Greetings and welcome to Pool Corporation Second Quarter 2010 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Joslin, Vice President and Chief Financial Officer of Pool Corporation. Thank you, Mr. Joslin, you may begin.

Good morning everyone and welcome to our second quarter 2010 conference call. I would like to once again remind our listeners that our discussion, comments, and responses to questions today may include forward-looking statements, including management's outlook for 2010 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 10-K. Now, I will turn the call over to our President and CEO, Manny Perez de la Mesa. Manny?

Thank you, Mark and good morning to all. I'm very pleased to report that the impact from the headwinds of the past several years that have reduced industry new construction by almost 80% and replacement refurbishment activity by over 30% below normalized levels have subsided. This enables the stable and growing maintenance in the peer segments of the market to be more apparent and visible in our results. We, however, are not out of the woods yet from an industry standpoint as external market factors like single-family home values, consumer confidence, employment, consumer financing and economic growth remain at depressed levels. It is indecent environment that we are realizing profit growth as our talented and dedicated team address the opportunities available to us. These opportunities are resulting in sales and market share growth through new service, product and program initiatives complimented by our commitment to the industry and our customers. In the second quarter, our Blue business sales were up 5.4%, while our Green business sales were down 7.5%. Within the Blue business, cooler temperatures than normal in the West resulted in California sales declining by 5%, while in Florida and Texas, we realized 7% and 9% sales growth, respectively as these markets had relatively normal weather in the quarter. We also realized 8% sales growth in the other markets with generally favorable conditions in a number of Northeast and mid-Atlantic markets, where we realized sales increases well into the double-digit percentage wise, offset partially by unfavorable conditions in the Pacific Northwest. For 2010, we anticipate that the industry will realize a modest recovery in replacement, refurbishment activity and flat to modest growth in new pool construction. The maintenance and repair segments represented by retail, service and maintenance customers will remain stable as they have throughout the past several years.…

I will start with few comments on our SG&A costs and then move on to the balance sheet and cash flow. For the quarter our SG&A costs were down as a percentage of sales, but up in dollars excluding acquisitions by $2 million or 2%. The primary driver here is as noted in our press release in Manny's comments was the higher incentive comp cost reflecting the improvement in our expected performance from earlier in the year. Since we book our incentive costs in the quarters we are profitable it is likely we also have this issue in Q3, but not in Q4. Excluding the incentive comp costs, our SG&A overall reflects the work we put in throughout the organization over the last three years to maintain an efficient cost structure, including reduced headcount, lower facility costs and numerous other cost reduction initiatives, which we expect to continue to benefit from in the quarters ahead. The response and focus of our people in this area has really been tremendous. Moving onto the balance sheet to beginning with receivables, what you see here is a reflection of the greater discipline we have exercised as well as improved market condition for our customers resulting in total net receivables up 2% overall, but down 1% excluding acquired businesses, compared to our 5% growth in sales for the quarter. As a percentage of total receivables, our current receivables improved by 550 basis points year-over-year, while our greater than 60-day past due receivables declined by over 250 basis points. Our day sales outstanding or DSO, improved substantially year-over-year, dropping from 36 days in 2009 to 33 days in 2010. Consequently, we reduced our bad debt reserves and recorded $1.3 million lower bad debt expense for the quarter, $2.2 million year-to-date. Inventory management continues to be…

We will now be conducting a question-and-answer session. (Operations Instructions) Our first question is from Tom Hayes with Piper Jaffray.

I was just wondering if you could remind us. It seems like with the permit activity improving, you said the timing gap between the time the permits actually posted at the municipal level and what you guys typically see the purchases for through your stores?

Sure. The typical timeframe from permit to actual purchase and install the pool is typically within 60 to 90 days. By the way, just a follow-up on your comment, there were a number of markets, for example, Florida on a consolidated basis, Texas on a consolidated basis, do show modest increases year-to-year in permit activity. California, still down a bit, and overall, at least nationally, the numbers appear to be flat to modestly up overall.

Could you comment, possibly on then the gross margin profile on products that are typically associated with the new pool construction versus the maintenance side of the business?

Sure. From a product profile standpoint, the overall margins are really very similar. In fact, when you look at equipment, pumps, filter, heaters, cleaners et cetera, those products are primarily sold for replacements on existing pools. The inventory for the installed based of over $5 million in-ground pools and over $3 million above-ground pools. So therefore the margin on a product basis are very similar. The variances really comes into play with the size of the customer. Typically the larger customers in each of the local markets have some price advantage or cost advantage versus the smaller customers that buy more impulse items. So it's really not driven so much by the products themselves but more so by the size of the customer in each of the markets.

