POOL CORP 10-Q

Item 1. Financial Statements POOL CORPORATION Consolidated Statements of Income (Unaudited) (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net sales $ 1,139,229 $ 898,500 $ 3,097,362 $ 2,617,283 Cost of sales 810,531 640,569 2,205,555 1,854,408 Gross profit 328,698 257,931 891,807 762,875 Selling and administrative expenses 180,465 153,391 495,186 447,427 Impairment of goodwill and other assets — — 6,944 — Operating income 148,233 104,540 389,677 315,448 Interest and other non-operating expenses, net 1,861 5,498 9,292 18,538 Income before income taxes and equity earnings 146,372 99,042 380,385 296,910 Provision for income taxes 27,360 19,593 73,068 53,569 Equity earnings in unconsolidated investments, net 86 76 248 210 Net income $ 119,098 $ 79,525 $ 307,565 $ 243,551 Earnings per share: Basic $ 2.97 $ 1.99 $ 7.68 $ 6.13 Diluted $ 2.92 $ 1.95 $ 7.53 $ 5.97 Weighted average shares outstanding: Basic 40,123 39,933 40,073 39,750 Diluted 40,839 40,865 40,849 40,811 Cash dividends declared per common share $ 0.58 $ 0.55 $ 1.71 $ 1.55 The accompanying Notes are an integral part of the Consolidated Financial Statements. 1 POOL CORPORATION Consolidated Statements of Comprehensive Income (Unaudited) (In thousands) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net income $ 119,098 $ 79,525 $ 307,565 $ 243,551 Other comprehensive income (loss): Foreign currency translation gains (losses) 2,976 ( 2,156 ) ( 320 ) ( 734 ) Change in unrealized gains (losses) on interest rate swaps, net of change in taxes of $( 51 ), $ 188 , $ 3,641 and $ 692 154 ( 565 ) ( 10,923 ) ( 2,074 ) Total other comprehensive income (loss) 3,130 ( 2,721 ) ( 11,243 ) ( 2,808 ) Comprehensive income $ 122,228 $ 76,804 $ 296,322 $ 240,743 The accompanying Notes are an integral part of the Consolidated Financial Statements. 2 POOL CORPORATION Consolidated Balance Sheets (In thousands, except share data) September 30, September 30, December 31, 2020 2019 2019 (1) (Unaudited) (Unaudited) Assets Current assets: Cash and cash equivalents $ 74,749 $ 36,693 $ 28,583 Receivables, net 135,555 95,971 76,648 Receivables pledged under receivables facility 230,857 211,827 149,891 Product inventories, net 612,824 616,217 702,274 Prepaid expenses and other current assets 12,696 12,384 16,172 Total current assets 1,066,681 973,092 973,568 Property and equipment, net 109,086 112,816 112,246 Goodwill 199,360 188,133 188,596 Other intangible assets, net 10,522 11,235 11,038 Equity interest investments 1,314 1,237 1,227 Operating lease assets 180,230 175,878 176,689 Other assets 20,396 19,017 19,902 Total assets $ 1,587,589 $ 1,481,408 $ 1,483,266 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 268,412 $ 214,309 $ 261,963 Accrued expenses and other current liabilities 145,420 81,459 60,813 Short-term borrowings and current portion of long-term debt 11,709 11,840 11,745 Current operating lease liabilities 56,977 56,025 56,325 Total current liabilities 482,518 363,633 390,846 Deferred income taxes 29,476 27,951 32,598 Long-term debt, net 328,225 535,720 499,662 Other long-term liabilities 32,846 26,737 27,970 Non-current operating lease liabilities 125,023 121,397 122,010 Total liabilities 998,088 1,075,438 1,073,086 Stockholders’ equity: Common stock, $ 0.001 par value; 100,000,000 shares authorized; 40,153,287 , 40,020,216 and 40,074,160 shares issued and outstanding at September 30, 2020, September 30, 2019 and December 31, 2019, respectively 40 40 40 Additional paid-in capital 513,030 480,478 485,239 Retained earnings (deficit) 98,033 ( 60,743 ) ( 64,740 ) Accumulated other comprehensive loss ( 21,602 ) ( 13,805 ) ( 10,359 ) Total stockholders’ equity 589,501 405,970 410,180 Total liabilities and stockholders’ equity $ 1,587,589 $ 1,481,408 $ 1,483,266 (1) Derived from audited financial statements. The accompanying Notes are an integral part of the Consolidated Financial Statements. 