What changed in this filing

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Item 1. Business

2021-02-25 compared with 2020-02-27 · 94 added, 34 removed, 219 unchanged (37% of the section changed)

Pool Corporation (the Company , which may be referred to as we, us or our ) is the world’s largest wholesale distributor of swimming pool supplies, equipment and related leisure products and is one of the leading distributors of irrigation and landscape products in the United States.

Our vision is to become the best worldwide distributor of outdoor living products that enhance the quality of outdoor home life.

Our vision is to establish POOLCORP as the global, digital distribution leader in swimming pool, backyard and irrigation and landscape distribution markets.

The Company was incorporated in the State of Delaware in 1993 and has grown from a regional distributor to a multi-national, multi-network distribution company.

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• consumers using more automation and control products, higher quality materials and other pool features that add to our sales opportunities over time;

• increased consumer spending on homes including outdoor living spaces driven by stay-at-home and remote work trends.

Almost 60% of consumer spending in the pool industry is for maintenance and minor repair of existing swimming pools.

Maintaining proper chemical balance and the related upkeep and repair of swimming pool equipment, such as pumps, heaters, filters and safety equipment, creates a non-discretionary demand for pool chemicals, equipment and other related parts and supplies.

Maintaining a proper sanitization balance and the related upkeep and repair of swimming pool equipment, such as pumps, heaters, filters and safety equipment, creates a non-discretionary demand for pool chemicals, equipment and other related parts and supplies.

We also believe cosmetic considerations such as a pool’s appearance and the overall look of backyard environments create an ongoing demand for other maintenance-related goods and certain discretionary products.

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The irrigation and landscape distribution business serves both residential and commercial markets, with the majority of sales related to the residential market.

Irrigation accounts for approximately 35% - 40% of total spending in the industry, with the remaining 60% - 65% of spending related to landscape maintenance products, power equipment, hardscapes and specialty outdoor products and accessories.

We believe that irrigation accounts for approximately 35% - 40% of total spending in the industry, with the remaining 60% - 65% of spending related to landscape maintenance products, power equipment, hardscapes and specialty outdoor products and accessories.

Our NPT network primarily serves the swimming pool market but does provide some overlap with the irrigation and landscape industries as we offer our market-leading brand of pool tile, composite pool finish products and hardscapes.

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In addition to our 21 standalone NPT sales centers, we currently have over 100 SCP and Superior sales centers that feature consumer showrooms where landscape and swimming pool contractors, as well as homeowners, can view and select pool components including pool tile, decking materials and interior pool finishes in various styles and grades, and serve as stocking locations for our NPT branded products.

We also offer virtual tools for homeowners to shop, select and design their pool and outdoor environments, working with their chosen contractors to install these products.

We also offer virtual tools for homeowners to select and design their pool and outdoor environments, working with their chosen contractors to install these products.

We believe our showrooms, local stocking of products and virtual support provide us with a competitive advantage in these categories.

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Contractor labor availability has also become an issue in recent years, limiting our customers’ ability to fully meet consumer construction and renovation demand.

The post-recession market environment from 2010 to 2019 has been characterized by steady economic expansion, the cautious recovery of consumer spending, modest housing recovery and low inflation.

However, in terms of homeowners investing in their existing homes, discretionary expenditures, including backyard renovations, have flourished over this time period with steady increases in home values and lack of affordable new homes prompting homeowners to stay in their homes longer and upgrade their home environments, including their backyard.

While we estimate that new pool construction increased to approximately 80,000 new units in 2019, construction levels are still down approximately 65% compared to peak historical levels and down approximately 50% from what we consider normal levels.

An average of approximately 170,000 new units per year were built in the years leading up to the recession.

The market environment from June 2009, when the Great Recession ended, until 2020, when the COVID-19 pandemic-induced recession began, was characterized by steady economic expansion, the cautious recovery of consumer spending, modest housing recovery and low inflation.

Due to the COVID-19 pandemic in 2020, many families spent more time at home and sought out opportunities to create or expand existing home-based outdoor living and entertainment spaces, which resulted in an increase in new pool construction and greater expenditures for maintenance and remodeling products, despite the overall decline in economic activity in the U.S.

