Pool Corp: Form 10-Q for the period ended Jun 30, 2014

You should read the following discussion in conjunction with Management's Discussion and Analysis included in our 2013 Annual Report on Form 10-K.

For a discussion of our base business calculations, see the RESULTS OF OPERATIONS section below.

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. Forward-looking statements speak only as of the date of this filing, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. 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,” “should” 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 may differ materially due to one or more factors, including the sensitivity of our business to weather conditions, changes in the economy and the housing market, our ability to maintain favorable relationships with suppliers and manufacturers, competition from other leisure product alternatives and mass merchants and other risks detailed in our 2013 Annual Report on Form 10-K. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act.

OVERVIEW

Financial Results

Our second quarter results were generally as expected, with solid sales and gross profit growth and improvement in gross margin, albeit with sales below target in certain seasonal markets. The ongoing recovery of replacement and remodel activity along with market share gains continued to contribute to our growth. Likewise, we believe our second quarter results evidenced our ongoing efforts to provide exceptional value and our consistent investment in tools and resources to help our customers succeed.

Net sales for the quarter ended June 30, 2014 increased 7% compared to the second quarter of 2013, with base business sales also up 7% for the period. Replacement and remodel activity continued to drive sales growth with sustained double-digit sales increases in building materials. Prolonged cold and wet weather in our seasonal markets, particularly Canada and the northern United States, limited our second quarter sales growth in those markets.

Gross profit for the second quarter of 2014 increased 8% versus the same period in 2013. Gross profit as a percentage of net sales (gross margin) improved 25 basis points to 29.1% in the second quarter of 2014. This increase reflects our concerted effort on several fronts to improve margins.

Selling and administrative expenses (operating expenses) increased 7% in the second quarter of 2014 compared to the same period in 2013, with base business operating expenses up 6% for the period. This increase is primarily due to additional performance‑based incentive compensation expense in 2014, which reflects comparatively better results versus performance targets this year compared to last. We also increased infrastructure investments, such as additional personnel and expenses related to equipment and technology to support greater sales growth, and we incurred higher freight costs in the second quarter of 2014 compared to the second quarter of 2013.

Operating income for the quarter increased 9% compared to the same period in 2013. Operating income as a percentage of net sales (operating margin) was 14.4% for the second quarter of 2014 compared to 14.2% for the same period in 2013.

Net income increased 11% to $73.9 million in the second quarter of 2014 compared to the same period last year. Earnings per share increased by $0.22, or 16%, to $1.61 per diluted share for the three months ended June 30, 2014.

Financial Position and Liquidity

Total net receivables, including pledged receivables, at June 30, 2014 increased 9% from June 30, 2013. Our allowance for doubtful accounts balance was $4.4 million at both June 30, 2014 and June 30, 2013. Days sales outstanding (DSO) improved between periods to 28.3 days at June 30, 2014 compared to 28.5 days at June 30, 2013.

Net inventory levels increased 6% to $451.5 million at June 30, 2014. The inventory reserve was $8.5 million at both June 30, 2014 and June 30, 2013. Our inventory turns, as calculated on a trailing twelve month basis, were 3.5 times at June 30, 2014 compared to 3.4 times at June 30, 2013.

Total debt outstanding of $431.0 million at June 30, 2014 increased 43% compared to June 30, 2013 primarily to fund greater share repurchases in the first half of 2014 versus 2013 and also due to timing differences in the inventory purchase and payment cycle.

Current Trends and Outlook

For a detailed discussion of trends through 2013, see the Current Trends and Outlook section of Management’s Discussion and Analysis included in Item 7 of our 2013 Annual Report on Form 10-K.

For the remainder of 2014, we expect sales and gross profit growth rates to be similar to the first half of the year. We also anticipate sales growth from refurbishment and replacement related products will continue to exceed sales growth from maintenance and other non-discretionary product offerings. During the first half of the year, we completed two acquisitions consisting of four sales centers and opened two new locations. We plan to open four additional new sales centers before the close of the 2014 season. We expect gross margin to remain relatively flat compared to 2013.

