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We may not be able to sustain our pace of
growth.
We have experienced substantial sales growth
in recent years through acquisitions and new sales center openings
that have increased our size, scope and geographic distribution.
Since 2002, we have opened 32 new sales centers and have completed
11 acquisitions. These acquisitions have added 72 sales centers,
net of sales center closings and consolidations, and a centralized
shipping location to our distribution networks. While we contemplate
continued growth through acquisitions and internal expansion, no
assurance can be made as to our ability to:
- penetrate new markets;
- identify appropriate acquisition candidates;
- complete acquisitions on satisfactory terms and successfully integrate
acquired businesses;
- obtain financing;
- generate sufficient cash flows to support expansion plans and
general operating activities;
- maintain favorable supplier arrangements and relationships; and
- identify and divest assets which do not continue to create value
consistent with our objectives.
If we do not manage these potential difficulties
successfully, our operating results could be adversely affected.
The growth of our business depends on effective
marketing programs.
The growth of our business depends on the
expansion of the installed pool base. Thus, an important part of
our strategy is to promote the growth of the pool industry through
our extensive advertising and promotional programs that attempt
to raise consumer awareness regarding the benefits and affordability
of pool ownership, the ease of pool maintenance and the many ways
in which a pool may be enjoyed beyond swimming. These programs include
media advertising, website development such as www.swimmingpool.com™
and public relations campaigns. We believe these programs benefit
the entire supply chain from our suppliers to our customers.
We also promote the growth of our customers’
businesses through comprehensive support programs that offer promotional
tools and marketing support to help generate increased sales for
our customers. Our programs include such things as personalized
websites, brochures, marketing campaigns and business development
training. We also provide certain retail store customers with assistance
in site selection, store layout and design and business management
system implementation. Our inability to sufficiently develop effective
advertising, marketing and promotional programs to succeed in a
weakened economic environment and an increasingly competitive marketplace,
in which we (and our entire supply chain) also compete with other
luxury product alternatives, could have a material adverse effect
on our business.
Our business is
highly seasonal.
In 2006, approximately 65% of our net sales
and 93% of our operating income were generated in the second and
third quarters of the year, which represent the peak months of swimming
pool use, installation, remodeling and repair. Our sales are substantially
lower during the first and fourth quarters of the year, when we
may incur net losses.
The nature of our business subjects us to
compliance with Environmental, Health, Transportation and Safety
Regulations.
We are subject to regulation under federal,
state and local environmental, health, transportation and safety
requirements, which govern such things as packaging, labeling, handling,
transportation, storage and sale of pool chemicals and landscape
chemicals and fertilizers. For example, we sell algaecides and pest
control products that are regulated as pesticides under the Federal
Insecticide, Fungicide and Rodenticide Act and various state pesticide
laws. These laws are primarily related to labeling, annual registration
and licensing.
Failure to comply with these laws and regulations
may result in the assessment of administrative, civil and criminal
penalties or the imposition of injunctive relief. Moreover, compliance
with such laws and regulations in the future could prove to be costly,
and there can be no assurance that we will not incur such costs
in material amounts. These laws and regulations have changed substantially
and rapidly over the last 20 years, and we anticipate that there
will be continuing changes. The clear trend in environmental, health,
transportation and safety regulation is to place more restrictions
and limitations on activities that impact the environment, such
as the use and handling of chemical substances. Increasingly, strict
restrictions and limitations have resulted in increased operating
costs for us, and it is
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