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, 2006

 

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 Number: 0-26640

 


LOGO


POOL CORPORATION

(Exact name of Registrant as specified in its charter)

 



  Delaware 0-26640 36-3943363  
  (State or other jurisdiction of incorporation) (Commission File Number) (IRS Employer Identification No.)  

109 Northpark Boulevard, Covington, Louisiana      70433-5001
    (Address of Principal Executive Offices)                  (Zip Code)

Registrant’s telephone number, including area code       (985) 892-5521

 


 

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 ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Large accelerated filer x           Accelerated Filer ¨           Non-accelerated filer ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES ¨ NO x

 

At August 2, 2006, there were 51,825,352 outstanding shares of the registrant’s common stock, $.001 par value per share.





POOL CORPORATION
Form 10-Q
For the Quarter Ended June 30, 2006

INDEX

PART I. FINANCIAL INFORMATION

   Item 1. Financial Statements (Unaudited)

       Consolidated Statements of Income
       Consolidated Balance Sheets
       Condensed Consolidated Statements of Cash Flows
       Notes to Consolidated Financial Statements
 
    Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 
 
    Item 3. Quantitative and Qualitative Disclosures about Market Risk 20 
 
    Item 4. Controls and Procedures 20 

PART II. OTHER INFORMATION

    Item 1A. Risk Factors 21 
 
    Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25 
 
    Item 4. Submission of Matters to a Vote of Security Holders 25 
 
    Item 6. Exhibits 26 
 
Signature Page 27 
 
Index to Exhibits 28 




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

POOL CORPORATION
Consolidated Statements of Income

(Unaudited)
(In thousands, except per share data)

Three Months Ended Six Months Ended
June 30,
June 30,
2006
2005
2006
2005
              (As Adjusted -         (As Adjusted -  
              See Note 5)         See Note 5)  
                         
Net sales     $ 705,703   $ 563,978   $ 1,054,259   $ 829,139  
Cost of sales       496,703     401,297     747,211     594,507  




    Gross profit       209,000     162,681     307,048     234,632  
       
Selling and administrative expenses       105,662     81,292     188,688     142,987  




    Operating income       103,338     81,389     118,360     91,645  
       
Interest expense, net       3,856     1,905     6,707     2,985  




Income before income taxes and equity earnings (loss)       99,482     79,484     111,653     88,660  
Provision for income taxes       38,410     30,717     43,109     34,309  
Equity earnings (loss) in unconsolidated investments       1,038     1,942     (12 )   460  




Net income     $ 62,110   $ 50,709   $ 68,532   $ 54,811  




       
       
Earnings per share:                            
    Basic     $ 1.18   $ 0.97   $ 1.30   $ 1.05  




    Diluted     $ 1.12   $ 0.91   $ 1.23   $ 0.99  




Weighted average shares outstanding:    
    Basic       52,608     52,491     52,602     52,383  




    Diluted       55,544     55,782     55,499     55,633  




       
Cash dividends declared per common share     $ 0.105   $ 0.090   $ 0.195   $ 0.160  

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


1


POOL CORPORATION
Consolidated Balance Sheets

(Unaudited)
(In thousands, except share data)

June 30, June 30, December 31,
2006
2005
2005
              (As Adjusted -     (As Adjusted -  
              See Note 5)     See Note 5)  
                 
Assets                
Current assets:    
    Cash and cash equivalents     $ 32,507   $ 36,652   $ 26,866  
    Receivables, net       76,407     59,540     42,809  
    Receivables pledged under receivables facility       219,315     172,196     98,976  
    Product inventories, net       367,096     247,350     330,575  
    Prepaid expenses       8,493     4,466     5,190  
    Deferred income taxes       4,004     4,395     7,977  



Total current assets     $ 707,822   $ 524,599   $ 512,393  
     
Property and equipment, net       30,289     21,761     25,598  
Goodwill       142,177     104,602     139,546  
Other intangible assets, net       17,933     10,826     22,838  
Equity interest investments       29,882     20,197     29,907  
Other assets, net       12,561     10,833     15,098  



Total assets     $ 940,664   $ 692,818   $ 745,380  



     
Liabilities and stockholders' equity    
Current liabilities:                      
    Accounts payable     $ 207,727   $ 165,872   $ 174,170  
    Accrued and other current liabilities       101,300     57,997     76,645  
    Short-term financing       150,000     100,000     65,657  
    Current portion of other long-term liabilities       2,850     1,350     1,350  



Total current liabilities     $ 461,877   $ 325,219   $ 317,822  
     
Deferred income taxes       14,048     13,123     14,600  
Long-term debt       151,500     70,191     129,100  
Other long-term liabilities       2,268     3,202     2,134  



Total liabilities     $ 629,693   $ 411,735   $ 463,656  



     
Stockholders' equity:                      
    Common stock, $.001 par value; 100,000,000 shares authorized;    
         51,964,383, 52,604,237 and 52,414,883 shares issued and outstanding    
         at June 30, 2006, June 30, 2005 and December 31, 2005, respectively       51     52     52  
    Additional paid-in capital       137,654     106,046     119,770  
    Retained earnings       169,589     172,695     160,684  
    Treasury stock       --     (93 )   (921 )
    Accumulated other comprehensive income       3,677     2,383     2,139  



Total stockholders' equity     $ 310,971   $ 281,083   $ 281,724  



Total liabilities and stockholders' equity     $ 940,664   $ 692,818   $ 745,380  




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


2


POOL CORPORATION
Condensed Consolidated Statements of Cash Flows

(Unaudited)
(In thousands)

  Six Months Ended
 
June 30,
2006
2005
              (As Adjusted -  
              See Note 5)  
           
Operating activities            
Net income     $ 68,532   $ 54,811  
Adjustments to reconcile net income                
     to net cash used in operating activities:                
            Depreciation       3,833     2,444  
            Amortization       2,398     1,868  
            Share-based compensation       4,007     3,007  
            Excess tax benefits from share-based compensation       (9,363 )   (5,554 )
            Equity losses (earnings) in unconsolidated investments       25     (460 )
            Other       99     (865 )
Changes in operating assets and liabilities,    
     net of effects of acquisitions:    
            Receivables       (153,883 )   (134,018 )
            Product inventories       (37,531 )   (52,530 )
            Accounts payable       33,541     52,758  
            Other current assets and liabilities       39,137     27,531  


Net cash used in operating activities       (49,205 )   (51,008 )


   
Investing activities    
Acquisition of businesses, net of cash acquired       (1,446 )   (3 )
Equity interest investment       --     (1,121 )
Purchase of property and equipment, net of sale proceeds       (7,723 )   (5,575 )


Net cash used in investing activities       (9,169 )   (6,699 )


   
Financing activities                
Proceeds from revolving line of credit       177,038     147,238  
Payments on revolving line of credit       (153,138 )   (127,467 )
Proceeds from asset-backed financing       93,347     62,170  
Payments on asset-backed financing       (9,004 )   (4,765 )
Payments on other long-term debt       (47 )   (47 )
Payments of deferred financing costs       (18 )   (11 )
Payments of capital lease obligations       (257 )   --  
Excess tax benefits from share-based compensation       9,363     5,554  
Issuance of common stock under stock option plans       4,513     1,885  
Payment of cash dividends       (10,290 )   (8,401 )
Purchase of treasury stock       (48,423 )   (3,072 )


Net cash provided by financing activities       63,084     73,084  


Effect of exchange rate changes on cash       931     (487 )


Change in cash and cash equivalents       5,641     14,890  
Cash and cash equivalents at beginning of period       26,866     21,762  


Cash and cash equivalents at end of period     $ 32,507   $ 36,652  



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


3


POOL CORPORATION
Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Summary of Significant Accounting Policies

Pool Corporation (the Company , which may be referred to as POOL , we, us or our ) prepared the unaudited interim consolidated financial statements following accounting principles generally accepted in the United States (GAAP) and the requirements of the Securities and Exchange Commission (SEC) for interim financial information. As permitted under those rules, certain footnotes or other financial information required by GAAP for complete financial statements have been condensed or omitted. In management’s opinion, the financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results including the elimination of all significant intercompany accounts and transactions among our wholly owned subsidiaries.

A description of our significant accounting policies is included in our 2005 Annual Report on Form 10-K. The consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes in our Annual Report. The results for the three and six month periods ended June 30, 2006 are not necessarily indicative of the results to be expected for the twelve months ending December 31, 2006.

On January 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) 123(R), Share-Based Payments . We have selected a Black-Scholes-Merton option valuation model for estimating the grant date fair value of share-based payments under SFAS 123(R) and we have elected to use the modified-retrospective transition method. We have adjusted all prior period financial statements to reflect compensation cost for the amounts previously reported in our pro-forma footnote disclosures required by SFAS 123, Accounting for Stock-Based Compensation as corrected for immaterial amounts of compensation cost associated with our employee stock purchase plan. Please see Note 5 for additional information.

Reclassifications

We have reclassified the payment of deferred financing costs and the related non-cash amortization of these amounts in our 2005 Condensed Consolidated Statements of Cash Flows to conform to the 2006 presentation. The non-cash amortization was reclassed within the operating activities section to the amortization line item. Additionally, deferred financing costs have been reclassified as a use of cash from financing activities. Previously, we classified these amounts as a change in prepaid and other assets. These reclassifications had no effect on net income or earnings per share as previously reported.

Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes–an interpretation of FASB Statement No. 109 , which clarifies the accounting and disclosure for uncertainty in tax positions. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the measurement and recognition in accounting for income taxes. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact that FIN 48 will have on our financial position and results of operations.

Note 2 – Earnings Per Share

We calculate basic earnings per share (EPS) by dividing net income by the weighted average number of common shares outstanding. Diluted EPS includes the dilutive effects of stock and option awards.


4


POOL CORPORATION
Notes to Consolidated Financial Statements (Continued)

(Unaudited)

The table below presents the reconciliation of basic and diluted weighted average number of shares outstanding and the related EPS calculation (in thousands, except EPS):

Three Months Ended June 30,
Six Months Ended June 30,
2006
2005
2006
2005
         
Net income     $ 62,110   $ 50,709   $ 68,532   $ 54,811  




   
Weighted average common shares outstanding:    
       Basic       52,608     52,491     52,602     52,383  
       Effect of dilutive securities:    
              Stock options       2,901     3,265     2,860     3,224  
              Restricted stock awards       32     23     31     21  
              Employee stock purchase plan       3     3     6     5  




       Diluted       55,544     55,782     55,499     55,633  




       Basic earnings per share     $ 1.18   $ 0.97   $ 1.30   $ 1.05  




       Diluted earnings per share     $ 1.12   $ 0.91   $ 1.23   $ 0.99  




Note 3 – Comprehensive Income

Comprehensive income includes net income, foreign currency translation adjustments and the unrealized gain or loss on interest rate swaps. Comprehensive income was $63.1 million and $50.3 million for the three months ended June 30, 2006 and June 30, 2005, respectively and $70.1 million and $54.3 million for the six months ended June 30, 2006 and June 30, 2005, respectively.

Note 4 – Acquisitions

As discussed in Note 2 of our Annual Report on Form 10-K, in October 2005 we acquired Automatic Rain Company through our newly formed and wholly owned subsidiary Horizon Distributors, Inc. (Horizon). The purchase price for the issued and outstanding stock of Automatic Rain Company was approximately $87.1 million in cash, which included approximately $1.4 million in working capital adjustments that were recorded as of December 31, 2005, and paid in the first quarter of 2006.

During the first quarter of 2006, we made a purchase price allocation adjustment that lowered the estimated fair value of non-compete provisions within the employment contracts of certain members of Horizon’s management team. We have completed preliminary purchase price allocations for our acquisition of Automatic Rain Company, subject to adjustment should new or additional facts about the business become known. We expect to finalize the allocations by the third quarter of 2006.


5


POOL CORPORATION
Notes to Consolidated Financial Statements (Continued)

(Unaudited)

Note 5 — Share-Based Compensation

As discussed in Note 1, we adopted SFAS 123(R) on January 1, 2006 using a Black-Scholes-Merton option valuation model and the modified retrospective transition method. Prior to January 1, 2006, we accounted for stock option awards under the intrinsic value method prescribed by APB 25, as permitted by SFAS 123 . Accordingly, we did not record compensation expense for options issued with an exercise price equal to the stock’s market price on the grant date. The impact of the adoption of SFAS 123(R), including adjustments to all prior period financial statements presented, is summarized below.

We award stock options and restricted stock to our employees and non-employee directors under our stock option plans.

Under the 1995 Stock Option Plan (the 1995 Plan) our Board of Directors (the Board) was authorized to grant stock options to employees, agents, consultants or independent contractors. These options generally were exercisable two years after the grant date, and they expire ten years from the grant date. In May 1998, the Board suspended the 1995 Plan. Options granted prior to the suspension were not affected by this action.

In May 1998, our stockholders approved the 1998 Stock Option Plan (the 1998 Plan), which authorized the Board to grant stock options, stock appreciation rights, restricted stock and performance awards to employees, agents, consultants or independent contractors. These options generally were exercisable three or more years after the grant date, and they expire ten years after the grant date. In May 2002, the Board suspended the 1998 Plan. Options granted prior to the suspension were not affected by this action.