Compared to the 6% base business operating expense growth in the first half of 2014, we expect that our base business operating expenses will grow more modestly in the second half of the year. This projection assumes approximately $3.0 million to $4.0 million more performance-based incentive compensation in 2014 than in 2013, most of which is generally recorded in the second and third quarters, consistent with the seasonality of our earnings.

For the full year 2014, we project our effective income tax rate will approximate 38.5%. Our effective tax rate is dependent upon the results of operations and may change if actual results are different from our current expectations, particularly any significant changes in our geographic mix. We expect the third quarter rate will be slightly below the estimated annual rate, while the fourth quarter effective income tax rate should be slightly above the full year rate.

We reaffirm our previously provided 2014 annual earnings guidance of $2.35 to $2.45 per diluted share. We expect cash provided by operations will be in line with net income for the full year 2014 and we anticipate that share repurchase activity will lessen in the third and fourth quarters compared to the first half of the year.

RESULTS OF OPERATIONS

As of June 30, 2014, we conducted operations through 326 sales centers in North America, Europe and South America.

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

Note: Due to rounding, percentages may not add up to operating income or income before income taxes and equity earnings.

We have included the results of operations from acquisitions in 2014 and 2013 in our consolidated results since the respective dates of these acquisitions.

Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013

The following table breaks out our consolidated results into the base business component and the excluded component (sales centers excluded from base business):

(Unaudited)

(in thousands)

In our calculation of base business results, we have excluded the following acquisitions for the periods identified:

(1) We acquired certain distribution assets of each of these companies.

We exclude sales centers that are acquired, closed or opened in new markets from base business results for a period of 15 months. We also exclude consolidated sales centers when we do not expect to maintain the majority of the existing business and existing sales centers that are consolidated with acquired sales centers. As of June 30, 2014, we excluded one sales center opened in a new market from base business.

We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales. After 15 months of operations, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.

The table below identifies the changes in the number of sales centers during the first six months of 2014:

12

Net Sales

(in millions)

Net sales for the second quarter of 2014 increased 7% compared to the second quarter of 2013, with base business net sales also up 7% for the period. Replacement and remodel activity continued to lead our base business sales growth. After last year's late start to the pool season, we anticipated a comparative benefit from more favorable weather conditions in the second quarter of 2014, but this expectation did not materialize due to prolonged cold and wet weather in many of our seasonal markets, particularly Canada and the northern United States. As a result, the timing of 2014 pool openings in many of those areas was similar to 2013.

The overall base business sales increase reflects the impact of the following (listed in order of estimated magnitude):

• continued improvement in consumer discretionary expenditures, including some market recovery in remodeling and replacement activity, as evidenced by sales growth rates for product offerings such as building materials and equipment (see discussion below);
• market share gains attributed to continued improvements in customer service levels; and
• inflationary (estimated at approximately 1%) product cost increases.

Sales of building materials and tile grew by 22% compared to the second quarter of 2013. Collectively these products accounted for approximately 9% of our total sales for the quarter. Sales of equipment, which includes heaters, pumps, lighting and filters, increased by 9% compared to the second quarter of 2013. Chemical sales increased by 3% while chemical pricing remained relatively flat.

Gross Profit

(in millions)

Gross margin for the second quarter of 2014 improved approximately 25 basis points compared to the second quarter of 2013. We attribute this improvement to our ongoing initiatives related to pricing, inventory management and sales execution combined with higher building materials sales growth rates and a reduction in equipment sales growth rates compared to the second quarter of last year. This sales growth dynamic and product mix provided a slightly favorable impact on our gross margin given comparatively lower margins on heaters, pumps, lighting and filters compared to building materials and other product offerings.

Operating Expenses

(in millions)

Operating expenses increased 7% in the second quarter of 2014 compared to the second quarter of 2013, with base business operating expenses up 6% for the period. This increase is primarily due to additional performance-based incentive compensation expense recorded in 2014, which reflects comparatively better results versus performance targets this year compared to last, as well as increased infrastructure investments such as additional personnel and expenses related to equipment and technology to support greater sales growth. Freight costs were also higher, as driver shortages pushed up shipping rates.

