UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

COMMISSION FILE NO.: 0-26640

SCP POOL CORPORATION
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(Exact name of registrant as specified in its charter)

504-892-5521
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(Registrant’s telephone number, including areacode)

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(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 31, 2000, there were 16,969,448 outstanding shares of the Registrant’s common stock, $.001 par value per share.

SCP POOL CORPORATION

Form 10-Q
For the Quarter Ended June 30, 2000

SCP POOL CORPORATION

Part I.  Financial Information
Item 1.  Financial Statements

The accompanying Notes are an integral part of the Consolidated Financial Statements.

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SCP POOL CORPORATION

The accompanying Notes are an integral part of the Consolidated Financial Statements.

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SCP POOL CORPORATION

The accompanying Notes are an integral part of the Consolidated Financial Statements.

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SCP POOL CORPORATION

1.  Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by SCP Pool Corporation (the “Company”) in accordance with generally accepted accounting principles (“GAAP”) 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 GAAP for complete financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, the accompanying unaudited interim financial statements reflect all adjustments consisting of normal recurring adjustments considered necessary for a fair presentation of the results of the interim period.

Operating results for the three month or six month periods ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The financial information set forth herein should be read in conjunction with the Company’s Notes to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 filed by the Company with the Securities and Exchange Commission.

2.  Earnings Per Share

Basic income per common share equals net income divided by the weighted average number of common shares outstanding during the period. Diluted income per common share equals net income 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 and dilutive options.

3.  Stock Split

In May 2000, the Board of Directors declared a three-for-two stock split of the Company’s common stock, which was paid in the form of a stock dividend on June 19, 2000 to the stockholders of record at the close of business on May 19, 2000. Accordingly, all share and per share data and related capital amounts for all periods presented reflect the effects of this split.

4.  Change in Effective Income Tax Rate

During the quarter ended June 30, 2000, the Company increased its effective income tax rate from 37.0% to 38.25% as a result of changes in its state income tax mix.

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SCP POOL CORPORATION

5.  Recent Developments

On August 1, 2000 the Company announced that it had completed the purchase of substantially all of the assets and the assumption of certain liabilities of Superior Pool Products, Inc. (“Superior”), a distributor of swimming pool equipment, parts and supplies, previously operated as a subsidiary of Arch Chemicals, Inc. (“Arch”). The Superior distribution network encompasses nineteen service centers in California, Arizona and Nevada. This acquisition was accounted for using the purchase method of accounting.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with Management’s Discussion and Analysis included in the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 filed by the Company with the Securities and Exchange Commission.

Results of Operations

Including the six service center locations that were opened during the first and second quarters of 2000 and the nineteen service center locations acquired from Superior, the Company currently conducts operations through 127 service centers in 34 states, the United Kingdom and France.

The following table shows, for the periods indicated, information derived from the Company’s Consolidated Statements of Income expressed as a percentage of net sales for such period.

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SCP POOL CORPORATION

The following discussions compare the Company’s results of operations for the three month and six month periods ended June 30, 2000 and 1999.

Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999

Net sales increased $28.9 million, or 13%, to $254.0 million in the three months ended June 30, 2000 from $225.1 million in the comparable 1999 period. An increase of 12% in same store sales at service centers open at least 15 months contributed $24.1 million to the increase, and service centers from acquisitions in the fourth quarter of 1999 contributed $3.9 million to the increase. The balance of the increase was attributable to sales at new service centers open less than 15 months.

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SCP POOL CORPORATION

Gross profit increased $8.5 million, or 16%, to $63.1 million in the three months ended June 30, 2000 from $54.6 million in the comparable 1999 period. An increase in same store gross profit of 13% accounted for $6.5 million of the increase, while service centers open less than 15 months and service centers acquired in the fourth quarter of 1999 accounted for the remaining increase. Gross profit as a percentage of net sales increased to 24.8% for the three months ended June 30, 2000 from 24.3% in the comparable 1999 period. The increase in margin was realized in all domestic regions during the second quarter of 2000 and is attributable to a continued focus on managing margins at the service center level.

Operating expenses consisting of selling and administrative expenses and goodwill amortization increased $3.3 million, or 12%, to $30.0 million in the three months ended June 30, 2000 from $26.7 million in the comparable 1999 period. The increase reflects not only salaries, occupancy expense and other costs associated with new service centers, but also payroll and other operating costs required to support the increased sales volume at existing service centers. Operating expenses as a percentage of net sales remained relatively unchanged between quarters.