In May 2002, our stockholders approved the 2002 Long-Term Incentive Plan (the 2002 Plan), which authorized the Board to grant stock options and restricted stock awards to employees, agents, consultants or independent contractors. In May 2004, our stockholders approved an amendment to increase the number of shares authorized for issuance under the 2002 Plan from 1,575,000 to 2,700,000 shares. Granted options have an exercise price equal to our stock’s market price on the grant date. These options generally vest either five years from the grant date or on a three/five year split vest schedule, where half of the options vest three years from the grant date and the remainder vest five years from the grant date. These options expire ten years from the grant date.

The SCP Pool Corporation Non-Employee Directors Equity Incentive Plan permits the Board to grant stock options to each non-employee director. No more than 1,350,000 shares may be issued under this plan. The exercise price of the granted options is equal to our stock’s market price on the grant date. The options generally may be exercised one year after the grant date, and they expire ten years after the grant date.


6


POOL CORPORATION
Notes to Consolidated Financial Statements (Continued)

(Unaudited)

The following is a summary of the stock option activity under our stock option plans for the six months ended June 30, 2006:

Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares
Price
Term (years)
Value
Balance, December 31, 2005       6,796,687   $ 10.46          
       
Granted (at market price)       597,150     38.86  
Exercised       684,674     5.37
Forfeited       18,435     25.77  

Balance, June 30, 2006       6,690,728   $ 13.47     5.44   $ 201,776,865  




       
Exercisable, June 30, 2006       4,096,331   $ 6.98     4.02   $ 150,127,616  




The following table summarizes the cash proceeds and tax benefits realized from the exercise of stock options:

Six Months Ended June 30,
(In thousands, except share data)
2006
2005
Options exercised       684,674     490,886  
Cash proceeds     $ 3,677    $ 1,335  
Intrinsic value of options exercised     $ 25,600    $ 14,862  
Tax benefits realized     $ 9,884    $ 5,828  

We estimated the fair value of employee stock option awards at the grant date based on the assumptions summarized in the following table:

Six Months Ended June 30,
(Weighted average)
2006
2005
Expected volatility       30.8 %   30.3 %
Expected term       6.0   years   7.0  years
Risk-free interest rate       4.33 %   4.22 %
Expected dividend yield       1.0 %   1.0 %

We calculated expected volatility over the expected term of the awards based on our historical volatility using weekly price observations. We estimated the expected term based on the vesting period of the awards and our historical exercise activity for awards with similar characteristics. The risk-free interest rate is based on the U.S. Treasury zero-coupon issues with a remaining term approximating the expected term of the option. We determined the expected dividend yield based on the anticipated dividends over the expected term.

The weighted average grant date fair value of options granted during the six months ended June 30, 2006 and June 30, 2005 was $13.26 and $11.34, respectively. For purposes of recognizing share-based compensation expense, the estimated fair value of employee stock options is ratably expensed over the options’ vesting period. We recognize compensation cost for awards with graded vesting using the graded vesting recognition method.


7


POOL CORPORATION
Notes to Consolidated Financial Statements (Continued)

(Unaudited)

The following is a summary of the restricted stock awards activity under our stock option plans for the six months ended June 30, 2006:

Weighted
Average
Remaining Aggregate
Contractual Intrinsic
Shares
Term (years)
Value
Balance, December 31, 2005       52,400          
     
Granted (at market price)       --  
Vested       --  
Forfeited       --  

Balance, June 30, 2006       52,400     7.32   $ 2,286,212  



   
Vested, June 30, 2006       2,500     8.12   $ 109,075  



The restricted stock awards generally vest five years from the grant date, and expire ten years from the grant date. At June 30, 2006, the unamortized compensation expense related to the restricted stock awards totaled $0.6 million, which will be recognized over a weighted average period of 2.4 years.

Prior to the adoption of SFAS 123(R), we recorded restricted stock awards as unearned compensation, a reduction of stockholders’ equity, based on the quoted fair market value of our common stock on the date of grant. We adjusted the common stock balances on the date of grant to reflect the issuance of the restricted stock awards. We recorded compensation expense ratably over the vesting period with an offsetting credit to the unearned compensation balance. Under the provisions of SFAS 123(R), restricted stock awards are not deemed to be issued until the end of the vesting period. As such, we eliminated the unearned compensation balance upon adoption and we recognize compensation cost over the requisite service period with an offsetting credit to additional paid-in capital.


8


POOL CORPORATION
Notes to Consolidated Financial Statements (Continued)

(Unaudited)

The impact of the adoption of SFAS 123(R) on our Consolidated Statements of Income and Consolidated Statements of Cash Flows is as follows (in thousands, except per share date):

Six Months Ended June 30,
  2006
2005
      Increase/     Increase/  
        (decrease)     (decrease)    
   
Income before income taxes and equity earnings (loss)     $ (3,862 ) $ (2,451 )
Provision for income taxes       (1,379 )   (869 )
Net income       (2,483 )   (1,582 )
   
Basic earnings per share     $ (0.05 ) $ (0.03 )
Diluted earnings per share     $ (0.04 ) $ (0.02 )
   
Net cash used in operating activities     $ 520   $ 632  
Net cash provided by financing activities       (520 )   (632 )

The impact of the adoption of SFAS 123(R) on our Consolidated Balance Sheet at December 31, 2005 is as follows (in thousands):

      Increase/  
        (decrease)    
   
Deferred income taxes (included in Other assets, net)     $ 8,744  
Additional paid-in capital       23,719  
Retained earnings       (15,678 )
Unearned compensation       703  

In March 1998, the Board adopted the SCP Pool Corporation Employee Stock Purchase Plan. Under this plan, employees who meet minimum age and length of service requirements may purchase stock at 85% of the lower of:

a.  

the closing price of our common stock at the end of a six month period ending either June 30 or December 31; or


b.  

the average of the beginning and ending closing prices of our common stock for such six month period.


No more than 956,250 shares of our common stock may be issued under this plan. We awarded 31,131 shares under this plan during the six months ended June 30, 2006 and 22,707 shares under this plan during the six months ended June 30, 2005. Share-based compensation expense related to the Employee Stock Purchase Plan was $0.3 million for the six months ended June 30, 2006 and $0.2 million for the six months ended June 30, 2005. The grant date fair value for the purchase period ended June 30, 2006 was $9.52 per share and $6.62 per share for the purchase period ended June 30, 2005.


9


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

You should read the following discussion in conjunction with Management’s Discussion and Analysis included in our 2005 Annual Report on Form 10-K.

OVERVIEW

Financial Results

Net sales grew 25% to $705.7 million in the second quarter of 2006 compared to $564.0 million in 2005.  Base business sales growth of 13% contributed $70.5 million to the increase with the remaining increase attributable to acquired and new sales centers, including the Horizon business acquired in October 2005.

Our base business sales growth continues to reflect the growth in the installed base of swimming pools, our execution of sales, marketing and service programs that we offer to our customers, growth in complementary product sales and passing on inflationary price increases. In the second quarter of 2006, complementary product sales grew 23% compared to the same period in 2005. The impact of weather on sales in the quarter was mixed. Above normal temperatures across much of the country benefited maintenance and impulse sales, while heavy rainfall in certain regions delayed some pool construction.

Our gross profit as a percent of net sales (gross margin) increased 80 basis points to 29.6% in the second quarter of 2006 from 28.8% in the second quarter of 2005. This increase is attributable primarily to the benefits achieved through our supply chain management initiatives, including favorable sales mix from our focus on higher margin products and the benefits of forward inventory purchases since the fourth quarter of 2005.

Our operating income increased 27% to $103.3 million in the second quarter of 2006 while operating margin expanded 20 basis points to 14.6% of sales despite the inclusion of the lower operating margins of Horizon in 2006. The growth in sales and gross margins were more than enough to offset slightly higher selling and operating expense growth. Net income increased 22% compared to the same period in 2005 and included $1.0 million of net equity earnings from our investment in Latham Acquisition Corporation (LAC).

Financial Position and Liquidity

Consistent with the increase in net sales, accounts receivable increased $64.0 million to $295.7 million at June 30, 2006 from $231.7 million at June 30, 2005. Days sales outstanding (DSO) increased between periods to 34.0 days at June 30, 2006 compared to 33.3 days at June 30, 2005 as a result of the addition of Horizon’s receivables which have slightly longer collection cycles. Excluding Horizon, DSO improved by half a day over 2005.

Our inventory levels increased 48% to $367.1 million as of June 30, 2006, compared to June 30, 2005, due to the Horizon acquisition, additional pre-price increase inventory purchases made in the first half of the year, the increased level of base business sales, new sales center inventory and increased stocking levels for certain higher margin products. As a result of this increase, our inventory turns have slowed to 4.0 times as of June 30, 2006 from 4.5 times as of June 30, 2005. However, our inventory quality remains high as measured by the percentage of inventory in our fastest-turning inventory classes. Our slowest moving class of inventory as a percentage of total inventory remained consistent quarter over quarter.

Total debt outstanding increased 76% to $306.6 million at June 30, 2006 compared to $174.7 at June 30, 2005. This increase is attributable to increased borrowings to fund the Horizon acquisition, additional working capital and our second quarter share repurchases. We continue to maintain a healthy current ratio, which was down slightly to 1.5 as of June 30, 2006 compared to 1.6 as of June 30, 2005.


10


Recent Developments

In August 2006, we acquired Wickham Supply, Inc. and Water Zone, LP (collectively “Wickham”), a leading regional irrigation products distributor in Texas. Wickham operates 14 distribution sales centers with 13 locations throughout Texas and one location in Georgia. Wickham’s net sales are expected to approximate $50.0 million for fiscal 2006. This transaction, which is expected to be accretive in 2007 and beyond, expands our footprint in the $3 plus billion irrigation and landscape distribution marketplace by providing a significant presence in the strategically important Texas market. We funded this transaction through utilization of our existing bank facilities.

With the recent focus on public company stock option practices, we elected to conduct an internal review of our annual stock option grants since our initial public offering in 1995. During this review, we identified certain issues with our historical option granting process, including instances in which the grant dates and exercise prices approved by the Compensation Committee of our Board of Directors for the certain annual option grants differed from the grant dates and option exercise prices set forth in the respective employee stock option agreements for such grants. As a result, we will modify these stock option agreements to reflect the proper grant dates and exercise prices.

Based on our review, we concluded that there is no material impact to our prior period financial statements. As such, we are not required to restate our previously filed financial statements.

Outlook

Based on our financial results through the first half of 2006, we expect earnings per share for the year ending December 31, 2006 will be approximately $1.80 per diluted share, including an expected $0.08 impact from stock option expensing.

Our business is subject to significant risks, including weather, competition, general economic conditions and other risks detailed in Part II — Item 1A. “Risk Factors” and our “Cautionary Statement for Purpose of the ‘Safe Harbor’ Provisions of the Private Securities Litigation Reform Act of 1995".

RESULTS OF OPERATIONS

As of June 30, 2006, we conducted operations through 256 sales centers in North America and Europe.

The following table presents information derived from the Consolidated Statements of Income expressed as a percentage of net sales.

Three Months Ended Six Months Ended
June 30,
June 30,
2006
2005
2006
2005
Net sales       100.0 %   100.0 %   100.0 %   100.0 %
Cost of sales       70.4   71.2   70.9   71.7




         Gross profit       29.6   28.8   29.1   28.3
Selling and administrative expenses       15.0   14.4   17.9   17.2




         Operating income       14.6   14.4   11.2   11.1
Interest expense       0.5   0.3   0.6   0.4




Income before income taxes and equity earnings (loss)       14.1   14.1   10.6   10.7





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The following discussion of consolidated operating results includes the operating results from acquisitions in 2005 and 2004. We accounted for these acquisitions using the purchase method of accounting, and we have included the results of operations in our consolidated results since the respective acquisition dates.

We exclude the following sales centers from base business for 15 months:

    acquired sales centers;
    sales centers divested or consolidated with acquired sales centers; and
    new sales centers opened in new markets.

Additionally, we generally allocate overhead expenses to acquired sales centers on the basis of acquired sales center net sales as a percentage of total net sales.

Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005


(Unaudited) Base Business Acquired Total
(In thousands) Three Months Three Months Three Months
  Ended Ended Ended
  June 30,
June 30,
June 30,
  2006
2005
2006
2005
2006
2005
Net sales     $ 634,489   $ 563,978   $ 71,214   $ --   $ 705,703   $ 563,978  
   
Gross profit       187,554     162,681     21,446     --     209,000     162,681  
Gross margin       29.6 %   28.8 %   30.1 %         29.6 %   28.8 %
   
Selling and administrative expenses       92,286     81,292     13,376     --     105,662     81,292  
Expenses as a % of net sales       14.6 %   14.4 %   18.8 %         15.0 %   14.4 %
   
Operating income       95,268     81,389     8,070     --     103,338     81,389  
Operating income margin       15.0 %   14.4 %   11.3 %         14.6 %   14.4 %

For purposes of comparing operating results for the three months ended June 30, 2006 to the three months ended June 30, 2005, 210 sales centers were included in the base business calculations and 46 sales centers were excluded because they were acquired or opened in new markets within the last 15 months. The effect of sales center acquisitions in the table above includes the operations of the following:

Acquired
Acquisition Date
Period Excluded (1)
B&B s.r.l. (Busatta)     October 2005     April - June 2006    
Direct Replacements, Inc.     October 2005     April - June 2006    
Horizon Distributors, Inc.     October 2005     April - June 2006    

(1)  

After 15 months of operations, we include acquired sales centers in the base business calculation including the comparative prior year period.