3 POOL CORPORATION Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine Months Ended September 30, 2020 2019 Operating activities Net income $ 307,565 $ 243,551 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 20,979 20,648 Amortization 975 1,049 Share-based compensation 11,095 10,243 Equity earnings in unconsolidated investments, net ( 248 ) ( 210 ) Impairment of goodwill and other assets 6,944 — Other 1,092 5,334 Changes in operating assets and liabilities, net of effects of acquisitions: Receivables ( 135,129 ) ( 98,538 ) Product inventories 99,767 68,827 Prepaid expenses and other assets 311 1,231 Accounts payable 3,385 ( 29,782 ) Accrued expenses and other current liabilities 72,178 20,900 Net cash provided by operating activities 388,914 243,253 Investing activities Acquisition of businesses, net of cash acquired ( 24,655 ) ( 8,913 ) Purchases of property and equipment, net of sale proceeds ( 16,897 ) ( 26,926 ) Net cash used in investing activities ( 41,552 ) ( 35,839 ) Financing activities Proceeds from revolving line of credit 749,840 836,534 Payments on revolving line of credit ( 909,637 ) ( 1,011,430 ) Proceeds from asset-backed financing 261,700 189,000 Payments on asset-backed financing ( 266,700 ) ( 136,300 ) Payments on term facility ( 6,938 ) — Proceeds from short-term borrowings and current portion of long-term debt 13,255 27,633 Payments on short-term borrowings and current portion of long-term debt ( 13,291 ) ( 24,962 ) Payments of deferred financing costs ( 12 ) — Payments of deferred and contingent acquisition consideration ( 281 ) ( 311 ) Proceeds from stock issued under share-based compensation plans 16,696 17,042 Payments of cash dividends ( 68,599 ) ( 61,752 ) Purchases of treasury stock ( 76,194 ) ( 23,188 ) Net cash used in financing activities ( 300,161 ) ( 187,734 ) Effect of exchange rate changes on cash and cash equivalents ( 1,035 ) 655 Change in cash and cash equivalents 46,166 20,335 Cash and cash equivalents at beginning of period 28,583 16,358 Cash and cash equivalents at end of period $ 74,749 $ 36,693 The accompanying Notes are an integral part of the Consolidated Financial Statements. 4 POOL CORPORATION Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) (In thousands) Common Stock Additional Paid-In Retained Earnings Accumulated Other Comprehensive Shares Amount Capital (Deficit) Loss Total Balance at December 31, 2019 40,074 $ 40 $ 485,239 $ ( 64,740 ) $ ( 10,359 ) $ 410,180 Net income — — — 30,912 — 30,912 Foreign currency translation — — — — ( 5,430 ) ( 5,430 ) Interest rate swaps, net of the change in taxes of $ 2,837 — — — — ( 8,510 ) ( 8,510 ) Repurchases of common stock, net of retirements ( 362 ) — — ( 66,619 ) — ( 66,619 ) Share-based compensation — — 3,654 — — 3,654 Issuance of stock under share-based compensation plans 219 — 6,358 — — 6,358 Declaration of cash dividends — — — ( 22,147 ) — ( 22,147 ) Balance at March 31, 2020 39,931 40 495,251 ( 122,594 ) ( 24,299 ) 348,398 Net income — — — 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 Net income — — — 119,098 — 119,098 Foreign currency translation — — — — 2,976 2,976 Interest rate swaps, net of the change in taxes of $( 51 ) — — — — 154 154 Repurchases of common stock, net of retirements ( 20 ) — — ( 5,990 ) — ( 5,990 ) Share-based compensation — — 3,874 — — 3,874 Issuance of shares under share-based compensation plans 131 — 5,885 — — 5,885 Declaration of cash dividends — — — ( 23,287 ) — ( 23,287 ) Balance at September 30, 2020 40,153 $ 40 $ 513,030 $ 98,033 $ ( 21,602 ) $ 589,501 5 Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Shares Amount Capital Deficit Loss Total Balance at December 31, 2018 39,506 $ 40 $ 453,193 $ ( 218,646 ) $ ( 10,997 ) $ 223,590 Net income — — — 32,637 — 32,637 Foreign currency translation — — — — 214 214 Interest rate swaps, net of the change in taxes of $ 90 — — — — ( 269 ) ( 269 ) Repurchases of common stock, net of retirements ( 155 ) ( 1 ) — ( 23,096 ) — ( 23,097 ) Share-based compensation — — 3,259 — — 3,259 Adoption of ASU 2016-02 — — — ( 709 ) — ( 709 ) Issuance of stock under share-based compensation plans 328 1 7,070 — — 7,071 Declaration of cash dividends — — — ( 17,819 ) — ( 17,819 ) Balance at March 31, 2019 39,679 40 463,522 ( 227,633 ) ( 11,052 ) 224,877 Net income — — — 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 Net income — — — 79,525 — 79,525 Foreign currency translation — — — — ( 2,156 ) ( 2,156 ) Interest rate swaps, net of the change in taxes of $ 188 — — — — ( 565 ) ( 565 ) Repurchases of common stock, net of retirements ( 1 ) — — ( 92 ) — ( 92 ) Share-based compensation — — 3,649 — — 3,649 Issuance of shares under share-based compensation plans 123 — 4,439 — — 4,439 Declaration of cash dividends — — — ( 21,999 ) — ( 21,999 ) Balance at September 30, 2019 40,020 $ 40 $ 480,478 $ ( 60,743 ) $ ( 13,805 ) $ 405,970 The accompanying Notes are an integral part of the Consolidated Financial Statements. 