Good morning my name is Sarah, and I will be your conference operator today. At this time I'd like to welcome everyone to the third quarter 2009 Pool Corporation earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). I'd now like to turn the call over to Mr. Mark Joslin, Chief Financial Officer.

Thank you, Sarah good morning everyone. And welcome to our third quarter 2009 call. As usual I'd like to remind our listeners that our discussion, comments and responses to questions today may include forward-looking statements including management's outlook for the remainder of 2009 and future periods. Actual results may differ materially from those discussed today. Information regarding the factors and variables that could cause actual results to differ materially from projected results is discussed in our most recent quarterly filings with the SEC. Now, I'll turn the call over to our President, CEO Manny Perez de la Mesa. Manny?

Thank you Mark and good morning to all. Like last quarter I will start my prepared commentary with a review of our progress to date on our priorities in 2009. First, cash flow generation. Year-to-date we are tracking $11 million ahead of last year, despite having paid $46 million more in federal income taxes this year. This progress has enabled us to reduce our debt outstanding, and is a reflection of our ongoing focus on working capital management. Two sales and market share. Although sales are certainly less than what we'd like for them to be. We believe that we’re continuing to capture profitable market share. We have been diligent in managing credit in this challenging environment, and have also tried to act responsibly when there have been irrational actions taken in the marketplace. But our sales execution, customer service, value added programs and services and breadth and depth of inventory have still enabled us to gain share. Three, margin management. Flat margins on a very tough comp by the way, we had a 220 basis point improvement in the third quarter of 2008. In this competitive environment I believe it is very good performance. Here both our sales and purchasing execution make this a reality. With a number of our competitors taking unprecedented credit risk and aggressively converting inventory to generate cash, maintaining margin discipline is a challenge. Here every aspect of our execution is critical. The bottom line for us is growing share without compromising margins long-term. So we have to execute through the occasional, irrational market behavior in order to realize our objective. Four, expense control. Our third quarter and year-to-date reductions reflect our actions to both right size the variable portion of our expenses for market conditions, as well as our continuing efforts to realize efficiencies…

Thank you Manny. My comments this morning will address our operating expenses, our Latham investment and charge, working capital, cash flow and debt. Starting with operating expenses, you can see that our expenses were down $12 million or 12% for the quarter, which is consistent with our year-to-date expense decline. This continues to be an area of intense focus for us. And where we expect to make continued, but perhaps more modest headway, in the months ahead. Labor costs declined $4 million for the quarter and continue to be a major contributor to our cost reduction, as our overall headcount is down 10% year-over-year at the end of September. Another $4 million of our expense decline is in a wide range of areas that I would call general operating expenses, which includes comp categories such as fleet costs, travel, telephones and computer expenses, office supplies, insurance, utilities, outside fees and advertising. The decline in our spending in these areas is reflective of our efforts, the efforts of our employees across the company to be more efficient and thoughtful about each and everything we do. We've also been able to lower our product delivery cost in the quarter by $3 million through a combination of greater efficiency, lower fuel cost and less usage. There is an offset to this which is reflected in our gross margins, as we have lower delivery charges we've re-billed to our customers this quarter. The impact to our gross margin in the quarter from this is 20 basis points. In other words, our gross margin in the quarter would have been up 20 basis points, instead of being flat year-over-year, had we not reduced delivery costs. In my comments last quarter, I’ve said we'd end 2009 with at least 10% lower costs than in 2008. And…

(Operator Instructions). And your first question comes from the line of Tom Hayes from Piper Jaffray.

Good morning, gentlemen. You had mentioned that the margins were flat when you take into your account that the 20 basis points on the delivery charge. So, I was just wondering if you could give some clarity or thoughts on what the gross margin might look like in the upcoming quarters as you've shown some nice progression over the last couple of quarters?

Well, Tom, as we indicated last quarter our expectations were that, for this third quarter that just ended our margins would be very close to the same and they were in fact the same. And for the fourth quarter, we're running up against the tough comps. In the fourth quarter of last year, we had a 270 bps year-on-year improvement. That's a very steep uphill climb. So therefore, my expectations are that our fourth quarter margins would be a little worse than last year's fourth quarter. But having said that, for the year will still be improvement over 2008. And as you recall 2008, we had a great year in terms of margin improvement. And I also want to color that with the competitive environment. We are obviously and arguably the fourth year of a contraction in the marketplace, especially when you look at new construction. And that's put increasing pressure on our competitors. So therefore, there are a number of one-off instances that we are confronting on a daily basis and are addressing it as appropriate. So, in this competitive environment to have modest improvement over last year, on top of the significant improvement that we made with the increase in gross margins last year, I think is really very good management on our part.