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Net Sales

Three Months Ended June 30,
(in millions)
2006
2005
Change
Net sales     $ 705.7 $ 564.0   $ 141.7                25 %

Base business sales growth was 13% in the second quarter of 2006. Net sales increased primarily due to the following:

    a larger installed base of swimming pools resulting in increased sales of non-discretionary products;
    the continued successful execution of our sales, marketing and service programs, resulting in market share gains;
    price increases, which were passed through the supply chain; and
    23% growth in complementary product sales.

The complementary product sales growth rate slowed to 23% in the second quarter of 2006 due primarily to flat spa sales resulting from supplier capacity issues. We have added additional spa suppliers to meet the market demand and expect our complementary product sales growth rate to improve as the growth rate for spa sales returns to a more normalized level.

The remaining increase in net sales is attributable to acquired and new sales centers. Including Horizon’s second quarter 2006 sales, complementary product sales grew 160% over the second quarter of 2005 and accounted for 17% of total net sales.

Gross Profit

Three Months Ended June 30,
(in millions)
2006
2005
Change
Gross profit      $ 209.0  $ 162.7  $ 46.3                   29 %
Gross margin       29.6 %   28.8 %           0.8%

Gross margin increased 80 basis points between periods due primarily to the benefits achieved through our supply chain management initiatives, including favorable sales mix from our focus on higher margin products and the benefits from our forward inventory purchases.

Operating Expenses

Three Months Ended June 30,
(in millions)
2006
2005
Change
Operating expenses       $ 105.7  $ 81.3 $ 24.4                   30 %
Operating expenses as a percentage of net sales       15.0 %   14.4 %           0.6%

Compared to second quarter of 2005, operating expenses grew 30% and increased 60 basis points as a percentage of net sales. This increase is due primarily to the addition of Horizon’s operating expenses, which include amortization expense related to the Horizon acquisition, start-up costs and higher expense ratios for new pool sales centers, higher incentive compensation and increased promotional costs. Base business operating expenses were 14% higher in the second quarter of 2006 compared to the same period in 2005 and relatively consistent as a percentage of sales.

Interest Expense

Interest expense increased $2.0 million between periods due to a 47% increase in the average debt outstanding compared to the second quarter of 2005 and an increase in the effective interest rate to 5.6% in 2006 from 3.9% in 2005.

Income Taxes

The increase in income taxes is due to the $20.0 million increase in income before income taxes and equity earnings. Our effective income tax rate was 38.6% at June 30, 2006 and June 30, 2005.

Net Income and Earnings Per Share

Net income increased 23% to $62.1 million in the second quarter of 2006 from $50.7 million in the second quarter of 2005. The 2006 amount included $1.0 million of net equity earnings from our investment in LAC, down from $1.9 million for the same period last year due to additional taxes now accrued on this income. Diluted earnings per share increased 23% to $1.12 per share in the second quarter of 2006 compared to $0.91 per share in the second quarter of 2005.


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Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005


(Unaudited) Base Business Acquired Total
(In thousands) Six Months Six Months Six Months
  Ended Ended Ended
  June 30,
June 30,
June 30,
  2006
2005
2006
2005
2006
2005
Net sales     $ 936,674   $ 827,345   $ 117,585   $ 1,794   $ 1,054,259   $ 829,139  
   
Gross profit       272,907     234,137     34,141     495     307,048     234,632  
Gross margin       29.1 %   28.3 %   29.0 %   27.6 %   29.1 %   28.3 %
   
Selling and administrative expenses       162,857     142,430     25,831     557     188,688     142,987  
Expenses as a % of net sales       17.4 %   17.2 %   22.0 %   31.0 %   17.9 %   17.2 %
   
Operating income (loss)       110,050     91,707     8,310     (62 )   118,360     91,645  
Operating income (loss) margin       11.8 %   11.1 %   7.1 %   (3.5 )%   11.2 %   11.1 %

For purposes of comparing operating results for the six months ended June 30, 2006 to the six months ended June 30, 2005, 207 sales centers were included in the base business calculations and 49 sales centers were excluded because they were acquired or opened in new markets within the last 15 months. The effect of sales center acquisitions in the table above includes the operations of the following:

Acquired
Acquisition Date
Period Excluded (1)
Pool Tech Distributors, Inc.     December 2004     January - February 2006 and 2005    
B&B s.r.l. (Busatta)     October 2005     January - June 2006    
Direct Replacements, Inc.     October 2005     January - June 2006    
Horizon Distributors, Inc.     October 2005     January - June 2006    

(1)      After 15 months of operations, we include acquired sales centers in the base business calculation including the comparative prior year period.

Net Sales

Six Months Ended June 30,
(in millions)
2006
2005
Change
Net sales     $ 1,054.3 $ 829.1   $ 225.2                27 %

Base business sales growth was 13% in the first six months of 2006. Net sales increased primarily due to the following:

    a larger installed base of swimming pools resulting in increased sales of non-discretionary products;
    price increases, which were passed through the supply chain;
    the continued successful execution of our sales, marketing and service programs resulting in market share gains; and
    27% growth in complementary product sales.

The remaining increase in net sales is attributable to acquired and new sales centers. Including Horizon’s 2006 year to date sales, complementary product sales grew 172% over the first six months of 2005 and accounted for 19% of total net sales.


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Gross Profit

Six Months Ended June 30,
(in millions)
2006
2005
Change
Gross profit      $ 307.0  $ 234.6  $ 72.4                   31 %
Gross margin       29.1 %   28.3 %           0.8%

Gross margin increased 80 basis points between periods due primarily to the benefits achieved through our supply chain management initiatives, including the benefits of our forward inventory purchases in the fourth quarter of 2005 and a shift in product mix to higher margin products compared to the first six months of 2005.

Operating Expenses

Six Months Ended June 30,
(in millions)
2006
2005
Change
Operating expenses       $ 188.7  $ 143.0 $ 45.7                   32 %
Operating expenses as a percentage of net sales       17.9 %   17.2 %           0.7%

Operating expenses grew 32% and as a percentage of net sales increased 70 basis points from the first six months of 2005 due primarily to the addition of Horizon’s operating expenses, which include amortization expense related to the Horizon acquisition. Base business operating expenses were 14% higher in the first six months of 2006 compared to the same period in 2005 and only slightly higher as a percentage of sales. The increase in base business operating expenses is due to higher incentive compensation, higher share-based compensation costs due largely to accelerated expense for options issued to retirement eligible employees, expenses for newly opened pool sales centers and increased promotional costs.

We opened twelve sales centers in the first half of 2006 compared to only three sales centers in the first half of 2005. The sales centers opened in 2006 include nine new pool sales centers and three new Horizon sales centers. The increase in operating expenses related to new sales centers also includes start-up costs for two sales centers opened in early July 2006.

Interest Expense

Interest expense increased $3.7 million between periods as average debt outstanding was 65% higher in the first six months of 2006 compared to the first six months of 2005 and the effective interest rate increased to 5.4% in 2006 from 3.8% in 2005.

Income Taxes

The increase in income taxes is due to the $23.0 million increase in income before income taxes and equity earnings (loss). Our effective income tax rate was 38.6% at June 30, 2006 and June 30, 2005.

Net Income and Earnings Per Share

Net income increased 25% to $68.5 million in the first six months of 2006 from $54.8 million in the first six months of 2005. Our equity interest in LAC produced a small loss in the first six months of 2006. For the year, we expect a positive contribution to our earnings from LAC.

Earnings per share for the first six months of 2006 increased 24% to $1.23 per diluted share compared to $0.99 in the first six months of 2005.


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Seasonality and Quarterly Fluctuations

Our business is highly seasonal. In general, sales and operating income are highest during the second and third quarters, which represent the peak months of both swimming pool use and installation and landscape installations and maintenance. Sales are substantially lower during the first and fourth quarters when we may incur net losses.

We typically experience a build-up of product inventories and accounts payable during the winter months in anticipation of the peak selling season. Excluding borrowings to finance acquisitions and share repurchases, our peak borrowing usually occurs during the second quarter, primarily because extended payment terms offered by our suppliers typically are payable in April, May and June, while our peak accounts receivable collections typically occur in June, July and August.

The following table presents certain unaudited quarterly data for the first and second quarters of 2006, the four quarters of 2005 and the third and fourth quarters of 2004. We have included income statement and balance sheet data for the most recent eight quarters to allow for a meaningful comparison of the seasonal fluctuations in these amounts. In our opinion, this information reflects all normal and recurring adjustments considered necessary for a fair presentation of this data. Due to the seasonal nature of our industry, the results of any one or more quarters are not necessarily an accurate indication of results for an entire fiscal year or of continuing trends.

(Unaudited)
QUARTER
(in thousands)
2006
2005 (1)
2004 (1)
  Second
First
Fourth
Third
Second
First
Fourth
Third
Statement of Income Data                                    
Net sales     $ 705,703   $ 348,556   $ 299,791   $ 423,729   $ 563,978   $ 265,161   $ 209,937   $ 362,091  
Gross profit       209,000     98,048     83,211     114,605     162,681     71,951     56,404     104,183  
Operating income (loss)       103,338     15,022     2,288     41,431     81,389     10,256     (5,013 )   35,908  
Net income (loss)       62,110     6,422     (876 )   26,521     50,709     4,102     (3,656 )   21,360  
               

               
Balance Sheet Data    
Total receivables, net     $ 295,722   $ 211,578   $ 141,785   $ 152,037   $ 231,736   $ 164,507   $ 97,589   $ 130,360  
Product inventories, net       367,096     406,310     330,575     197,135     247,350     281,267     195,787     167,024  
Accounts payable       207,727     267,296     174,170     99,920     165,872     219,290     113,114     76,454  
Total debt       306,618     239,712     198,241     86,922     174,743     145,045     97,505     102,197  

_________________

(1)  

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. For additional information, see Note 5 of “Notes to Consolidated Financial Statements” included in Item 1 of this Form 10-Q.


In the fourth quarter of 2005 and first two quarters of 2006, our results of operations include the Horizon business acquired in October 2005. We expect that our quarterly results of operations will continue to fluctuate depending on the timing and amount of revenue contributed by new and acquired sales centers. We attempt to open new sales centers at the end of the fourth quarter or the first quarter of the subsequent year to take advantage of preseason sales programs and the following peak selling season.


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Weather is the principal external factor affecting our business. The table below presents some of the possible effects resulting from various weather conditions.

Weather


  

Possible Effects


Hot and dry

  

•      Increased purchases of chemicals and supplies for existing swimming pools

    

•      Increased purchases of above-ground pools and irrigation products

   

Unseasonably cool weather or

  

•      Fewer pool and landscape installations

   extraordinary amounts of rain

  

•      Decreased purchases of chemicals and supplies

    

•      Decreased purchases of impulse items such as above-ground pools and accessories

   

Unseasonably early warming trends in spring / late cooling trends in fall

   (primarily in the northern half of the US)

  

•      A longer pool and landscape season, thus increasing our sales

   

Unseasonably late warming trends in spring / early cooling trends in fall

   (primarily in the northern half of the US)

  

•      A shorter pool and landscape season, thus decreasing our sales

In the second quarter of 2006, our sales benefited from record high temperatures across most of North America but rain hindered sales in western and northern markets.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is defined as the ability to generate adequate amounts of cash to meet current cash needs. We assess our liquidity in terms of our ability to generate cash to fund our operating activities, taking into consideration the seasonal nature of our business. Significant factors which could affect our liquidity include the following:

    cash flows generated from operating activities;
    the adequacy of available bank lines of credit;
    acquisitions;
    the timing and extent of share repurchases;
    capital expenditures;
    dividend payments; and
    the ability to attract long-term capital with satisfactory terms.

Our primary capital needs are seasonal working capital obligations and other general corporate purposes, including acquisitions, share repurchases and dividend payments. Our primary sources of working capital are cash from operations supplemented by bank borrowings, which combined with seller financing have historically been sufficient to support our growth and finance our acquisitions. The same principle applies for funds used for share repurchases and capital expenditures. Our priorities for the use of cash are as follows:

    maintenance and new sales center capital expenditures estimated at 0.5% to 0.75% of net sales;
    strategic acquisitions executed opportunistically;
    payment of cash dividends as and when declared by the Board of Directors;
    repurchase of common stock at Board-defined parameters; and
    repayment of debt.

