What changed in this filing

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Item 1. Financial Statements

2020-07-31 compared with 2020-04-30 · 74 added, 46 removed, 314 unchanged (28% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Net sales $ 1,280,846 $ 1,121,328 $ 1,958,134 $ 1,718,784

6 unchanged sentences

Income before income taxes and equity earnings 203,214 166,099 234,013 197,869

Income tax benefit ( 25 ) ( 802 )

Provision for income taxes 45,733 34,778 45,708 33,976

Equity earnings in unconsolidated investments, net 74 69 162 134

11 unchanged sentences

(In thousands)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Net income $ 157,555 $ 131,390 $ 188,467 $ 164,027

Other comprehensive (loss) income:

Foreign currency translation (losses) gains ( 5,430 ) 214

Other comprehensive income (loss):

Foreign currency translation gains (losses) 2,134 1,208 ( 3,296 ) 1,422

Change in unrealized losses on interest rate swaps, net of change in taxes of $ 855 , $ 413 , $ 3,692 and $ 503

6 unchanged sentences

(In thousands, except share data)

March 31, March 31, December 31,

June 30, June 30, December 31,

2020 2019 2019 (1)

30 unchanged sentences

40,041,683 , 39,897,898 and 40,074,160 shares issued and

outstanding at March 31, 2020, March 31, 2019 and

outstanding at June 30, 2020, June 30, 2019 and

December 31, 2019, respectively

Additional paid-in capital 503,271 472,390 485,239

Retained deficit ( 122,594 ) ( 227,633 ) ( 64,740 )

Retained earnings (deficit) 8,212 ( 118,177 ) ( 64,740 )

Accumulated other comprehensive loss ( 24,732 ) ( 11,084 ) ( 10,359 )

6 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Operating activities

41 unchanged sentences

Common Stock Additional

Paid-In Retained Accumulated

Paid-In Retained Earnings Accumulated

Comprehensive

15 unchanged sentences

Balance at March 31, 2020 39,931 40 495,251 ( 122,594 ) ( 24,299 ) 348,398

— — — 157,555 — 157,555

Foreign currency translation

— — — — 2,134 2,134

Interest rate swaps, net of the change in taxes of $ 855

— — — — ( 2,567 ) ( 2,567 )

Repurchases of common stock, net of retirements

( 19 ) — — ( 3,584 ) — ( 3,584 )

Share-based compensation

— — 3,567 — — 3,567

Issuance of stock under share-based compensation plans

130 — 4,453 — — 4,453

Declaration of cash dividends

— — — ( 23,165 ) — ( 23,165 )

Balance at June 30, 2020 40,042 $ 40 $ 503,271 $ 8,212 $ ( 24,732 ) $ 486,791

Common Stock Additional

6 unchanged sentences

— — — — 214 214

Interest rate swaps, net of the change in taxes $ 90

Interest rate swaps, net of the change in taxes of $ 90

— — — — ( 269 ) ( 269 )

10 unchanged sentences

Balance at March 31, 2019 39,679 40 463,522 ( 227,633 ) ( 11,052 ) 224,877

— — — 131,390 — 131,390

Foreign currency translation

— — — — 1,208 1,208

Interest rate swaps, net of the change in taxes of $ 413

— — — — ( 1,240 ) ( 1,240 )

Share-based compensation

— — 3,335 — — 3,335

Issuance of stock under share-based compensation plans

219 — 5,533 — — 5,533

Declaration of cash dividends

— — — ( 21,934 ) — ( 21,934 )

Balance at June 30, 2019 39,898 $ 40 $ 472,390 $ ( 118,177 ) $ ( 11,084 ) $ 343,169

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

9 unchanged sentences

You should read the interim Consolidated Financial Statements in conjunction with the Consolidated Financial Statements and accompanying notes in our 2019 Annual Report on Form 10-K.

The results for our three month period ended March 31, 2020 are not necessarily indicative of the expected results for our fiscal year ending December 31, 2020.

The results for our three and six month periods ended June 30, 2020 are not necessarily indicative of the expected results for our fiscal year ending December 31, 2020.

Newly Adopted Accounting Pronouncements

4 unchanged sentences

The new standard also requires enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination for most financing receivables.

The adoption of this standard did not have a material impact on our financial position or results of operations.

We do not expect the adoption of this guidance to have a material effect on our results of operations in future periods.

The adoption of this standard did not have a material impact on our financial position or results of operations, and we do not expect the adoption of this guidance to have a material effect on our results of operations in future periods.

See Allowance for Doubtful Accounts within this note for more information.

13 unchanged sentences

Consistent with industry practices, we generally require payment from our North American customers within 30 days, except for sales under early buy programs for which we provide extended payment terms to qualified customers.

As part of our adoption of ASU 2016-13, we did not recognize an adjustment to the beginning balance of retained earnings as the impact from adoption was not material.

Our estimate of future losses is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, customers’ financial conditions and current and forecasted economic trends including certain trends in the housing market, the availability of consumer credit and general economic conditions (as commonly measured by Gross Domestic Product or GDP) .