While we estimate that new pool construction increased from approximately 80,000 units in 2019 to approximately 100,000 units in 2020, construction levels are still down approximately 55% compared to peak historical levels and down approximately 40% from what we consider normal levels.

An average of approximately 170,000 new units per year were built in the years leading up to the Great Recession.

We expect that new pool and irrigation construction levels will continue to grow incrementally, but we believe that consumer investments in outdoor living spaces beyond the swimming pool will generate greater growth over the next several years.

Times of strong economic conditions in the United States enable further replacement, remodeling and new construction activity.

Although some constraints exist around residential construction activities, economic trends indicate that consumer spending has largely recovered, and we believe that we are well positioned to take advantage of both the market expansion and the inherent long-term growth opportunities in our industry.

Although some constraints exist around residential construction activities, we believe that we are well positioned to take advantage of both the market expansion and the inherent long-term growth opportunities in our industry.

Additionally, recent regulation passed by the U.S.

Department of Energy mandates all new and replacement motors and pumps for swimming pools must be variable speed by July 2021.

Department of Energy mandates all new and replacement motors and pumps for swimming pools must meet certain compliance regulations by July 2021.

This mandate, coupled with additional product developments and technological advancements, offers further growth opportunities over the next few years.

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We promote the growth of our industry through various advertising and promotional programs intended to raise consumer awareness of the benefits and affordability of pool ownership, the ease of pool maintenance and the many ways in which a pool and the surrounding spaces may be enjoyed beyond swimming.

These programs include digital and media advertising, industry-oriented website development such as www.swimmingpool.com ® and www.hottubs.com ® and other digital marketing initiatives.

These programs include digital and media advertising, industry-oriented website development such as www.swimmingpool.com ®, www.hottubs.com ® and www.nptpool.com ®, social media platforms and other digital marketing initiatives, including our NPT® Backyard mobile app.

We use these programs as tools to educate consumers and lead prospective pool owners to our customers.

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As a customer service, we also provide certain retail store customers assistance with all aspects of their business, including site selection, store layout and design, product merchandising, business management system implementation, comprehensive product offering selections and efficient ordering and inventory management processes.

In addition to these programs, we feature consumer showrooms in over 100 of our sales centers and host our annual Retail Summit to educate our customers about product offerings and the overall industry, although we did not host our annual Retail Summit in January 2021 due to the COVID-19 pandemic.

We also act as a day-to-day resource by offering product and market expertise to serve our customers’ unique needs.

In addition to our efforts aimed at industry and customer growth, we strive to operate more effectively by continuously focusing on improvements in our operations.

We strive to create capacity with business to business development tools and execution to ensure best-in-class service and value creation for our customers and suppliers.

We aim to create capacity with business to business development tools and execution to ensure best-in-class service and value creation for our customers and suppliers.

In particular, we have developed the Pool360 and Horizon 24/7 platforms that help our customers be more productive by allowing them to get pricing, check availability, enter orders and make payments online while leveraging our customer service staff resources, particularly during peak business periods.

These tools not only offer real-time integration into our enterprise resource planning system, creating efficiencies in our business processes as well, but they also provide our customers graphical catalog presentation in the same platform.

We’ve enhanced our BlueStreak mobile order processing, which enables our sales associates with wireless technology that puts them next to the customer rather than behind the counter.

Orders are processed faster, often eliminating the need for customers to get out of their vehicles.

We are also actively making improvements to our sales centers and warehouses, including improved showroom layouts, sales center merchandising and velocity slotting.

Velocity slotting uses technology to identify fast moving, high velocity items, which are then color-coded and placed in an easily accessible location to create efficiencies for both our employees and customers.

In addition to these initiatives, we strive to expand our Pool Corporation-branded products and exclusive brand offerings and to continue to emphasize an Employer of Choice culture.

In addition to these initiatives, we strive to expand our Pool Corporation-branded products and exclusive brand offerings.

We have grown our distribution networks through new sales center openings, acquisitions and the expansion of existing sales centers depending on our market presence and capacity.

