Item 1. Business - ------- --------
(a) GENERAL DEVELOPMENT OF BUSINESS
Anthony and Sylvan Pools Corporation ("The Company") was formed in 1997 to acquire the assets and business of a predecessor corporation. That predecessor corporation was the successor to the pool installation businesses of Pennsylvania-based Sylvan Pools and California-based Anthony Pools. Sylvan Pools was founded by Herman Silverman in 1946 and grew to become the leading pool installer in the Northeast, with operations stretching out to the Southeast, Texas and Nevada. Anthony Pools was founded by Phil Anthony in 1947 and eventually established itself as one of the largest pool companies in the United States. In 1996, the parent Company of Sylvan Pools purchased Anthony Pools and combined the two businesses under the name "Anthony & Sylvan." Anthony & Sylvan has built approximately 350,000 pools in its history.
The Company operates in the leisure industry, offering in-ground residential swimming pools, spas and related products in the United States with a network of 50 sales offices serving 31 geographic markets in 16 states. The majority of the Company's swimming pools range in price from $15,000 to $50,000. Historically, its sales have been seasonally strongest in the second and third quarters, the peak period for swimming pool installation and use, and weakest in the first and fourth quarters. The Company built approximately 5,000 pools (using an "equivalent unit" basis) in 2001. In addition to designing and offering residential swimming pools, spas and related products, the Company: - Provides pool modernization services in selected markets; and - Operates 22 retail stores that sell spa and swimming pool related products, such as chemicals, replacement parts, accessories, equipment and inflatables; and - Operates, in limited markets, field service centers that offer post-installation services such as swimming pool openings and weekly maintenance, as well as replacement parts, equipment and accessories.
(b) SWIMMING POOL SALES AND INSTALLATION INDUSTRY
The Company estimates that the installation of residential in-ground swimming pools is a $3-4 billion per year industry in the United States. According to the latest data published by the National Spa & Pool Institute, the number of residential in-ground pools installed annually in the United States approximated 172,000 in 1998. The percentage of residential in-ground swimming pools installed using formative structures made of concrete, vinyl liners and pre-molded fiberglass in 1998 represented 68.8%, 28.8% and 2.6%, respectively, of total residential in-ground swimming pools installed. While other sectors of the residential in-ground swimming pool business, such as manufacturing, distribution and retailing of pool products and equipment, have undergone significant consolidation in recent years, the sales and installation industry has remained highly fragmented.
(c) SALES AND MARKETING
The Company sells its products to a large number of customers, primarily residential homeowners and homebuilders. A dedicated sales force of approximately 170 employees who have responsibility for developing and maintaining customer relationships conducts its principal sales activities. Sales visits are conducted in the customer's home or at an Anthony & Sylvan
sales office near the customer's home. The introduction of the laptop computer as a selling tool in recent years has significantly enhanced the quality and professionalism of the Company's sales presentations and reinforced its image as an expert in the swimming pool industry. As a service to its customers, the Company maintains relationships with lenders that provide financing to its customers.
The Company does most of its advertising in local newspapers and Yellow Pages. It also advertises, to a lesser extent, through radio, television, billboards and direct mail and has attracted buyers as a result of referrals from previous customers and realtors, among others. The Company also operates an Internet site - www.anthonysylvan.com which is attracting an increasing number of customers each year.
(d) COMPETITION
The Company faces competition primarily from regional and local installers. The Company believes that there are a small number of swimming pool companies that compete with Anthony & Sylvan on a national basis. Barriers to entry in the swimming pool sales and installation industry are relatively low.
The Company believes that the principal competitive factors in the pool design and installation business are the quality and level of customer service, product pricing, breadth and quality of products offered, ability to procure labor and materials on a market by market basis from local and regional sources, financial integrity and stability, and consistency of business relationships with customers. The Company believes it compares favorably with respect to each of these factors.
