<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 JUNE 30, 1998 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
SCP 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)
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 [X] NO [_]
At July 15, 1998, there were 11,628,904 outstanding shares (split adjusted) 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 - June 30, 1998
(Unaudited) and December 31, 1997........................1
Consolidated Statements of Operations (Unaudited)
Three Months Ended June 30, 1998 and 1997 and
Six Months Ended June 30, 1998 and 1997...................2
Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 1998 and 1997...................3
Notes to Consolidated Financial Statements (Unaudited) -
June 30, 1998.............................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................6
Part II. Other Information
Items 1. - 6........................................................14
<PAGE>
SCP POOL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,727 $ 22,296
Receivables 72,970 24,775
Inventory, primarily goods purchased for resale 80,802 48,261
Prepaid expenses 1,304 562
Deferred income taxes 1,445 580
-------------------------
Total current assets 158,248 96,474
Property and equipment, net 5,640 4,792
Goodwill, net 38,236 32,614
Other assets, net 2,651 2,572
-------------------------
Total assets $204,775 $136,452
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46,797 $ 20,266
Accrued and other current liabilities 15,716 6,078
Current portion of long-term debt 6,366 6,743
-------------------------
Total current liabilities 68,879 33,087
Deferred income taxes 3,791 3,584
Long-term debt, less current portion 54,296 33,146
Stockholders' equity:
Preferred stock, $.01 par value; 100,000 shares authorized - -
Common stock, $.001 par value; 20,000,000 shares
authorized; 11,628,904 and 11,610,090 shares issued
and outstanding in 1998 and 1997, respectively 12 12
Additional paid-in capital 52,468 52,348
Retained earnings 25,329 14,275
-------------------------
Total stockholders' equity 77,809 66,635
-------------------------
Total liabilities and stockholders' equity $204,775 $136,452
=========================
</TABLE>
Note: The balance sheet at December 31, 1997 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
financial statements.
See accompanying notes.
1
<PAGE>
SCP POOL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED Six MONTHS ENDED
JUNE 30, June 30,
1998 1997 1998 1997
-------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $178,450 $124,790 $252,438 $188,355
Cost of sales 136,635 96,631 194,676 146,236
-------------------------------------------------------------
Gross profit 41,815 28,159 57,762 42,119
Warehouse expense 5,832 4,149 10,130 7,378
Selling and administrative expenses 15,174 12,298 27,724 22,714
Goodwill amortization 255 216 510 426
-------------------------------------------------------------
Operating income 20,554 11,496 19,398 11,601
Other income (expense):
Interest expense (1,084) (1,230) (1,860) (2,287)
Amortization expense (213) (176) (423) (355)
Miscellaneous income 161 221 430 380
-------------------------------------------------------------
(1,136) (1,185) (1,853) (2,262)
-------------------------------------------------------------
Income before income taxes 19,418 10,311 17,545 9,339
Provision for income taxes 7,185 3,917 6,492 3,548
Net income $ 12,233 $ 6,394 $ 11,053 $ 5,791
=============================================================
Net income per share of common stock:
Basic $ 1.05 $ .67 $ .95 $ .61
Diluted $ 1.03 $ .65 $ .93 $ .59
=============================================================
Average shares outstanding:
Basic 11,625 9,529 11,619 9,516
Diluted 11,926 9,782 11,910 9,784
=============================================================
</TABLE>
See accompanying notes.
2
<PAGE>
SCP POOL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
------------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 11,053 $ 5,791
Adjustments to reconcile net income to net cash
used in operating activities (29,216) (24,538)
------------------------
Net cash used in operating activities (18,163) (18,747)
INVESTING ACTIVITIES
Acquisition of businesses (22,902) -
Purchase of property and equipment (1,225) (608)
Proceeds from sale of property and equipment 852 60
------------------------
Net cash used in investing activities (23,275) (548)
FINANCING ACTIVITIES
Net borrowings on revolving loan 23,650 31,500
Payments on long-term debt (2,876) (12,833)
Issuance of common stock 95 87
------------------------
Net cash provided by financing activities 20,869 18,754
------------------------
Change in cash and cash equivalents (20,569) (541)
Cash and cash equivalents at beginning of period 22,296 4,621
------------------------
Cash and cash equivalents at end of period $ 1,727 $ 4,080
========================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 1,502 $ 2,129
========================
Income taxes $ 519 $ 2,404
========================
</TABLE>
See accompanying notes.