Upon adoption of ASU 2016-13, we did not recognize an adjustment to the beginning balance of retained earnings as the impact from adoption was not material.

Our estimate of future losses is made by management based upon historical bad debts, customer receivable balances, age of customer receivable balances, customers’ financial conditions and current and forecasted economic trends, including certain trends in the housing market, the availability of consumer credit and general economic conditions (as commonly measured by Gross Domestic Product or GDP).

We monitor housing market trends through review of the House Price Index as published by the Federal Housing Finance Agency, which measures the movement of single-family house prices.

Our assessment of future losses in the first quarter of 2020 considered the impact of the COVID-19 pandemic on forecasted economic trends.

At the end of each quarter, we also perform a reserve analysis of all accounts with balances greater than $ 20,000 and more than 60 days past due.

Our assessment of future losses in the first half of 2020 further considered the uncertainty of the impact of the COVID-19 pandemic on forecasted economic trends.

At the end of each quarter, we also perform a reserve analysis of all accounts with balances greater than $ 20,000 that are more than 60 days past due.

During the year, we write off account balances when we have exhausted reasonable collection efforts and determined that the likelihood of collection is remote.

These write-offs are charged against our allowance for doubtful accounts.

Our allowance for doubtful accounts balance was $ 6.9 million at March 31, 2020 and $ 5.6 million at March 31, 2019.

Our days sales outstanding (DSO), as calculated on a trailing four quarters basis, remained consistent between periods.

We increased our allowance for doubtful accounts balance at March 31, 2020 from the prior period to reflect current economic conditions.

The following table summarizes the changes in our allowance for doubtful accounts (in thousands):

Balance at beginning of quarter $ 5,472 $ 6,182

Six Months Ended

Balance at beginning of period $ 5,472 $ 6,182

Bad debt expense 1,996 1,646

Write-offs, net of recoveries ( 1,510 ) ( 1,413 )

Balance at end of quarter $ 6,853 $ 5,645

Goodwill and Intangible Impairment

Balance at end of period $ 5,958 $ 6,415

Goodwill and Intangibles Impairment

As discussed in Note 1 to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K, goodwill represents the excess of the amount we paid to acquire a company over the estimated fair value of tangible assets and identifiable intangible assets acquired, less liabilities assumed.

We test goodwill and other indefinite-lived intangible assets for impairment annually as of October 1st and at any other time when impairment indicators exist.

As a result of the effect of COVID-19 on expected future operating cash flows, we determined certain impairment triggers had occurred and performed interim goodwill impairment analyses for our Australian reporting units during the first quarter of 2020.

We performed discounted cash flow analyses and determined that the estimated fair values of our Australian reporting units no longer exceeded their carrying values.

As a result of our interim impairment analysis, we recorded goodwill and intangibles impairment equal to the total goodwill and intangibles carrying amount of our five Australian reporting units.

The total impairment charge of $ 4.4 million included goodwill impairment of $ 3.5 million and intangibles impairment of $ 0.9 million related to the Pool Systems tradename and trademarks.

In the first quarter of 2020, we determined certain impairment triggers for our Australian reporting units had occurred due to the impact of the COVID-19 pandemic on expected future operating cash flows.

We performed interim goodwill impairment analyses, which included discounted cash flow analyses, and determined that the estimated fair values of our Australian reporting units no longer exceeded their carrying values.

In the period ended March 31, 2020, we recorded impairment equal to the total goodwill and intangibles carrying amounts of our five Australian reporting units, which included goodwill impairment of $ 3.5 million and intangibles impairment, related to the Pool Systems tradename and trademark, of $ 0.9 million.

We also considered the impact of the COVID-19 pandemic on the expected future operating cash flows of the remainder of our reporting units.

Although we do not currently anticipate any long-term impacts, we continue to monitor reporting units that we consider more at risk;

these include our reporting unit in Italy with a goodwill balance of $ 3.5 million at March 31, 2020, and our three reporting units in Quebec, Canada, with an aggregate goodwill balance of $ 2.4 million at March 31, 2020.

Although we do not currently anticipate any long-term impacts for the overall business, we continue to monitor reporting units that we consider more at risk;

this includes one reporting unit in Italy with a goodwill balance of $ 3.5 million at June 30, 2020, and three reporting units in Quebec, Canada, with an aggregate goodwill balance of $ 2.5 million at June 30, 2020.

The determination of our reporting units’ goodwill and intangibles fair values includes numerous assumptions that are subject to various risks and uncertainties.

3 unchanged sentences

We record all excess tax benefits as a component of income tax benefit or expense on the Consolidated Statements of Income in the period in which stock options are exercised or restrictions on awards lapse.

We recorded excess tax benefits of $ 8.0 million and $ 8.8 million in the first quarters of 2020 and 2019, respectively.

Retained Deficit

We recorded excess tax benefits of $ 6.2 million in the second quarter of 2020 compared to $ 7.8 million in the second quarter of 2019 and $ 14.2 million in the six months ended June 30, 2020 compared to $ 16.6 million in the six months ended June 30, 2019.

