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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON‚ D.C. 20549

FORM 10-K

COMMISSION FILE NO.: 0-26640

SCP POOL CORPORATION
(Exact name of registrant as specified in its charter)

985-892-5521
(Registrant’s telephone number‚ including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock‚ par value $0.001 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports)‚ and (2) has been subject to such filing requirements for the past 90 days. YES X NO __

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained‚ to the best of the Registrant’s knowledge‚ in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) YES X NO __

The aggregate market value of voting stock and non-voting common equity held by non-affiliates of the Registrant based on the closing sales price of the Registrant’s common stock as of June 28‚ 2002 was approximately $684,903,909.

As of February 28, 2003 the Registrant had 23,523,979 shares of common stock outstanding.

Documents Incorporated by Reference

Portions of the Registrant’s Proxy Statement to be mailed to stockholders on or about April 4, 2003 for the Annual Meeting to be held on May 6, 2003, are incorporated by reference in Part III.

SCP POOL CORPORATION

Part I.

General

SCP Pool Corporation (the Company, which may be referred to as SCP, we, us or our) is the world’s leading wholesale distributor of swimming pool supplies and related equipment. We are the largest company in the young swimming pool industry, and we believe we add considerable value to the swimming pool supply chain because we purchase products from a large number of manufacturers and then distribute these goods to a highly fragmented customer base on terms that are more favorable than these customers could obtain on their own. Our customers are swimming pool remodelers and builders, retail swimming pool stores and swimming pool repair and service companies.

As of February 28, 2003, we operated 187 service centers in North America and Europe.

Net sales by geographic region were as follows (in thousands):

Property and equipment by geographic region were as follows (in thousands):

SCP Pool Corporation was incorporated in Delaware in 1993. Our executive offices are located at 109 Northpark Boulevard, Covington, Louisiana 70433, and our telephone number is 985-892-5521.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, definitive proxy statements pursuant to Regulation 14A, current reports on Form 8-K, and any amendments to those reports, are made available free of charge on our company website at www.scppool.com as soon as reasonably practicable after we file these reports with the Securities and Exchange Commission.

Growth Strategy

We promote the growth of the swimming pool industry through various advertising and promotional programs intended to raise consumer awareness regarding the benefits and affordability of pool ownership, the ease of pool maintenance and the many ways to enjoy a pool beyond swimming. These programs include media advertising, website development and billboards. Our www.backyardescape.com website serves as one of our vehicles to educate consumers about swimming pools and lead prospective pool owners to our customers.

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SCP POOL CORPORATION

Part I.

Growth Strategy (continued)

We promote the growth of our customers’ businesses through a comprehensive support program which includes a wide range of promotional tools and advertising support. The industry promotional programs and the www.backyardescape.com website generate new business leads for our customers. We help our customers to further expand their businesses by offering uniquely tailored programs designed to assist our builder customers, our service customers and our retail customers. These programs include tools such as personalized websites, brochures to facilitate the sales process and professional and business development training. For retail customers, we also assist with everything from store layout and design to site selection.

These efforts have allowed us to grow internally through increases in base business sales of 10% in 2002 and 3% in 2001. Same store sales increased 10%, 2% and 11% in 2002, 2001 and 2000, respectively. Additionally, since 1998, we have opened 29 new service centers, and we expect to continue to open five to ten new service centers each year. Externally, since 1998 we have grown through the successful completion of 13 acquisitions consisting of 84 service centers (net of service center closings and consolidations). We intend to pursue additional strategic acquisitions which will allow us to further penetrate existing markets and expand into new geographic markets. In August 2002, we acquired Fort Wayne Pools, Inc., a distributor and manufacturer of swimming pool equipment, parts and supplies operating through 22 service centers in 16 states. For a complete discussion of recent acquisitions, read Note 3 to the Consolidated Financial Statements.

Operating Strategy

We operate two national distribution networks: the SCP network and the Superior Pool Products (SPP) network. The SCP network consists of 132 service centers. The SPP network was established in July 2000 and is composed of the following:

• 19 service centers acquired in our acquisition of the assets of Superior Pool Products, Inc. in July 2000 (SPP or the Superior Acquisition);
• 26 of the service centers acquired in our acquisition of the assets of the pool division of Hughes Supply, Inc. in January 2001 (Hughes or the Hughes Acquisition);
• eight service centers acquired in our acquisition of Fort Wayne Pools, Inc. in August 2002 (Fort Wayne or the Fort Wayne Acquisition); and,
• two newly opened services centers.

We adopted this strategy of operating two distinct national distribution networks primarily for two reasons:

1. To offer our customers a choice of different distributors featuring distinctive product selections and relationships with manufacturers; and
2. To increase the level of customer service provided by the service centers in each network by promoting a healthy competition between the two networks.

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SCP POOL CORPORATION

Part I.

Products

We offer more than 60,000 national brand and private label products. We believe that our selection of pool equipment and supplies, chemicals, replacement parts and complementary products is the most comprehensive in the swimming pool industry. The products we sell can be categorized as follows:

• Maintenance products such as chemicals, supplies and pool accessories;
• Repair and replacement parts for cleaners, filters, heaters, pumps and lights;
• Packaged pool kits including walls, liners, bracing, filters, heaters, pumps and lights for in-ground and above-ground pools; and
• Pool equipment and materials for new pool construction and the remodeling of existing pools.