(e) PRINCIPAL SUPPLIERS AND SUBCONTRACTORS
The Company regularly evaluates supplier relationships and considers alternate sourcing as appropriate to assure competitive costs and quality standards. The Company currently does not have long-term contracts with its suppliers. It also believes there are currently a number of other suppliers of that offer comparable terms.
The Company utilizes both company employees as well as subcontractors to install pools; however, the majority of its installation labor base consists of independent subcontractors. The Company's personnel act as field supervisors to oversee all aspects of the installation process and as schedulers to coordinate the activities of the subcontractors and communicate with the customer.
(f) BACKLOG
As of December 31, 2001, the Company had approximately $32,000,000 of contracts for swimming pool installations that had not been started and $21,000,000 of remaining revenue to be recognized on contracts currently under installation. The Company believes, based on past experience, that the majority of the December 31, 2001 backlog will be completed in 2002.
(g) EMPLOYEES
At February 28, 2002, the Company employed approximately 580 persons, on a full-time basis of which approximately 100 were management personnel. At February 28, 2001, the Company employed approximately 640 employees. During the peak swimming pool sales and installation season the Company will employ additional operations personnel who will primarily be involved in the installation of swimming pools.
No employees are covered by collective bargaining agreements and the Company believes it has satisfactory relations with its employees.
Item 2.
Item 2. PROPERTIES
The Company currently operates 50 sales offices, 22 retail stores and a small number of field service centers. In addition it has a number of warehouses at which it stores inventory used in pool installations. Its executive offices are located in Mayfield Village, Ohio. The Company believes that no single property is material to its operations and that alternate sites are presently available at market rates.
Item 3.
Item 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation and proceedings arising in the ordinary course of business. Although the outcome of litigation and claims is uncertain, the Company does not believe that there are any pending proceedings which could be expected to have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year covered by this report.
PART II
Item 5.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS
The Company's Common Shares are listed on the NASDAQ SmallCap Stock Market under the symbol SWIM. At March 20, 2002 4,746,211 outstanding common shares were held by 252 shareholders of record. There were no cash dividends declared or paid for the year ended December 31, 2001, as the Company's policy is to retain earnings and cash for future expansion of the business. For information on the market price range see page 20 of Anthony & Sylvan Pools 2001 Annual Report to Shareholders incorporated herein by reference to Exhibit 13 of this filing [2001 Annual Report to Shareholders].
Item 6.
Item 6. SELECTED FINANCIAL DATA
Information with respect to selected financial data for each of the last five fiscal years contained on page 20 of Anthony & Sylvan Pools 2001 Annual Report to Shareholders is incorporated herein by reference to Exhibit 13 of this filing [2001 Annual Report to Shareholders].
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results of Operations contained on pages 18 through 19 of Anthony & Sylvan Pools 2001 Annual Report to Shareholders is incorporated herein by reference to Exhibit 13 of this filing [2001 Annual Report to Shareholders].
Item 7A.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in pricing of equipment, materials and contract labor, and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as commodity prices and interest rates. The Company does not enter into financial instruments to manage and reduce the impact of some of these risks. Further, the Company does not enter into derivatives or other financial instruments for trading or speculative purposes.
The Company is exposed to cash flow and fair value risk arising out of changes in interest rates with respect to its long-term debt. Information with respect to the Company's principal cash flows and interest rates on long-term debt at December 31, 2001 is included included in Note 5 of the Consolidated Financial Statements on page 14 of Anthony & Sylvan Pools 2001 Annual Report to Shareholders incorporated herein by reference to Exhibit 13 of this filing [2001 Annual Report to Shareholders].
Prior to an amendment of a portion of the Company's Long-Term Incentive Plan on April 1, 2001, the Company's financial results were impacted by fluctuations in its stock price, as a portion of the Plan was being treated as a variable versus a fixed stock, option or award plan. As a result of the amendment, the Company no longer accounts for any portion of the Long-Term Incentive Plan as a variable plan.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and accompanying notes of Anthony & Sylvan Pools contained on pages 9 through 16, inclusive, of Anthony & Sylvan Pools 2001 Annual Report to Shareholders, together with the report of Independent Public Accountants relating thereto contained on page 17 thereof, and the unaudited quarterly financial data under the heading "Quarterly Financial Information" on page 20 of such Annual Report, are incorporated herein by reference to Exhibit 13 of this filing [2001 Annual Report to Shareholders].