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Going forward, we expect to realize sales growth higher than the industry average due to further increases in market share and continued expansion of our product offerings.

We estimate that price inflation has averaged 1% to 2% annually in our industry over the past 10 years, although we experienced inflation above our historical average in 2019.

We estimate that price inflation has averaged 1% to 2% annually in our industry over the past ten years.

We generally pass industry price increases through our supply chain and may make strategic volume inventory purchases ahead of vendor price increases in order to obtain favorable pricing.

We estimate that annual price inflation between 2017 and 2018 was consistent with the ten-year average.

In 2018, several manufacturers announced and implemented a mid-season price increase to offset raw material, transportation and labor inflation, which resulted in price inflation that was approximately 2% above the historical range as we sold through the products in 2019.

We anticipate a return to the historical average in 2020.

We estimate that annual price inflation in 2018 and 2020 was consistent with the ten-year average.

We estimate that annual price inflation in 2019 was approximately 2% above our historical range as we sold through strategic inventory purchases from 2018.

We believe that results in 2021 will be impacted by inflationary product cost increases of approximately 2% to 3% (compared to our historical average of 1% to 2%).

Customers and Products

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• repair and replacement parts for pool equipment, such as cleaners, filters, heaters, pumps and lights;

• fiberglass pools and spas and packaged pool kits including walls, liners, braces and coping for in-ground and above-ground pools;

• fiberglass pools and hot tubs and packaged pool kits including walls, liners, braces and coping for in-ground and above-ground pools;

• pool equipment and components for new pool construction and the remodeling of existing pools;

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• building materials, such as concrete, plumbing and electrical components, both functional and decorative pool surfaces, decking materials, tile, hardscapes and natural stone, used for pool installations and remodeling;

• commercial products, including American Society of Material Engineers (ASME) heaters, safety equipment, and commercial pumps and filters;

• other pool construction and recreational products, which consist of a number of product categories and include discretionary recreational and related outdoor living products, such as spas, grills and components for outdoor kitchens, that enhance consumers’ use and enjoyment of outdoor living spaces.

• commercial products, including American Society of Material Engineers heaters, safety equipment and commercial pumps and filters;

• other pool construction and recreational products, which consist of a number of product categories and include discretionary recreational and related outdoor living products, such as hot tubs, grills and components for outdoor kitchens, that enhance consumers’ use and enjoyment of outdoor living spaces.

We currently have over 600 product lines and approximately 50 product categories.

Based on our 2019 product classifications, sales for our pool and spa chemicals product category represented approximately 12% of total net sales for 2019, 2018 and 2017.

Based on our 2020 product classifications, sales for our pool and hot tub chemicals product category represented approximately 10% of total net sales for 2020 and 12% of total net sales in 2019 and 2018.

No other product categories accounted for 10% or more of total net sales in any of the last three fiscal years.

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Recent regulation passed by the U.S.

Department of Energy mandates all new and replacement motors and pumps sold for swimming pools must be variable speed by July 2021.

Department of Energy mandates all new and replacement motors and pumps sold for swimming pools must meet certain compliance regulations by July 2021.

We expect to see minimal impact from this change until mid-way through the 2021 season.

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We offer a growing selection of energy-efficient and environmentally preferred products, which supports sustainability and helps our customers save energy, water and money.

Our green technology products include variable speed pumps, LED pool and spa lights and high-efficiency heat pumps.

We are committed to sustainable business practices, which includes products that we offer to our customers, our sourcing activities, our employment practices and our involvement within the communities in which we do business.

We believe these efforts continue to be successful in creating value for our customers, shareholders, employees, suppliers and communities.

Our green technology products include variable speed pumps, LED pool and hot tub lights and high-efficiency heat pumps.

Over the last several years, we have increased our product offerings and service abilities related to commercial swimming pools.

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While we are leveraging our existing networks and relationships to grow this market, in 2017, we also acquired Lincoln Equipment, Inc., a national distributor of equipment and supplies to commercial and institutional swimming pool customers.