Just one last question. I was wondering if you could maybe provide a little bit of outlook or your thoughts on the market this year for the irrigation business?

Sure. In terms of the irrigation business, that is very closely aligned or tied to new home construction and the dynamics that feed that business are somewhat different from the new pool construction or for that matter at the replacement remodel sectors of the pool market. So, we believe that we are reaching the point now, in fact that our year-on-year sales declines were only 7.5% in that sector that's a very positive given the headwinds that that part of our business has had for the last two, three years. We believe that will be stabilizing as we proceed through the year and gradually recovering in two, three years following by 6 to 12 months the behavior and if you look at the leading indicator, probably you would be looking at new home construction as a leading indicator there.

Our next question is from Mark Rupe with Longbow Research. Please proceed with your question.

I am Ms. Leah Villalobos for Mark this morning. I was hoping if you give us some more color on the demand drivers in the quarter. You mentioned a couple in the press release, the discretionary purchases, the broader product offering, favorable weather. Which of those drove the demand as well as what you saw in the overall pool market during the quarter and the first half of the year?

Okay, I would say, if you, from a priority standpoint all of the numbers are not that big. I would say the first factor is market share growth, through the efforts of our people to provide really exceptional service to our customers. That's the first and leading factor. Second, I would say that there has been some modest recovery in the remodel replacement activity, for example product categories like in-ground liner replacements and heaters and lighting products, which are primarily gear for replacement on existing pools were up a little bit more than normal, and third I would say we had stable weather in few of the, particularly Northeast and surrounding area markets although the West was really adverse, so it's certainly favorable in certain markets, but it's also unfavorable in others. That's why I put it down as number three. Then fourth, I would say is that the installed base of pools are still increased. Although the rate of new pool construction is extremely depressed at levels that haven't been captured and records that have been running for well over 40 years, the install base grew. It still grew by fraction of 1%, but it is still grew, so that would be the fourth factor.

That's helpful. Thank you. Then also in the release you had mentioned that most major product categories grew. Where are you still seeing some weakness?

Really, of the major product categories that we look at, I don't think there is anything of significance that didn't grow. I'm just thinking through. Chemicals were up nicely. I mentioned equipment overall led by heaters and lighting products were up, accessories were up, parts sales were up, so I think that we only put most of the disclaimer because really the top 20 were our clients.

Then just last on the competitive pricing environment in the second quarter, relative to the first quarter, did you see any kind of incremental pricing has it been fairly stable. Did you see any change throughout the quarter?

Well, when you look at the quarter, and some markets are more, I'll call it, you can say irrational if not, maybe an opportune, because it's competitive everywhere, certainly. I think in some cases, when you're in the off season and you have time on your hands, and you have inventory and you may have pressures to make payroll, you do have some irrational behaviors that sometimes takes place. As the season unfolds some of that irrational behavior gets put on the sidelines, because everybody is busy. Now, for example, the west coast, which has started the season later than normal, given the very cool weather over there, there was a lagging impact, adverse impact from that competitive to irrational behavior and that happens in certain pockets. I would say that overall in the busy time of the year, everybody is busy and the key and what's more most important to everyone is to get the work done and capture the sales opportunity at the consumer levels that our customers have first and foremost and service is very important, so I think that's kind of a reflection of the competitive environment. I mean everywhere it's competitive, we have multiple competitors in every market Again really some of that is driven by how we have to react to the competition. We, as I mentioned in my prepared remarks, we focused on providing exceptional value to our customers, and to the extent that that we do that and to the extent that our customers recognize and appreciate it, we can capture a certain premium in price to the extent that our competitors behave irrationally then we have to react in part to their behavior, but again, we don't have to react and often times do not react to that behavior, because it is not a profitable business.

Our next question is from Anthony Lebiedzinski with Sidoti & Company. Anthony Lebiedzinski - Sidoti & Company: Just wanted to see if you could quantify the sales increase of chemicals perhaps, and also just a little bit more maybe color on the maintenance repair and replacement product sales. How those trended so far in the first half of this year?

The chemical sales were up very similar to base business sales growth for the quarter as were accessories and replacement parts.If you look at our business, and Anthony, you know our business very well. Basically that's the lion share of our sales, so you are not going to have a lot of separation when those are the several of the main categories, particularly the chemicals being by far the largest product category that we sell.