Interest Expense, Net

Interest expense, net decreased 9% compared to the second quarter of 2013, including a 4% decrease in interest expense related to borrowings. Our weighted average effective interest rate decreased to 1.9% for the second quarter of 2014 from 2.4% for the second quarter of 2013 on higher average outstanding debt of $366.9 million versus $283.9 million for the respective periods. The decrease in our effective interest rate compared to last year reflects the utilization of available borrowing capacity on our Receivables Facility at lower interest rates than our Credit Facility.

Income Taxes

Our effective income tax rate was 38.8% for the three months ended June 30, 2014 compared to 39.5% for the three months ended June 30, 2013. The lower rate reflects our estimates for improved results in 2014 compared to 2013 for certain of our international entities for which we have recorded full valuation allowances on net operating losses.

Net Income and Earnings Per Share

Net income for the second quarter of 2014 increased 11% to $73.9 million compared to the second quarter of 2013. Earnings per diluted share was $1.61 for the second quarter of 2014, an increase of $0.22, or 16%, per diluted share over the same period of 2013. Earnings per share for the quarter also included an accretive impact of close to $0.02 per diluted share from the reduction in our weighted average shares outstanding due to our share repurchase activities.

Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013

The following table breaks out our consolidated results into the base business component and the excluded component (sales centers excluded from base business):

(Unaudited)

(in thousands)

In our calculation of base business results, we have excluded the following acquisitions for the periods identified:

(1) We acquired certain distribution assets of each of these companies.

For a more detailed explanation of how we calculated base business results and a summary of the changes in our sales centers since December 31, 2013, please refer to page 12 under the heading “Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013”.

Net Sales

(in millions)

Net sales for the first half of 2014 increased 8% compared to the same period last year, despite not having the expected benefit of a return to normal seasonal weather patterns. Base business sales growth of 7% in the first half of 2014 included an 8% increase from swimming pool product sales and a 6% increase from landscape and irrigation product sales.

The overall base business sales increase also reflects the impact of the following (listed in order of estimated magnitude):

• continued improvement in consumer discretionary expenditures, including some market recovery in remodeling and replacement activity, as evidenced by sales growth rates for product offerings such as building materials and equipment (see discussion below);
• market share gains attributed to continued improvements in customer service levels;
• an increase in customer early buy purchases; and
• inflationary (estimated at approximately 1%) product cost increases.

Sales of building materials and tile grew by 21% compared to the first half of 2013. Collectively these products accounted for approximately 9% of our total sales. Sales of equipment, which includes heaters, pumps, lighting and filters, increased by close to 11% compared to the first half of 2013. Chemical sales increased by 3% while chemical pricing remained relatively flat.

Gross Profit

(in millions)

Gross margin for the first half of 2014 exhibited a 10 basis point improvement compared to the first half of last year. We believe our concerted efforts related to pricing, inventory management and sales execution offset the unfavorable gross margin impact of first quarter 2014 customer early buy activity. Purchases included in customer early buys are primarily comprised of lower margin discretionary products and include applicable discounts.

Operating Expenses

(in millions)

Operating expenses increased 7% in the first half of 2014 compared to the same period in 2013, with base business operating expenses up 6%. This increase primarily reflects the following (listed in order of magnitude):

• additional performance-based incentive compensation expense recorded in 2014, which reflects comparatively better results versus performance targets this year compared to last;
• increased infrastructure investments such as additional personnel and expenses related to equipment and technology to support greater sales growth;
• higher outside professional fees;
• higher freight costs; and
• increased costs due to the expansion in 2014 of our annual retail marketing event.

Interest Expense, Net

Interest expense, net for the first six months of 2014 was consistent with the first six months of 2013. Our weighted average effective interest rate decreased to 2.0% for the first six months of 2014 from 2.5% for the same period of 2013 on higher average outstanding debt of $322.6 million versus $264.5 million for the respective periods. The decrease in our effective interest rate compared to last year reflects the utilization of available borrowing capacity on our Receivables Facility at lower interest rates than under our Credit Facility.