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Sources and Uses of Cash

The following table summarizes our cash flows (in thousands):

Six Months Ended June 30,
2006
2005
Operating activities     $ (49,205 ) $ (51,008 )
Investing activities       (9,169 )   (6,699 )
Financing activities       63,084     73,084  

Cash flow used in operations decreased $1.8 million to $49.2 million in the first six months of 2006 compared to $51.0 million in the same period in 2005. We used most of the increase in our net income to fund our working capital investment. Through the second quarter of 2006, we continued to benefit from the deferral of our estimated federal tax payments due to the provisions of hurricane tax relief offered by the Internal Revenue Service. During the quarter, we repurchased 1.0 million shares of our common stock, using $43.8 million in borrowing capacity to fund these purchases.

Future Sources and Uses of Cash

Our unsecured syndicated senior credit facility (the Credit Facility), which matures on December 20, 2010, provides for a $120.0 million five-year revolving credit facility (the Revolver) and a $60.0 million term loan (the Term Loan). The Credit Facility includes sublimits for the issuance of swingline loans and standby letters of credit. The aggregate maximum principal amount of the commitments under the Credit Facility may be increased from time to time by a total amount up to $40.0 million.

At June 30, 2006, there was $93.0 million outstanding and $25.8 million available for borrowing under the Revolver. The average effective interest rate on the Revolver was approximately 5.6% for the six months ended June 30, 2006.

At June 30, 2006, there was $60.0 million outstanding under the Term Loan. Since our first scheduled principal payment on the Term Loan of $750,000 is due on March 31, 2007, this amount is classified as current as of June 30, 2006. The average effective interest rate of the Term Loan was approximately 5.3% for the six months ended June 30, 2006.

Our obligations under the Credit Facility are guaranteed by certain of our existing and future domestic subsidiaries. The Credit Facility contains terms and provisions (including representations, covenants and conditions) and events of default customary for transactions of this type. If an event of default occurs and is continuing under the Credit Facility, the lenders may terminate their obligations thereunder and may require us to repay all amounts thereunder. For additional information regarding the Credit Facility, see Note 5 of “Notes to Consolidated Financial Statements,” included in our 2005 Annual Report on Form 10-K.

In March 2006, we renewed our accounts receivable securitization facility (the Receivables Facility), which provides a seasonal borrowing capacity of up to $150.0 million, through March 2007. The Receivables Facility provides for the true sale of certain of our receivables as they are created to a wholly-owned, bankruptcy-remote subsidiary. This subsidiary grants an undivided security interest in the receivables to an unrelated commercial paper conduit. Because of the structure of the bankruptcy-remote subsidiary and our ability to control its activities, we include the transferred receivables and related debt in our Consolidated Balance Sheet. We continue to employ this arrangement because it provides us with a lower cost form of financing. At June 30, 2006, there was $150.0 million outstanding under the Receivables Facility at an average effective interest rate of 5.4%.


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As of June 30, 2006, we were in compliance with all covenants and financial ratio requirements related to our Credit Facility and our Receivables Facility.

In the third quarter of 2006, we repurchased approximately $6.1 million, or 151,400 shares, of our common stock on the open market at an average share price of $40.55. This used most of the remaining amount of our existing share repurchase authorization. In August 2006, our Board of Directors (our Board) increased the authorization for the repurchase of shares of our common stock in the open market to $50.0 million, all of which remained available as of August 7, 2006. We intend to continue to repurchase shares on the open market from time to time, depending on market conditions. We may use cash flows from operations to fund these purchases, or we may incur additional debt.

The third quarter normally generates strong seasonal cash flows from operating activities. This trend will continue in the third quarter of 2006, although our cash flows from operating activities will be negatively impacted by the payment of approximately $60.0 million for estimated federal tax payments, partially offset by lower inventory purchases as a result of pre-price increase inventory purchases made in the second quarter of 2006. The tax payments include deferred taxes from the second half of 2005 and the first half of 2006 as allowed by the Katrina Emergency Tax Relief Act of 2005.

In the third quarter of 2006, our cash flows will also be impacted by our acquisition of Wickham in August 2006. We funded this transaction through borrowings under our existing bank facilities.

We believe we have adequate availability of capital to fund present operations and anticipated growth, including expansion in existing and targeted market areas. We continually evaluate potential acquisitions and hold discussions with acquisition candidates. If suitable acquisition opportunities or working capital needs arise that would require additional financing, we believe that our financial position and earnings history provide a solid base for obtaining additional financing resources at competitive rates and terms. Additionally, we may issue common or preferred stock to raise funds.

CRITICAL ACCOUNTING ESTIMATES

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States (GAAP), which requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management identifies critical accounting estimates as:

    those that require the use of assumptions about matters that are inherently and highly uncertain at the time the estimates are made; and
    those for which changes in the estimate or assumptions, or the use of different estimates and assumptions, could have a material impact on our consolidated results of operations or financial condition.

Management has discussed the development, selection and disclosure of our critical accounting estimates with the Audit Committee of our Board of Directors. For a description of our critical accounting estimates that require us to make the most difficult, subjective or complex judgments, please see our Annual Report on Form 10-K for the year ended December 31, 2005. We have not changed these policies from those previously disclosed.


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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

There have been no material changes from what we reported in our Form 10-K for the year ended December 31, 2005.

Foreign Exchange Risk

There have been no material changes from what we reported in our Form 10-K for the year ended December 31, 2005.

Item 4. Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the Act). The rules refer to the controls and other procedures designed to ensure that information required to be disclosed in reports that we file or submit under the Act is recorded, processed, summarized and reported within the time periods specified. As of June 30, 2006, management, including the CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, management, including the CEO and CFO, concluded that as of June 30, 2006, our disclosure controls and procedures were effective at ensuring that material information related to us or our consolidated subsidiaries is made known to them and is disclosed on a timely basis in our reports filed under the Act.

We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Based on the most recent evaluation, we have concluded that no change in our internal control over financial reporting occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION

Item 1A. Risk Factors

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

Our disclosure and analysis in this report contains forward-looking information that involves risks and uncertainties. Our forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of future performance, statements of management’s plans and objectives, future contracts, and forecasts of trends and other matters. You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as “anticipate”, “estimate”, “expect”, “believe,” “will likely result,” “outlook,” “project” and other words and expressions of similar meaning. No assurance can be given that the results in any forward-looking statements will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act.

Risk Factors

Certain factors that may affect our business and could cause actual results to differ materially from those expressed in any forward-looking statements include the following:

We are susceptible to adverse weather conditions.

Weather is the principal external factor affecting our business. For example, unseasonably late warming trends can decrease the length of the pool season and unseasonably cool weather or extraordinary rainfall during the peak season can decrease swimming pool use, installation and maintenance, as well as landscape installations and maintenance. These weather conditions adversely affect sales of our products. For a discussion regarding seasonality and weather, see Part I – Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Seasonality and Quarterly Fluctuations.”

Our distribution business is highly dependent on our ability to maintain favorable relationships with suppliers and manufacturers.

As a distribution company, maintaining favorable relationships with our suppliers is critical to the success of our business. We believe that we add considerable value to the swimming pool supply chain and landscape supply chain by purchasing products from a large number of manufacturers and distributing the products to a highly fragmented customer base on conditions that are more favorable than these customers could obtain on their own. We believe that we currently enjoy good relationships with our suppliers, who generally offer us competitive pricing, return policies and promotional allowances. However, our inability to maintain favorable relationships with our suppliers could have an adverse effect on our business.

Our largest suppliers are Pentair Corporation, Hayward Pool Products, Inc. and Waterpik Technologies, Inc., which accounted for approximately 20%, 13% and 7%, respectively, of the costs of products we sold in 2005. While we do not believe that the loss of any single supplier would adversely affect our business, a decision by several suppliers, acting in concert, to sell their products directly to retail customers and other end-users of their products, bypassing distribution companies like ours, would have an adverse effect on our business. We dedicate significant resources to promote the benefits and affordability of pool ownership, which we believe greatly benefits our swimming pool customers and suppliers.


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We face intense competition both from within our industry and from other leisure product alternatives.

We face competition from both inside and outside of our industry. Within our industry, we compete against various regional and local distributors and, to a lesser extent, mass market retailers and large pool supply retailers. Outside of our industry, we compete with sellers of other leisure product alternatives, such as boats and motor homes, and with other companies who rely on discretionary homeowner expenditures, such as home remodelers. New competitors may emerge as there are low barriers to entry in our industry. Some geographic markets that we serve, particularly our largest, higher density markets in California, Florida, Texas and Arizona, representing approximately 54% of our net sales in 2005, also tend to be more competitive than others.

More aggressive competition by mass merchants could adversely affect our sales.

Mass market retailers today carry a limited range of, and devote a limited amount of shelf space to, merchandise and products targeted to our industry. Historically, mass market retailers have generally expanded by adding new stores and product breadth, but their product offering of pool and landscape related products has remained relatively constant.  Should mass market retailers increase their focus on the pool or professional landscape industries, or increase the breadth of their pool and landscape related product offerings, they may become a more significant competitor for direct and end-use customers which could have an adverse impact on our business.

The demand for our swimming pool and related outdoor lifestyle products may be adversely affected by economic downturns.

In economic downturns, the demand for swimming pool or leisure related products may decline as discretionary consumer spending, the increase in pool eligible households and swimming pool construction decline. Although maintenance products and repair and replacement equipment that must be purchased by pool owners to maintain existing swimming pools account for more than 60% of our gross profits, the growth of our business depends on the expansion of the installed pool base, which may be viewed by most consumers as a discretionary expenditure that may be adversely affected by economic downturns.

We depend on key personnel.

We consider our employees to be the foundation for our growth and success. As such, our future success depends in large part on our ability to attract, retain and motivate qualified personnel, including our executive officers and key management personnel. If we are unable to attract and retain key personnel, our operating results could be adversely affected.

Specifically, our future success depends to an extent upon the continued service of Manuel Perez de la Mesa, our Chief Executive Officer. The loss of Mr. Perez de la Mesa in particular could have a material adverse effect on our business. Mr. Perez de la Mesa is not nearing retirement age, and we have no indication that he intends to retire in the near future. We do not currently maintain key man insurance on Mr. Perez de la Mesa.

We may not be able to sustain our pace of growth.

We have experienced substantial sales growth in recent years through acquisitions and new sales center openings that have increased our size, scope and geographic distribution. Since 2001, we have opened 33 new sales centers and have completed 13 acquisitions including our acquisition of Horizon in October 2005. These acquisitions have added 93 sales centers, net of sales center closings and consolidations, and a centralized shipping location to our distribution networks. While we contemplate continued growth through acquisitions and internal expansion, no assurance can be made as to our ability to:

    penetrate new markets;
    identify appropriate acquisition candidates;
    complete acquisitions on satisfactory terms and successfully integrate acquired businesses;
    obtain financing;
    generate sufficient cash flows to support expansion plans and general operating activities;
    maintain favorable supplier arrangements and relationships; and
    identify and divest assets which do not continue to create value consistent with our objectives.

If we do not manage these potential difficulties successfully, our operating results could be adversely affected.


22


The growth of our business depends on effective marketing programs.

The growth of our business depends on the expansion of the installed pool base. Thus, an important part of our strategy is to promote the growth of the pool industry through our extensive advertising and promotional programs that attempt to raise consumer awareness regarding the benefits and affordability of pool ownership, the ease of pool maintenance and the many ways in which a pool may be enjoyed beyond swimming. These programs include media advertising, website development such as www.swimmingpool.com ™ and public relations campaigns. We believe these programs benefit the entire supply chain from our suppliers to our customers.

We also promote the growth of our customers’ businesses through comprehensive support programs that offer promotional tools and marketing support to help generate increased sales for our customers. Our programs include such things as personalized websites, brochures, marketing campaigns and business development training. We also provide certain retail store customers with assistance in site selection, store layout and design and business management system implementation. Our inability to sufficiently develop effective advertising, marketing and promotional programs to succeed in a weakened economic environment and an increasingly competitive marketplace, in which we (and our entire supply chain) also compete with other luxury product alternatives, could have a material adverse effect on our business.

Our business is highly seasonal.

In 2005, approximately 64% of our net sales and 89% of our operating income were generated in the second and third quarters of the year, which represent the peak months of swimming pool use, installation, remodeling and repair. Our sales are substantially lower during the first and fourth quarters of the year, when we may incur net losses.

The nature of our business subjects us to compliance with Environmental, Health, Transportation and Safety Regulations.

We are subject to regulation under federal, state and local environmental, health, transportation and safety requirements, which govern such things as packaging, labeling, handling, transportation, storage and sale of pool chemicals and landscape chemicals and fertilizers. For example, we sell algaecides and pest control products that are regulated as pesticides under the Federal Insecticide, Fungicide and Rodenticide Act and various state pesticide laws. These laws are primarily related to labeling, annual registration and licensing.

Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties or the imposition of injunctive relief. Moreover, compliance with such laws and regulations in the future could prove to be costly, and there can be no assurance that we will not incur such costs in material amounts. These laws and regulations have changed substantially and rapidly over the last 20 years, and we anticipate that there will be continuing changes. The clear trend in environmental, health, transportation and safety regulation is to place more restrictions and limitations on activities that impact the environment, such as the use and handling of chemical substances. Increasingly, strict restrictions and limitations have resulted in increased operating costs for us, and it is possible that the costs of compliance with such laws and regulations will continue to increase. We will attempt to anticipate future regulatory requirements that might be imposed and we will plan accordingly to remain in compliance with changing regulations and to minimize the costs of such compliance.


23


We store chemicals, fertilizers and other combustible materials that involve fire, safety and casualty risks.

We store chemicals and fertilizers, including certain combustible, oxidizing compounds, at our sales centers. A fire, explosion or flood affecting one of our facilities could give rise to fire, safety and casualty losses and related liability claims. We maintain what we believe is prudent insurance protection. However, we cannot guarantee that our insurance coverage will be adequate to cover future claims that may arise or that we will be able to maintain adequate insurance in the future at rates we consider reasonable. Successful claims for which we are not fully insured may adversely affect our working capital and profitability. In addition, changes in the insurance industry have generally led to higher insurance costs and decreased availability of coverage.

We conduct business internationally, which exposes us to additional risks.

Our international operations expose us to certain additional risks, including difficulty in staffing and managing foreign subsidiary operations, uncertain political and regulatory conditions, foreign currency fluctuations, adverse tax consequences and dependence on foreign economies.

We source certain products we sell, including our private label products, from Asia and other foreign locations. There is a significant risk that we may not be able to access products in a timely and efficient manner, and we may also be subject to certain trade restrictions that prevent us from obtaining products. Fluctuations in other factors relating to foreign trade, such as tariffs, currency exchange rates, transportation costs and inflation are beyond our control.

A terrorist attack or the threat of a terrorist attack could have a material adverse effect on our business.

The terrorist attacks that took place on September 11, 2001, in the U.S. were unprecedented events that have created many economic and political uncertainties, some of which may materially impact our business. Discretionary spending on leisure products such as ours is generally adversely affected during times of economic uncertainty. The potential for future terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or hostility have created many economic and political uncertainties, which could adversely affect our business for the short or long-term in ways that cannot presently be predicted.


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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below summarizes the repurchases of our common stock in the second quarter of 2006:

   
Total number of shares Maximum approximate
Total number of Average price purchased as part of dollar value that may yet be
Period
shares purchased (1)
paid per share
publicly announced plan (2)
purchased under the plan
April 1-30, 2006               --   $      --             --   $ 50,000,000  
 May 1-31, 2006       380,647   $ 43.66     370,600   $ 33,846,645  
June 1-30, 2006       664,317   $ 41.74     662,905   $   6,173,845  

(1)  

These shares include shares of our common stock surrendered to us by employees in order to satisfy tax withholding obligations in connection with certain exercises of employee stock options and/or the exercise price of such options granted under our 1995 and 1998 Stock Option Plans. Shares surrendered totaled 0 shares in April, 10,047 shares in May and 1,412 shares in June.


(2)  

In July 2002, our Board authorized $50.0 million for the repurchase of shares of our common stock in the open market. In August 2004 and November 2005, our Board increased the authorization for the repurchase of shares of our common stock in the open market to a total of $50.0 million from the amounts remaining at each of those dates. In August 2006, when less than $50,000 of the existing authorized amount remained available for share repurchases, our Board increased the authorization for the repurchase of shares of our common stock in the open market to $50.0 million.


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

At the Annual Meeting of Stockholders held on May 9, 2006, the following proposals were adopted by the margins indicated:

1.  

To elect a Board of Directors to hold office until the next Annual Meeting of Stockholders and until their successors are elected and qualified.


Number of Shares
For
Withheld
Andrew W. Code   48,469,304   1,296,516  
James J. Gaffney   49,396,750   369,071  
George T. Haymaker   49,480,786   285,035  
Manuel J. Perez de la Mesa   48,691,521   1,074,299  
Harlan F. Seymour   49,395,166   370,655  
Wilson B. Sexton   48,624,713   1,141,107  
Robert C. Sledd   46,134,099   3,631,721  
John E. Stokely   47,878,063   1,887,757  

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2.  

To approve the Strategic Plan Incentive Plan of SCP Pool Corporation.


For   43,174,121  
Against   192,229  
Abstain   38,185  

3.  

To ratify the appointment of Ernst & Young LLP, certified public accountants, as our independent auditors for the fiscal year ending December 31, 2006.


For   49,663,914  
Against   88,951  
Abstain   12,955  

Item 6. Exhibits

Exhibits filed as part of this report are listed in the Index to Exhibits appearing on page 28.

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


26



Signature Page

 

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 9, 2006.

 


    POOL CORPORATION

BY:

  /s/ Mark W. Joslin
   

Mark W. Joslin

Vice President and Chief Financial Officer, and

   duly authorized signatory on behalf of the Registrant

 


27



Index to Exhibits

Incorporated by Reference
Filed with
this Date
No.
Description
Form 10-Q
Form
File No.
Filed
  3.1     Restated Certificate of Incorporation of the Company.     X                    
   
3.2     Restated Composite Bylaws of the Company.     X                    
   
4.1     Form of certificate representing shares of common stock of the Company.           8-K     000-26640     05/19/2006  
   
10.1     Strategic Incentive Plan of SCP Pool Corporation.     X                    
   
31.1     Certification by Mark W. Joslin pursuant to Rule 13a-14(a) and     X                    
      15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                          
   
31.2     Certification by Manuel J. Perez de la Mesa pursuant to Rule 13a-14(a) and     X                    
      15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                          
   
32.1     Certification by Manuel J. Perez de la Mesa and Mark W. Joslin pursuant to     X                    
      18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                          

28


EXHIBIT 3.1



RESTATED

CERTIFICATE OF INCORPORATION

OF

POOL CORPORATION
(as of May 16, 2006)



ARTICLE ONE

        The name of the Corporation is Pool Corporation.

ARTICLE TWO

        The address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle, 19801. The name of its registered agent at such address is The Corporation Trust Company.

ARTICLE THREE

        The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

ARTICLE FOUR

PART A. AUTHORIZED SHARES

        The total number of shares of stock which the Corporation has authority to issue is 101,000,000, consisting of: (i) 1,000,000 shares of Preferred Stock, par value $.01 per share (the “Preferred Stock”), and (ii) 100,000,000 shares of Common Stock, par value $.001 per share (the “Common Stock”). All Preferred Stock and Common Stock shall be issued as fully paid and non-assessable shares, and any holder thereof shall not be liable for any further payments in respect thereof.


PART B. PREFERRED STOCK

        Section 1. Authorization; Series; Provisions .

        1A.        Authorization . The Board of Directors of the Corporation (the “Board of Directors”) is authorized, subject to limitations prescribed by law and the provisions of this Article Four, to provide for the issuance of shares of the Preferred Stock in series, and by filing a certificate pursuant to the General Corporation Law of the State of Delaware, to establish from time to time the number of shares to be included in each such series and to fix the designations, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof.

        1B.        Series . The Preferred Stock may be issued from time to time in one or more series, the shares of each series to have such powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as are stated and expressed herein or in a resolution or resolutions providing for the issuance of such series, adopted by the Board of Directors as hereinafter provided.

        1C.        Provisions . Authority is hereby expressly granted to the Board of Directors, subject to the provisions of this Part B to authorize the issuance of one or more series of Preferred Stock, and with respect to each such series to fix by resolution or resolutions providing for the issuance of such series:

          (i) the maximum number of shares to constitute such series and the distinctive designation thereof;

          (ii) whether the shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights;

          (iii) the dividend rate, if any, on the shares of such series, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any other class or classes or on any other series of capital stock, and whether such dividends shall be cumulative or noncumulative;

          (iv) whether the shares of such series shall be subject to redemption by the Corporation or by the holders thereof and, if made subject to redemption, the times, prices and other terms and conditions of such redemption;

          (v) the rights of the holders of shares of such series upon the liquidation, dissolution or winding up of the Corporation;

          (vi) whether or not the shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such series for retirement or to other corporate purposes and the terms and provisions relative to the operation thereof;


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          (vii) whether or not the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes, or of any other series of the same class, and if so convertible or exchangeable, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same;

          (viii) the limitations and restrictions, if any, to be effective while any shares of such series are outstanding upon the payment of dividends or making of other distributions on, and upon the purchase, redemption or other acquisition by the Corporation of, Common Stock or any other class or classes of stock of the Corporation ranking junior to the shares of such series either as to dividends or upon liquidation;

          (ix) the conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issue of any additional stock (including additional shares of such series or of any other series or of any other class) ranking on a parity with or prior to the shares of such series as to dividends or upon liquidation; and

          (x) any other preference and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof as shall not be inconsistent with this Article Four.

        Section 2. Series Identical; Rank . All shares of any one series of Preferred Stock shall be identical with each other in all respects, except that shares of any one series issued at different times may differ as to the dates from which dividends, if any, thereon shall be cumulative; and all series shall rank equally and be identical in all respects, except as permitted by the foregoing provisions of Section 1C hereof; and all shares of Preferred Stock shall rank senior to the Common Stock both as to dividends and upon liquidation.

        Section 3. Liquidation . In the event of any liquidation, dissolution or winding up of the Corporation, before any payment or distribution of the assets of the Corporation (whether capital or surplus) shall be made to or set apart for the holders of any class or classes of stock of the Corporation ranking junior to the Preferred Stock upon liquidation, the holders of the shares of the Preferred Stock shall be entitled to receive payment at the rate fixed herein or in the resolution or resolutions adopted by the Board of Directors providing for the issue of such series, plus (if dividends on shares of such series of Preferred Stock shall be cumulative) an amount equal to all dividends (whether or not earned or declared) accumulated to the date of final distribution to such holders; but they shall be entitled to no further payment. If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation or proceeds thereof, distributable among the holders of the shares of the Preferred Stock shall be insufficient to pay in full the preferential amount aforesaid, then such assets, or the proceeds thereof, shall be distributed among such holders ratably in accordance with the respective amounts which would be payable on such shares if all amounts payable thereon were paid in full.


3


        Section 4. Voting Rights . Except as shall be otherwise stated and expressed herein or in the resolution or resolutions of the Board of Directors providing for the issue of any series and except as otherwise required by the laws of the State of Delaware, the holders of shares of Preferred Stock shall have, with respect to such shares, no right or power to vote on any question or in any proceeding or to be represented at, or to receive notice of, any meeting of stockholders.

        Section 5. Reacquired Shares . Shares of any Preferred Stock which shall be issued and thereafter acquired by the Corporation through purchase, redemption, exchange, conversion or otherwise shall return to the status of authorized but unissued Preferred Stock, undesignated as to series, unless otherwise provided in the resolution or resolutions of the Board of Directors.

        Section 6. Increase/Decrease in Authorized Shares of a Series . Unless otherwise provided in the resolution or resolutions of the Board of Directors providing for the issuance thereof, the number of authorized shares of stock of any such series may be increased or decreased (but not below the number of shares thereof outstanding) by resolution or resolutions of the Board of Directors. In case the number of shares of any such series of Preferred Stock shall be decreased, the shares representing such decrease shall, unless otherwise provided in the resolution or resolutions of the Board of Directors providing for the issuance thereof, resume the status of authorized but unissued Preferred Stock, undesignated as to series.

PART C. COMMON STOCK

        Section 1. Voting . Except as otherwise required by applicable law, the holders of Common Stock shall be entitled to one vote per share on all matters to be voted on by the corporation's stockholders.

        Section 2. Dividends . As and when dividends are declared or paid thereon, whether in cash, property or securities of the Corporation, the holders of Common Stock shall be entitled to participate in such dividends ratably on a per share basis. The rights of the holders of Common Stock to receive dividends are subject to the provisions of the Preferred Stock.

        Section 3. Liquidation . Subject to the provisions of the Preferred Stock, the holders of Common Stock shall be entitled to participate ratably on a per share basis in all distributions to the holders of the Common Stock in any liquidation, dissolution or winding up of the Corporation.


4


        Section 4. Registration of Transfer . The Corporation shall keep at its principal office (or such other place as the Corporation reasonably designates) a register for the registration of shares of Common Stock. Upon the surrender of any certificate representing shares of any class of Common Stock at such place, the Corporation shall, at the request of the registered holder of such certificate, execute and deliver a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of such class represented by the surrendered certificate, and the Corporation forthwith shall cancel such surrendered certificate. Each such new certificate will be registered in such name and will represent such number of shares of such class as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate. The issuance of new certificates shall be made without charge to the holders of the surrendered certificates for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such issuance.

        Section 5. Replacement . Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of any class of Common Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor its own agreement will be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate.

        Section 6. Notices . All notices referred to herein shall be in writing, shall be delivered personally or by first class mail, postage prepaid, and shall be deemed to have been given when so delivered or mailed to the Corporation at its principal executive offices and to any stockholder at such holder’s address as it appears in the stock records of the Corporation (unless otherwise specified in a written notice to the Corporation by such holder).