Additionally, since 1999 we have significantly increased the breadth of complementary products we offer including building materials, electrical supplies, toys and games, water features such as fountains, and spas and spa accessories.

Maintenance products and repair and replacement parts are non-discretionary in nature, meaning that these items must be purchased by pool owners to maintain existing swimming pools. These products, together with replacement equipment, account for approximately 80% of our net sales.

Customers and Marketing

We serve more than 45,000 customers, none of which account for more than 1% of our sales. We primarily serve three types of customers:

• swimming pool remodelers and builders;
• retail swimming pool stores; and
• swimming pool repair and service companies.

We conduct our operations through 187 service centers in North America and Europe. Our primary markets include California, Florida, Texas and Arizona.

We employ an enthusiastic sales force dedicated to developing and strengthening customer relationships. As of February 28, 2003, a sales force of 213 outside salespersons and 192 service center managers conduct our principal selling activities.

As discussed above, our primary marketing activities aim to raise the profile of the swimming pool industry and educate consumers on the ease of maintenance and affordability of a swimming pool.

Distribution

Our service centers are located near customer concentrations, typically in industrial, commercial or mixed-use zones. Customers may pick up products at any service center location, or products may be delivered via our trucks or third party carriers.

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SCP POOL CORPORATION

Part I.

Distribution (continued)

Our service centers maintain well-stocked inventories to meet customers’ immediate needs. We utilize warehouse management technology to optimize receiving, inventory control, picking, packing and shipping functions.

In addition, we operate four centralized shipping locations that redistribute parts and other products purchased in bulk quantities.

Purchasing and Suppliers

We initiated a preferred vendor program in 1999 which encourages our service centers to purchase products from a smaller number of vendors. The service centers are also encouraged to ensure accurate pricing and greater pricing discipline at the point of sale. These practices have resulted in improved margins at the service center level.

We enjoy good relationships with our suppliers who generally offer competitive pricing, return policies and promotional allowances. It is customary in the swimming pool supply industry for manufacturers to seasonally offer extended payment terms to qualifying purchasers such as SCP. These terms are typically available to us for pre-season or early season purchases.

We regularly evaluate supplier relationships and consider alternate sourcing to assure competitive cost, service and quality standards. Our largest suppliers are Pentair Corporation, Hayward Pool Products, Inc. and Bio-Lab, Inc. (a subsidiary of Great Lakes Chemicals, Inc.); these suppliers provided approximately 13%, 10% and 7%, respectively, of the products we sold in 2002.

Competition

We are the leading wholesale distributor in the swimming pool supply industry. We face intense competition from many regional and local distributors in our markets and to a lesser extent, mass-market retailers and large pool supply distributor/retailers. Some geographic markets we serve, particularly higher density markets in Florida, California, Texas and Arizona, are more competitive than others. Barriers to entry in the swimming pool supply industry are relatively low.

We compete with other distributors for rights to distribute brand-name products. If we lose or are unable to obtain these rights, we might be materially and adversely affected. We believe that the breadth of our operations allow us to compete favorably for such distribution rights.

We believe that the principal competitive factors in swimming pool supply distribution are:

• the breadth and availability of products offered;
• the quality and level of customer service;
• the breadth and depth of sales and marketing programs;
• competitive product pricing; and,
• consistency and stability of business relationships with customers.

We believe that we generally compete favorably with respect to each of these factors.

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SCP POOL CORPORATION

Part I.

Seasonality and Weather

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Seasonality and Quarterly Fluctuations”.

Environmental, Health and Safety Regulations

Our business is subject to regulation under local fire codes and federal, state and local environmental and health and safety requirements including:

• the Emergency Planning and Community Right-to-Know Act;
• the Hazardous Materials Transportation Act; and,
• the Occupational Safety and Health Act (OSHA).

Most of these requirements govern the packaging, labeling, handling, transportation, storage and sale of pool chemicals. We store chemicals at each of our service centers. The storage of these chemicals is strictly regulated by local fire codes. In addition, we sell algaecides that are regulated as pesticides under the Federal Insecticide, Fungicide and Rodenticide Act and state pesticide laws. These laws primarily relate to labeling and annual registration.

While we make considerable efforts to ensure that we operate in substantial compliance with environmental, health and safety requirements, we cannot assure you that we will not be determined to be out of compliance with, or liable under, such requirements. Such an instance of noncompliance or liability could be harmful to our operating results.

Employees

As of February 28, 2003, we employed approximately 2,300 people on a full-time basis. We consider our relations with our employees to be good.

Intellectual Property

We maintain both domestic and foreign registered trademarks primarily for our private label products and we intend to maintain the trademark registrations important to our business operations. We also own rights to several Internet domain names.

We lease our administrative headquarters, which consists of approximately 33,000 square feet of an office building in Covington, Louisiana. We own three service centers in Florida. All of our other properties are leased for terms that expire between 2003 and 2017. In addition to minimum rental payments, which are set at competitive rates, certain leases require reimbursement for taxes, maintenance and insurance. Most of our leases contain renewal options, some of which involve rent increases.