Income Taxes

Our effective income tax rate was 38.8% for the six months ended June 30, 2014 compared to 39.3% for the six months ended June 30, 2013. The lower rate reflects our estimates for improved results in 2014 versus 2013 for certain of our international locations for which we have recorded full valuation allowances on net operating losses.

Net Income and Earnings Per Share

Earnings per share for the first six months of 2014 increased 15% to $1.69 per diluted share on net income of $78.1 million, compared to $1.47 per diluted share on net income of $70.0 million in the comparable 2013 period. Earnings per share for the first six months also included an accretive impact of approximately $0.01 per diluted share from the reduction in our weighted average shares outstanding due to our share repurchase activities.

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 maintenance and installation. Sales are substantially lower during the first and fourth quarters, when we may incur net losses. In 2013, we generated approximately 66% of our net sales and essentially 100% of our operating income in the second and third quarters of the year.

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 payments due under 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 quarter of 2014, the four quarters of 2013 and the third and fourth quarters of 2012. 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 a good indication of results for an entire fiscal year or of continuing trends.

(Unaudited)

(in thousands)

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. Based on our peak summer selling season, we generally open new sales centers and close or consolidate sales centers, when warranted, either in the first quarter before the peak selling season begins or in the fourth quarter after the peak selling season ends.

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

Similar to last year, the Central and Southeast regions of the United States experienced cooler than normal temperatures in the first quarter of 2014, although temperatures in Florida were normal for this time of year. The West experienced warmer than average temperatures, especially California and Arizona. The Northeast, parts of the Midwest and eastern Canada experienced near record cold temperatures and substantial snowfall. Given the similarity of overall weather conditions in the first quarter of last year and the fact that our busiest season typically does not start until late March or April, weather did not significantly affect sales growth comparisons for the first quarter of 2014.

Cold and wet weather persisted through April and May 2014, particularly in Canada and the northern United States, limiting second quarter sales growth in many of our seasonal markets. Through May, late season snow impacted the Rocky Mountain region, while parts of the Midwest felt the impact of much-delayed thawing from winter and early spring snowfall. In contrast, the West experienced record warm temperatures in the second quarter, but severe drought conditions in parts of California and Arizona, which curbed substantial sales growth in these markets. Temperatures and rainfall were closer to normal in Texas and the Southeast United States during the second quarter, which provided some relief from the difficult conditions we faced in other areas.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is defined as the ability to generate adequate amounts of cash to meet short-term and long-term 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;
• scheduled debt payments;
• dividend payments;
• capital expenditures;
• the timing and extent of share repurchases; and
• the ability to attract long-term capital with satisfactory terms.

Our primary capital needs are seasonal working capital requirements and other general corporate purposes, including acquisitions, dividend payments and share repurchases. Our primary sources of working capital are cash from operations supplemented by borrowings, which have historically been sufficient to support our growth and finance acquisitions. The same principle applies to funds used for capital expenditures and share repurchases.

We prioritize our use of cash based on investing in our business, maintaining a prudent debt structure and returning money to our shareholders. Our specific priorities for the use of cash are as follows:

• maintenance and new sales center capital expenditures;
• strategic acquisitions executed opportunistically;
• payment of cash dividends as and when declared by our Board of Directors (Board); and
• repayment of debt or repurchase of our common stock.

As discussed further under the subheading Future Sources and Uses of Cash on page 20, we are required to comply with certain financial covenants under our debt agreements, including the maintenance of a maximum average total leverage ratio. Although more conservative than the maximum, we strive to maintain an average total leverage ratio of 1.50 to 2.00. Within the constraints of these metrics, we determine the timing and extent to which we will repurchase our common stock under Board authorized repurchase programs and/or repay our debt.

Capital expenditures have historically averaged 0.5% to 1.0% of net sales. Capital expenditures were 0.9% of net sales in 2013, 0.8% of net sales in 2012 and 1.1% of net sales in 2011. In 2011, following two to three years of limited capacity expansion, capital expenditures were higher than the historical average because we began purchasing rather than leasing new vehicles and forklifts. In 2014, we project annual capital expenditures will be near the high end of our historical range due to our continued investments in new vehicles, equipment and technology.