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Effective June 4, 2001, Deloite & Touche LLP ("D&T"), the Company's Certifying Accountant for the 1999 and 2000 fiscal years, was dismissed and KPMG LLP ("KPMG") was engaged to serve as the Company's new Certifying Accountant. The Company's Audit Committee and Board of Directors participated in and approved the decision relating to the dismissal of D&T and the retention of KPMG.
The reports of D&T on the Company's financial statements for each of the two fiscal years ending December 31, 2000 and December 31, 1999 did not contain an adverse opinion or a disclaimer of opinion, nor were such opinions qualified or modified as to uncertainty, audit scope or accounting principles.
For each of the two fiscal years ending December 31, 2000 and December 31, 1999, and through June 8, 2001, the day in which a Form 8-K was filed with the Securities and Exchange Commission ("SEC") announcing the change in Certifying Accountants, there were no disagreements with D&T, except for a disagreement in March 2001 related to accounting for the Registrant's Long-Term Incentive Plan the "Plan"). The Plan was adopted in the fall of 1999, and at that time it was believed that the Plan's design did not require variable accounting treatment. The Company's Board of Directors and Audit Committee discussed the subject matter of the disagreement with D&T. The Company restated its previously issued results for 2000 to address the matter and reflect variable accounting for the Plan. As a result, D&T indicated that this disagreement was satisfactorily resolved.
During the Company's two fiscal years ended December 31, 2000 and December 31, 1999 and the interim period prior to engaging KPMG, the Company did not consult with KPMG with respect to any of the matters described in Item 304(a)(2)(i) or (ii) of Regulation S-K. The Company authorized D&T to respond fully to any inquiries of KPMG concerning the subject matter of the disagreement. The Company also requested that D&T furnish a letter addressed to the SEC stating whether or not it agreed with the above statements. A copy of the D&T letter was filed with the Form 8-K that was filed with the SEC on June 8, 2001.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) IDENTIFICATION OF Directors
The identity of directors including age, business experience, positions held and other relevant information is contained in the Company's Proxy Statement dated March 29, 2002; (filed with the Commission pursuant to Regulation 14A) under the headings NOMINEES AND DIRECTORS, on pages 2 and 3 and DIRECTORS' COMMITTEES, MEETINGS AND FEES on page 3 is incorporated herein by this reference.
(b) IDENTIFICATION OF EXECUTIVE OFFICERS
The persons named below are the executive officers of the Company at the date hereof.
Name Age Position ---- --- --------
Stuart D. Neidus 51 Chairman and Chief Executive Officer, Director
Howard P. Wertman 57 President
Richard M. Kelso 53 Executive Vice President and Chief Operating Officer
William J. Evanson 51 Executive Vice President and Chief Financial Officer
Martin J. Degnan 56 Vice President, Secretary and General Counsel
Stuart D. Neidus has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since September 1998. He served as Chief Financial Officer of the Company from September 1998 through April 1999. Mr. Neidus also served as Executive Vice President and Chief Financial Officer of Essef Corporation from September 1996 to August 1999. Prior to that, from 1992 to 1996 Mr. Neidus served with Premier Farnell plc, successor to Premier Industrial Corporation, most recently as Executive Vice President. Prior to joining Premier Farnell plc, Mr. Neidus spent 19 years as an independent public accountant with KPMG LLP, including eight years as a partner.
Howard P. Wertman has served as President of Anthony & Sylvan Pools since October 1995. He previously served as Divisional Vice President of Sylvan Pools from 1990 to 1995. Mr. Wertman's career in the swimming pool industry began in 1973, and since then he has served in various management positions with both Anthony Pools and Sylvan Pools.