Interest and other expenses decreased $1.6 million, or 59%, to $1.1 million in the three months ended June 30, 2000 from $2.7 million in the comparable 1999 period. A $0.2 million increase in interest expense was offset by a reduction in amortization expense in the second quarter of 2000 compared to the same quarter last year. In addition, miscellaneous income was $0.3 million for the quarter ended June 30, 2000 compared to miscellaneous expense of $1.0 million for the same period in 1999. The fluctuation is primarily a result of the write-off in the second quarter of 1999 of $1.2 million related to computer equipment replaced in connection with improvements to the Company’s information system and Year 2000 compliance efforts.

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SCP POOL CORPORATION

Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999

Net sales increased $50.6 million, or 16%, to $374.6 million in the six months ended June 30, 2000 from $324.0 million in the comparable 1999 period. An increase of 13% in same store sales at service centers open at least 15 months contributed $36.8 million to the increase, and service centers from acquisitions in the fourth quarter of 1999 contributed $5.5 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 $14.2 million, or 18%, to $91.6 million in the six months ended June 30, 2000 from $77.4 million in the comparable 1999 period. An increase in same store gross profit of 16% accounted for $10.4 million of the increase, while service centers open less than 15 months and service centers acquired in the fourth quarter of 1999 accounted for the remaining increase. Gross profit as a percentage of net sales increased to 24.5% for the six months ended June 30, 2000 from 23.9% in the comparable 1999 period. The increase in margin was realized in all domestic regions and is attributable to a continued focus on managing margins at the service center level.

Operating expenses consisting of selling and administrative expenses and goodwill amortization increased $8.3 million, or 18%, to $55.8 million in the six months ended June 30, 2000 from $47.5 million in the comparable 1999 period. The increase reflects not only salaries, occupancy expense and other costs associated with new service centers, but also payroll and other operating costs required to support the increased sales volume at existing service centers. Operating expenses as a percentage of net sales remained relatively unchanged.

Interest and other expenses decreased $1.8 million, or 50%, to $1.8 million in the six months ended June 30, 2000 from $3.6 million in the comparable 1999 period. A $0.1 million increase in interest expense was offset by a $0.6 million reduction in amortization expense for the six month period ended June 30, 2000 compared to the same period last year. In addition, miscellaneous income was $0.5 million for the six months ended June 30, 2000 compared to miscellaneous expense of $0.8 million for the same period in 1999. The fluctuation is primarily a result of the write-off in the second quarter of 1999 of $1.2 million related to computer equipment replaced in connection with improvements to the Company’s information system and Year 2000 compliance efforts.

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SCP POOL CORPORATION

The Company’s business is highly seasonal. Weather is the principal external factor affecting the Company’s business. Hot weather can increase the purchase of chemicals and supplies and pool installations. Unseasonably cool weather or extraordinary amounts of rainfall during the peak selling season can decrease the purchase 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, consequently, the Company’s sales. 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.

To encourage preseason orders, the Company, like many other swimming pool supply distributors, utilizes preseason sales programs that provide 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 and inventory 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 new service centers during the fourth quarter or the first quarter of the subsequent year to take advantage of preseason sales programs and the following peak season.

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SCP POOL CORPORATION

The following table sets forth certain unaudited quarterly data for the first and second quarters of 2000 and the four quarters of 1999, 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.

Liquidity and Capital Resources

Currently, the Company’s primary sources of working capital are cash flows from operations and borrowings under its Senior Loan Facility consisting of a term loan and a revolving line of credit. The revolving line of credit has a total borrowing capacity of $65.0 million. The Company’s borrowings under its credit facilities, together with cash flows from operations and seller financing have historically been sufficient to support the Company’s growth and to finance acquisitions. Considering the Company’s borrowing base as of June 30, 2000, the Company had $25.7 million available for borrowing under its Senior Loan Facility, the only additional credit source currently available to the Company.

During the six months ended June 30, 2000, the Company had net borrowings on its revolver loan of $23.6 million to meet seasonal working capital requirements and made scheduled principal payments of $2.5 million required under its Senior Loan Facility.