Sources and Uses of Cash

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

Cash used in operating activities during the first six months of 2014 was higher compared to the first six months of 2013 primarily due to vendor payment timing differences this year versus last. Cash used in investing activities for the first half of 2014 included $4.5 million of net payments to fund two acquisitions. The increase in cash provided by financing activities between periods primarily reflects an increase in net borrowings of $115.0 million, offset mostly by greater share repurchases and fewer proceeds from the issuance of common stock due to a decline in stock option exercises in the second quarter of 2014 versus 2013.

Future Sources and Uses of Cash

Our Credit Facility provides for $465.0 million in borrowing capacity under a five-year revolving credit facility and includes sublimits for the issuance of swingline loans and standby letters of credit. Pursuant to an accordion feature, the aggregate maximum principal amount of the commitments under the Credit Facility may be increased at our request and with agreement by the lenders by up to $75.0 million, to a total of $540.0 million. The Credit Facility matures on September 20, 2018. We intend to use the Credit Facility for general corporate purposes and to fund future growth initiatives.

At June 30, 2014, there was $271.0 million outstanding and $190.3 million available for borrowing under the Credit Facility. We currently have five interest rate swap contracts in place that reduce our exposure to fluctuations in variable interest rates for future interest payments on the Credit Facility. These swap contracts convert the Credit Facility’s variable interest rate to fixed rates of 1.185% on notional amounts totaling $50.0 million, 1.100% on a notional amount of $50.0 million, 1.050% on a notional amount of $25.0 million and 0.990% on a notional amount of $25.0 million. Interest expense related to the notional amounts under these swaps is based on the fixed rates plus the applicable margin on the Credit Facility. All five swap contracts will terminate on October 19, 2016.

In May 2014, we entered into four forward-starting interest rate swap contracts to reduce our exposure to future fluctuations in interest rates on our Credit Facility. These new swap contracts will convert the Credit Facility’s variable interest rate to fixed rates of 2.520% on a notional amount of $25.0 million, 2.450% on a notional amount of $50.0 million, 2.339% on a notional amount of $50.0 million and 2.256% on a notional amount of $25.0 million. Each of these forward-starting swap contracts becomes effective on October 19, 2016 and terminates on September 20, 2018.

The weighted average effective interest rate for the Credit Facility as of June 30, 2014 was approximately 2.0%, excluding commitment fees.

Financial covenants on the Credit Facility include maintenance of a maximum average total leverage ratio and a minimum fixed charge coverage ratio, which are our most restrictive financial covenants. As of June 30, 2014, the calculations of these two covenants are detailed below:

• Maximum Average Total Leverage Ratio. On the last day of each fiscal quarter, our average total leverage ratio must be less than 3.25 to 1.00. Average Total Leverage Ratio is the ratio of the trailing twelve months (TTM) Average Total Funded Indebtedness plus the TTM Average Accounts Securitization Proceeds divided by the TTM EBITDA (as those terms are defined in the Credit Facility). As of June 30, 2014, our average total leverage ratio equaled 1.48 (compared to 1.44 as of March 31, 2014) and the TTM average total debt amount used in this calculation was $296.7 million.
• Minimum Fixed Charge Coverage Ratio. On the last day of each fiscal quarter, our fixed charge ratio must be greater than or equal to 2.25 to 1.00. Fixed Charge Ratio is the ratio of the TTM EBITDAR divided by TTM Interest Expense paid or payable in cash plus TTM Rental Expense (as those terms are defined in the Credit Facility). As of June 30, 2014, our fixed charge ratio equaled 4.51 (compared to 4.31 as of March 31, 2014) and TTM Rental Expense was $49.4 million.

The Credit Facility also limits the declaration and payment of dividends on our common stock to no more than 50% of the preceding year’s Net Income (as defined in the Credit Facility), provided no default or event of default has occurred and is continuing, or would result from the payment of dividends. Additionally, we may declare and pay quarterly dividends notwithstanding that the aggregate amount of dividends paid would be in excess of the 50% limit described above so long as (i) the amount per share of such dividends does not exceed the amount per share paid during the most recent fiscal year in which we were in compliance with the 50% limit and (ii) our Average Total Leverage Ratio is less than 3.00 to 1.00 both immediately before and after giving pro forma effect to such dividends. Further, dividends must be declared and paid in a manner consistent with our past practice.

