Greetings and welcome to the Pool Corporation Year End 2010 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Mr. Mark Joslin, Vice President and Chief Financial Officer for Pool Corporation. Thank you, Mr. Joslin, you may begin.

Thank you, Jody. Good morning, everyone, and welcome to our year end 2010 conference call. I would once again like to remind our listeners that our discussion, comments and responses to questions today may include forward-looking statements, including management's outlook for 2011 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. And with that, I'll turn the call over to our President and CEO, Manny Perez de la Mesa. Manny?

Thank you, Mark, and thank you all for joining us on our 2010 results conference call. After several years of unprecedented market contraction during which new swimming pool construction decreased by almost 80% and replacement remodeling activity declined approximately 30% from normalized rates, 2010 was a welcome transition year for the industry. We believe that overall industry activity in 2010 was flat to very modestly up, which, after what the industry has gone through, was certainly welcomed. In our case, after a decline in the first quarter of 2010, our business registered its third consecutive quarter of base business sales increase to finish with positive sales growth for the year. This growth was realized despite modest deflation, that's deflation with a d-e, and a Green business that was still contracting, albeit at a moderating rate during 2010. Overall, our Blue base business sales growth was 3.4% in 2010, including 5% growth in the fourth quarter. As many of you know, weather is the most significant external factor affecting the maintenance and repair segments of our business, which represents approximately 70% of our domestic Blue business sales. Here, an extended cold spring and summer resulted in California and Arizona, our first and fourth largest markets, respectively, having base business declines with California down 2.3% and Arizona down 5.9% for the year. Florida and Texas, our second and third largest markets, with pretty normal weather were up 3.2% and 3.7%, respectively, for the year. The rest of the markets were up 6.3% in 2010 as favorable weather in several markets, especially in the Northeast to Midwest, contributed to strong sales growth. Overall, we believe that we continue to gain profitable share in 2010. Competition in our industry has always existed at the local market level where we and our competitors vie for…

Thank you, Manny. I'll start with a few additional comments on our SG&A costs before moving on to the balance sheet and cash flow. Looking back at the entire year, we achieved what we set out to do in managing expenses in 2010, which was to be flat overall, excluding acquisitions, with moderating year-over-year expense improvement as the year progressed. We did this by entering 2010 with a lower cost base due to reductions made throughout 2009, then targeting specific areas for additional reductions in 2010, while investing in other areas that supported our growth, including incentives as Manny mentioned. This resulted in the leveraging of our base business sales increase of $34.1 million in 2010 into operating profit growth of $11.4 million, as you can see in the base business addendum to our press release. As we've discussed in the past, we expect a normalized contribution ratio of 20% on incremental sales. We are quite a bit above that in 2010 as the cost reductions we achieved allowed us to hold expenses flat year-over-year, but we expect the 20% ratio to be a good benchmark for the future, including 2011. Another line on the P&L statement that I want to comment on is net interest expense. This has come down as we've reduced our debt levels throughout the year, resulting in a contribution of $3 million to the increase in pretax income compared to 2009. Looking at just the fourth quarter activity, you need to keep in mind in the fourth quarter of 2009 we booked a $1.5 million currency gain, so the year-over-year change in the fourth quarter was not indicative of the annual trend. For 2011, our expected debt and interest expense declined modestly overall. As for debt, this is a good time to recap the success…

[Operator Instructions] Our first question is coming from Mark Rupe with Longbow Research.

This is actually Andy in for Mark. First off, on the pricing, I just wanted to -- maybe you could sort of reiterate what you mentioned in your prepared remarks. I think maybe I was a little bit confused. Maybe if you could reword it. I think you previously had indicated that wanted 2% but it sounded like from your comments, it might be a little greater than that. Any color you could give there?

In terms of our price inflation, Andy?

Yes.

We're looking at, for 2011, it should average out about 1% to 2%. There are certain commodities that are up double digits, but that gets diluted heavily as those commodities flow through in terms of the actual products. On equipment, it's up a little bit more than that but other areas, there's still a little bit of deflation. So overall, we expect, based on a reasonable mix, that the price inflation this year will be about 1% to 2% overall average. Again, some deflation and certainly inflation but that looks like a pretty good number.

And then I think on your third quarter call, you mentioned that the Green business won't be a drag on base business sales in 2011. Is that still kind of what you're thinking as you look ahead to this year?

When we look at our Green business, we saw a moderation of declines during the course of 2010, very much like we saw in the Blue business during the course of 2009. So our expectations are that in 2011, they will be in the same type of transition year that the Blue business was in 2010. And therefore, overall, there should be, from a sales standpoint, positive year-on-year comps during the course of the year.

