What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2023-02-24 compared with 2022-02-25 · 80 added, 46 removed, 179 unchanged (41% of the section changed)

1 unchanged sentence

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 earnings and other financial performance measures, statements of management’s expectations regarding our plans and objectives and industry, general economic and other forecasts of trends, future dividend payments, share repurchases and other matters.

Our forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of earnings and other financial performance measures, statements of management’s expectations regarding our strategic, operational and capital allocation plans and objectives, management's views on industry, economic, competitive, technological and regulatory conditions and other forecasts of trends and other matters.

Forward-looking statements speak only as of the date of this filing, and we undertake no obligation to publicly update or revise such statements to reflect new circumstances or unanticipated events as they occur.

8 unchanged sentences

Further, our business may also be affected by additional factors that generally apply to all companies operating in the U.S.

and globally, which have not been included.

and globally, which we have not included below.

Risks Relating to Macroeconomic Conditions

The demand for our swimming pool, irrigation, landscape and related outdoor living products may be adversely affected by changes in consumer discretionary spending or unfavorable economic conditions.

The demand for our products may be adversely affected by unfavorable economic conditions and changes in consumer discretionary spending.

Consumer discretionary spending significantly affects our sales and is impacted by factors outside of our control, including general economic conditions, the residential housing market, unemployment rates, wage levels, interest rate fluctuations, inflation, disposable income levels, consumer confidence and access to credit.

In economic downturns, the demand for swimming pool, irrigation, landscape and related outdoor living products may decline, often corresponding with declines in discretionary consumer spending, the growth rate of pool eligible households and swimming pool construction.

In economic downturns or recessions, the demand for swimming pool, irrigation, landscape and related outdoor living products may decline, often corresponding with declines in discretionary consumer spending, the growth rate of pool eligible households and swimming pool construction.

Maintenance and repair products and certain replacement and refurbishment products are required to maintain existing swimming pools, and each currently accounts for approximately 60% and 21% to 23% of net sales related to our swimming pool business.

however, the growth in this portion of our business depends on the expansion of the installed pool base and could also be adversely affected by decreases in construction activities, similar to the trends between late 2006 and early 2010.

However, the growth in this portion of our business depends on the expansion of the installed pool base, which could also be adversely affected by decreases in construction activities, similar to the trends between late 2006 and early 2010.

A weak economy may also cause consumers to defer discretionary replacement and refurbishment activity.

3 unchanged sentences

Between late 2006 and early 2010, the unfavorable economic conditions and downturn in the housing market resulted in significant tightening of credit markets, which limited the ability of consumers to access financing for new swimming pools and irrigation systems.

Any similar tightening of consumer credit or any increase in interest rates in the future could prevent consumers from obtaining financing for pool, irrigation and related outdoor projects, which could negatively impact our sales of construction-related products.

Any similar tightening of consumer credit or increase in interest rates could prevent consumers from obtaining financing for pool, irrigation and related outdoor projects, which could negatively impact our sales of construction-related products.

Discretionary spending is often adversely affected during times of economic, social or political uncertainty.

The potential for natural or man-made disasters or extreme weather, geopolitical events and security issues, labor or trade disputes and similar events could create these types of uncertainties and negatively impact our business in ways that we cannot presently predict.

The COVID-19 pandemic, other pandemics or epidemics in the future, and associated responses could adversely impact our business and results of operations.

The COVID-19 pandemic has significantly impacted economic activity and markets throughout the world since early 2020.

In response, various governmental authorities have imposed stay-at-home orders, shelter-in-place orders, quarantines, executive orders and similar government orders and restrictions to control the spread of COVID-19.

Such orders or restrictions have resulted in temporary store closures, limitation of store hours, limitations on the number of people in stores or in warehouses, enhanced requirements on sanitation, social distancing practices and travel restrictions, among other effects.

In almost all of our markets, we are designated as an essential business under the relevant state and local regulations;

however, if this changes, it could adversely impact our financial condition and operating results.