3
<PAGE>
SCP POOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
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 or six
month periods ended June 30, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998. For further
information, refer to the consolidated financial statements for the year ended
December 31, 1997 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 June 30, 1998, SCP Pool Corporation and its wholly owned subsidiaries
(collectively referred to as the Company) maintain 89 service centers in 32
states located throughout the United States from which they sell swimming pool
equipment and supplies to pool builders, retail stores, and service firms.
In January 1998, the Company acquired substantially all of the assets and
assumed certain liabilities of Bicknell Huston Distributors, Inc. ("BHD"), which
distributes swimming pool supplies and related products through its eleven
service centers in six northeastern states, for a purchase price of
approximately $23 million, which was paid in cash. This acquisition was
accounted for using the purchase method of accounting.
4
<PAGE>
SCP POOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--
(CONTINUED)
3. EARNINGS PER SHARE
On June 29, 1998, the board of directors declared a 3-for-2 stock split of the
Company's common stock, which was paid in the form of a stock dividend on July
24, 1998 to the stockholders of record at the close of business on July 13,
1998. Accordingly, all shares and per-share data for all periods presented
reflect the effects of this split. The par value for the additional shares
issued was transferred from additional paid-in capital to common stock.
4. RECENTLY ISSUED AUTHORITATIVE PRONOUNCEMENT
In April 1998 the AICPA's Accounting Standards Executive Committee issued SOP
98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 requires entities
to charge to expense start-up costs, including organizational costs, as
incurred. In addition, the SOP requires entities upon adoption to write-off as
the cumulative effect of a change in accounting principle any previously
capitalized start-up or organization costs. The SOP is effective for most
entities for fiscal years beginning after December 15, 1998. At June 30, 1998,
the Company had unamortized organizational costs of $961,000.
5
<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 South Central Pool Supply, Inc.
("Predecessor"). From its inception in 1980 through the end of 1993, the
Predecessor increased its sales through strategic acquisitions, 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 through acquisitions, by opening new
service centers and by increasing sales to new and existing customers. From
January 1990 to June 1998, the Company expanded from 8 service centers in 6
states to 89 service centers in 32 states, primarily through acquisitions,
including most recently the January 1998 acquisition (the "Bicknell
Acquisition") of Bicknell Huston Distributors, Inc. ("BHD"). The Company
acquired substantially all of the assets and assumed certain liabilities of BHD,
a distributor of swimming pool supplies and related products through its eleven
service centers in six northeastern states, for a purchase price of
approximately $23 million. On August 3, 1998 the Company announced its
acquisition of the capital stock of Nor-Cal Engineering, Ltd., a distributor of
swimming pool supplies based in Crawley, England, which had 1997 revenues of
approximately $8.3 million.
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, consumer saving and discretionary spending levels,
the level of new housing construction, weather and consumer attitudes towards
pool 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.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GENERAL (CONTINUED)
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, Arizona,
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.
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 76.6 77.4 77.1 77.6
------------------------------------------------------
Gross profit 23.4 22.6 22.9 22.4
Warehouse expense 3.3 3.3 4.0 3.9
Selling and administrative expenses 8.5 9.9 11.0 12.1
Goodwill amortization .1 .2 .2 .2
------------------------------------------------------
Operating income 11.5 9.2 7.7 6.2
Other income (expense):
Interest expense (.6) (1.0) (.7) (1.2)
Amortization expense (.1) (.1) (.2) (.2)
Miscellaneous .1 .2 .2 .2
------------------------------------------------------
Income before income taxes 10.9% 8.3% 7.0% 5.0%
======================================================
</TABLE>
The following discussions compare the results of operations of the Company for
the three month and six month periods ended June 30, 1998 and 1997.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Net sales increased by $53.7 million, or 43.0%, to $178.5 million in the three
months ended June 30, 1998 from $124.8 million in the comparable 1997 period.
Service centers acquired from BHD (the Northeast) in 1998 contributed $32.0
million, while an increase of approximately 14.3% in sales at service centers
open at least 15 months contributed $17.0 million to the increase. The balance
of the increase was attributable to sales at new service centers open less than
15 months.
Gross profit increased by $13.6 million, or 48.2%, to $41.8 million in the three
months ended June 30, 1998 from $28.2 million in the comparable 1997 period.
Gross profit as a percentage of net sales increased 0.8% to 23.4% in the 1998
period from 22.6% in the 1997 period, primarily due to the margins realized at
centers acquired from BHD which approximated 25.0% for the three months ended
June 30, 1998.
