comparable 1996
period. This increase is reflective of (1) salaries, occupancy expense and other
costs associated with new service centers, and (2) payroll and other operating
costs required to support the increased sales volume at existing service
centers. Because of seasonality factors, the increases in revenue over the
comparable 1996 period were not proportionate with these increased costs,
particularly at new service centers. Therefore, operating expenses as a
percentage of sales increased to 21.8% in the 1997 period compared to 20.8% in
the 1996 period.
Interest and other expenses increased to $1.1 million in the three months ended
March 31, 1997 from $0.6 million in the comparable 1996 period. The increase was
primarily attributable to the increase in the Company's debt as a result of the
BLN Acquisition.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business is highly seasonal. In general, sales and net income are
highest during the second and third quarters, which represent the peak months of
swimming pool use and installation. Sales are substantially lower during the
first and fourth quarters, when the Company may incur net losses.
The Company experiences a build-up of inventory and accounts payable during the
first and second quarters of the year in anticipation of the peak swimming pool
supply selling season. The Company's peak borrowing occurs during the second
quarter, primarily because dated accounts payable offered by the Company's
suppliers typically are payable in April, May and June, while the Company's peak
accounts receivable collections typically occur in June, July and August.
The principal external factor affecting the Company's business is weather. Hot
weather can increase purchases of chemicals and supplies and pool installations.
Unseasonably cool weather or extraordinary amounts of rainfall during the peak
sales season can decrease purchases of chemicals and supplies and pool
installations. In addition, unseasonably early or late warming trends can
increase or decrease the length of the pool season and, therefore, the Company's
sales.
To encourage preseason orders, the Company, like many other swimming pool supply
distributors, utilizes preseason sales programs which provide for extended
dating terms and other incentives to its customers. Some of the Company's
suppliers also offer extended dating terms on certain products to the Company
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEASONALITY AND QUARTERLY FLUCTUATIONS (CONTINUED)
for preseason or early season purchases. In offering extended dating terms to
its customers and accepting extended dating terms from its suppliers, the
Company effectively finances a portion of its receivables with extended
payables.
The Company expects that its quarterly results of operations will fluctuate
depending on the timing and amount of revenue contributed by new service centers
and acquisitions. The Company attempts to open its new stores at the end of the
fourth quarter or the beginning of the first quarter to take advantage of
preseason sales programs and the peak season.
The following table sets forth certain unaudited quarterly data for 1996 and the
first quarter for 1997 which, in the opinion of management, reflect all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of such data. Results of any one or more quarters are not
necessarily indicative of results for an entire fiscal year or of continuing
trends.
<TABLE>
<CAPTION>
1996 1997
------------------------------------------ ---------
1ST 2ND 3RD 4TH 1ST
QUARTER QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales $41,145 $85,867 $62,344 $46,988 $63,565
Gross profit 9,273 20,042 13,531 9,184 13,960
Operating income (loss) 743 9,843 4,176 (4,275) 104
Net sales as a percentage of annual net sales 18% 36% 26% 20% N/A
Gross profit as a percentage of annual gross
profit 18% 38% 26% 18% N/A
Operating income (loss) as a percentage of annual
operating income 7% 94% 40% (41)% N/A
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Currently, the Company's primary sources of working capital are cash flow from
operations and borrowings under the Senior Loan Facility, which consists of a
term loan and a revolving line of credit. The Company's borrowings under its
credit facilities, together with cash flow from operations and seller financing
historically have been sufficient to support the Company's growth and to finance
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
acquisitions. Considering the Company's borrowing base as of March 31, 1997, the
Company had approximately $38.5 million available for borrowing under the Senior
Loan Facility, the only additional credit source currently available to the
Company.
During the three months ended March 31, 1997, the Company had cash flow of $7.4
million from operating activities. The increase from December 31, 1996 to March
31, 1997 in the amount of the Company's accounts receivable, inventory and
accounts payable is a result of the normal seasonal increase as discussed above.