        Section 7. Amendment and Waiver . No amendment or waiver of any provision of this Section C shall be effective without the prior approval of the holders of a majority of the then outstanding Common Stock.

PART D. GENERAL PROVISIONS

        Section 1. Nonliquidating Events . A consolidation or merger of the Corporation with or into another corporation or corporations or a sale, whether for cash, shares of stock, securities or properties, or any combination thereof, of all or substantially all of the assets of the Corporation shall not be deemed or construed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Article Four.

        Section 2. No Preemptive Rights . No holder of Preferred Stock or Common Stock of the Corporation shall be entitled, as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class or series whatsoever or of securities convertible into stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration, or by way of dividend.


5


ARTICLE FIVE

        The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, and the directors need not be elected by ballot unless required by the Bylaws of the Corporation. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation.

ARTICLE SIX

        Section 1. Meetings; Books . Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. The Board of Directors shall from time to time decide whether and to what extent and at what times and under what conditions and requirements the accounts and books of the Corporation, or any of them, except the stock book, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any books or documents of the Corporation except as conferred by the laws of the State of Delaware or as authorized by the Board of Directors.

        Section 2. Removal . Directors elected by holders of stock of the Corporation entitled to vote generally in the election of directors may be removed at any time by a majority vote of such stockholders.

ARTICLE SEVEN

        To the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director. Any repeal or modification of this Article Seven shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.


6


ARTICLE EIGHT

        Section 1. Indemnification of Officers, Directors and Employees . The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including any action by or in the right of the Corporation) (a “ Proceeding ”) by reason of the fact that he is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise (including service with respect to any employee benefit plan) against expenses (including attorneys’ fees), judgments, fines, ERISA excise taxes, penalties and amounts paid in settlement actually and reasonably incurred by him in connection with such Proceeding to the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment). The indemnification provided by this Article Eight shall not be deemed exclusive of any other rights to which any person may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity, and shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of the heirs, executors, administrators and personal representatives of such a person. It is expressly understood that, notwithstanding the foregoing, no director, officer or employee shall have any rights under this Article Eight if the Proceeding giving rise to the claim for indemnification hereunder arises as a result of actions or failures to act in any capacity other than those set forth in this Section 1, and, as such, no such person shall have any rights under this Article Eight if the Proceeding giving rise to the claim for indemnification arises as a result of such person’s purchase and/or sale of securities of the Corporation (other than on behalf of the Corporation).

        Section 2. Procedure for Indemnification of Directors, Officers and Employees . Any indemnification of a director, officer or employee of the Corporation or advance of expenses under this Article Eight shall be made promptly upon the written request of the director, officer or employee, and in any event within 30 days after such request (or, if a determination as described below is required, within 30 days after such determination has been made or deemed made). If a determination by the Corporation that the director, officer or employee is entitled to indemnification pursuant to this Article Eight is required, and the Corporation fails to respond within sixty days to a written request for indemnity, the Corporation shall be deemed to have approved the request. If the Corporation denies a written request for indemnification or advancing of expenses, in whole or in part, or if payment in full pursuant to such request is not made within 30 days after such request (or, if a determination as described above is required, within 30 days after such determination has been made or deemed made), the right to indemnification or advances as granted by this Article Eight shall be enforceable by the director, officer or employee in any court of competent jurisdiction. Such person’s costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware


7


for the Corporation to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the Corporation. Neither the failure of the Corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its board of directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

        Section 3. Insurance . The Corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer or employee of the Corporation or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise (including service with respect to any employee benefit plan) against any liability asserted against him and incurred by him in any such capacity, whether or not the Corporation would have the power to indemnify such person against such liability under this Article Eight.

        Section 4. Expenses . Expenses incurred by any person described in this Article Eight in defending a Proceeding shall be paid by the Corporation in advance of such Proceeding’s final disposition upon receipt of an undertaking by or on behalf of the director, officer or employee to repay such amount without interest if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation.

        Section 5. Contract Rights . The provisions of this Article Eight shall be deemed to be a contract between the Corporation and each director, officer or employee who serves in any such capacity at any time, and any repeal or modification of this Article Eight or of any relevant provisions of the General Corporation Law of the State of Delaware or other applicable law shall not affect any rights or obligations then existing with respect to any state of facts or Proceeding then existing.

        Section 6. Merger or Consolidation . For purposes of this Article Eight, references to “ the Corporation ” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees, so that any person who is or was a director, officer or employee of such a constituent corporation, or is or was serving at the request of such a constituent corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise (including service with respect to any employee benefit plan), shall stand in the same position under this Article Eight with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.


8


        Section 7. Indemnification of Agents . The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any agent of the Corporation to the fullest extent of the provisions of this Article Eight with respect to the indemnification and advancement of expenses of directors, officers and employees of the Corporation.

ARTICLE NINE

        The Corporation is to have perpetual existence.

ARTICLE TEN

        The Corporation expressly elects not to be governed by Section 203 of the Delaware General Corporation Law.

ARTICLE ELEVEN

        The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed herein and by the laws of the State of Delaware, and all rights conferred upon stockholders herein are granted subject to this reservation.




9


 


 

 

 

 

EXHIBIT 3.2



AMENDED AND RESTATED BY-LAWS

OF

POOL CORPORATION

(as amended through May 17, 2006)

ARTICLE I

Offices

             Section 1 .        Registered Office . The address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle 19801. The name of its registered agent at such address is The Corporation Trust Company. The registered office and/or registered agent of the Corporation may be changed from time to time by action of the Board of Directors.

             Section 2 .        Other Offices . The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II

Meetings of Stockholders

             Section 1 .        Date and Time of Annual Meetings . Unless the Board of Directors determines otherwise, the annual meeting of the stockholders shall be held each year on a date and at a time selected by the Board of Directors.

             Section 2 .        Special Meetings . Special meetings of stockholders may be called for any purpose and may be held at such time and place, within or without the State of Delaware, as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof. Such meetings may be called at any time only by the Board of Directors or the chairman or president.

             Section 3 .        Place of Meetings . The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal executive office of the Corporation.

             Section 4 .        Notice . Whenever stockholders are required or permitted to take action at a meeting, written or printed notice stating the place, date, time, and, in the case of special meetings, the purpose or purposes, of such meeting, shall be given to each stockholder entitled to vote at such meeting and to each director not less than 10 nor more than 60 days before the date of the meeting. All such notices shall be delivered, either personally or by mail, by or at the direction of the Board of Directors, the chairman or president or the secretary, and if mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his address as the same appears on the records of the Corporation. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.

             Section 5 .        Stockholders List . The officer having charge of the stock ledger of the Corporation shall make, at least 10 days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either


at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

             Section 6 .        Quorum . The holders of a majority of the outstanding shares of capital stock, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders, except as otherwise provided by statute or by the Certificate of Incorporation. If a quorum is not present, the holders of a majority of the shares present in person or represented by proxy at the meeting, and entitled to vote at the meeting, may adjourn the meeting to another time and/or place. When a quorum is once present to commence a meeting of stockholders, it is not broken by the subsequent withdrawal of any stockholders or their proxies.

             Section 7 .        Adjourned Meetings . When a meeting is adjourned to another time and place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

             Section 8 .        Vote Required . When a quorum is present, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the question is one upon which by express provisions of an applicable law or of the Certificate of Incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. When a separate vote by class is required, the affirmative vote of the majority of shares of such class present in person or represented by proxy at the meeting shall be the act of such class, unless the question is one as to which by express provisions of applicable law or of the Certificate of Incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question.

             Section 9 .        Voting Rights . Except as otherwise provided by the General Corporation Law of the State of Delaware or by the Certificate of Incorporation of the Corporation or any amendments thereto and subject to Section 3 of Article VI hereof, every stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of common stock held by such stockholder.

             Section 10 .        Proxies . Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Any proxy is suspended when the person executing the proxy is present at a meeting of stockholders and elects to vote, except that when such proxy is coupled with an interest and the fact of the interest appears on the face of the proxy, the agent named in the proxy shall have all voting and other rights referred to in the proxy, notwithstanding the presence of the person executing the proxy.

             Section 11 .        Action by Written Consent . Unless otherwise provided in the Certificate of Incorporation and subject to Section 4 of Article IV, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken and bearing the dates of signature of the stockholders who signed the consent or consents, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, or the Corporation’s principal place of business, or an officer or agent of the Corporation having custody of the book or books in which proceedings of meetings of the stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested; provided, however, that no consent or consents delivered by certified or registered mail shall be deemed delivered until such consent or consents are actually received at the registered office. All consents properly delivered in accordance with this section shall be deemed to be recorded when so delivered. No written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered to the Corporation as required by this section, written consents signed by the holders of a sufficient number of shares to take such corporate action are so recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Any action taken pursuant to such written consent or consents of the stockholders shall have the same force and effect as if taken by the stockholders at a meeting thereof.


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             Section 12.1 .        Proposed Business. At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. Nominations of persons for the election to the Board of Directors at an annual meeting of stockholders by or at the direction of the Board of Directors, or a committee duly appointed thereby, or by any person who has been for at least one year the beneficial owner of at least the lesser of $2,000 in market value or 1% of the Corporation’s Common Stock entitled to vote generally for the election of directors and who complies with the procedures set forth in Section 12.2 below. Other matters to be properly brought before a meeting of the stockholders must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, including matters covered by Rule 14a-8 of the Securities Exchange Act of 1934, as amended, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by any person who has been for at least one year the beneficial owner of at least the lesser of $2,000 in market value or 1% of any class or series of capital stock of the Corporation entitled to vote on the proposed business and who complies with the procedures set forth in Section 12.2 below.

             Section 12.2 .        Proposed Business Notice. A notice of the intent of a stockholder to make a nomination or to bring any other matter before a stockholder’s meeting shall be made in writing and received by the Secretary of the Corporation not more than 270 days and not less than 120 days in advance of the first anniversary of the date on which proxy materials were first mailed by the Corporation in connection with the previous year’s annual meeting, or, in the event of a special meeting of stockholders or an annual meeting scheduled to be held either 30 days earlier or later than the preceding year’s annual meeting, such notice shall be received by the Secretary of the Corporation within 15 days of the earlier of the date on which notice of such meeting is first mailed to stockholders or public disclosure of the meeting date is made.

             Section 12.3 .        Contents of Proposed Business Notice. Every notice of the intent of a stockholder to make a nomination or to bring any other matter before a stockholder’s meeting shall set forth:

(a)     the name, age, business address and residential address of the stockholder of record who intends to make a nomination or bring up any other matter, and any beneficial owner or other person acting in concert with such stockholder;

(b)     the class and number of shares of the Corporation’s stock that are beneficially owned by the stockholder and the dates on which such person acquired such shares;

(c)     a representation that the stockholder is a holder of record of shares of the Corporation’s capital stock that accord such stockholder the voting rights specified in Section 12.1 above and that the stockholder intends to appear in person at the meeting to make the nomination or bring up the matter specified in the notice;

(d)     with respect to any notice of an intent to make a nomination, a description of all agreements, arrangements or understandings among the stockholder, any person acting in concert with the stockholder, each proposed nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder;

(e)     with respect to any notice of an intent to make a nomination, (i) the name, age, business address and residential address of each person proposed for nomination, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of capital stock of the Corporation of which such person is the beneficial owner, and (iv) any other information relating to such person that would be required to be disclosed in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had such nominee been nominated by the Board of Directors;


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(f)     with respect to any notice of an intent to bring up any other matter, a complete and accurate description of the matter not to exceed 500 words, the reasons for conducting such business at the meeting, and any material interest in the matter of the stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and

(g)     the Corporation’s secretary may require any stockholder submitting a notice of an intent to make a nomination or bring up other business before an annual meeting to furnish such documentary information as may be reasonably required by the Corporation to determine that such stockholder has been for at least one year the beneficial owner of at least $2,000 in market value or 1% of any class or series of capital stock of the Corporation entitled to be voted upon the proposed business.

             Section 12.4 .        Other Required Information. Notice of an intent to make a nomination shall also be accompanied by the written consent of each nominee to serve as a director of the Corporation if so elected. The Corporation may require any proposed nominee to furnish such other information or certifications as may be reasonably required by the Corporation to determine the eligibility and qualifications of such person to serve as a director.

             Section 12.5 .        Disqualification of Certain Proposals . With respect to any proposal by a stockholder to bring before a meeting any matter other than the nomination of directors, the following shall govern:

(a)     If the Secretary of the Corporation has received sufficient notice of a proposal that may properly be brought before the meeting, a proposal sufficient notice of which is subsequently received by the Secretary and that is substantially duplicative of the first proposal shall not be properly brought before the meeting. If in the judgment of the board of directors a proposal deals with substantially the same subject matter as a prior proposal submitted to shareholders at a meeting held within the preceding five years, it shall not be properly brought before any meeting held within three years after the latest such previous submission if (i) the proposal was submitted at only one meeting during such preceding period and it received affirmative votes representing less than 3% of the total number of votes cast in regard thereto, (ii) the proposal was submitted at only two meetings during such preceding period and it received at the time of its second submission affirmative votes representing less than 6% of the total number of votes cast in regard thereto, or (iii) the proposal was submitted at three or more meetings during such preceding period and it received at the time of its latest submission affirmative votes representing less than 10% of the total number of votes cast in regard thereto.