Variants of the virus that cause COVID-19 continue to be identified in the U.S.

and elsewhere, which has led to uncertainty over the scope and duration of the pandemic.

Accordingly, COVID-19, or any other future pandemic or other major public health crisis, may have negative impacts on our business in the future, and any future adverse impacts on our business may be worse than we anticipate.

Impacts from the COVID-19 pandemic, coupled with heightened demand, could also adversely impact our supply chain, making it difficult to source and receive products needed to keep our customers adequately supplied.

The ultimate impact will depend on the severity and duration of the COVID-19 pandemic, any future resurgences and actions taken by governmental authorities and other third parties in response, including the distribution and acceptance of vaccines, each of which is uncertain, rapidly changing and difficult to predict.

Our recent growth rates driven by home-centric trends influenced by the COVID-19 pandemic may not be sustainable and may not be indicative of future growth rates.

Changes in our customer base could also impact us.

Our business could be adversely impacted if (i) consolidation of our customers leads to changes in purchasing habits, (ii) more people choose to live in urban settings or (iii) more homeowners bypass our customers by directly procuring their own supplies or undertaking their own improvement projects.

During 2022, interest rates and inflation rose, economic activity slowed and consumer credit tightened, which led to a slowdown in new pool permits (signaling a decline in new construction projects).

Many experts are predicting a further downturn in 2023 for the United States economy and much of the global economy.

Although the severity and duration of any such downturn is difficult to predict, we expect the heightened demand for our products during the pandemic to moderate as consumers apply less disposable income to pools and other home improvements.

The COVID-19 pandemic, other major public health crises in the future, and associated responses could adversely impact our business and results of operations.

The COVID-19 pandemic and its aftermath significantly impacted economic activity and markets throughout the world.

Even as efforts to contain the pandemic, including vaccinations, have fostered progress and eased restrictions, new variants of the virus have caused additional outbreaks and uncertainties.

Our increased growth rates in the latter half of 2020 through the first half of 2022 were driven by home-centric trends influenced by the COVID-19 pandemic, during which many consumers spent more time at their homes due to travel restrictions and remote work arrangements.

We believe the easing of the pandemic in 2022 led to more travel and other out-of-home activities.

Impacts from the COVID-19 pandemic, coupled with heightened demand, adversely impacted our supply chain in the latter half of 2021 through the beginning of 2022, making it difficult to source and receive products needed to keep our customers adequately supplied.

Notwithstanding recent improvements, there are continuing uncertainties regarding how long COVID-19 and its variant strains will continue to impact the global economy and our supply chain and the effect of the pandemic on our operational and financial performance will depend on future developments, including its impact on our customers and trade partners, all of which remain uncertain.

Accordingly, COVID-19, or any other future major public health crisis, may have negative impacts on our business in the future, and any future adverse impacts on our business may be worse than we anticipate.

Risks Relating to Our Business and Industry

3 unchanged sentences

These quarters represent the peak months of swimming pool use, pool and irrigation installation and remodeling and repair activities.

Unfavorable weather during these quarters in our largest geographic regions can significantly affect our results.

Unseasonably late warming trends in the spring or early cooling trends in the fall can shorten the length of the pool season.

4 unchanged sentences

Certain extreme weather events, such as hurricanes, tornadoes, earthquakes, tropical storms, floods, drought and wildfires, may adversely impact us in several ways, including interfering with our ability to deliver our products and services, interfering with our receipt of supplies from our vendors, reducing demand for our products and services, and damaging our facilities.

Climate change may increase the frequency or severity of natural disasters and other extreme weather events in the future, which would increase our exposure to these risks.

Concern over climate change may also result in new or increased legal and regulatory requirements designed to reduce or mitigate the effects of climate change, which could increase our operating or capital expenses.

We have experienced short-term impacts on our sales due to closures from weather events in recent years, including Hurricane Ian in Florida in 2022.