That's great. I just wanted to see if you could clarify that, and also what is your expectation for pricing pressures on the second half of the year?

I think as everything will remain competitive as this normal that we have seasonal benefit in the second and to a less degree the third quarter as there is more impulse items sold and as we exit the third quarter and go in to the fourth quarter there is some inventory cleanup it takes place on the part of the marketplace and that leads sometime lower margins, but I think that what you will find is the spread that we reported in the second quarter in terms of our being a little short of last year's numbers that will probably be very similar to what happened in the second half of the year.

Okay. Sounds good and also as far as your comments about the sales growth that you expect in terms of the guidance, which is now higher a little bit. Where you were referring to base business sales growth?

Yes, I'm referring to business sales. Yes.

Okay, all right. Thank you.

Our next question is from David Mann with Johnson Rice & Company. David Mann - Johnson Rice & Company: Quick follow-up on the last question, it seems to me on the last conference call you all had intimidated that the back half gross margin would perhaps be flat to up. Is that just a change in terms what you just answered to the last question?

Well, it's not a major change I think that we closed the gap from we had in the first quarter and we see the trend improving, but it also it remains a question mark given the pressures are some of our competitors around in few markets. So, I'm not going to say that we are going to necessarily beat last year's third and fourth quarter from a comp standpoint I think there is a little bit of cloud there given what some of the pressures our competitor have. David Mann - Johnson Rice & Company: Its all coming from pricing pressure?

Yes. David Mann - Johnson Rice & Company: I will look on that and it predominantly California or is it more than just that market?

It is more than just that market. David Mann - Johnson Rice & Company: Okay. Going back to some of the questions on the improvement in let's say major ticket purchases like equipment. Can you just dive a little bit deeper in terms of any regional differences? Perhaps in Texas and Florida, where overall you did better, was there a more robust market for that purchase and what does that mean maybe as we look longer towards next year season?

In the case of equipment specifically for example, most of those sales are for replacement and when you have normal weather conditions like you did in the second quarter in Florida and Texas, the pool are used more often and pumps and filters and heaters, heaters not so much, but pumps and filters certainly are used more often and therefore that drives wear and tear and ultimately replacement or repair, but and more often replacement. In California, where it didn't really break 70 until July and then break 80 into August, this is different state and therefore the wear and tear is logically lower, and therefore those replacements are lower. So, what you would see if you look underneath the covers is that the more significant product categories plus or minus 2% were very similar to the overall base business sales growth rate from a company standpoint, but then when you look at it by market, the same holds through. For example, logically chemical sales would be up more in Texas and Florida and not as much so in California, because again those are some of the major category that can't be too far off base. David Mann - Johnson Rice & Company: Okay, that's very helpful. In terms of the sequential trend in the base business across the three months, can you just talk about that and also how that trend compares to what's going on thus far in July.

Sure. April was the strongest from a year-on-year standpoint, and then, May and June were fine, and again it's all over a magnitude, but basically April was strongest from a year-on-year comparison and then July is very similar. We are going to finish somewhere in the low to mid single digit growth year-on-year base business wise on in terms of sales. David Mann - Johnson Rice & Company: So, in terms of June and July and a lot of other parts of retail and consumer and especially in home side of the business since the end of the tax credit, it sounds like you have not seen a major deterioration in your business over the last several weeks the way other consumer related companies maybe have?

No, we have not.

Our next question is from Luke Junk with Robert W. Baird.

As we are looking hopefully in the early stages of recovery here, I think some modest growth in the refurbish and replace activity, maybe pool construction still a little lackluster. Could you talk about how in the early stages of recovery, things would be tracking relative to the medium term outlook that you outlined at your Analyst Day last fall?

Compared to our Analyst Day expectations, we talked about then was more of a longer-term five-year time horizon because as I mentioned then and say repeatedly, I'm not smart enough to figure out when the recovery actually begins in earnest and from an external factor standpoint and therefore affecting our business. So, in that sense, it's really nothing significant of note from a five-year time horizon. What we communicated then was that we believe that remodel and replacement activity would recover back to normalized levels first and that would begin in a modest way in 2010. That is essentially what it is happening. So far we are right. Again that will happen so that within the five-year time horizon that will revert back to normalized levels. In the case of new construction we were not quite as optimistic. Our perception on new construction is that the external factors particularly real estate values and consumer financing are going to be difficult at least in the near-term and next year too and believe that been and that that would recover slower and that in fact in a five-year time horizon we were looking at recovery levels back to what they were or half way back to normalized levels, which is what they were in the early to mid-80s timeframe just from a perspective standpoint and that really a full recovery in new pool construction could very well take 7 to 10 years to get back to normalized levels and those are the assumptions that we used in our Investor Day presentation, since then is incorporated into our standard investor presentation, which available on our website, and that's really pretty much on par with what we are tracking to-date.