(b)     Notwithstanding compliance with all of the procedures set forth above in this Section 12, no proposal shall be deemed to be properly brought before a meeting of stockholders if, in the judgment of the Board, it is not a proper subject for action by stockholders under Delaware law.

             Section 12.6 .        Power to Disregard Proposals . At any meeting of stockholders, the Chairman shall declare out of order and disregard any nomination or other matter that is not presented in accordance with the foregoing procedures or which is otherwise contrary to the foregoing terms and conditions.

             Section 12.7 .        Nothing in this Section 12 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement or to solicit their own proxies pursuant to the proxy rules of the Securities and Exchange Commission.

ARTICLE III

Directors

             Section 1 .        General Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.

             Section 2 .        Number, Election and Term of Office . The number of directors which shall constitute the first Board of Directors shall be six. Thereafter, the number of directors shall be established from time to time by resolution of the Board of Directors. The directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of directors. The directors shall be elected in this manner at the annual meeting of the stockholders, except as provided in Section 4 of this Article III. Each director elected shall hold office until a successor is duly elected and qualified or until his earlier death, resignation or removal as hereinafter provided.


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             Section 3 .        Removal and Resignation . Except as otherwise provided by the General Corporation Law of the State of Delaware any director or the entire Board of Directors may be removed at any time, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Whenever the holders of any class or series are entitled to elect one or more directors by the provisions of the Corporation’s Certificate of Incorporation, the provisions of this section shall apply, in respect to the removal without cause of a director or directors so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares as a whole. Any director may resign at any time upon written notice to the Corporation.

             Section 4 .        Vacancies . Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. Each director so chosen shall hold office until a successor is duly elected and qualified or until his earlier death, resignation or removal as herein provided; provided that any directors chosen under this section shall hold office until the next election of the class for which such directors shall have been chosen, and until their successors shall be duly elected and qualified.

             Section 5 .        Annual Meetings . Unless otherwise determined by resolution of the Board of Directors, the annual meeting of each newly elected Board of Directors shall be held without other notice than this by-law immediately after, and at the same place as, the annual meeting of stockholders.

             Section 6 .        Other Meetings and Notice . Regular meetings, other than the annual meeting, of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by resolution of the Board of Directors. Special meetings of the Board of Directors may be called by or at the request of the chairman or the president or a majority of the directors on at least 24 hours notice to each director, either personally, by telephone, by mail, by telecopy or by telegraph.

             Section 7 .        Quorum, Required Vote and Adjournment . A majority of the total number of directors shall constitute a quorum for the transaction of business. The vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

             Section 8 .        Committees . The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation, which to the extent provided in such resolution or these By-laws shall have and may exercise the powers of the Board of Directors in the management and affairs of the Corporation except as otherwise limited by law. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

             Section 9 .        Committee Rules . Each committee of the Board of Directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be designated by the Board in the committee’s charter. Unless otherwise provided in the committee’s charter, the presence of at least a majority of the members in the committee shall be necessary to constitute a quorum. In the event that a member and that member’s alternate, if alternates are designated by the Board of Directors as provided in Section 8 of this Article III, of such committee is or are absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member.

             Section 10 .        Standing Committees . The standing committees of the Board of Directors shall be the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee, which committees shall have such authority and be comprised of such members as designated by the Board in their respective charters.


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             Section 11 .        Communications Equipment . Members of the Board of Directors or any committee thereof may participate in and act at any meeting of such Board of Directors or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant to this section shall constitute presence in person at the meeting.

             Section 12 .        Waiver of Notice and Presumption of Assent . Any member of the Board of Directors or any committee thereof who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Such member shall be conclusively presumed to have assented to any action taken unless his dissent shall be entered in the minutes of the meeting or unless his written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to any member who voted in favor of such action.

             Section 13 .        Action by Written Consent . Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee.

ARTICLE IV

Officers

             Section 1 .        Number . The officers of the Corporation shall be elected by the Board of Directors and shall consist of a chairman, a chief executive officer, a vice chairman, a president, one or more vice presidents, a secretary, a chief financial officer, a treasurer and such other officers and assistant officers as may be deemed necessary or desirable by the Board of Directors. Any number of offices may be held by the same person. In its discretion, the Board of Directors may choose not to fill any office for any period as it may deem advisable.

             Section 2 .        Election and Term of Office . The officers of the Corporation shall be elected annually by the Board of Directors at its first meeting held after each annual meeting of stockholders or as soon thereafter as conveniently may be. Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided.

             Section 3 .        Removal . Any officer or agent elected by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.

             Section 4 .        Vacancies . Any vacancy occurring in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term by the Board of Directors then in office.

             Section 5 .        Compensation . Compensation of all officers shall be fixed by the Board of Directors, and no officer shall be prevented from receiving such compensation by virtue of his also being a director of the Corporation.


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             Section 6 .        The Chairman . The chairman shall preside at all meetings of the stockholders and the board of directors at which he or she is present. The chairman shall have such powers and perform such other duties as may be prescribed by the Board of Directors or as may be provided in these By-laws.

             Section 7 .        The Chief Executive Officer. The chief executive officer shall be the senior-most officer of the Corporation and subject to the powers of the Board of Directors, he or she shall be in the general and active charge of the entire business and affairs and property of the Corporation and control over its officers, agents and employees; and shall see that all orders and resolutions of the Board of Directors are carried into effect, and shall be its chief policy making officer. The chief executive officer shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed or except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The chief executive officer shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the chairman or as may be provided in these By-laws.

             Section 8 .        The Vice Chairman . It shall be the duty of the vice chairman to assist the chairman of the board and chief executive officer in the administration, general management and direction of the Corporation’s business and affairs with respect to such matters as may be assigned to him by the chairman of the board, the chief executive officer or the Board of Directors. Whenever the chairman of the board or the chief executive officer are unable to serve by reason of sickness, absence or otherwise, the regular powers and duties of their offices shall be exercised and performed by the vice chairman designated by the Board of Directors.

             Section 9 .        The President . Subject to the powers of the Board of Directors, the president shall have general charge of the business, affairs and property of the Corporation, and control over its officers, agents and employees; and shall see that all orders and resolutions of the Board of Directors are carried into effect. The president shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The president shall have such other powers and perform such other duties as may be prescribed by the Board of Directors, the chairman, the chief executive officer, the vice chairman or as may be provided in these By-laws.

             Section 10 .        Vice Presidents . The vice president, or if there shall be more than one, vice presidents shall perform such duties and have such other powers as the Board of Directors, chairman, chief executive officer, vice chairman or president or these By-laws may from time to time prescribe.

             Section 11 .        The Secretary and Assistant Secretaries . The secretary shall attend all meetings of the Board of Directors, all meetings of the committees thereof and all meetings of the stockholders and record all the proceedings of the meetings in a book or books to be kept for that purpose. Under the chairman of the board’s supervision, the secretary shall give, or cause to be given, all notices required to be given by these By-laws or by law; shall have such powers and perform such duties as the Board of Directors, chairman, chief executive officer, vice chairman or president or these By-laws may from time to time prescribe; and shall have custody of the corporate seal of the Corporation. The secretary, or an assistant secretary, shall have authority to affix the corporate seal to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors, chairman, chief executive officer, vice chairman, president or secretary may from time to time prescribe.

             Section 12 .        The Chief Financial Officer, Treasurer and Assistant Treasurer . The chief financial officer and the treasurer shall have the custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation as may be ordered by the Board of Directors; shall cause the funds of the Corporation to be disbursed when such disbursements have been duly authorized, taking proper vouchers for such disbursements; and shall render to the chairman, chief executive officer, vice chairman, president and the Board of Directors, at its regular meeting or when the Board of Directors so requires, an account of the Corporation; shall have such powers and perform such duties as the Board of Directors, chairman, chief executive officer, vice chairman or president or these By-laws may from time to time prescribe.


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If required by the Board of Directors, the chief financial officer and the treasurer shall give the Corporation a bond (which shall be rendered every six years) in such sums and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of treasurer and for the restoration to the Corporation, in case of death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in the possession or under the control of the chief financial officer and the treasurer belonging to the Corporation. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors, shall in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer. The assistant treasurers shall perform such other duties and have such other powers as the Board of Directors, chairman, chief executive officer, vice chairman, president, chief financial officer or treasurer may from time to time prescribe.

             Section 13 .        Other Officers, Assistant Officers and Agents . Officers, assistant officers and agents, if any, other than those whose duties are provided for in these By-laws, shall have such authority and perform such duties as may from time to time be prescribed by resolution of the Board of Directors.

             Section 14 .        Absence or Disability of Officers . In the case of the absence or disability of any officer of the Corporation and of any person hereby authorized to act in such officer’s place during such officer’s absence or disability, the Board of Directors may by resolution delegate the powers and duties of such officer to any other officer or to any director, or to any other person whom it may select.

ARTICLE V

Indemnification of Officers, Directors and Others

             Section 1 .        Nature of Indemnity . The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including any action by or in the right of the Corporation) (a “Proceeding”) by reason of the fact that he or she is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise (including service with respect to any employee benefit plan) against expenses (including attorneys’ fees), judgments, fines, ERISA excise taxes, penalties and amounts paid in settlement actually and reasonably incurred by him in connection with such Proceeding to the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment). The indemnification provided by this Article V shall not be deemed exclusive of any other rights to which any person may be entitled under the Certificate of Incorporation or any agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity, and shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of the heirs, executors, administrators and personal representatives of such a person. It is expressly understood that, notwithstanding the foregoing, no director, officer or employee shall have any rights under this Article V in the Proceeding giving rise to the claim for indemnification hereunder arises as a result of actions or failures to act in any capacity other than those set forth in this Section 1, and, as such, no such person shall have any rights under this Article V if the Proceeding giving rise to the claim for indemnification arises as a result of such person’s purchase and/or sale of securities of the Corporation (other than on behalf of the Corporation).

             Section 2 .        Procedure for Indemnification of Directors, Officers and Employees . Any indemnification of a director, officer or employee of the Corporation or advance of expenses under this Article V shall be made promptly upon the written request of the director, officer or employee and in any event within 30 days after such request (or, if a determination as described below is required, within 30 days after such determination has been made or deemed made.)  If a determination by the Corporation that the director, officer or employee is entitled to indemnification pursuant to this Article V is required, and the Corporation fails to respond within sixty days to a written request for indemnity, the Corporation shall be deemed to have approved the request. If the Corporation denies a written request


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for indemnification or advancing of expenses, in whole or in part, or if payment in full pursuant to such request is not made within 30 days after such request (or, if a determination as described below is required, within 30 days after such determination has been made or deemed made), the right to indemnification or advances as granted by this Article V shall be enforceable by the director, officer or employee in any court of competent jurisdiction. Such person’s costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

             Section 3 .        Insurance . The Corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer or employee of the Corporation or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise (including service with respect to any employee benefit plan) against any liability asserted against him and incurred by him in any such capacity, whether or not the Corporation would have the power to indemnify such person against such liability under this Article V.

             Section 4 .        Expenses . Expenses incurred by any person described in this Article V in defending a Proceeding shall be paid by the Corporation in advance of such Proceeding’s final disposition upon receipt of an undertaking by or on behalf of the director, officer or employee to repay such amount without interest if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation.

             Section 5 .        Contract Rights . The provisions of this Article V shall be deemed to be a contract between the Corporation and each director, officer or employee who serves in any such capacity at any time, and any repeal or modification of this Article V or of any relevant provisions of the General Corporation Law of the State of Delaware or other applicable law shall not affect any rights or obligations then existing with respect to any state of facts or Proceeding then existing.

             Section 6 .        Merger or Consolidation . For purposes of this Article V, references to “ the Corporation ” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees, so that any person who is or was a director, officer or employee of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise (including service with respect to any employee benefit plan), shall stand in the same position under this Article V with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued.

             Section 7 .        Indemnification of Agents . The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any agent of the Corporation to the fullest extent of the provisions of this Article V with respect to the indemnification and advancement of expenses of directors, officers and employees of the Corporation.


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ARTICLE VI

Certificates Of Stock

             Section 1 .         Form .        Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by the chairman, president or a vice president and the secretary or an assistant secretary of the Corporation, certifying the number of shares owned by such holder in the Corporation. If such a certificate is countersigned (1) by a transfer agent or an assistant transfer agent other than the Corporation or its employee or (2) by a registrar, other than the Corporation or its employee, the signature of any such chairman and president, vice president, secretary, or assistant secretary may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation whether because of death, resignation or otherwise before such certificate or certificates have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the Corporation. Shares of stock of the Corporation shall only be transferred on the books of the Corporation by the holder of record thereof or by such holder’s attorney duly authorized in writing, upon surrender to the Corporation of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization, and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates, and record the transaction on its books. The Board of Directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both, in connection with the transfer of any class or series of securities of the Corporation.