Richard M. Kelso has served as Executive Vice President and Chief Operating Officer of Anthony & Sylvan Pools since 1996. He previously served as Vice President of Anthony Pools from 1989 to 1996. Mr. Kelso's career in the swimming pool industry includes 26 years in management positions, including the position of General Manager of the Washington, D.C. division of Anthony Pools.
William J. Evanson joined Anthony & Sylvan as Executive Vice President and Chief Financial Officer on March 20, 2000. From 1978 to 2000, Mr. Evanson served with Premier Farnell plc, successor to Premier Industrial Corporation, most recently as Vice President - North America Finance.
Martin J. Degnan has served as Vice President, Secretary and General Counsel of Anthony & Sylvan Pools since October, 1999. Prior to joining the Company Mr. Degnan served with Rubbermaid, Inc. for over 20 years most recently as Vice President and Associate General Counsel.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to compensation of executive officers and directors is contained in the Company's Proxy Statement dated March 29, 2002 under the headings DIRECTORS' COMMITTEES, MEETINGS AND FEES on page 3, and EXECUTIVE COMPENSATION on pages 4 through 6, incorporated herein by this reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners and management is contained in the Company's Proxy Statement dated March 29, 2002 under the heading BENEFICIAL OWNERSHIP OF SHARES appearing on pages 10 and 11, incorporated herein by this reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to related transactions is included in the Company's Proxy Statement dated March 29, 2002 under the headings REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION on page 7 and BENEFICIAL OWNERSHIP OF SHARES on pages 10 and 11 and CERTAIN TRANSACTIONS on page 11, incorporated herein by this reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) The following consolidated financial statements of Anthony & Sylvan Pools Corporation and Subsidiary, together with the independent auditors' report relating thereto, contained on pages 9 through 17, inclusive of Anthony & Sylvan's 2001 Annual Report to its shareholders, and the unaudited quarterly financial data set forth under the heading "Quarterly Financial Information" on page 20 of such Annual Report, are incorporated herein by reference to Exhibit 13 of this filing [2001 Annual Report to Shareholders].
Consolidated Balance Sheets at December 31, 2001 and 2000
Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999
Consolidated Statement of Cash Flows for the years ended December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Quarterly Financial Information (unaudited)
(2) Financial statement schedules
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
DESCRIPTION -----------
ALLOWANCE FOR BEGINNING ENDING DOUBTFUL ACCOUNTS BALANCE EXPENSE WRITE-OFFS ACQUISITIONS BALANCE ----------------- ------- ------- ---------- ------------ -------
For the year ended December 31, 2001 $ 720 $ 445 $ 495 $ 10 $ 680
For the year ended December 31, 2000 $1,191 $ 306 $ 777 $ - $ 720
For the year ended December 31, 1999 $1,085 $1,217 $ 1,200 $ 89 $1,191
(3) Exhibits Required to be Filed by Item 601 of Regulation S-K
Current Form 10-K Document/Data Exhibit Number Required - -------------- --------
3.1 Form of Amended and Restated Articles of Incorporation of Anthony & Sylvan Pools (Reference is made to Exhibit 3.1 to the report on form 10-Q for the quarter ended June 30, 1999, herein incorporated by reference)
3.2 Form of Amended and Restated Regulations of Anthony & Sylvan Pools (Reference is made to Exhibit 3.4 to the report on Form S-4 filed with the Securities and Exchange Commission June 23, 1999, herein incorporated by reference)
4.1 Articles of Incorporation and Regulations of Anthony & Sylvan Pools defining the rights of holders of Anthony & Sylvan common shares (Reference is made to Exhibit 3.1 and 3.2 on the form 10-k for the year ended December 31, 2000, herein incorporated by reference)