Then as we look hopefully to be gaining recovery here, lots of distributors were able to weather the downturn like you mentioned earlier driving down inventory levels, taking cash off the balance sheet. Would you expect an up-tick in consolidation activity assuming the recovery continues here, or the companies that survived made it through the darkest storm and probably come in okay in other end?

Sure. From a distribution stand point the real stress test is not so much in the downturn, but in the recovery. Given the working capital benefits that normally take place in a downturn from both, reduced receivables as well as reduced inventories, that cash flow generation in many cases offsets operating losses. So the real stress test on our competitors is really coming up, and that is without the benefit of reduced receivables and reduced inventories, particularly if there is not a recovery in earnest, both in terms of profitability as well as the financing capacity or ability to secure financing. That puts a significant stress. So that the real stress is up ahead and that's unique to our space but I think sector in distribution.

Our next question is from Kathryn Thompson with Thompson Research Group. Please proceed with your question.

This is actually Jamie Baskin on the line for Kathryn. First question, could you discuss the potential for acquisitions and especially in light of Leslie's Pool Mart being put up for sale?

Well, Leslie's is a retailer and they are the largest independent retailer in the industry with over 600 locations. They are customer allowers. Although they do self distribute, they have five distribution centers and they auto replenish on a weekly basis their individual stores. They do buy certain products from us, particularly products that have lower velocity at the store level. They compete very directly with several thousand independently owned retail stores that we serve on a regular basis and so they are there and I am very familiar with their business, obviously, as a very significant competitor of many of our customers and to a smaller degree customer allowers. In terms of acquisition activity for us, our focus is, as you all know, distribution, and therefore, in that vein we particularly look at company or markets where we have a nominal or a small share and look at acquisitions as an alternative to increasing our presence in the marketplace and we have done that as well as open up well over a 100 new locations in end markets and we look at, again, new locations versus acquisitions all the time and have a priority list in a pecking order, from a market standpoint that we review on a regular basis. I don't see anything of note there. Certainly can't come up with anything that hasn't been announced, but again I think we are always in communication with at least several prospects and it has to make sense. Earlier this year, as Mark mentioned in his comments, in April we closed on a two-location distributor in Quebec that complements our existing presence there, and we are constantly in dialogue with a number of people on this. We do what make sense and what doesn't, we don't.

Just two final short little questions. Will there be pre-opportunities in the fall and can you give an update on just commodity pricing trends that you see?

There are a number of commodities costs that have gone up. We track that for a multitude of reasons, including our own sourcing as well as some of our buy that we do. For example, copper is up, certain raw materials that are used in, for example (inaudible) are up, so we expect that they will be in contrast to this year, where effectively there were no price increases. We expect modest price increases for 2011, and I think my expectation is that as manufacturers develop their plans for 2011. They will incorporate those raw materials increases to the extent they impact your product line or not in to their plans and probably announce increases in the fall sometime, but at this juncture, very prematurely, I'm looking at our modest price increases for next year.

All right. Well, that's all I have.

Our next question is from Joel Havard with Hilliard Lyons.

Manny, I know it's a step-three move from you all directly, but what sense are your customers sharing with about the improvement or not in credit, particularly on the new build side?

That is a significant hurdle and if credit were, what I'll say at normalized levels available at normalized levels for consumers, in other words where consumers could borrow up to 80% of their home value based on current home values, the rate of new pool construction would be much greater than the current depressed levels, albeit, it'd still be depressed from a relative standpoint but it could be up probably 50%, maybe 100% even from the current rate of current new depressed levels and that's the hurdle. The interest is there from consumers and it's just a matter of financial institutions currently when they look at these things, they look at them and typically for these kinds of home improvement-type loans are looking for usually 30% or greater equity, and that's an inhibiting factor for many consumers.