And what would you say in terms of profitability now in your Green business and maybe, is there a sort of maybe sort of a benchmark that you look at in terms of what could be sort of the breakeven sales level for the Green business?

To be honest, we don't look at it that way because we look at our business from a location-by-location basis. And therefore, the breakeven thresholds or the return on capital thresholds that we have are more at an individual business unit level. But if you were to look at the Green business overall, we still had a loss in that business in 2010. We expect us to certainly and significantly improve results in 2011. That will come in two forms. That will come, in part, from certain actions taken during the course of 2010 to further reduce costs in a number of individual locations, as well as from some modest growth in sales and gross profits.

Our next question is coming from Ryan Merkel with William Blair.

Good morning, this is David Mandell on for Ryan. I was hoping you could talk a little bit about, give some color on this quarter's gross margins and kind of how we should think about gross margins heading into 2011?

Overall, David, we're looking for -- as I mentioned in my prepared remarks, for the year, very modest improvement in gross margins overall, perhaps something to the tune of, say, 10 to 30 bps. Now when you look at that by quarter, the quarter where we'll most likely have the best results, in that regard, will be in the first quarter. So I would expect that our first quarter results would be the best year-over-year comp, and then that will moderate as we go through the year.

Our next question is coming from Jill Caruthers with Johnson Rice. Jill Caruthers - Johnson Rice & Company, L.L.C.: I have a question regarding pent-up demand for pool equipment replacement business. It seems as though with the equity markets up and unemployment stabilizing, the consumers seem to be willing to spend more on higher ticket items. Wondering how can that relate to consumers being more comfortable in spending on pools as the season progresses?

Jill, that's an excellent observation. When you have a situation where consumers have been deferring expenditures, whether it be the replacement of their pool pump or pool heater -- well, not so much pool pump but more so pool heater, and other like discretionary-type items, you would expect that to come back. Given where we are in the seasonal cycle, there is no evidence of that just yet. There is certainly the aging of the install base. That is something that we're factoring into our expectations for the year. But we haven't seen that yet. We will probably begin to see that in earnest in April or May. And therefore, before we bank on that for 2011, we'd like to see some of that activity actually taking place. And where it'd be most likely to happen is, if you look at the nature of remodel and replacement in our industry, there are certain items that are non-discretionary, and a pump falls into that scenario. On the other hand, there are items that are more discretionary or have some level of discretion, which are for example the pool heating. And therefore, the real expectations are for us to see that really in the March, April, May timeframe. So when we talk about -- when we provide our first quarter results, I expect to be at least giving you some indication of that at that time. Jill Caruthers - Johnson Rice & Company, L.L.C.: Just a follow-up from a previous question on the irrigation business. It looks as though you made a small acquisition in this division in the quarter. Maybe if you could talk about kind of your thoughts on a growth potential as this business recovers?

Sure. If you look at the irrigation landscape business, that business is very heavily weighted by new single-family home sales. In fact, if you look at or over time in history, there's a very strong correlation of sales in that segment with new single-family home sales. If you look at new single-family home sales over the past 50 years, we are certainly at a very much of a low point in that cycle, in fact, a very unique and heavily accentuated low point in that cycle. So therefore, there's the expectation that, that will recover to a more normalized level. Specific to the transaction that we made and consummated in December, the distributor there was the -- had the number one share in the Las Vegas market, having been there for, basically, the longest of any of the distributors that participate there. In fact, their results in Vegas were far better than ours since we had just opened in Vegas in the past 10 years, which we were kind of the last guys coming to the party so, therefore, our results were the worst. But theirs, having been there longest, they would have the number one share. And it was just a matter of our understanding their market position, our understanding that we are at a unique trough in the market, and given the nature of just about everything we do being medium- to long-term in perspective, and that medium- to long-term being five to 10 years out, at the very least. We look at this as an attractive point to increase our presence in markets where we don't have presence or where we have very low presence. And that applies especially to the irrigation landscape side.

Our next question is coming from Thomas Hayes with Piper Jaffray.

This is Dan on for Tom this morning. Most of my questions have been answered. Just a question on kind of the product cycle for 2011, specifically kind of the pool pump retrofits. With kind of the variable speed options being widely available, I know there's some utilities that have offered incentives for homeowners to go ahead and make that swap just based on the electric savings. I'm just wondering if you could comment on whether you're seeing that in any of the main markets that you deal in?