Great. And you had mentioned that you expected $0.01 or so of earnings drag from your recent acquisition. Is it too early to comment on your expectations? What it can contribute next year?

Sure again as you can well appreciate our business is seasonal, and that $0.01 to $0.02 hit in the fourth quarter is strictly a seasonal hit, as the fourth quarter is the worst quarter on a seasonal basis for our business. But, turning over to next year, as we operate that business, we expect that it will be $0.02 to $0.03 accretive benefit for the year.

Okay. And just lastly, just wondering if you could provide a little bit of color on how the sales progressed through the third quarter?

Sure. For the quarter, really the rate of sales decline again it was overall 13% year-on-year. The same as the second quarter, and in line with what we indicated in our conference call last quarter. So there was really no significant difference during the course of the quarter that the rate of sales decline, really the entirety of the second and third quarter remained pretty steady at about 13% during that period of time. It could have been one or two points better one month versus the other, but that's just a matter of when the dates fall during the week and how this calendar falls.

Okay great. Thank you.

Your next question comes from the line of Anthony Lebiedzinski from Sidoti Company. Your line is open.

I've got a couple of questions here. So far we're one month into the fourth quarter. Can you speak about what the trends are? And I realize this is a seasonally weak quarter for you, but can you actually see some actually sequential improvements in sales so far in Q4, maybe just touch base on that?

Sure. Nothing significant; Anthony through three weeks of October our on a daily sales rate basis the decline is similar to the second and third quarter. We do have easier comps in November and December and we are expecting a little bit of year-on-year sequential improvement. But, as I indicated earlier, I don't want to anticipate that will be very significant. So, it’ll be close to the same rate as we realized the last two quarters.

Okay. And also could you maybe quantify how much the competitive pricing environment, how much of an impact that had on your margin?

That's very tough to put a number on because, it's frankly darned near impossible to put number on. But we do know by some of the actions that we've taken that what we have chosen to respond that it has cost us margin. In some instances we have chosen not to respond to some of that irrational behavior and therefore that may have temporarily cost us business. So it's very tough to answer that question, but I do know that it has had an adverse impact.

Okay. And also a couple of other quick questions here. Private label penetration now versus last year?

Much greater. We're certainly over 20% and given the growth in for example the chemical business, which is heavily weighted with our brands; given the growth in parts and accessories, which is heavily weighted with our brands, those kinds of product lines that are doing are relatively speaking well in this very difficult environment is increasing the PoolCorp branded product sales as a percentage of our total sales, and probably at a greater rate this year than ever before.

Okay. And lastly, with the acquisition that you just completed, do you plan to consolidate any branches there? You guys have done some sale centers where you're putting in a Horizon outlet as well. Maybe you could just touch on that. Are there any opportunities there?

On the General Pool Supply, we're evaluating what to do in several markets. In the majority of the cases they'll remain as is, in some cases we're going to be perhaps consolidating deliveries and things of that nature and try to garner some efficiencies where we can. With respect to the Horizon network, we are continuing to look at and expand selectively the distribution of irrigation and specialty products where we can and where it makes sense to do so in the SCP Distributor network without being disruptive in the marketplace. And that's really there, Anthony, looking at markets where primarily where Horizon does not have presence and that's a way to leverage our infrastructure and participate in an opportunity at a very low incremental cost.

And your next question comes from the line of David Mann from Johnson Rice. Your line is open.

Yes, good morning. Thank you for taking my call. Manny, can you quantify or at least give us a range for how big an operating loss you expect at the green division this year?

I don't have the numbers right in front of me, but it will be in the order of at least several million dollars.

And when you look out to next year given some of the things that you're doing, would you expect it to have an operating loss as well next year or do you think you can turn that around?