Although these events have not had any material lasting impacts on our business or resulted in any material permanent operational challenges, similar events could adversely affect our business in the future.

The areas in which we operate, including California, Florida, Texas and other coastal areas, have experienced recent natural disasters or present increased risks of adverse weather or natural disasters.

The physical effects of climate change may increase the frequency or severity of natural disasters and other extreme weather events in the future, which would increase our exposure to these risks.

For additional discussion regarding seasonality and weather, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Seasonality and Quarterly Fluctuations,” of this Form 10-K.

7 unchanged sentences

A decision by our largest suppliers, acting individually or in concert, to sell their products directly to retailers or other end users of their products, bypassing distribution companies like ours, would have an adverse effect on our business.

Additionally, if our suppliers experience difficulties or disruptions in their operations, if there is any material interruption in our supply chain or if we lose a single significant supplier due to financial failure or a decision to sell exclusively to retailers or end-use consumers, we may experience increased supply costs or delays in establishing replacement supply sources that meet our quality and control standards, which may affect our profitability.

Thus far, the COVID-19 pandemic has not materially impacted our supply chain, and we do not expect it to materially impact our supply chain in 2022, although we can provide no assurances to this effect.

Additionally, if our suppliers experience difficulties or disruptions in their operations, if there is any material interruption in our supply chain (such as the interruptions caused by the COVID-19 pandemic and exacerbated by the invasion of Ukraine) or if we lose a single significant supplier due to financial failure or a decision to sell exclusively to retailers or end-use consumers, we may experience increased supply costs or delays in establishing replacement supply sources that meet our quality and control standards, which may affect our profitability.

We depend on a global network of suppliers to source our products, including our own branded products and products we have exclusive distribution rights to.

21 unchanged sentences

Historically, mass market retailers have generally expanded by adding new stores and product breadth, but their product offering of pool and irrigation related products has remained relatively constant.

Should store‑ and internet-based mass market retailers increase their focus on the pool or irrigation industries, or increase the breadth of their pool and irrigation and related product offerings, they may become a more significant competitor for our direct customers and end-use consumers, which could have an adverse impact on our business.

Should store‑ and internet-based mass market retailers increase their focus on the pool or irrigation industries, or increase the breadth of their pool and

irrigation and related product offerings, they may become a more significant competitor for our direct customers and end-use consumers, which could have an adverse impact on our business.

Additionally, because the internet facilitates competitive entry, price transparency and comparison shopping, increased internet sales by us or our competitors could increase the level of competition we face or reduce our margin.

4 unchanged sentences

This includes succession planning related to our executive officers and key management personnel.

Hiring and retaining such qualified individuals may be adversely impacted by global and domestic economic uncertainty, and increased competition for such qualified individuals.

If we are unable to attract and retain key personnel, our operating results could be adversely affected.

1 unchanged sentence

If we are unable to attract and hire additional personnel during the peak season, our operating results could be negatively impacted.

Additionally, competition for qualified employees could require us to pay higher wages to attract a sufficient number of employees.

The pandemic and other events over the past couple of years have increased employees’ expectations regarding compensation, workplace flexibility and work-home balance.

Additionally, competition for qualified employees could require us to pay higher wages to attract and retain a sufficient number of employees.

The pandemic and other events over the past few years have increased employees’ expectations regarding compensation, workplace flexibility and work-home balance.

These developments have made it more difficult for us to attract and retain top talent.

1 unchanged sentence

Past growth may not be indicative of future growth.

Historically, we have experienced substantial sales growth through organic market share gains, new sales center openings and acquisitions that have increased our size, scope and geographic distribution.

Historically, we have experienced substantial sales growth through organic market share gains, new sales center openings, expanded product offerings and acquisitions that have increased our size, scope and geographic distribution.

Our various business strategies and initiatives, including our growth initiatives, are subject to business, economic and competitive uncertainties and contingencies, many of which are beyond our control.

8 unchanged sentences

If we do not manage these potential difficulties successfully, our operating results could be adversely affected.