Retained Earnings

We account for the retirement of treasury shares as a reduction of retained earnings (deficit).

As of March 31, 2020, the Retained deficit on our Consolidated Balance Sheets reflects cumulative net income, the cumulative impact of adjustments for changes in accounting pronouncements, treasury share retirements since the inception of our share repurchase programs of $ 1.5 billion and cumulative dividends of $ 601.0 million.

As of June 30, 2020, the Retained earnings on our Consolidated Balance Sheets reflects cumulative net income, the cumulative impact of adjustments for changes in accounting pronouncements, treasury share retirements since the inception of our share repurchase programs of $ 1.5 billion and cumulative dividends of $ 624.2 million.

Accumulated Other Comprehensive Loss

The table below presents the components of our Accumulated other comprehensive loss balance (in thousands):

March 31, December 31,

June 30, December 31,

2020 2019 2019

Foreign currency translation adjustments $ ( 13,423 ) $ ( 11,000 ) $ ( 10,127 )

Unrealized (losses) gains on interest rate swaps, net of tax

Unrealized losses on interest rate swaps, net of tax

( 11,309 ) ( 84 ) ( 232 )

6 unchanged sentences

Most amendments are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.

Annual periods beginning after December 15, 2020 We are currently evaluating the effect this will have on our financial position, results of operations and related disclosures.

Annual periods beginning after December 15, 2020 We are currently evaluating the effect this standard will have on our financial position, results of operations and related disclosures.

ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting

5 unchanged sentences

The provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to be completed.

We are currently evaluating the effect this will have on our financial position, results of operations and related disclosures.

We are currently evaluating the effect this standard will have on our financial position, results of operations and related disclosures.

Note 2 – Earnings Per Share

4 unchanged sentences

The table below presents the computation of EPS, including the reconciliation of basic and diluted weighted average shares outstanding (in thousands, except EPS):

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Net income $ 157,555 $ 131,390 $ 188,467 $ 164,027

26 unchanged sentences

Recurring Fair Value Measurements

The table below presents the estimated fair values of our interest rate swap contracts, our forward-starting interest rate swap contracts and our contingent consideration liabilities (in thousands):

Fair Value at March 31,

The table below presents the estimated fair values of our interest rate swap contract, our forward-starting interest rate swap contracts and our contingent consideration liabilities (in thousands):

Fair Value at June 30,

Unrealized gains on interest rate swaps $ — $ 714

9 unchanged sentences

To the extent our interest rate swaps are determined to be ineffective, we recognize the changes in the estimated fair value of our swaps in Interest and other non-operating expenses, net on our Consolidated Statements of Income.

We currently have one interest rate swap in place, which became effective on November 20, 2019 , and terminates on November 20, 2020 .

We currently have one interest rate swap contract in place, which became effective on November 20, 2019 , and terminates on November 20, 2020 .

This swap contract was previously forward-starting and converts the variable interest rate to a fixed interest rate on our variable rate borrowings.

4 unchanged sentences

Interest rate swap 1 July 6, 2016 November 20, 2019 November 20, 2020 $ 150.0 1.1425 %

For the interest rate swap contract in effect at March 31, 2020, a portion of the change in the estimated fair value between periods relates to future interest expense.

For the interest rate swap contract in effect at June 30, 2020, a portion of the change in the estimated fair value between periods relates to future interest expense.

Recognition of the change in fair value between periods attributable to accrued interest is reclassified from Accumulated other comprehensive loss on the Consolidated Balance Sheets to Interest and other non-operating expenses, net on the Consolidated Statements of Income.

This amount was not material in the three month period ended March 31, 2020.

This amount was not material in the six month period ended June 30, 2020.

We have entered into forward-starting interest rate swap contracts to extend the hedged period for future interest payments on our variable rate borrowings.

14 unchanged sentences

Nonrecurring Fair Value Measurements

In addition to our assets and liabilities that we measure at fair value on a recurring basis, the Company's assets and liabilities are also subject to nonrecurring fair value measurements.

In addition to our assets and liabilities that we measure at fair value on a recurring basis, our assets and liabilities are also subject to nonrecurring fair value measurements.

Generally, our assets are recorded at fair value on a nonrecurring basis as a result of impairment charges.

In the first quarter of 2020, we recorded impairment charges of $ 6.9 million, which included $ 2.5 million from a long-term note, as collectability was impacted by the COVID-19 pandemic, and non-cash goodwill and intangibles impairment charges of $ 4.4 million, equal to the total goodwill and intangibles carrying amount of our Australian reporting units.

See Goodwill and Intangibles Impairment within Note 1 for more information on goodwill and intangible impairment recognized in the period ended March 31, 2020.

See Goodwill and Intangibles Impairment within Note 1 for more information on goodwill and intangibles impairment recognized in the period ended March 31, 2020.

The carrying values of cash, receivables, accounts payable and accrued liabilities approximate fair value due to the short maturity of those instruments (Level 1 inputs).

22 unchanged sentences

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-Q

Item 1. Financial Statements