We are doing a number of things as you can well imagine. First of all, we didn't anticipate the contraction in the market to be as severe as it has been. We expected a contraction, again, not as severe. So we have made adjustments as we saw the market contracting during the course of the year. And therefore we have taken cost out and continue to take cost out of that business now. With that happening certainly our cost base for 2010 is lower than 2009 and as the market stabilizes at this abnormally low level in 2010, we should be approximately breakeven to the extent that the market contracts further from the down, whatever percentage it's down, we'll have to react accordingly. To the extent the market recovers, the earnings there will be positive. But for right now, given the actions taken on our part, we believe we have taken the actions to bring that business to breakeven for 2010.

And then a question on your credit granting thought process. It seems that you've improved your profitability of your credit business in terms of the customers you're going after. But can you give a sense of where you stand now on how your credit granting process, you expect it to change over time? At what point do you think you're going to be able to be a little more aggressive in granting credit to where that can drive sales and how much do you think that's going to be holding you back in terms of the recovery?

Well, what we have done there is prior to two or three years ago when the industry was or demand was beyond capacity of our customers' ability to address that demand. We had the ability and the confidence to grant credit. Because we understood that if there was an occasional issue where a customer of ours miss quoted a job or had to go back and rework something which inherently made that individual job unprofitable and temporarily affected their ability to pay, we realized that there was enough demand out there that they should be able to come back in line and get back on and pay within terms. The environment has been obviously different and progressively different over the last two or three years and we have tightened our belts and been much more diligent in granting credit. But having said that, we continue to grant credit for credit worthy customers and to the extent that they're credit worthy. So I don't see that as in any way inhibiting our ability to do business, it's just the fact that we want to make sure that when we grant credit we have a high level confidence that we're going to get paid.

Do you have any concern that you make a very good case that there's inevitability that this deferred maintenance cycle no longer is deferred.

Right.

But what role does the ability of your customers to be granted credit and the end customer be able to pay for it, how much will that be? Where do you see that in the process of ultimately starting this cycle back up?

I'll say from our customer standpoint it's really a non-issue because to the extent that they have to do any job, for example if they have to replace the pump on your pool, they certainly have the terms and wherewithal to do that and that's a non-issue with our customers. I think the real question rests with the consumer and what we anticipate is that as the economy begins to recover in next year that the consumers will have greater confidence to undertake a, relatively speaking, minor expenditure in terms of replacement and things of that nature to the extent necessary. Whereas this year, those same consumers, given their overall concerns about the world and the economy and everything else are deferring wherever possible. And I think that some of that will abate as, again, we begin our recovery as a country.

Your next question comes from the line of Kathryn Thompson from Thompson Research Group. Your line is open.

Hi thank you for taking my questions today. Manny, I was a little unclear as to your pre-buys this year. Could you shed a little bit more light on how aggressive you were this year or how much pre-buying, and how this impacts your future planning as you look into 2010?

Typically, a number of manufacturers in the industry, particularly in the equipment side, have early buy programs that they come to market within September, October and that results in the industry putting forth orders in September, October. They normally ship those orders in the fourth quarter and the first quarter, and they have choice as to when they ship those orders. This year in several cases, we did some, what I will refer to as early buys. So as we did some of those programs with several vendors in the July-August timeframe as opposed to September-October timeframe, which meant that some of those products were shipped to us in August-September as opposed to being shipped to us in October-November. Really, in the overall scheme of things, not a big deal from an inventory standpoint, we just moved some A type items that we would normally have received in the fourth quarter into the third quarter.

Would you say that you did the shifting earlier pre-buy, you did the same amount of pre-buy in this year as you have done in previous years?

Well, when you look at it for the year, it will be the same if not modestly less. But if you look at it by quarter, it will be a little bit more in the third quarter and it will be effectively a little bit less in the fourth quarter. Again, we shifted some volumes that we would normally have bought and received in our October-November into August-September.

In the previous quarter, lower incentive comps somewhat contributed to SG&A. And also talk a little bit about some lower seasonal labor. What were really the drivers this quarter and your overall lower SG&A? And keeping in mind that you had some comments on gross margins in the prepared comments.

Sure. When you look at the year-on-year quarter-to-date differences, you really go pretty much down the line. Mark went through them; labor cost declined $4 million for the quarter. And by the way, in that vein, the accrual for incentives was in fact up modestly year on year, very modestly. So it wasn't due to any changes in incentive expense. But overall labor declined $4 million as a reflection of the fact that our headcount is down approximately 10% year on year. There's another $4 million of decline, as Mark said, in a whole host of areas, everything from fleet to travel, phones, etc. So those it's pretty well dispersed across the board.