Operating expenses increased by $4.5 million, or 26.9%, to $21.2 million in the
three months ended June 30, 1998 from $16.7 million in the comparable 1997
period. This increase is reflective of an additional $3.5 million of operating
expenses incurred at service centers acquired from BHD. The remaining increase
is reflective of salaries, occupancy expense and other costs associated with new
service centers, and, to a lesser extent, payroll and other operating costs
required to support the increased sales volume at existing service centers.
Operating expenses as a percentage of sales decreased to 11.9% in the 1998
period compared to 13.4% in the 1997 period. Operating expenses in 1997 were
higher than historical average because of unseasonably cooler temperatures and
continuing wet and rainy weather in much of the United States.
Interest and other expenses remained relatively constant at $1.1 million in the
three months ended June 30, 1998 compared to $1.2 million in the 1997 period.
Six Months Ended June 30, 1998 compared to Six Months Ended June 30, 1997.
Net sales increased by $64.0 million, or 34.0%, to $252.4 million in the six
months ended June 30, 1998 from $188.4 million in the comparable 1997 period.
Service centers acquired from BHD contributed $37.7 million, while an increase
of approximately 10.4% in sales at service centers open at least 15 months
contributed $18.9 million to the increase. The balance of the increase was
attributable to sales at new service centers open less than 15 months.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Gross profit increased by $15.7 million, or 37.3% to $57.8 million in the six
months ended June 30, 1998 from $42.1 million in the comparable 1997 period.
Gross profit as a percentage of net sales increased 0.5% to 22.9% in the 1998
period compared to 22.4% in the 1997 period primarily due to the higher margins
realized in the Florida region offset by the effects of low first quarter
margins in the Northeast. The Florida region approximated 20.0% for the six
months ended June 30, 1998 which is a 2.0% increase from June 30, 1997 while the
Northeast region approximated 18.0% for the three months ended March 31, 1998
and 25.0% for the three months ended June 30, 1998.
Operating expenses increased by $7.9 million, or 25.9%, to $38.4 million in the
six months ended June 30, 1998 from $30.5 million in the comparable 1997 period.
This increase is reflective of an additional $6.1 million of operating expenses
incurred at service centers acquired from BHD. The remaining increase is
reflective of salaries, occupancy expense and other costs associated with new
service centers, and, to a lesser extent, payroll and other operating costs
required to support the increased sales volume at existing service centers.
Operating expenses as a percentage of sales decreased to 15.2% in the 1998
period compared to 16.2% in the 1997 period. Operating expenses in 1997 were
higher than historical average because of unseasonably cooler temperatures and
continuing wet and rainy weather in much of the United States.
Interest and other expenses decreased $0.4 million to $1.9 million in the six
months ended June 30, 1998 from $2.3 million in the comparable 1997 period. The
decrease was primarily attributable to the decline in interest expense
reflective of both the lower level of debt carried during the six months ended
June 30, 1998 and the more favorable interest rate on the company's senior bank
credit facility (the Senior Loan Facility).
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
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEASONALITY AND QUARTERLY FLUCTUATIONS (CONTINUED)
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
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 continue to
fluctuate depending on the timing and amount of revenue contributed by new
service centers and acquisitions, if any. The Company attempts to open its new
stores at the end of the third quarter or the beginning of the fourth quarter to
take advantage of preseason sales programs and the peak season.
The following table sets forth certain unaudited quarterly data for 1997 and the
first two quarters for 1998 which, in the opinion of management, reflects all
adjustments (consisting of normal recurring adjustments) considered 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.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEASONALITY AND QUARTERLY FLUCTUATIONS (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
------------------------------------------- --------------------
1ST 2ND 3RD 4TH 1ST 2ND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- -------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales $63,565 $124,790 $98,492 $48,175 $73,988 $178,450
Gross profit 13,960 28,159 21,460 9,798 15,947 41,815
Operating income (loss) 104 11,496 6,847 (2,726) (1,156) 20,554
Net sales as a percentage of
annual net sales 19% 37% 29% 15 % N/A N/A
Gross profit as a percentage of
annual gross profit 19% 38% 29% 13 % N/A N/A
Operating income as a percentage
of annual operating income 1% 73% 44% (18)% N/A 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
have historically have been sufficient to support the Company's growth and to
finance acquisitions. Considering the Company's borrowing base as of June 30,
1998, the Company had approximately $24.4 million available for borrowing under
the Senior Loan Facility, the only additional credit source currently available
to the Company.