Our results in 2020 and 2021 were positively impacted by home-centric trends resulting from the COVID-19 pandemic.

Our results in 2020 through the first half of 2022 were positively impacted by home-centric trends resulting from the COVID-19 pandemic.

Recent trends, including a lower number of permits issued for new pools, suggest that new construction activities are moderating.

While we expect home-centric trends to continue, we do not expect to realize the same growth that we recognized at the height of the pandemic.

These trends may not continue, or may reverse, which could adversely impact our results of operations.

3 unchanged sentences

Insufficient inventory may result in lost sales opportunities or delayed revenue, while excess inventory may negatively impact our gross margin.

We balance the need to maintain inventory levels that are sufficient to ensure competitive lead times against the risk of inventory obsolescence due to changing customer or consumer requirements and fluctuating commodity prices.

We balance the need to maintain inventory levels that are sufficient to ensure competitive lead times and mitigate potential supply chain constraints against the risk of inventory obsolescence due to changing customer or consumer requirements and fluctuating commodity prices.

In order to successfully manage our inventories, we must estimate demand from our customers and purchase products that substantially correspond to consumer demand.

3 unchanged sentences

If we maintain insufficient inventory levels and prices rise for these products, we could be forced to purchase products at higher prices and forego profitability in order to meet customer demand.

While always present, these challenges have been heightened over the past couple years, as the pandemic has altered consumer spending trends.

While always present, these challenges have been heightened over the past couple years, as the pandemic altered consumer spending trends and caused us to increase our investments in inventory.

Our business, financial condition and results of operations could be negatively impacted if either or both of these situations occur frequently or in large volumes.

9 unchanged sentences

In addition, implementing significant system changes increases the risk of computer system disruption.

The potential problems and interruptions associated with implementing technology initiatives or conversions (including those contemplated under our currently pending multi-year systems upgrade project further described elsewhere herein), as well as providing training and support for those initiatives, could disrupt or reduce our operational efficiency.

The potential problems and interruptions associated with implementing technology initiatives or conversions (including those contemplated under our multi-year systems upgrade project), as well as providing training and support for those initiatives, could disrupt or reduce our operational efficiency.

Advances in computer and software capabilities, encryption technology and other discoveries increase the complexity of our technological environment, including how each interact with our various software platforms.

4 unchanged sentences

Despite our substantial efforts to defend against these attacks, we have faced various attempted cyber-attacks that did not result in a material adverse effect on our operations, operating results or financial condition.

The risk of breaches is likely to continue to increase due to several factors, including the increasing sophistication of cyber-attacks and the wider accessibility of cyber-attack tools.

The risk of breaches is likely to continue to increase due to several factors, including the increasing sophistication of cyber-attacks, the wider accessibility of cyber-attack tools and increased reliance on e-commerce, open source software, cloud computer services and work-from-home staffing.

Known and newly discovered software and hardware vulnerabilities are constantly evolving, which increases the difficulty of detecting and successfully defending against them.

5 unchanged sentences

The failure to maintain security over and prevent unauthorized access to our data, our customers’ personal information, including credit card information, or data belonging to our suppliers, could put us at a competitive disadvantage.

Such a breach could result in damage to our reputation and subject us to potential litigation, liability, fines and penalties and require us to incur significant expense to address and remediate or otherwise resolve these issues, resulting in a possible material adverse impact on our financial condition and results of operations.

Such a breach could result in damage to our reputation and subject us to potential litigation, liability, fines and penalties and require us to incur significant expense to

address and remediate or otherwise resolve these issues, resulting in a possible material adverse impact on our financial condition and results of operations.

A variety of state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, security, disclosure, transfer and other processing of personal and other data.

The European Union and other international regulators, as well as state governments, have recently enacted or enhanced data privacy regulations, such as the California Consumer Privacy Act, and other governments are considering establishing similar or stronger protections.