Okay. This is really more a qualitative question. In the press release you expressed some confidence, and in earlier comments, about having deferred replacement benefiting next year. What gives you confidence in that statement? And are there any indications you've seen in the current market that gives you some confidence that that's a trend that will play through next year?

No. I will tell you my confidence is premised on the fact that we have seen consumers during the course of this year defer whatever they could defer. And every indicator that I read externally is that the economy will be modestly better, the general economy will be modestly better next year. And therefore, as that happens, our perception is that consumers will address the things they've been deferring. Now I don't see that coming back in a big way in 2010, I see that the beginning of that recovery happening in 2010. But that will gather momentum over the course of 2011, '12 and '13. I do not see, on the other hand, new construction coming back in 2010. I see that new construction, whether it be pool or irrigation construction, I see that really coming back a little later and hopefully starting in 2011. But there are a number of macro factors there that I think are going to hold that back for at least another year.

Okay. And then finally, are there any…

Kathryn, I'm sorry to interrupt you. But although I look at the numbers and I'm looking at numbers that are 20% of the peak levels.

Sure.

How much lower can they go?

Sure, sure. Yes, there is an absolute bottom at some point in time. And then just finally, just given the Latham charge in the quarter, are there any other charges that you would expect or we could think about in coming quarters, particularly as we round up this fiscal year?

Kathryn, I'll answer that. We don't expect any charges. We go through our annual impairment analysis of goodwill on our books in the fourth quarter. So we'll be taking a look at that. And if there is anything that comes out of that I don't expect it to be significant or anywhere close to the magnitude of Latham, not to say that there couldn't be some. But expect that to be insignificant in the scheme of things. They're certainly this year, and we go through that every year.

Sure, sure. Yes, it's typically at the end of the year.

Right.

Your next question comes from Kyle O'Meara from Robert W. Baird. Your line is open.

Good morning. I guess outside of a general economic recovery next year, what are the key growth drivers that you're looking at and how does that roll out? Is that new salespeople, locations, acquisitions, pricing, new product SKUs, etc.?

Sure, that's a great question. We have a number of initiatives underway. It's tough to see market share gains when our sales are down. But when you get industry statistics and you talk with manufacturers that serve the industry as well as our competitors and we look at our results and our results are certainly much better than the market in terms of sales. There's something to be said for that aspect of it. Across the board in every facet of our business, we have initiatives. Let me just talk about a few. In the first quarter of 2008, we acquired NPT. NPT at that time had 15 centers. We are now selling tile out of 84 centers. At the time, we had a number of lines on the Pool finishes side that NPT was selling. We have broadened that offering with our new PoolCorp branded lines that we are selling in the marketplace. So when we look at our business on the building materials side, particularly with respect to tile and pool finishes, we have significantly broadened the distribution and the scope of our offering and are certainly gaining share. Another example is with chemicals. Our chemical sales are primarily to the retail and service sectors and we have a number of initiatives underway with both the retail and service sectors that are garnering us new customers and certainly enhancing our position within existing customers. That ranges from the Backyard Place program where we are helping interested individuals to enter the pool retail business, which is largely insulated from new pool construction and deferred replacement and that's providing opportunities for us. We are also working hand in hand with hundreds literally of independently owned retail stores where we are working with them on better merchandising of their stores, programs…

Okay, great. And then just one last quick one. I think you mentioned this earlier. In the past you've said that margins do not vary much, as much by product group as by customer. So I guess I was wondering if you could talk a little bit about what are average selling prices and contribution margins for a pool construction, major repair, refurbish companies versus minor pool maintenance, service companies, retail, that sort of thing? And I think you talked about 20% type contribution margins, but just how those fall around that would be helpful. Thanks.

Sure. If you look at it by customer type, the larger customers tend to have the better pricing by market. So therefore where our gross margins in aggregate are about 29% you would look for the larger customers in the market place for their margins to be somewhat lower than 29%, and then you'd look for the midsize customers to be around in the high 20s and the smaller customers to be somewhere in the 30s. And again that's market-by-market. That does vary fairly significantly case-by-case in some markets and it also varies a bit by product mix. But again, it's hard to make a blanket statement in terms of builders versus retailers versus customer service, because again, if that builder is buying only high velocity equipment from us, those margins could be real low. Whereas if that builder is buying a broader mix of products including lower velocity items and things of that nature then those margins would be a little bit higher.