During the three months ended March 31, 1997, the Company borrowed $3.0 million
to meet seasonal working capital requirements and made scheduled payments of
$5.5 million required under its Senior Loan Facility and indebtedness to sellers
of acquired businesses.
Borrowings under the Senior Loan Facility may, at the Company's option, bear
interest at either (i) the agent's corporate base rate or the federal funds rate
plus 0.5%, whichever is higher, plus a margin ranging from 0.0% to 1.0% or (ii)
LIBOR plus a margin ranging from 1.25% to 2.50%, in each case depending on the
Company's leverage ratio. Substantially all of the assets of the Company (other
than inventory which secures the Company's obligations to the seller of BLN),
including the capital stock of South Central Pool Supply, Inc., the Company's
wholly owned subsidiary, secure the Company's obligations under the Senior Loan
Facility. The Senior Loan Facility has numerous restrictive covenants which
require the Company to maintain minimum levels of interest coverage and fixed
charge coverage and which also restrict the Company's ability to pay dividends
and make capital expenditures. As of March 31, 1997, the Company was in
compliance with all such covenants and financial ratio requirements. The Senior
Loan Facility expires on September 26, 2002.
To finance future acquisitions, the Company may utilize its ability to borrow
additional funds under the Senior Loan Facility or, depending on market
conditions, incur additional indebtedness or issue common or preferred stock
(which may be issued to third parties or to sellers of acquired businesses).
INFLATION
The Company does not believe that inflation has had a significant impact on its
results of operations for the periods presented.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed in this Form 10-
Q are forward-looking statements that involve risks and uncertainties,
including but not limited to factors related to (i) the Company's ability to
identify appropriate acquisition candidates, complete acquisitions on
satisfactory terms, or successfully integrate acquired businesses; (ii) the
sensitivity of the swimming pool supply business to cool or rainy weather; (iii)
the intense competition and low barriers to entry in the swimming pool supply
industry; (iv) the Company's ability to obtain financing on satisfactory terms
and the degree to which Company is leveraged; (v) the sensitivity of the
swimming pool supply business to general economic conditions; (vi) the Company's
ability to remain in compliance with the numerous environmental, health and
safety requirements to which it is subject; (vii) the risk of fire, safety and
casualty losses and related liabilities claims inherent in the storage of
chemicals sold by the Company; and (viii) the other factors discussed in the
Company's filings with the Securities and Exchange Commission. Such factors
could affect the Company's actual results and could cause such results to differ
materially from the Company's expectations described above.
10
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The Company currently is not involved in any material legal
proceedings.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits
27.1 Financial Data Schedule
Reports on Form 8-K
None
11
<PAGE>
SIGNATURE
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.
SCP POOL CORPORATION
--------------------
DATE: May 13, 1997 BY: /s/ CRAIG K. HUBBARD
---------------------- -------------------------------------------
Craig K. Hubbard, Chief Financial Officer,
Treasurer and Secretary and duly authorized
signatory on behalf of the Registrant
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,285
<SECURITIES> 0
<RECEIVABLES> 43,425
<ALLOWANCES> (1,657)
<INVENTORY> 66,892
<CURRENT-ASSETS> 120,494
<PP&E> 6,347
<DEPRECIATION> (1,557)
<TOTAL-ASSETS> 160,714
<CURRENT-LIABILITIES> 84,575
<BONDS> 48,773
0
0
<COMMON> 4
<OTHER-SE> 29,592
<TOTAL-LIABILITY-AND-EQUITY> 160,714
<SALES> 63,565
<TOTAL-REVENUES> 63,565
<CGS> 49,605
<TOTAL-COSTS> 63,461
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 312
<INTEREST-EXPENSE> 1,236
<INCOME-PRETAX> (973)
<INCOME-TAX> (370)
<INCOME-CONTINUING> (603)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (603)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