Obviously, I'm trying to set that up for us more strategic or long-term view from your part. Are you aware of any third-party efforts? I seem to recall, go back a few cycles when some specialized home improvement lending groups would emerge. Is there anything like that bubbling that you are aware of or?

Yes. There are. There are few sources that are beginning to participate, but again the equity thresholds are higher than they were 3, 5 years ago, 7 years ago, certainly and higher than they were 10, 15 years ago, so I would look at 10, 15 years ago as being more normal than 5 years ago.

Well, you anticipated my question, but when you used normal in your first comment, I wanting to follow with what might then be the new normal?

I think there is a couple of other things, and again, I am not in banking and everything else, but I do know that there are, from some of the things I have read, I can't remember whether that number was $3 trillion or $4 trillion of outstanding commitments that are not funded, and that's primarily on the corporate side but also rippling over to the consumer side, where banks have made commitments for a period of time and those commitments are not full on. An example in our case, being that we have, for example over $100 million of available debt capacity. Those commitments expire over the course of time, and as they expire, I would anticipate that the banks would then have more funds available to deploy to profitable means, but that will take time. That's not going to happen overnight.

That's a great point. That's all I have got. Thanks. Good luck.

(Operations instructions) Our next question is from David Mann with Johnson Rice & Company. David Mann - Johnson Rice & Company: Manny going back to the issue of the pricing environment, can you talk about how the internet channel is that having any effect there because it seems from some of our checks that might be part of the price competition out there?

The internet channel and those internet retailers have been in this industry now for 12 years. There are very small segment of the total industry, but they have grown as a share of the industry if they were less than 1% of the industry call 10 years ago they maybe up now to 4% or so of the industry. It certainly impacts the numbers to some degree, but when you look at it from macro level the impact is not that significant overall and as I say that I mean, what I'm looking at is that there are certain products that have more traction on the internet and certainly in those product categories. I will use suction cleaners as an example. In the case of suction cleaners that whatever manufactures specials and programs are in place are very quickly made available nationally through a number of internet retailers and where as for example perhaps five years ago or 10 years ago of storefront retailer may have pocketed those programs benefits of both those program discounts. They are now compelled to put them out there because the Internet guys put them out there, but when you look at the overall scheme of things and all the products sold, I think that the impact is diluted significantly and not really a factor in our margins and distribution. David Mann - Johnson Rice & Company: Got it and then in terms of inventory buying opportunities, where you get any sense now whether there will be a meaningful inventory pre-buy opportunity, and if so, how would that compare to what you did last fall?

Sure. Let me just make another comment on the internet question. I think the impact has been on storefront retailers, more so than distribution for that matter of the builders or remodelers or service companies. If you talk to storefront retailers, they will make the note, their markets have been somewhat affected by Internet retailers, but not the other customer segments and therefore not us so much overall. In terms of buy opportunities really those happened a little bit later on. At this juncture, we're in July, I expect that manufacturers will look at their plans and look at how they need to balance everything else. So, I don't expect anything unusual. If you go back, for example in the 2008, manufacturers had incurred significant raw material price increases that they were going to pass on after the 2008 season and then we bought into those, which obviously helped us particularly first quarter of 2009, and to a lesser degree the second quarter 2009. We don't anticipate significant price increases. So, therefore I don't see anything really out of the box there at this juncture. My expectation right now, which is early, would be pretty much a normal buy and lot of happier. David Mann - Johnson Rice & Company: Okay and then one last question for Mark. Can you talk a little bit about your expense outlook for the year, and also is there anything, any other call outs for third and fourth quarter other than the bonus, the way the bonus weighs out that you would also call out?

Just to come back and comment we made in last quarter, our outlook for the second half of the year was to be relatively flat, maybe up a little bit flat overall for the year and that depend a little bit on sales volume and the [sales] that was picked up a little bit in the quarter and our expectations were little high for the year. So the impact from that is the higher bonus expense in second and third quarter and a little bit more variable cost maybe in some other areas. So up a little bit for the second half, not substantially and we probably still have some offsets from cost initiatives, cost reduction initiatives that would taken throughout the organization, Horizon, for example, their headcount is down, let's call it double digits going into the second half of the year and that was one initiative among many, where we are still working on cost reduction efforts.

Thank you. Mr. Perez de la Mesa, there are no further question at this time. I would like to turn the floor back over to you for closing comments.

Thank you, Melissa and thank you all again for listening to our second quarter results conference call. Our next call is scheduled for Thursday October 21st, when we will discuss our third quarter results. Thank you again.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.