Yes, Dan, several years ago, California passed Title 20, which created an impetus from a regulatory standpoint, as well as incentives from a power company standpoint, to migrate and replace single speed motors and pumps to variable speed -- or at least two-speed and then ultimately variable speed motors and pumps that provide significant, significant energy savings to the consumer. And in the case of California, given the rates there, provide a payback usually inside of one year. So we have been selling, certainly migrating, and working with our customers to migrate them to communicate that opportunity to consumers in California. And we have made a fair amount of progress there. We have also taken that to a number of other markets, particularly markets like Texas and Florida, where pools are open and the pumps are utilized year-round. So that effort is very much underway. There are some regulatory activity in some of those other markets, as well, to create either incentives or requirements for two-speed and variable-speed pumps. And as that happens, that certainly provides an opportunity for us. And now what we haven't seen to-date, and this is really where the discretion plays, what we haven't seen to-date is a lot of activity where consumers are replacing pumps that are still functioning properly to take advantage of the energy savings. We're seeing that a lot of the replacement activity still is prompted by the pump breaking down. And then at that point, the consumer making a decision of whether they replace it with a single-speed pump or a variable-speed pump.

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

First question, as it relates to the fourth quarter, I know you mentioned that Blue business was up approximately 5%. Could you maybe talk a little bit about what you saw between maintenance trends versus major renovation and construction, and then just what the Green business was?

Sure. Green business was down. I can't remember the exact number -- in fact, hold on one second. Green business was down 5% in the quarter, which is their best quarter during the course of 2010, again reflecting the moderating decreases much like took place with the Blue business the year earlier. In terms of the composition, if you look at the major markets, and here we're looking at California, Florida, Texas, Arizona, and we've also throw in Vegas -- or Nevada, I'm sorry, as a major Sunbelt market. Those five markets overall, in terms of new pool construction, was up like, I think 1% or 2%, if I recall correctly, for the year. So really, new pool construction is still at very, very depressed levels. And that's a combination of consumer psychology in 2010, as well as just the availability of financial resources to make that kind of investment in their home, be it because of lack of equity in their homes or because of the financial markets being -- the consumer levels still being pretty tight. And by the way, one other comment there is that there's typically, in various studies done, there is about 12 to 24-month, what I call gestation period in the decision-making process of the consumer before they put in a new pool. So therefore when you look at that, we're not looking at any significant type of recovery in new pool construction, if at all, in 2011. While we expect some recovery, and that's going back to Jill's question a few minutes ago, is we're expecting a little bit of a recovery in the replacement remodel, largely driven by the aging of the install base, not so much by the rate changing a significant way in terms of the consumer behavior, at least not yet, because we haven't seen evidence of that just yet.

And then as it relates to the acquisition environment, how do you think about going into next year? Can you maybe just discuss with a couple of acquisitions late in the fourth quarter and some share repurchase, just how you're thinking about balancing between those two things in 2011 with a pretty healthy balance sheet?

Sure. I mean, given where we are from a balance sheet standpoint, we have the flexibility to do pretty much whatever we like. And it goes back to the same fundamental priorities that we've had all along. First -- I'll just reiterate them here, they're also stated in our K, have been for at least 10 years. First is always internal opportunities provided they meet the return thresholds that we establish or they're required because of safety or some other regulatory requirement. That's first. And that would be about 0.05% to maybe 0.6% of sales in the current environment. Second is our acquisitions. And again, the acquisitions have to make sense. Primarily, we're looking at acquisitions in markets where we have little or no share. And again, given the local nature of business in this industry, just because we're strong in one market, you may go 200 miles away and we're a non-entity. So therefore, it's those markets 200 miles away, where we're a non-entity, that are the ones that we look to establish a presence. And again, we look at the opening our own locations all the time. And we also look at acquisitions, and we kind of balance the two in terms of our decision process. But certainly, that's the focus. Given our current position, the bigger or the more likely opportunities are going to come in the irrigation landscape side, as well as internationally. Once we have a strong share in that local market, a good to strong share in that local market, what we look to do is just build on that by providing our entire value proposition to the customers in the marketplace and grow share organically. And that's really been the key to our success over time. And in many cases, we come in…

[Operator Instructions] Our next question is coming from Anthony Lebiedzinski with Sidoti & Co. Anthony Lebiedzinski - Sidoti & Company, LLC: I was hoping that you guys could comment first on the performance on your international markets?