Our service centers range in size from approximately 3,000 square feet to 54,000 square feet and consist of warehouse, counter, display and office space. We also operate four centralized shipping locations ranging in size from 22,000 square feet to 30,000 square feet.

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SCP POOL CORPORATION

Part I.

We believe that our facilities are well maintained, suitable for our business and occupy sufficient space to meet our operating needs. On a regular basis and as part of our normal business, we evaluate service center performance and may relocate a service center or consolidate two locations if a service center is redundant in a market, under performing or otherwise deemed unsuitable.

We do not believe that any single lease is material to our operations and alternate sites are presently available at market rates.

The table below identifies the number of service centers by state and foreign country as of February 28, 2003:

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SCP POOL CORPORATION

Part I.

In the normal course of business, we are subject to various claims and litigation. While the outcome of any litigation is inherently unpredictable, we do not believe that any of these matters will have a material adverse impact on our financial condition, results of operations or cash flows.

No matters were submitted to a vote of our stockholders during the quarter ended December 31, 2002.

Part II.

Our common stock began trading on the Nasdaq National Market under the symbol “POOL” in October 1995. On March 11, 2003, there were approximately 5,900 holders of record of common stock.

The table below sets forth the high and low sales prices of our common stock for each quarter during the last two years. The prices for the first two quarters of 2001 have been adjusted to reflect the three-for-two stock split effective September 7, 2001.

In the past, we have not declared or paid any cash dividends on our common stock. We currently intend to retain our earnings to use in our business, and we do not anticipate paying any cash dividends in the near future. Our Credit Agreement also restricts our ability to pay cash dividends. For further discussion, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and Note 5 to the Consolidated Financial Statements.

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SCP POOL CORPORATION

Part II.

The table below summarizes as of December 31, 2002 certain information regarding securities authorized for issuance to our employees, officers and directors under our equity compensation plans:

For further discussion of our equity compensation plans, see Note 11 to the Consolidated Financial Statements.

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SCP POOL CORPORATION

Part II.

The table below sets forth selected financial data from the Consolidated Financial Statements. You should read this information in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with the Consolidated Financial Statements and accompanying Notes.

_________________

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SCP POOL CORPORATION

Part II.

General

We sell everything necessary to build, maintain, install and overhaul residential and small commercial swimming pools, including:

• swimming pool equipment;
• parts and supplies;
• chemicals;
• cleaners;
• packaged pools;
• liners;
• filters;
• heaters;
• pumps;
• lights;
• repair parts; and
• other equipment.

Since 1999, we have significantly increased our offering of complementary products including:

• building materials;
• electrical supplies;
• toys and games;
• water features such as fountains; and
• spas and spa accessories.

We primarily sell to:

• swimming pool remodelers and builders;
• retail swimming pool stores; and
• swimming pool repair and service companies.

These customers are mostly small, family owned businesses with relatively limited capital resources. We maintain a strict credit policy. In the past, losses from customer receivables have been within our expectations.

Our expenses consist primarily of (i) the cost of products purchased for resale and (ii) operating expenses which are primarily related to labor, occupancy, freight, marketing, and selling and administrative expenses. We compete for business and may respond to competitive pressures by lowering prices in order to maintain our market share. Such measures adversely affect our gross margins and operating results.

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SCP POOL CORPORATION

Part II.

General (continued)

We calculate same store growth by excluding the following service centers from the calculation for 15 months:

• New service centers opened within the past 15 months;
• Service centers acquired within the past 15 months;
• Service centers consolidated with acquired service centers; and
• Service centers that experience market disruption due to their location in the immediate market areas of those mentioned above.

Beginning in the fourth quarter of 2002, we began calculating our “base business” growth, which is consistent with measures used by other distributors. We calculate base business growth by excluding the following service centers from the calculation for 15 months:

• Service centers acquired within the past 15 months;
• Service centers consolidated with acquired service centers; and
• New service centers opened in new markets in the past 15 months.

The base business calculation differs slightly from the same store calculation because base business includes (i) new service centers opened in existing markets and (ii) service centers affected due to their location in the immediate market areas of newly opened or acquired locations. Additionally, we allocate overhead expenses to the base business by considering base business net sales as a percentage of total net sales.

The Swimming Pool Industry

We believe that the swimming pool industry is relatively young, with room for tremendous growth. Of the approximately 68 million households in the United States that have the economic capacity and the yard space to have a swimming pool, barely 10% own a pool. The industry has grown at a 4-5% annual rate for the past 20 years.

We believe the swimming pool industry will continue to grow 4-5% annually over the next five years, primarily by the need to maintain the growing installed base of pools and secondarily by new pool installations.

The greater part of revenues in our industry is derived from the maintenance of existing swimming pools and the repair and replacement of the equipment that maintains those pools. Thus, the industry generally has not been negatively affected by economic downturns, although there is no assurance that this will continue.

The demand for new pools is driven by the perceived benefits of pool ownership including relaxation, entertainment, family activity, exercise, convenience and landscaping. The industry competes for new pool sales against other discretionary consumer purchases such as kitchen and bathroom remodeling, boats, motorcycles, recreational vehicles and vacations.