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SCP POOL CORPORATION

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 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, including the capital stock of its wholly owned subsidiaries, secure the 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.

In February 2000, the Company purchased 232,500 shares of its common stock pursuant to a share repurchase program announced in October 1998. In April 2000, the Company purchased 31,500 shares of its common stock pursuant to a share repurchase program announced in November 1999. Certain intercompany dividends paid by the Company and related to such stock repurchases created covenant defaults under the Senior Loan Facility. On April 17, 2000, the lenders under the Senior Loan Facility waived such defaults in accordance with the provisions of the Senior Loan Facility.

The above mentioned shares purchased pursuant to the Company’s share repurchase program have been adjusted to reflect the three-for-two stock split of the Company’s common stock effective June 19, 2000.

Net cash used in operating activities was $16.7 million for the six month period ended June 30, 2000 compared to $0.7 million provided by operating activities in the same period last year. This increase in the use of cash is primarily due to an extensive build-up of inventory purchased in anticipation of the peak swimming pool supply selling season.

On July 31, 2000, the Company acquired substantially all of the assets and assumed certain liabilities of Superior Pool Products, Inc., a distributor of swimming pool equipment, parts and supplies encompassing nineteen service centers in California, Arizona and Nevada. The acquisition was financed by additional borrowings under the Company’s revolving line of credit.

The Company’s acquisitions have been financed primarily by borrowings under its credit facilities and seller financing. In order 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).

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SCP POOL CORPORATION

Interest Rate Risk

As a result of the variable interest rates on the Senior Revolving Note and Senior Term Note under the Senior Loan Facility, the Company’s earnings are exposed to changes in short-term interest rates. If (i) the variable rates on the Company’s Senior Loan Facility were to increase by 1.0% from the rate at December 31, 1999; (ii) the Company borrowed the maximum amount available under its revolving line of credit ($65.0 million) for all of 2000; and (iii) the Company made all required payments of principal ($5.0 million) in 2000, then solely as a result of the increase in interest rates, the Company’s interest expense would increase $739,000 resulting in a $456,000 decrease in net income, assuming an effective tax rate of 38.25%. The fair value of the Company’s Senior Revolving Note and Senior Term Note is not affected by changes in market interest rates.

Foreign Exchange Risk

There have been no material changes from that reported in the Company’s Form 10-K for the year ended December 31, 1999.

Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

The above statements regarding future periods which are not historical facts are forward-looking statements that involve risks and uncertainties, including but not limited to factors related to (i) the sensitivity of the swimming pool supply business to weather conditions; (ii) the intense competition and low barriers to entry in the swimming pool supply industry; (iii) the sensitivity of the swimming pool supply business to general economic conditions; (iv) the Company’s ability to identify appropriate acquisition candidates, complete acquisitions on satisfactory terms or successfully integrate acquired businesses; (v) the Company’s ability to obtain financing on satisfactory terms; (vi) the risk of fire, safety and casualty losses and related claims of liability inherent in the storage of chemicals sold by the Company; (vii) the Company’s ability to remain in compliance with the numerous environmental, health and safety requirements to which it is subject; 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.

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SCP POOL CORPORATION

The Company’s stockholders should also be aware that while the Company does, at various times, communicate with securities analysts, it is against the Company’s policies to disclose to such analysts any material non-public information or other confidential information. Accordingly, the Company’s stockholders should not assume that the Company agrees with statements or reports issued by such analysts. To the extent such statements or reports contain projections, forecasts or opinions by such analysts about the Company, such reports are not the responsibility of the Company.

For additional information identifying other important factors which may affect the Company’s operations and markets and could cause actual results to vary materially from those anticipated in the forward-looking statements, see the Company’s Securities and Exchange Commission filings, including but not limited to the discussion included in the Business section of the Company’s Form 10-K.

Part II.  Other Information

Item 4.  Submission of Matters to a Vote of Security Holders

At the Annual Meeting of Stockholders held on May 10, 2000, the following proposals were adopted by the margins indicated (such margins reflect the three-for-two stock split effective June 19, 2000):

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SCP POOL CORPORATION

Items 1, 2, 3 and 5 are not applicable and have been omitted.

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SCP POOL CORPORATION

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 August 14, 2000.

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SCP POOL CORPORATION

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