Sales to commercial customers declined in 2020 due to COVID-19 related closures and the decline in both business and leisure travel.

We expect commercial sales to improve as COVID-19 pandemic conditions ease.

In 2020, the sale of maintenance and minor repair products (non-discretionary) accounted for almost 60% of our sales and gross profits, while just over 40% of our sales and gross profits were derived from the refurbishment, replacement, construction and installation (equipment, materials, plumbing, electrical, etc.) of swimming pools (partially discretionary).

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Post-2009, we experienced product and customer mix changes, including a shift in consumer spending to some higher value, lower margin products such as variable speed pumps and high efficiency heaters.

In 2020, we experienced higher sales of lower margin, big-ticket items, such as pool equipment and in-ground and above-ground pools.

These products positively contribute to our sales and gross profit growth but negatively impact our gross margin.

We expect continued demand for these products, but believe our efforts in various pricing and sourcing initiatives, including growth in our higher margin private label and exclusive products (PLEX) and our expansion of building materials product offerings, have helped offset these gross margin declines and will lead to somewhat flat gross margin trends over the next few years.

Operating Strategy

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irrigation and lawn care products

• Fewer pool and irrigation and landscaping

installations

Unseasonably cool weather or extraordinary amounts • Decreased purchases of chemicals and supplies

of rain • Decreased purchases of impulse items such as

Unseasonably cool weather or extraordinary amounts • Fewer pool and irrigation and landscaping

of rain installations

• Decreased purchases of chemicals and supplies

• Decreased purchases of impulse items such as

above-ground pools and accessories

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For discussion regarding the effects seasonality and weather had on our results of operations in 2020 and 2019, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Seasonality and Quarterly Fluctuations,” of this Form 10-K.

Environmental, Health and Safety Regulations

Government Regulations

Our business is subject to regulation under local fire codes and international, federal, state and local environmental and health and safety requirements, including regulation by the Environmental Protection Agency, the Consumer Product Safety Commission, the Department of Transportation, the Occupational Safety and Health Administration, the National Fire Protection Agency and the International Maritime Organization.

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These laws primarily relate to labeling, annual registration and licensing.

Human Capital Management

We employed approximately 4,500 people at December 31, 2020.

Given the seasonal nature of our business, our peak employment period is the summer and, depending on expected sales levels, we add 200 to 500 employees to our work force to meet seasonal demand.

Approximately 90% of our employees are located in the U.S.

We believe that our success is a direct result of the contributions and commitment of our employees.

We provide competitive pay and benefits, as well as training and other resources to our employees.

Our goal is to be an Employer of Choice through focusing on the engagement, development, retention and health and well‑being of our employees.

We have established a set of standard operating procedures to optimize our human capital management function, including hiring and human resource policies, training practices and operational instruction manuals.

We focus on the following factors in implementing and developing our human capital strategy:

• employee health, safety and wellness;

• employee growth and development;

• diversity and inclusion;

• employee compensation and benefits.

Employee Health, Safety and Wellness

Our commitment to the health, safety and wellness of our employees ranks at the top of our core fundamental values.

Our ultimate goal is to send every employee home each night in the same condition in which they came to work that morning.

We aim to achieve zero serious injuries through continued investment in and focus on our core safety programs and injury-reduction initiatives.

This effort begins immediately with new employees and is reinforced each day through a focus on safety awareness, risk identification and other essential safety protocols.

During the COVID-19 pandemic, we have taken a number of actions to protect the health and well-being of our employees and to reward our employees for their contributions to our success.

These actions include providing personal protective equipment, expanding healthcare benefits and re-configuring working spaces and arrangements.

We also made efforts to reward our employees by extending paid leave and paying additional discretionary bonuses to our employees for their contributions.

Employee Growth and Development

We strive to be an Employer of Choice by investing in our employees.

Our goal is to attract, develop and retain a talented team of people inspired by our mission to provide exceptional value to our customers and suppliers and create exceptional return to our shareholders, while providing exceptional opportunities for our employees.

Our success depends on our employees understanding how their work contributes to the company’s overall strategy.