The European Union and other international regulators, as well as state governments, have recently enacted or enhanced data privacy regulations, such as the California Consumer Privacy Rights Act, and other governments are considering establishing similar or stronger protections.

These regulations impose certain obligations for handling specified personal information in our systems and for apprising individuals of the information we have collected about them.

17 unchanged sentences

Our attempts to anticipate future regulatory requirements that might be imposed and our plans to remain in compliance with changing regulations and to minimize the costs of such compliance may not be as effective as we anticipate.

Our business could be impacted by our public statements regarding various corporate environmental social and governance (“ESG”) initiatives or changes in consumers’ view of our products.

As part of our strategy regarding ESG matters, we may set targets aimed at reducing our impact on the environment and climate change or targets relating to other sustainability matters.

It is possible that we may not be able to achieve such targets or our desired impact, which may cause us to suffer from reputational damage or our business or financial condition could be adversely affected.

Actions we take to achieve our strategy or targets could result in increased costs to our operations and changes in customers’ attitudes towards the environmental impact of our pool chemical products could reduce our sales.

In addition, investors and stakeholders are increasingly focused on ESG matters, and positions we take or refrain from taking on ESG issues could negatively impact our reputation or relations with investors, customers, vendors, employees and others.

Governmental actions designed to address climate change or the failure to meet environmental social and governance (“ESG”) expectations or standards or achieve our ESG goals could adversely affect our business.

Concern over climate change has led to and may in the future lead to new or increased legal and regulatory requirements designed to reduce or mitigate the effects of climate change or increase disclosure related to climate change, which could increase our operating or capital expenses and compliance burdens.

In particular, advocates of change are continuing to explore ways to reduce greenhouse gas emissions.

These changes over time could affect the availability and cost of certain consumer products, commodities and energy, which in turn may impact our ability to procure certain products or services required for the operation of our business at the quantities and levels we require.

The regulation of greenhouse gas emissions could result in additional taxes or other costs to us or require us to modify our facilities or vehicle fleet.

Changes in customers’ attitudes toward the environmental impact of pools’ energy consumption or pool chemical products could reduce demand for our products.

We have set certain targets aimed at reducing our impact on the environment and climate change.

These initiatives reflect our current plans and aspirations, and it is possible that we may not be able to achieve such targets or our desired impact, which may cause us to suffer from legal claims, reputational damage or a loss of demand for our products.

Actions we take to achieve

our strategy or targets could result in increased costs to our operations.

Investors or other stakeholders could react negatively to our targets or other positions we take on ESG matters, which could negatively impact our relationships with such stakeholders.

We store chemicals, fertilizers and other combustible materials that involve fire, safety and casualty risks.

12 unchanged sentences

• local laws and customs;

• currency fluctuations, exchange controls and repatriation restrictions;

• currency fluctuations (including the current strength of the U.S.

dollar compared to foreign currencies), exchange controls and repatriation restrictions;

• adverse tax consequences;

3 unchanged sentences

Fluctuations in other factors relating to international trade, such as tariffs, transportation costs and inflation are additional risks for our international operations.

We do not have operations in Russia or Ukraine.

However, the contributory effects of the war in Ukraine and prolonged geopolitical conflict globally may continue to result in increased inflation, increased labor costs, escalating energy and commodity prices and increasing costs of materials and services (together with shortages or inconsistent availability of materials and services), which could negatively affect our business (particularly our European operations), results of operations and financial condition.

Changes in import policy or trade relations, interruptions in our supply chain or increased commodity or supply chain costs could adversely affect our results of operations.

Like other companies globally, we faced supply chain disruptions across our business in 2021 and the early part of 2022, which led to increased costs, delays and in some cases lost opportunities.

As a result of these supply chain disruptions, our procurement and operational business functions increased planning and strategic purchasing and sourced products internationally where needed.

Because we source certain products from outside the United States, major changes in tax policy, import or export regulations or trade relations, such as the disallowance of tax deductions for imported products or the imposition of additional tariffs or duties on imported products, could adversely affect our business, results of operations, effective income tax rate, liquidity and net income.