Internationally, I'm going to give you a little walkthrough. Europe did very well, as Europe met its profit objective for 2010. That was led by our results in France. France is our strongest operation in Europe. We have five locations there. And certainly, France took share of market. Italy was our second strongest operation. They also met their profit objective after France. They also gained share and are doing well. In the case of Portugal, which was third, then U.K. and then Spain, we did not meet our profit objectives there, but I think that we certainly held our own. As you know, those markets have been hard hit from the economic contraction and, therefore, have suffered a little bit more so than France and Italy have. In the case of Canada, which is really up there with France as our two most significant international operations, in Canada we did not meet our profit objectives for 2010, but we did reasonably well. That market had a little bit of an impact from the macro-environment. But overall, we were looking for improvement, all our objectives into factoring improvement, and while there was certainly improvement in Canada, it was not to the levels that we had set as objectives. We also did our transaction there in the spring of last year, 2010, when we acquired a key location distributor in the province of Quebec. And that is now operating as a superior vehicle in that market, and it complements two SCP locations that we have, also, in the Quebec marketplace. Overall, from a sales standpoint, the growth internationally was greater than the company overall growth. And we also by the way, last point before I forget, we also opened up a new location in Guadalajara in Mexico. Given the direct connection, Canada and Mexico are very close. And we did that opening in the summer of last year. And then the last thing that took place from an international standpoint is we made a small acquisition in Belgium, in the French part of Belgium, and now we are poised to begin serving the Benelux countries from that base in Belgium. Anthony Lebiedzinski - Sidoti & Company, LLC: Also, could you comment on the impact of the weather on your Q4 results in the early part of 2011?

Really, I would say the weather was not a significant factor in Q4. Our Blue business sales were up 5%. If you look at the weather, particularly if you're sitting in New York City, you've had some major storms beginning right around Christmas and running through the better part of January, with record snowfalls and all that good stuff, that is -- it's fortunate that's happening in December and January because we don't do a lot of business, in the Pool business, in those snow belt markets in December and January. I'd be concerned if it was snowing in June. But given what's happening and when it's happening, really, it's pretty much normal and weather is really a disjuncture, a non-issue. It was in the fourth quarter and it is in the first. Anthony Lebiedzinski - Sidoti & Company, LLC: Also, you've done a good job with rationalizing your cost structure. And that now as the business recovers, what areas of the business are you seeing, perhaps, the greatest cost pressures?

We really don't have any specific cost pressures, per se. Certainly as sales grow, we'll have to increase -- we start with overtime first and then temporary labor, and then we add permanent headcount. But labor will certainly go up as sales grow. And also we'll have, to some degree, additions to the fleet that we'll have to add back some delivery vehicles and drivers. And again, we gauge that just like we do with labor, whether we make a permanent hire in the warehouse or permanent hire as a driver or inside sales support, we do those on a calculated basis. And whether we hire them seasonally or hire them -- whether we add over time or we'd make a permanent hire, we are very judicious in that process in much the same way, whether we add delivery vehicles or -- seasonally or hire them for the whole year. Some of that is driven by the market, but also some of that is driven by what we believe our sustained needs are. And outside of that, really, I don't see anything that jumps out. I think all of industry, all of business has suffered with increased costs of regulations over the past 10 years or so, if not more. And certainly, that accentuated itself in the last four or five years, really since 2002. So therefore, we don't see that stopping anytime soon, unfortunately, and that's just an overall drag. But we try to keep some limits on that and not let it drag us down too much.

Our next question is coming from Brent Rakers with Morgan Keegan & Company.

This is Anjali Voria in for Brent Rakers. I was wondering if you could comment on operating expenses in the fourth quarter, specifically how much of the increase in expenses resulted from impact of maybe higher variable expense-type of gross margin improvements. And also if you could provide the bad debt expense number, that would be great.

The main item that affected the fourth quarter was really the increase in our incentive accrual. And given how we finished the year, when we trued up the incentive accruals, that was really the main factor that kicks in, in the fourth quarter on a year-on-year basis. But it's in the overall scheme of things, it's not a material number. Most of that incentive accruals was made in the second and third quarters. And then I'm looking, by the way, at base business. Certainly, when you have acquisitions, if you'll look at the base business addendum, that's probably the key area to focus on. And it's really the only area we had any increases to speak of, was incentives.

And then also, could you provide maybe some clarity on the year-over-year gross margin improvement? How much of that 150 basis points was maybe tied to vendor incentives versus your ongoing price and purchasing discipline?

When you look at the fourth quarter, I presume you're talking about, in the fourth quarter, it was really -- we had a, I'll call it better discipline, is probably the first factor from a pricing standpoint. We had done a very good job during the course of the year working down our slow moving inventories. And typically what happens in the fourth quarter is that you have some, what I'll call fire sales. The items that we had to sell in fire sales were lower given the significant reduction we made in our slow moving inventory during the year. So by the end of the year, we don't have that much inventory of fire sale. So that caused less of a drag than in previous years. And then the overall is just the ongoing discipline and improvement in every facet of our execution.

Just to clarify, for the fourth quarter, your Blue Base business was up 5%, and Green was down 5%? Is that right?

That's correct.

There appear to be no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Thank you, Jody, and thank you all for listening and participating in our 2010 results conference call. And a special thank you to all the members of our team for all that they do every day on behalf of our customers and our suppliers. Our next call will be on April 21 when we will discuss our first quarter 2011 results. Thank you again. Have a good day.

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