             Section 2 .        Lost Certificates . The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates previously issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against the Corporation on account of the loss, theft or destruction of any such certificate or the issuance of such new certificate.

             Section 3 .        Fixing a Record Date for Stockholder Meetings . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

             Section 4 .        Fixing a Record Date for Action by Written Consent . In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by statute, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.


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             Section 5 .        Fixing a Record Date for Other Purposes . In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

             Section 6 .        Registered Stockholders . Prior to the surrender to the Corporation of the certificate or certificates for a share or shares of stock with a request to record the transfer of such share or shares, the Corporation may treat the registered owner as the person entitled to receive dividends, to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner.

ARTICLE VII

General Provisions

             Section 1 .        Dividends . Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or any other purpose and the directors may modify or abolish any such reserve in the manner in which it was created.

             Section 2 .        Checks, Drafts or Orders . All checks, drafts, or other orders for the payment of money by or to the Corporation and all notes and other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner, as shall be determined by resolution of the Board of Directors or a duly authorized committee thereof.

             Section 3 .        Contracts . The Board of Directors may authorize any officer or officers, or any agent or agents, of the Corporation to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

             Section 4 .        Loans . The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiary, including any officer or employee who is a director of the Corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.

             Section 5 .        Fiscal Year . The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.


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             Section 6 .        Corporate Seal . The Board of Directors shall provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the Corporation and the words “Corporate Seal, Delaware”. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

             Section 7 .        Voting Securities Owned By Corporation . Voting securities in any other corporation held by the Corporation shall be voted by the chairman or president, unless the Board of Directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution.

             Section 8 .        Section Headings . Section headings in these By-laws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein.

             Section 9 .        Inconsistent Provisions . In the event that any provision of these By-laws is or becomes inconsistent with any provision of the Certificate of Incorporation, the General Corporation Law of the State of Delaware or any other applicable law, the provision of these By-laws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect.

ARTICLE VIII

Amendments

                These By-laws may be amended, altered, or repealed and new By-laws adopted at any meeting of the Board of Directors by a majority vote. The fact that the power to adopt, amend, alter, or repeal the By-laws has been conferred upon the Board of Directors shall not divest the stockholders of the same powers.


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EXHIBIT 10.1



STRATEGIC PLAN INCENTIVE PLAN OF SCP POOL CORPORATION

ARTICLE I
PURPOSE OF PLAN

        Section 1.1     The purpose of the Strategic Plan Incentive Plan of SCP Pool Corporation (the “Plan”) is to provide senior officers and general managers with an additional incentive to be earned upon the achievement of specified earnings objectives related to the strategic plan for the internal growth of SCP Pool Corporation (the “Company”). The Plan is a cash-based, pay-for-performance incentive program that effectively links the Company’s long-term financial performance with the total cash compensation paid to senior management. The Plan serves to complement the Company’s annual incentive program and the longer-term value creation incentive provided by stock options. Under the terms of the Plan, discussed below, each senior officer and general manager is eligible to earn an incentive in an amount equal to up to 200% of their base salary based on the Company’s organic growth of earnings per share over a three year period. The incentive will be fully effective in the 2008 period with the Company’s 2005 earnings objective serving as the baseline. For the initial two years of the Plan (2006 and 2007), the Company’s 2005 earnings objective shall serve as the baseline with the participants eligible to earn up to one-third of the total plan incentive in 2006, and two-thirds of the total plan incentive in 2007. The Plan is designed to ensure that payments hereunder to executive officers of the Company are deductible for federal income tax purposes without limit under Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations and interpretations promulgated thereunder (“Section 162(m)”). The Plan is subject to stockholder approval.

ARTICLE II
ADMINISTRATION OF THE PLAN

        Section 2.1     The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the “Committee”), which shall be made up solely of two or more “outside directors” of the Company, as such term is defined in Section 162(m). The Committee shall have the sole discretion and authority to administer and interpret the Plan in accordance with Section 162(m).

        Section 2.2     Subject to the express provisions and limitations set forth in the Plan, the Committee shall be authorized and empowered to do all things necessary or desirable, in its sole discretion, in connection with the administration of the Plan, including, without limitation, the following:

       (a)         To prescribe, amend and rescind rules and regulations relating to the Plan and to define terms not otherwise defined herein;

       (b)         To determine which persons are eligible to be paid incentives and to which of such participants, if any, incentives hereunder are actually paid;

       (c)         To verify the Company’s EPS, as defined herein, and divisional operating profit and the extent to which the Company has satisfied any other performance goals or other conditions applicable to the payment of incentives under the Plan;

       (d)         To prescribe and amend the terms of any agreements or other documents under the Plan (which need not be identical);

       (e)         To determine whether, and the extent to which, adjustments are required pursuant to Section 5;

       (f)         To interpret and construe the Plan, any rules and regulations under the Plan, and the terms and conditions of any incentive opportunities provided hereunder, and to make exceptions to any such provisions in good faith and for the benefit of the Company; and

       (g)         To make all other determinations deemed necessary or advisable for the administration of the Plan.


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ARTICLE III
ELIGIBILITY FOR PARTICIPATION

        Section 3.1     The Committee shall, on an annual basis, designate the senior officers and general managers of the Company who shall participate in the Plan for the performance period beginning in that year.

ARTICLE IV
PERFORMANCE CRITERIA

        Section 4.1     Plan participants shall be entitled to earn an incentive award (the “Incentive Award”) based upon the Company’s internal earnings per share (“EPS”) growth at a compounded annual growth rate (“CAGR”) greater than 20% during a performance period. Each general manager’s Incentive Award shall be limited to 50% of the calculated Incentive Award if the growth of his respective division operating profit does not exceed 20% during the performance period. The performance periods and maximum payout amounts shall be as follows:


Company Earnings Per Share and
Performance Period
Division Operating Profit Baselines
Maximum Award
Fiscal Year 2006   To be set for each performance period   66.7% of base salary as of the end  
    by the Committee   of the performance period  
           
Fiscal Years 2006 and 2007       133.3% of base salary as of the end  
        of the performance period  
           
Fiscal Years 2006 through 2008 and       200% of base salary as of the end of  
future three-year performance       the performance period  
periods beginning in 2007 and later          
years          

        No Incentive Award shall be earned or paid unless the CAGR of the threshold EPS baseline established by the Committee exceeds 20%.

        Section 4.2     A CAGR of EPS over 20% to 30% of the baseline established by the Committee shall result in a pro rata increase in the Incentive Award. Thus, for clarity, for senior officers, EPS growth of 20% shall result in an award of 0% of base salary as of the end of the performance period, EPS growth of 25% shall result in an award of 100% of base salary as of the end of the performance period, EPS growth of 25.4% shall result in an award of 108% of base salary as of the end of the performance period and EPS growth of 30% shall result in an award of 200% of base salary as of the end of the performance period. In the event the CAGR of a general manager’s division operating profit baseline does not exceed 20%, such general manager shall be entitled to only 50% of the calculated Incentive Award.

        Section 4.3     Within the first 90 days of each performance period, the Committee shall establish in writing the EPS and division operating profit baselines for the performance period, as such baselines may be adjusted pursuant to Section 4.4 below.

        Section 4.4     The term “performance period” shall mean the period for which the Incentive Award is payable. For calculation of the Incentive Award, the term “EPS” shall mean the net income per weighted average common share outstanding, assuming dilution, for the performance period. EPS and, to the extent applicable, division operating profit shall in each case be adjusted as necessary to reflect the following: acquisition-related charges; the effects of changes in tax law, changes in accounting principles or other such laws or provisions affecting reported results; major capital restructuring; and any extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the annual report to stockholders for the applicable year. EPS and, to the extent applicable, division operating profit shall also be adjusted as necessary to reflect any other events or changes specified in writing by the Committee within the first 90 days of the performance period.

        Section 4.5     (a) An Incentive Award shall be paid to a participant no later than February 28 following the end of the performance period.


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                                 (b) All Incentive Awards shall be paid in cash.

                                 (c) Notwithstanding any other provision of the Plan to the contrary, no participant shall be entitled to any payment with respect to any Incentive Awards unless the members of the Committee referred to in
                         Section 2.1 hereof shall have certified the payout amount of the Incentive Awards calculated as provided in Section 4.1 hereof.

ARTICLE V
AMOUNT OF INCENTIVE AWARD

        Section 5.1     The maximum Incentive Award for any Plan participant per year shall be $1,000,000. In its sole discretion, the Committee may also reduce, but may not increase, an individual’s Incentive Award calculated under the formula set forth under this Plan. In determining the amount of any reduced Incentive Award, the Committee reserves the right to apply subjective, discretionary criteria to determine a revised incentive amount.

ARTICLE VI
PAYMENT OF INCENTIVE AWARD

        Section 6.1     The payment of an Incentive Award for a given performance period requires that the Plan participant be on the Company payroll as of the last day of the performance period. The Committee may make exceptions to this requirement in the case of retirement, death or disability, as determined by the Committee in its sole discretion. No Incentive Award shall be paid unless and until the Committee makes a certification in writing to the extent required under Section 162(m).

ARTICLE VII
AMENDMENT AND TERMINATION

        Section 7.1     The Company reserves the right to amend or terminate this Plan at any time with respect to future services of participants. Plan amendments may be adopted by the Board of Directors or the Committee, and will require stockholder approval only to the extent required to satisfy the conditions for exemption under Section 162(m) or otherwise. The Board and the Committee have the power to amend the EPS and division operating profit percentage targets from those provided herein within the first 90 days of a performance period, and as a result, for purposes of compliance with Section 162(m), this Plan must be approved by the stockholders of the Company every five years.

ARTICLE VIII
TAX WITHHOLDING

        Section 8.1     The Company shall have the right to make all payments or distributions pursuant to the Plan to a participant, net of any applicable federal, state and local taxes required to be paid or withheld. The Company shall have the right to withhold from wages or other amounts otherwise payable to such participant such withholding taxes as may be required by law, or to otherwise require the participant to pay such withholding taxes. If the participant shall fail to make such tax payments as are required, the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to such participant or to take such other action as may be necessary to satisfy such withholding obligations.

ARTICLE IX
NON-ASSIGNABILITY

        Section 9.1     Unless the Committee expressly states otherwise, no participant in the Plan may sell, assign, convey, gift, pledge or otherwise hypothecate or alienate any incentive opportunity or amounts determined by the Committee to be payable under the Plan, until such amounts (if any) are actually paid.

ARTICLE X
NON-EXCLUSIVITY OF PLAN

        Section 10.1     Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board of Directors or the Committee to adopt such other incentive arrangements as either may deem desirable, including, without limitation, cash or equity-based compensation arrangements, either tied to performance or otherwise, and any such other arrangements as may be either generally applicable or applicable only in specific cases.


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ARTICLE XI
EMPLOYMENT AT WILL

        Section 11.1     Neither the Plan, selection of a person as a participant in the Plan nor the payment of any Incentive Award to any participant under the Plan nor any action by the Board of Directors or the Committee shall be held or construed to confer upon any person any right to be continued in the employ of the Company. The Company expressly reserves the right to discharge any participant whenever in the sole discretion of the Company its interest may so require.

ARTICLE XII
NO VESTED INTEREST OR RIGHT

        Section 12.1     At no time before the actual payout of an Incentive Award to any participant under the Plan shall any participant accrue any vested interest or right whatsoever under the Plan, and the Company has no obligation to treat participants identically under the Plan.

ARTICLE XIII
GOVERNING LAW

        Section 13.1     The Plan and any agreements and documents hereunder shall be interpreted and construed in accordance with the laws of the State of Louisiana and applicable federal law. The Committee may provide that any dispute concerning the Plan shall be presented and determined in such forum as the Committee may specify, including through binding arbitration.


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EXHIBIT 31.1

I, Mark W. Joslin, certify that:

  1.

I have reviewed this quarterly report on Form 10-Q of Pool Corporation;


  2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


  3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


  4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

  5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2006 /s/ Mark W. Joslin
  Vice President and Chief Financial Officer


EXHIBIT 31.2

I, Manuel J. Perez de la Mesa, certify that:

  1.

I have reviewed this quarterly report on Form 10-Q of Pool Corporation;


  2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


  3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


  4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

  5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2006 /s/ Manuel J. Perez de la Mesa
  President and Chief Executive Officer


EXHIBIT 32.1


 

Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350

(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

 

In connection with the Quarterly Report on Form 10-Q of Pool Corporation (the “Company”) for the period ending June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Manuel J. Perez de la Mesa, as Chief Executive Officer of the Company, and Mark W. Joslin, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

 

  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: August 9, 2006

 

/s/ Manuel J. Perez de la Mesa                

Manuel J. Perez de la Mesa

President and Chief Executive Officer

 

/s/ Mark W. Joslin                                    

Mark W. Joslin

Vice President and Chief Financial Officer


 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.