We may have exposure to higher duty and tariff costs on certain of our imported products.

We recorded $13.0 million within Cost of sales in the fourth quarter of 2022 related to duties and tariffs for certain imported chemicals.

This amount primarily relates to 2022 purchases from China, where we determined, prior to submission of final liquidation amounts of our import duties and tariffs, that the initial code we used to classify the product may only apply to bulk purchases.

To protect against potential penalties and receive clarification on the issue, we voluntarily filed a disclosure with U.S.

Customs and Border Protection in December 2022.

Changes in laws, court rulings, or differences in interpretation on product classification could lead to increased duty and tariff rates on these or other imported products.

Excess tax benefits or deficiencies recognized from our accounting for share-based awards impact our reported earnings.

2 unchanged sentences

Excess tax benefits or deficiencies recognized under ASU 2016-09 vary from quarter to quarter and past results may not be indicative of future results.

Risks Relating to Our Indebtedness

Increases in interest rates would increase the cost of servicing our debt and could reduce our profitability.

Our unsecured syndicated senior credit facility, term facility and receivable facility bear interest at variable rates.

We have entered into interest rate swap contracts and a forward-starting interest rate swap contract to reduce our exposure to fluctuations in variable interest rates on current and future interest payments that we owe on a portion of our variable rate borrowings.

Increases in interest rates for any amount of our variable rate debt not covered by our interest rate swaps could increase the cost of servicing our debt and could materially reduce our profitability and cash flows.

For additional information regarding our interest rate risk, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” of this Form 10-K.

We may be adversely affected by the transition away from LIBOR and the use of SOFR or other alternative reference rates.

Borrowings under our unsecured syndicated senior credit facility, term facility and interest rate swap contracts are indexed to the London Inter-bank Offering Rate (“LIBOR”).

On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intended to phase out LIBOR by the end of 2021.

dollar LIBOR, the cessation date has been deferred to June 30, 2023 for the most commonly used tenors (overnight and one, three and six months).

The Federal Reserve System, in conjunction with the Alternative Reference Rates Committee, has recommended the replacement of LIBOR with a new index, calculated by short-term repurchase agreements collateralized by U.S.

Treasury securities, called the Secured Overnight Financing Rate (“SOFR”).

Using SOFR as the basis on which interest on our variable-rate debt and/or under our interest rate swaps is calculated may result in interest rates and/or payments that do not directly correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR was available in its current form.

The potential effect of the replacement of LIBOR on our cost of capital cannot yet be determined.

General Risks

12 unchanged sentences

We cannot assure you these measures will be effective.

We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined.

Borrowings under our unsecured syndicated senior credit facility, term facility, accounts receivable securitization facility and our derivatives instruments are indexed to the London Inter-bank Offering Rate (“LIBOR”).

In July 2017, the Financial Conduct Authority (the regulatory authority over LIBOR) stated they will plan for a phase out of regulatory oversight of LIBOR after 2021 to allow for an orderly transition to an alternative reference rate.

On November 30, 2020, ICE Benchmark Administration (“IBA”), the administrator of LIBOR, with the support of the United States Federal Reserve and the United Kingdom’s Financial Conduct Authority, announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021 for only the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD Libor tenors.

While this announcement extends the transition period to June 2023, the United States Federal Reserve concurrently issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021.

Although the Alternative Reference Rates Committee has endorsed the Secured Overnight Financing Rate (“SOFR”) as its preferred replacement for LIBOR, the market transition away from LIBOR towards SOFR may be complicated, and there is no guarantee that SOFR will become a widely accepted benchmark in place of LIBOR.

The full impact of the transition away from LIBOR, including the discontinuance of LIBOR publication and the transition to a replacement rate may have an adverse impact on our financing costs and any floating rate indebtedness we may incur.

Unresolved Staff Comments

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 1A. Risk Factors