The business in the swimming pool industry is seasonal, and weather is the biggest challenge. The industry is also affected by other factors including consumer saving and discretionary spending levels, the rate of new housing construction and consumer attitudes toward pool products for environmental or safety reasons.

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SCP POOL CORPORATION

Part II.

Critical Accounting Policies

Critical accounting policies are those that are both important to the accurate portrayal of a company’s financial condition and results, and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe that the nature of our business is such that there are few, if any, complex challenges in accounting for operations.

In order to prepare financial statements that conform to accounting principles generally accepted in the United States (GAAP), we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that future events may be significantly different from our expectations.

We have identified the following five accounting policies that require us to make estimates in order to present fairly our consolidated financial position and results of operations.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses if our customers do not make required payments. We perform periodic credit evaluations of our customers and we typically do not require collateral. Consistent with industry practices, we require payment from our customers within 30 days except for sales under early-buy programs for which we provide extended payment terms to qualified customers. The extended terms require payments in equal installments in April, May and June or May and June, depending on geographical location. In the past, credit losses have been within our expectations.

As our business is seasonal, our customers’ businesses are also seasonal. Sales are lowest in the winter months, and our past due accounts receivable balance generally increases during this time. We provide reserves for uncollectible accounts based on the accounts receivable aging ranging from 0.2% for amounts currently due up to 100% for specific accounts more than 60 days past due.

At the end of each year, we perform a specific reserve analysis of all accounts with past due balances greater than $25,000. Additionally, we perform a general reserve analysis on the balance of our accounts receivables with emphasis on the remainder of the past due portion of the aging. As we review these past due accounts, we evaluate collectibility based on a combination of factors including:

• aging statistics and trends;
• customer payment history;
• independent credit reports; and
• discussions with customers.

During the year, we write off account balances when we have exhausted reasonable collection efforts and determined that the likelihood of collection is remote. Such write-offs are charged against our allowance for doubtful accounts. In the past five years, write-offs have averaged approximately 0.2% of net sales.

If the balance of the accounts receivable reserve increased or decreased by 50% at December 31, 2002, pretax income would change by approximately $1.7 million or $0.04 per diluted share based on the number of diluted shares outstanding at December 31, 2002.

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SCP POOL CORPORATION

Part II.

Critical Accounting Policies (continued)

Inventory Obsolescence and Shrink Reserve

Product inventories represent the largest asset on our balance sheet. Our goal is to manage our inventory such that we minimize stock-outs and provide the highest level of service to our customers. To do this, we maintain at each service center an adequate inventory of SKUs with the highest sales volume. At the same time, we continuously strive to better manage our slower moving classes of inventory which are not as critical to our customers and thus inherently have lower velocity. Service centers classify products into 13 classes based on sales at that location over the past 12 months. The table below presents a description of these inventory classes:

Products in classes 1-3 turn quickly, thus there is little risk of obsolescence. We establish our reserve for inventory obsolescence based on inventory classes 4-13, with particular emphasis on SKUs with the weakest sales over the previous 12 months. The reserve is intended to reflect the value of inventory that we may not be able to sell at a profit. We believe our greatest exposure to inventory obsolescence is inventory classes 4-13. We provide a general reserve of 5% for such inventory. We also provide an additional 5% reserve for excess inventory in classes 4-12 and an additional 45% for excess class 13 inventory. We define excess inventory as the amount of inventory on hand in excess of the previous 12 months usage on a company-wide basis.

In evaluating the adequacy of the reserve for inventory obsolescence and shrink, we consider a combination of factors including:

• the level of inventory in relationship to historical sales level by product, including inventory usage by class based on product sales at both the service center and company levels;
• changes in customer preferences;
• the experience of the service center manager;
• the previous inventory management performance of the service center;
• geographical location; and
• new product offerings.

The reserve for inventory obsolescence may periodically require adjustment as changes occur in the above-identified factors.

If the balance of the inventory reserve increased or decreased by 50% at December 31, 2002, pretax income would change by approximately $1.6 million or $0.04 per diluted share based on the number of diluted shares outstanding at December 31, 2002.

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SCP POOL CORPORATION

Part II.

Critical Accounting Policies (continued)

Revenue Recognition

We recognize revenue in accordance with SEC Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements, and the appropriate amendments. SAB 101 requires that four basic criteria must be met before we can recognize revenue:

1. Persuasive evidence of an arrangement exists;
2. Delivery has occurred or services have been rendered;
3. The amounts recognized are fixed and determinable; and
4. Collectibility is reasonably assured.

We record revenue when customers take delivery of products. Customers may pick up products at any service center location, or products may be delivered via our trucks or third party carriers. Products shipped via third party carriers are considered delivered based on the shipping terms, which are generally FOB shipping point.

We may offer volume rebates, which we accrue monthly as an adjustment to net sales. Additionally, in certain markets, we may offer discount terms of 5% for invoices paid within 10 days. We record customer returns, including those associated with early-buy programs, as an adjustment to net sales. In the past, customer returns have not been material.