Your next question comes from the line of Keith Hughes from SunTrust. Your line is open.

Just real quickly, you had given us the numbers on the green business earlier in the call, and I assume most of your competitors are probably doing the same level and probably most likely worse. Does that deter your appetite to do acquisitions in the states that you currently don't have very good market share in the green business?

The simple answer to that is no.

You're willing to buy something that could lose money in the short term?

Well, what we would do, Keith, is have a plan to mitigate that impact to the extent possible. And certainly, we would factor that into the valuation. Fortunately, in the context of looking at a number of opportunities in '06 and '07 and '08 for that matter, we had differences in valuation with a number of companies and therefore passed on opportunities. And fortunately for us we were right. One of the good decisions that we made in that regard, in the last two or three years. But certainly dialogue continues and we don't do some things for the short-term. I mean, an example of that is our acquisition of General. General is a very good company, a very good regional distributor, one of the best run regional distributors in the industry, if not the best run regional distributor in the industry, it would certainly be up there in the top two or three. But we closed that transaction in October, realizing full well that we're entering November, December and January, the worse three months of the industry. And in fact, we're going to have a seasonal loss as a result. So we don't look at it in the context of short-term, we look at it what we can do collectively long-term. And that applies just as well whether it'd be a one quarter hit or one-year hit, it is what it is and, again, we're looking at accreting value long-term and that's how we make decisions. Again, we do have to factor in expectations and that certainly weighs into valuation. And that's probably where the gap would be, not necessarily on whether we want to do it or not, but on the valuation

And your last question comes from the line of Brent Rakers from Morgan Keegan. Your line is open.

I'm going to finish off maybe with more housekeeping questions than anything else. But I'm not sure if you gave it a number in terms of the pricing contribution in the quarter and also maybe like some commentary about what you're expecting for 2010 there?

Pricing contribution for the quarter was probably in the neighborhood of 4%. And in terms of for 2010 it would be flat to maybe even 1% to 2% of deflation.

And then also not sure if you had commented earlier on revenue benefits in the quarter from the Safety Act that was announced earlier this year?

From the Virginia Graeme Baker Act, virtually no impact in the third quarter.

Okay, great. And then maybe if you can talk me through a little bit more, I understand the different revenue numbers that you disclosed from the states, and obviously the northern market suffered from the weather impact. But hoping maybe you can put a little bit more scale on the degree you think was impacted by weather, maybe even if there's a month-to-month data there that might provide a little more insight?

Well, let me just, again, walk through some of the numbers and give you a perspective. Okay? And we have a couple minutes to that. So, California as an example, largest market, in the second quarter our sales were down 10%. In the third, they were down 3.6%, a relatively speaking 6 point improvement. Okay? In Florida, we were up 1% to 1.4% in the quarter and last quarter we were flat, call that 1.5% improvement. In Texas, we had a decline of 5.9% and last quarter we were down 14% and that's an 8% improvement. So, you've got a 6, a 1.5 and an 8, you probably mixed all those together and you come about 5% or so. So you look at those three markets, the three largest markets, and we were sequentially 5% better. Now you go to the rest of the markets, right, and the rest of the markets we were down 15% versus being down 12% in the second quarter. So if you just look at it apples-to-apples that's a negative 3% versus a plus 5%. So there's a relative 8% difference. And if you take that relative 8% difference on virtually half of our business, and those rest of the markets are a little bit more than half of our business, but let's say half of our business, that kind of gives you an indication of the adverse impact from weather in the third quarter.

Manny, that's helpful. Was there any pattern in those other markets, again, outside of California, Texas, Arizona, Florida, throughout the quarter that might even help tie that up a little bit tighter even?

Nothing of note. I mean, again.

I guess what I'm looking for, Manny, I'm just trying to discern how much of that is maybe more difficult comparisons, maybe there was still active pool construction going on last year, at least more active?

No, nothing of that nature.

There are no further questions at this time. Mr. Perez de la Mesa, do you have any closing remarks?

Thank you, Sarah, and thank you all again for listening to our third quarter 2009 results conference call. Our next call is scheduled for Tuesday, February 18. So you can mark your calendars, Tuesday, February 18, 2010 when we will be discussing our fourth quarter results. Thank you and have a good day.

This concludes today's conference call. You may now disconnect.