Under the Credit Facility, we may repurchase shares of our common stock provided no default or event of default has occurred and is continuing, or would result from the repurchase of shares, and our maximum average total leverage ratio (determined on a pro forma basis) is less than 2.50 to 1.00. Other covenants include restrictions on our ability to grant liens, incur indebtedness, make investments, merge or consolidate, and sell or transfer assets. Failure to comply with any of our financial covenants or any other terms of the Credit Facility could result in penalty payments, higher interest rates on our borrowings or the acceleration of the maturities of our outstanding debt.

As amended on June 25, 2014, our Receivables Facility offers us a lower cost form of financing, with a peak seasonal funding capacity of up to $120.0 million between March 1 and August 31 and up to $80.0 million between September 1 and February 28. Additional seasonal borrowing capacity of up to $40.0 million may be available between April 1 and July 31.

The Receivables Facility provides for the sale of certain of our receivables to a wholly owned subsidiary (the Securitization Subsidiary). The Securitization Subsidiary transfers variable undivided percentage interests in the receivables and related rights to certain third party financial institutions in exchange for cash proceeds, limited to the applicable funding capacities. Upon payment of the receivables by customers, rather than remitting to the financial institutions the amounts collected, we retain such collections as proceeds for the sale of new receivables until payments become due.

The Receivables Facility contains terms and conditions (including representations, covenants and conditions precedent) customary for transactions of this type. Additionally, an amortization event will occur if we fail to maintain a maximum average total leverage ratio (average total funded debt/EBITDA) of 3.25 to 1.00 and a minimum fixed charge coverage ratio (EBITDAR/cash interest expense plus rental expense) of 2.25 to 1.00.

At June 30, 2014, there was $160.0 million outstanding under the Receivables Facility at a weighted average effective interest rate of 0.9%, excluding commitment fees.

As of June 30, 2014, we were in compliance with all covenants and financial ratio requirements in our Credit Facility and our Receivables Facility. We believe we will remain in compliance with all covenants and financial ratio requirements throughout the rest of the year. For additional information regarding our debt arrangements, see Note 5 of “Notes to Consolidated Financial Statements,” included in Item 8 of our 2013 Annual Report on Form 10-K.

We believe we have adequate availability of capital to fund present operations and the current capacity to finance any working capital needs that may arise. We continually evaluate potential acquisitions and hold discussions with acquisition candidates. If suitable acquisition opportunities arise that would require financing, we believe that we have the ability to finance any such transactions.

As of July 25, 2014, $106.9 million of the current Board authorized amount under our share repurchase program remained available. We expect to repurchase additional shares on the open market from time to time depending on market conditions. We plan to fund these repurchases with cash provided by operations and borrowings under the credit and receivables facilities.

CRITICAL ACCOUNTING ESTIMATES

We prepare our Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles (GAAP), which require 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. For a description of our critical accounting estimates that require us to make the most difficult, subjective or complex judgments, please see our 2013 Annual Report on Form 10-K. We have not changed these policies from those previously disclosed.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The new standard also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. ASU 2014-09 will be effective for annual periods beginning after December 15, 2016 and will replace most existing revenue recognition guidance in U.S. GAAP. The guidance may be applied using either a retrospective or cumulative effect transition method. We are currently evaluating the effect that ASU 2014-09 will have on our financial position or results of operations and related disclosures.

Interest Rate Risk

There have been no material changes from what we reported in our Annual Report on Form 10-K for the year ended December 31, 2013 that affect fiscal 2014.

Currency Risk

There have been no material changes from what we reported in our Annual Report on Form 10-K for the year ended December 31, 2013 that affect fiscal 2014.

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 (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. As of June 30, 2014, management, including the CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures. Based on that evaluation, management, including the CEO and CFO, concluded that as of June 30, 2014, our disclosure controls and procedures were effective.

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 U.S. generally accepted accounting principles. 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.

There have been no material changes from the risk factors disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013.