Vendor Rebates

We account for vendor rebates in accordance with the Emerging Issues Task Force Issue 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor. Many of our arrangements with our vendors provide for us to receive a rebate of a specified amount of consideration, payable to us when we achieve any of a number of measures, generally related to a specified cumulative level of purchases from our vendors. We account for such rebates as a reduction of the prices of the vendor’s products and therefore as a reduction of inventory until we sell the product, at which time such rebates reduce cost of sales in our income statement. Throughout the year, we estimate the amount of the rebate earned based on our estimate of purchases to date relative to the purchase levels that mark our progress toward earning the rebates. We continually revise these estimates to reflect actual rebates earned based on actual purchase levels.

If market conditions were to change, vendors may change the terms of some or all of these programs. Such changes could lower or raise our gross margins on products we sell or revenues earned.

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SCP POOL CORPORATION

Part II.

Goodwill

Goodwill represents the excess of acquisition costs over the estimated fair value of net assets acquired. At December 31, 2002, our net goodwill balance was $107.7 million, representing 27% of total assets and 76% of stockholders’ equity.

In January 2002, we adopted SFAS 142, Goodwill and Other Intangible Assets. Under these new rules, we no longer amortize goodwill. Instead, we test goodwill for impairment annually or at any other time when impairment indicators exist.

We completed the transitional goodwill impairment test as required under SFAS 142 and determined that goodwill was not impaired. This transitional test required comparison of our Company’s estimated fair value at January 1, 2002 to the book value, including goodwill. Additionally, we performed the first annual impairment test in October 2002 noting that goodwill is not impaired.

If circumstances change or events occur to indicate that our Company’s fair market value has fallen below the book value, we will compare the estimated fair value of the goodwill to its book value. If the book value of goodwill exceeds the estimated fair value of goodwill, we will recognize the difference as an impairment loss in operating income.

Results of Operations

The table below summarizes information derived from our Consolidated Statements of Income expressed as a percentage of net sales for the past three years:

Note: Percentages may not add to total due to rounding.

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SCP POOL CORPORATION

Part II.

Results of Operations

The following discussion of consolidated operating results includes the operating results from acquisitions in 2002, 2001 and 2000. We accounted for these acquisitions using the purchase method of accounting, and we have included the results of operations in our consolidated results since the respective acquisition dates.

2002 compared to 2001

Note: 2001 excludes goodwill amortization.

Net sales increased $129.0 million, or 15%, to $983.2 million in 2002 from $854.2 million in 2001. Base business growth of 10% contributed $84.5 million to the increase, while acquired service centers (primarily the Fort Wayne Acquisition in August 2002 and secondarily part of the Hughes Acquisition in January 2001) and service centers consolidated with acquired locations accounted for the remaining increase. Same store sales growth was also 10% in 2002. The increase in base business sales is primarily due to the following:

• More favorable weather conditions in 2002;
• A larger installed base of swimming pools resulting in increased sales of non-discretionary products; and
• The continued successful execution of our sales, marketing and service programs.

Gross profit increased $34.6 million, or 16%, to $255.5 million in 2002 from $220.9 million in 2001. This increase was primarily due to the increase in net sales. Base business gross profit contributed $22.8 million to the increase, while acquired service centers and service centers consolidated with acquired locations accounted for the remaining increase. Same store gross profit contributed $12.5 million to the increase.

Gross profit as a percentage of net sales (“gross margin”) remained relatively unchanged at 26.0% in 2002 compared to 25.9% in 2001.

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Part II.

Results of Operations

2002 compared to 2001 (continued)

Excluding goodwill amortization in 2001, operating expenses increased $28.0 million, or 18%, to $182.8 million in 2002 from $154.8 million in 2001. Operating expenses relating to the base business contributed $15.0 million to this increase, while acquired service centers and locations consolidated with acquired service centers accounted for the remaining increase. Excluding goodwill amortization in 2001, operating expenses as a percentage of net sales increased to 18.6% in 2002 from 18.1% in 2001, primarily due to the dilutive impact of newly opened and acquired service centers. Base business operating expenses as a percentage of net sales remained unchanged at 17.9% in 2002 and 2001. On a same store basis, operating expenses increased $5.9 million in 2002 compared to 2001.

Interest expense decreased $0.3 million to $5.0 million in 2002 from $5.3 million in 2001. Although average debt outstanding was higher in 2002, the effective interest rate decreased to 3.7% in 2002 from 5.0% in 2001, which is consistent with the overall decline in interest rates over the past year.

Income taxes increased $3.3 million to $26.4 million for 2002 compared to $23.1 million for 2001, primarily due to the $9.1 million increase in income before income taxes. In the first quarter of 2002, our effective income tax rate decreased to 39.0% from 39.5% as a result of changes in our state income tax mix, and income tax expense in 2002 was booked at an effective rate of 39.0%.

2001 compared to 2000

Net sales increased $181.9 million, or 27%, to $854.2 million in 2001 compared to $672.3 million in 2000. Service centers acquired (primarily the Hughes Acquisition of January 2001 and secondarily part of the Superior Acquisition of July 2000) and new locations opened in new markets in the past 15 months contributed $164.8 million to the increase in net sales, while the balance of the increase was attributable to 3% base business growth. Same store sales growth was 2% in 2001.