We use a variety of channels to facilitate open and direct communication with our employees, including open forums with executives and employee experience surveys.

When our employees succeed, the company succeeds.

To help our employees achieve success in their roles, we emphasize continuous training and development opportunities.

These include safety and security protocols, updates on new products and service offerings and deployment of technologies.

We also provide managerial training to mid-level managers and departmental leaders.

This coursework covers topics such as talent review, development of underperforming employees, handling employee misconduct and coaching and success workshops.

We also provide an entry level program to prepare Manager Trainees (MITs) for sales and operations management opportunities.

Our MITs are hosted at either our state-of-the-art EDGEucation Center, located in Plano, TX or in a virtual classroom.

Our program includes lectures, projects and role play to provide MITs with industry knowledge, leadership skills and the tools necessary to succeed within our organization.

Diversity and Inclusion

We are committed to fostering a diverse and inclusive workplace that represents the communities in which we work and live.

We believe that diversity drives innovation and delivers the best solutions to complex problems, and we are building a culture where differences are welcomed and valued.

To achieve this, we are committed to expanding the diversity of our workforce through the hiring, retention and advancement of underrepresented populations.

In addition, we support our existing employees with training and development that helps create a more inclusive environment.

Our recent initiatives include the establishment of a diversity and inclusiveness team, expanding existing content in core employee development programs and improving our efforts to recruit and hire first-class diverse talent.

Employee Compensation and Benefits

We strive to provide market-competitive pay, benefits and services to our employees.

Our performance-based compensation philosophy is based on rewarding each employee’s individual contributions regardless of gender, race or ethnicity.

Our total compensation package includes cash compensation (base salary and incentive or bonus payments), company contributions toward additional benefits (such as health and disability plans), retirement plans with a company match and paid time off.

We also offer the opportunity to become a shareholder through equity grants for management and our employee stock purchase plan.

Environmental, Social and Governance (ESG)

We are committed to sustainable business practices, which, for us, includes offering eco-friendly products to our customers, closely monitoring our sourcing activities, providing a safe, inclusive work environment for our employees, and being good stewards within the communities we serve.

Currently, we are taking steps to trim our carbon footprint and to improve product choices that allow our customers to reduce their environmental impact.

Further, we are installing more energy-efficient systems throughout our network and ensuring that our health and wellness programs include affordable, high quality benefits to improve the lives of our employees.

We are continually striving to ensure success in our business while protecting resources for future generations.

Our sustainability goals include the reduction of greenhouse gases and other harmful air emissions, water conservation, energy conservation and carbon footprint minimization.

We continue to improve the ways in which we handle, distribute, transport and dispose of all products, particularly the chemicals and fertilizers that we sell.

We are dedicated to growing the swimming pool industry and have chosen charitable activities to support the swimming pool environment, in addition to our support of other local organizations.

We actively encourage our employees to volunteer and engage with their communities through our stewardship committee and supporting charitable organizations.

We believe these endeavors will continue to create value for our customers, shareholders, employees, suppliers and communities.

Our employees, managers and officers conduct our business under the direction of our CEO and the oversight of our Board of Directors (our Board) to enhance our long-term value for our stockholders.

The core responsibility of our Board is to exercise its fiduciary duty to act in the best interests of our company and our stockholders.

In exercising this obligation, our Board and committees perform a number of specific functions, including risk assessment, review and oversight.

While management is responsible for the day-to-day management of risk, our Board is responsible for oversight of our risk management programs, ensuring that an appropriate culture of risk management exists within the company, and assisting management in addressing specific risks, such as strategic risks, financial risks, regulatory risks and operational risks.

Intellectual Property

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Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge on our website at www.poolcorp.com as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the Securities and Exchange Commission (SEC).

Additionally, we have adopted a Code of Business Conduct and Ethics (the Code) that applies to all of our employees, officers and directors, and is available on our website at www.poolcorp.com .

Any substantive amendments to the Code, or any waivers granted to any directors or executive officers, including our principal executive officer, principal financial officer, or principal accounting officer and controller, will be disclosed on our website and remain there for at least 12 months.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business