During the six months ended June 30, 1998, the Company used $18.1 million of
cash to fund operating activities primarily as a result of the normal seasonal
increase as discussed above. See "Seasonality and Quarterly Fluctuations."
During the six months ended June 30, 1998, the Company borrowed $23.7 million to
meet seasonal working capital requirements and made scheduled principal payments
of $2.0 million required under its Senior Loan Facility. Additionally, during
the six months ended June 30, 1998, the Company paid $0.9 million of scheduled
principal payments to the seller of an acquired business.
Borrowings under the Senior Loan Facility may, at the Company's option, bear
interest at either (i) the agent bank's corporate base rate or the federal funds
rate plus 0.5%, whichever is higher, plus a margin ranging from 0.0% to 0.5% or
(ii) LIBOR plus a
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
margin ranging from 0.75% to 2.0%, 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 an acquired business),
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 June 30, 1998, the Company was in
compliance with all such covenants and financial ratio requirements. The Senior
Loan Facility expires on December 31, 2002.
In December 1997, the Company completed a public offering of 2,025,000 shares of
Common Stock at a public offering price of $11.16 per share, (after taking into
account a 3-for-2 stock split that occurred on July 13, 1998), resulting in net
proceeds to the Company of approximately $22.6 million. These proceeds were used
to finance the BHD Acquisition in January 1998. Prior to the BHD Acquisition,
the Company's acquisitions have been financed primarily by borrowings under the
Senior Loan Facility and seller notes. 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).
On August 3, 1998, the Company announced its acquisition of the capital stock of
Nor-Cal Engineering, Ltd., a distributor of swimming pool supplies based in
Crawley, England. The acquisition was financed by an additional borrowing on the
Revolver.
YEAR 2000 ISSUE
The Company continues to assess and review its computer systems devices,
software applications and equipment (collectively, "Computer Systems") to
identify those areas that could be affected by Year 2000 noncompliance. In 1997,
because of its significant growth, the Company upgraded its Computer Systems
associated with substantially all of its accounting and information systems. The
cost of such upgrade was $1.5 million. Based on its continuing review,
management believes, and has received confirmation from the Vendors of its
Computer Systems, that the Company's Computer Systems will function properly
when handling date-related data in the Year 2000 and thereafter. However, there
can be no such assurances, and failure of the Company's Computer Systems to
function properly could have a material adverse effect on the Company's
business, operations or financial condition. The Company is currently assessing
aspects of its business and operations other than its Computer Systems to
identify those areas that could be affected by Year 2000 noncompliance,
including, telephones, office equipment, and alarm systems. The cost of Year
2000 compliance requirements with respect to such matters is not known at this
time.
The Company is communicating with suppliers, service providers, and large
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 ISSUE (CONTINUED)
customers (collectively, "Third Party Businesses") regarding their compliance
with Year 2000 requirements. If the Third Party Businesses fail to comply in a
timely manner with Year 2000 requirements, such failures by Third Party
Businesses could have a material adverse effect on the Company's business,
operations or financial condition.
INFLATION
The Company does not believe that inflation has had a significant impact on its
results of operations for the periods presented.
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.
13
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The Company currently is not involved in any legal proceedings in
which it is believed to have a material effect on the Company.
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
(a) Exhibits
27.1 Financial Data Schedule
Reports on Form 8-K
None
14
<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: August 13, 1998 BY: /s/ CRAIG K. HUBBARD
-------------------------------------------
Craig K. Hubbard, Chief Financial Officer,
Treasurer and Secretary and duly authorized
signatory on behalf of the Registrant
15
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> $1,727
<SECURITIES> 0
<RECEIVABLES> 68,991
<ALLOWANCES> (2,739)
<INVENTORY> 80,802
<CURRENT-ASSETS> 158,248
<PP&E> 8,390
<DEPRECIATION> (2,750)
<TOTAL-ASSETS> 204,775
<CURRENT-LIABILITIES> 68,879
<BONDS> 60,662
0
0
<COMMON> 12
<OTHER-SE> 77,797
<TOTAL-LIABILITY-AND-EQUITY> 204,775
<SALES> 252,438
<TOTAL-REVENUES> 252,438
<CGS> 194,676
<TOTAL-COSTS> 233,040
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,296
<INTEREST-EXPENSE> 2,283
<INCOME-PRETAX> 17,545
<INCOME-TAX> 6,492
<INCOME-CONTINUING> 11,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,053
<EPS-PRIMARY> .95
<EPS-DILUTED> .93
</TABLE>