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Part II.

Results of Operations

2001 compared to 2000 (continued)

The base business sales growth trend was adversely affected in 2001 primarily by unfavorable weather throughout most of the year. The pool season experienced a slow start with extended cold weather in the North and unusually wet conditions in the South. Mild temperatures in the North during the summer months further aggravated the season’s slow start, while a stagnant tropical system shut down the pool business in the south central United States for two weeks in June, which is typically the most active sales month. Additionally, the tragic events of September 11th put a damper on 2001 late season sales in the swimming pool industry.

Gross profit increased $56.5 million, or 34%, to $220.9 million in 2001 compared to $164.4 million in 2000. Base business gross profit growth of nearly 10% contributed $15.8 million to the increase, while acquired locations and new service centers in new markets accounted for the remaining increase. Same store gross profit growth was nearly 9% in 2001. Base business gross profit growth was due to several factors including:

• a 3% increase in base business sales;
• improvements in pricing accuracy and greater pricing discipline at the point of sale;
• a continued focus on a preferred vendor program initiated in 1999 which encourages service centers to purchase products from a smaller number of vendors in order to effect more efficient purchasing and inventory management;
• increased sales of complementary products that typically enjoy higher gross margins; and
• the utilization of centralized shipping locations which purchase slower turning inventories (such as parts) in bulk quantities and then redistribute products to service centers.

These improvements led to an increase in gross margin to 25.9% in 2001 from 24.5% in 2000, despite the dilutive impact of newly opened and acquired service centers. Base business gross margin increased to 26.5% in 2001 from 24.8% in 2000.

Operating expenses consisting of selling and administrative expenses and goodwill amortization increased $41.4 million, or 36%, to $157.0 million in 2001 from $115.6 million in 2000. Acquired service centers and new locations in new markets accounted for $32.7 million of the increase. Base business operating expenses increased $8.7 million primarily due to the following:

• increases in salary expense to support the increase in sales and a continued focus on improving customer service;
• an increase in occupancy costs due to the relocation of existing service centers to larger sites to accommodate their growth in activity and the introduction of new products; and
• an increase in freight costs resulting from higher gas prices in 2001.

Operating expenses as a percentage of net sales increased to 18.4% in 2001 from 17.2% in 2000. Base business operating expense as a percentage of net sales increased 80 basis points to 18.0% in 2001 from 17.2% in 2000, primarily due to our increased investment in sales, marketing and service programs and lower than expected sales in 2001 caused by the unfavorable weather conditions discussed above.

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Part II.

Results of Operations

2001 compared to 2000 (continued)

Interest expense increased $1.7 million to $5.3 million in 2001 from $3.6 million in 2000 primarily because average debt outstanding increased to $63.8 million in 2001 compared to $38.3 million in 2000. Additionally, we wrote-off approximately $0.2 million of financing costs in the fourth quarter of 2001 when we replaced our Senior Loan Facility one year prior to the maturity date.

Income taxes increased $6.0 million to $23.1 million for 2001 compared to $17.1 million for 2000, primarily due to the $13.4 million increase in income before income taxes. During the fourth quarter of 2001, our effective income tax rate increased to 39.5% from 38.5% as a result of changes in our state income tax mix.

Seasonality and Quarterly Fluctuations

Our business is highly seasonal, and weather is the principal external factor affecting our business. The table below presents some of the possible effects resulting from various weather conditions:

In general, sales and operating income are highest during the second and third quarters, which represent the peak months of swimming pool use and installation. Sales are substantially lower during the first and fourth quarters when we may incur net losses.

In 2002, approximately 66% of net sales were generated in the second and third quarters of the year, and approximately 100% of operating income was generated in that same period.

We typically experience a build-up of product inventories and accounts payable during the winter months in anticipation of the upcoming peak selling season. Excluding borrowings to finance acquisitions and share repurchases, our peak borrowing usually occurs in late first quarter or early second quarter, primarily because 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.

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 service centers. We attempt to open new service centers at the end of the fourth quarter or the first quarter of the subsequent year to take advantage of preseason sales programs and the upcoming peak selling season.

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SCP POOL CORPORATION

Part II.

Seasonality and Quarterly Fluctuations (continued)

The table below presents certain unaudited quarterly data for 2002 and 2001. In our opinion, this information reflects all normal and recurring adjustments considered necessary for a fair presentation of this data. 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.

Liquidity and Capital Resources

Liquidity is defined as the ability to generate adequate amounts of cash to meet the current need for cash. 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 liquidity include the following:

• The adequacy of available bank lines of credit;
• The ability to attract long-term capital with satisfactory terms;
• Cash flows generated from operating activities;
• Acquisitions;
• The timing and extent of share repurchases; and
• Capital expenditures.

Our primary sources of working capital are cash from operations supplemented by bank borrowings under a credit agreement (the Credit Agreement) with a group of banks. Our primary capital needs are seasonal working capital obligations and other general corporate purposes, including acquisitions and share repurchases. In the past, borrowings, together with cash from operations and seller financing, have been sufficient to support our growth and to finance acquisitions.