10.1 1999 Long-Term Incentive Plan. (Reference is made to Exhibit 10.1 to the report on Form S-4 filed with the Securities and Exchange Commission June 23, 1999, herein incorporated by reference)
10.2 Anthony & Sylvan Pools 1999 Leveraged Stock Purchase Plan dated December 28, 1999. (Reference is made to Exhibit 10.2 to the report on form 10-K for the quarter ended December 31, 1999, herein incorporated by reference)
10.3 Employment Agreement - Stuart D. Neidus, Chairman and Chief Executive Officer. (Reference is made to Exhibit 10.2 to the report on Form S-4 filed with the Securities and Exchange Commission June 23, 1999, herein incorporated by reference)
10.4 Employment Agreement - Howard P. Wertman, President. (Reference is made to Exhibit 10.3 to the report on Form S-4 filed with the Securities and Exchange Commission June 23, 1999, herein incorporated by reference)
Current Form 10-K Document/Data Exhibit Number Required - -------------- --------
10.5 Employment Agreement - Richard M. Kelso, Executive Vice President and Chief Operating Officer. (Reference is made to Exhibit 10.4 to the report on Form S-4 filed with the Securities and Exchange Commission June 23, 1999, herein incorporated by reference)
10.6 Employment Agreement - William J. Evanson, Executive Vice President and Chief Financial Officer. (Reference is made to Exhibit 10.6 on the form 10-k for the year ended December 31, 2000, herein incorporated by reference)
10.7 Credit Agreement among Anthony & Sylvan Pools Corporation and the Lending Institutions - National City Bank, Huntington National Bank and Firstar Bank, N.A. dated July 8, 1999 (Reference is made to Exhibit 10.10 to the report on form 10-Q for the quarter ended June 30, 1999, which exhibit is herein incorporated by reference)
10.8 Amendment # 1 to the Credit Agreement among Anthony & Sylvan Pools Corporation and the Lending Institutions - National City Bank, Huntington National Bank and Firstar Bank, N.A. dated December 20, 1999 (Reference is made to Exhibit 10.1 to the report on form 10-Q for the quarter ended June 30, 2001, which exhibit is herein incorporated by reference)
10.9 Amendment # 2 to the Credit Agreement among Anthony & Sylvan Pools Corporation and the Lending Institutions - National City Bank, Huntington National Bank and Firstar Bank, N.A. dated May 4, 2001 (Reference is made to Exhibit 10.2 to the report on form 10-Q for the quarter ended June 30, 2001, which exhibit is herein incorporated by reference)
10.10 Amendment # 3 to the Credit Agreement among Anthony & Sylvan Pools Corporation and the Lending Institutions - National City Bank, Huntington National Bank and Firstar Bank, N.A. dated December 31, 2001
10.11 Assignment Agreement dated February 8, 2002 between Huntington National Bank (the "Assignor") and LaSalle Bank National Association (the "Assignee") with respect to the Credit Agreement among Anthony & Sylvan Pools Corporation and the lenders from time to time party thereto, and National City Bank, as Administrative Agent.
Current Form 10-K Document/Data Exhibit Number Required - -------------- --------
10.12 Independent Auditor's Report
10.13 2001 Long-Term Incentive Plan
13 2001 Annual Report to Shareholders.
(b) There were no reports filed on Form 8-K during the last quarter of the fiscal year covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Anthony & Sylvan Pools Corporation
By STUART D. NEIDUS --------------------------- Stuart D. Neidus Chairman and Chief Executive Officer
March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title - --------- -----
STUART D. NEIDUS Chairman, Chief Executive Officer - ---------------- and Director STUART D. NEIDUS (Principal Executive Officer)
WILLIAM J. EVANSON Executive Vice President - ------------------ and Chief Financial Officer WILLIAM J. EVANSON (Principal Financial Officer)
ROGER D. BLACKWELL Director - ------------------ Roger Blackwell
MARY ANN JORGENSON Director - ------------------ Mary Ann Jorgenson
THOMAS B. WALDIN Director - ---------------- Thomas B. Waldin
Date: March 29, 2002