The Credit Agreement, which matures on November 27, 2004, allows us to borrow under a revolving line of credit (the Revolving Credit Facility). In August 2002, we expanded our borrowing capacity under the Revolving Credit Facility from $110.0 million to $150.0 million to facilitate the Fort Wayne Acquisition and share repurchases.

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SCP POOL CORPORATION

Part II.

Liquidity and Capital Resources (continued)

During the twelve months ended December 31, 2002, we received net proceeds of $40.2 million under the Revolving Credit Facility. At December 31, 2002, there was $125.2 million outstanding and $24.8 million available for borrowing under the Revolving Credit Facility, subject to borrowing base availability supported by trade accounts receivable and product inventories. In order to meet seasonal working capital needs, in the first quarter of 2003 we also borrowed additional funds in the form of two short-term notes. On March 13, 2003 there was $7.0 million outstanding and $3.0 million available for borrowing under these notes.

The average effective interest rate of the Revolving Credit Facility was 3.7% for the twelve month period ended December 31, 2002. Interest on borrowings under the Revolving Credit Facility may be paid at either of the following rates, in each case depending on our leverage ratio:

1. the agent’s corporate base rate or the federal funds rate plus 0.5%, whichever is higher, plus a margin ranging from 0.125% to 0.375%, or
2. the current Eurodollar Rate plus a margin ranging from 1.125% to 1.750%.

Substantially all of our assets, including the capital stock of our wholly-owned subsidiaries, secure our obligations under the Revolving Credit Facility. The Revolving Credit Facility has numerous restrictive covenants, which require that we maintain a minimum net worth and fixed charge coverage and which also restrict our ability to pay dividends. As of December 31, 2002, we were in compliance with all covenants and financial ratio requirements.

At December 31, 2002, our contractual obligations of long-term debt and operating leases were as follows (in thousands):

Net cash provided by operating activities increased $32.4 million to $59.2 million in 2002 from $26.8 million in 2001, primarily due to the decrease in product inventories, partially offset by the decrease in accounts payable. In 2001, net cash provided by operating activities increased $8.5 million to $26.8 million from $18.3 million in 2000, primarily due to a $7.3 million increase in net income.

In the fourth quarter of 2001, we made payments to vendors of approximately $27.4 million for product inventory receipts with extended terms. We made these payments to take advantage of prompt payment discounts offered by manufacturers in the fourth quarter of 2001. Such off season early buy purchases are normal in the pool industry except for manufacturers choosing to ship on a more accelerated basis in the fourth quarter of 2001 versus prior year fourth quarters. These purchases consisted mainly of high velocity whole goods such as pumps, filters, heaters and cleaners with little risk of obsolescence.

Initially, acquisitions are financed through increased borrowings under our Revolving Credit Facility and those borrowings are then reduced with cash flows from operations. The same principle applies for funds used for share repurchases and capital expenditures.

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SCP POOL CORPORATION

Part II.

Liquidity and Capital Resources (continued)

We believe we have adequate availability of capital to fund present operations and anticipated growth, including expansion in existing and targeted market areas. We continually evaluate potential acquisitions and we have held discussions with a number of acquisition candidates. However, we currently have no binding agreement with respect to any acquisition candidate. If suitable acquisition opportunities or working capital needs arise that would require additional financing, we believe that our financial position and earnings history provide a solid base for obtaining additional financing resources at competitive rates and terms. Additionally, we may issue common or preferred stock to raise funds.

Accounts Receivable and the Allowance for Doubtful Accounts

Excluding the approximate $5.9 million Fort Wayne accounts receivable, accounts receivable increased $4.0 million, or 7%, to $64.2 million at December 31, 2002 compared to $60.2 million at December 31, 2001. This increase is less than the 10% increase in base business net sales between periods.

The allowance for doubtful accounts increased to $3.3 million at December 31, 2002 from $2.8 million at December 31, 2001. This increase is consistent with the increase in gross and past due accounts receivable from 2001 to 2002. We continue to maintain an adequate reserve of the greater than 60 days past due receivables. The allowance remained relatively consistent as a percentage of the greater than 60 days past due receivables at 47.7% at December 31, 2002 compared to 45.9% at December 31, 2001.

Product Inventories and the Reserve for Shrink and Obsolescence

Excluding the approximate $20.9 million Fort Wayne inventory, product inventories decreased $18.7 million, or 10%, to $162.8 million at December 31, 2002 from $181.5 million at December 31, 2001. As discussed in our 2001 annual report on Form 10-K, the inventory balance at the end of 2001 was approximately $35.0 million higher than typically required at the end of the year because we received significant early-buy purchases in the fourth quarter of 2001 from manufacturers motivated to reduce their own inventory levels. Adjusted for the additional $35.0 million of inventory received in late 2001 and excluding the Fort Wayne inventory in 2002, our base business inventory increased by approximately $16.3 million, or 11%, which is consistent with the 10% increase in base business sales. Average inventory per service center at the end of 2002 was approximately $145,000 less than average inventory per service center at December 31, 2001.

As we continue to improve the quality of our inventory, the inventory reserve has decreased accordingly to $3.1 million at December 31, 2002 from $3.9 million at December 31, 2001. The reserve as a percentage of slow-moving class 13 inventory decreased to 40.2% at the end of 2002 compared to 46.1% at the end of 2001. At December 31, 2002, approximately 70% of our inventory balance was comprised of high velocity inventory classes 1 through 3.

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SCP POOL CORPORATION

Part II.

Liquidity and Capital Resources (continued)

Share Repurchase Program

Between March 1999 and December 2002, we purchased 3.8 million shares of our common stock in the open market at an average price of $19.69 per share, including 1.8 million shares purchased in 2002 at an average price of $26.19. In December 2002, we retired all treasury shares.

Between February 13, 2003 and March 13, 2003, we purchased 128,200 shares of our common stock in the open market at an average price of $26.03 per share.

As part of our share repurchase program, in July 2002 our Board of Directors authorized an additional $50.0 million for share repurchases, of which $35.2 million remained available as of March 13, 2003. We intend to continue to repurchase shares on the open market from time to time, depending on market conditions.

The impact of our common stock repurchases had the effect of reducing diluted weighted average shares outstanding by approximately 0.8 million shares for the year ended December 31, 2002.

We are exposed to market risks, including interest rate risk and foreign currency risk. The adverse effects of potential changes in these market risks are discussed below. The following discussion does not consider the effects of the reduced level of overall economic activity that could exist following such changes. Further, in the event of changes of such magnitude, we would likely take actions to mitigate our exposure to such changes.

Interest Rate Risk

Our earnings are exposed to changes in short-term interest rates because of the variable interest rates on our long-term debt. If (i) the variable rates on our Revolving Credit Facility increased or decreased 1.0% from the rate at December 31, 2002; and (ii) we borrowed the maximum amount available under the Revolving Credit Facility ($150.0 million) for all of 2003, then our pretax income would change by approximately $1.5 million or $0.04 per diluted share based on the number of diluted shares outstanding at December 31, 2002. The fair value of our Revolving Credit Facility is not affected by changes in market interest rates.

Foreign Exchange Risk

We have wholly-owned subsidiaries in the United Kingdom, France, Portugal and Canada. In the past, we have not hedged our foreign currency exposure, and fluctuations in exchange rates have not materially affected our operating results. Future changes in exchange rates may positively or negatively impact our revenues, operating expenses and earnings. However, due to the size of our foreign operations, we do not anticipate that exposure to foreign currency rate fluctuations will be material in 2003.

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SCP POOL CORPORATION

Cautionary Statement for Purpose 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. From time to time, we may also provide oral or written forward-looking statements in other materials we release to the public. Forward-looking statements give our current expectations or forecasts of possible future results or events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. We often use words such as “anticipate”, “estimate”, “expect”, “believe” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance.

Among the factors that could cause actual results to differ materially are the following:

• the sensitivity of the industry to weather conditions
• the intense competition and low barriers to entry in the industry
• the sensitivity of the industry to general economic and market conditions
• our ability to:

• the effectiveness of our advertising, marketing and promotional programs
• changes in laws and regulations, including changes in accounting standards and taxation requirements (including tax rate changes, new tax laws and revised tax law interpretations)
• the risk of fire, safety and casualty losses and related liability claims inherent in the storage of chemicals that we sell

We cannot guarantee that any future event or result will be realized, although we believe we have been prudent in our plans and assumptions. Should additional risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from those anticipated. Investors should bear this in mind as they consider forward-looking statements.

See the attached Consolidated Financial Statements and related Notes (pages F-1 through F-24).

Not applicable.

Part III.

Incorporated by reference to the Company’s 2003 Proxy Statement to be filed with the SEC.

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SCP POOL CORPORATION

Part III.

Incorporated by reference to the Company’s 2003 Proxy Statement to be filed with the SEC.

Incorporated by reference to the Company’s 2003 Proxy Statement to be filed with the SEC.

Incorporated by reference to the Company’s 2003 Proxy Statement to be filed with the SEC.

The term “disclosure controls and procedures” is defined in Rules 13a-14 and 15d-14 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 recorded, processed, summarized and reported within the time periods specified. As of December 31, 2002, Management, including the CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, Management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of December 31, 2002.

We maintain a system of internal accounting controls that are designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our policies and procedures are followed. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to December 31, 2002.

Part IV.

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SCP POOL CORPORATION

INDEX TO FINANCIAL STATEMENTS

Consolidated Financial Statements

F-1

SCP POOL CORPORATION

Report of Independent Auditors

The Board of Directors
SCP Pool Corporation

We have audited the consolidated balance sheets of SCP Pool Corporation as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the index at Item 15a2. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SCP Pool Corporation at December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2002 the Company changed its method of accounting for goodwill.

/S/ ERNST & YOUNG LLP

New Orleans, Louisiana
February 7, 2003

F-2

SCP POOL CORPORATION

The accompanying Notes are an integral part of these Consolidated Financial Statements.

F-3

SCP POOL CORPORATION

The accompanying Notes are an integral part of these Consolidated Financial Statements.

F-4

SCP POOL CORPORATION

The accompanying Notes are an integral part of these Consolidated Financial Statements.

F-5

SCP POOL CORPORATION