6 POOL CORPORATION Notes to Consolidated Financial Statements (Unaudited) Note 1 – Summary of Significant Accounting Policies Pool Corporation (the Company , which may be referred to as we, us or our ) prepared the unaudited interim Consolidated Financial Statements following U.S. generally accepted accounting principles (GAAP) and the requirements of the Securities and Exchange Commission (SEC) for interim financial information. As permitted under those rules, we have condensed or omitted certain footnotes and other financial information required for complete financial statements. The interim Consolidated Financial Statements include all normal and recurring adjustments that are necessary for a fair presentation of our financial position and operating results. All significant intercompany accounts and intercompany transactions have been eliminated. A description of our significant accounting policies is included in our 2019 Annual Report on Form 10-K. 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 and nine month periods ended September 30, 2020 are not necessarily indicative of the expected results for our fiscal year ending December 31, 2020. Newly Adopted Accounting Pronouncements On January 1, 2020, we adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and all related amendments, which are codified into Accounting Standards Codification (ASC) 326, using the cumulative-effect transition method related to our trade receivables. This new standard changes the way companies evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. 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, 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. We adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, for our interim impairment tests performed in the period ended March 31, 2020. This new standard eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (commonly referred to as Step 2 under the previous guidance). Rather, the measurement of a goodwill impairment charge is based on the excess of a reporting unit’s carrying value over its fair value (Step 1 under the previous guidance). The impact of the new standard is dependent on the specific facts and circumstances of individual impairments, if any. The adoption of this guidance did not impact our results of operations, statement of financial position or cash flows. On January 1, 2020, we adopted ASU 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, on a prospective basis. This new standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The adoption of this guidance did not materially impact our results of operations, statement of financial position or cash flows. Allowance for Doubtful Accounts We record trade receivables at the invoiced amounts less an allowance for doubtful accounts for estimated losses we may incur if customers do not pay. We perform periodic credit evaluations of our customers, and we typically do not require collateral. 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. 7 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 nine months 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. The following table summarizes the changes in our allowance for doubtful accounts (in thousands): Nine Months Ended September 30, 2020 2019 Balance at beginning of period $ 5,472 $ 6,182 Bad debt expense 1,667 2,639 Write-offs, net of recoveries ( 1,844 ) ( 2,642 ) Balance at end of period $ 5,295 $ 6,179 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. 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 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 $ 3.7 million at September 30, 2020, and three reporting units in Quebec, Canada, with an aggregate goodwill balance of $ 2.6 million at September 30, 2020. The determination of our reporting units’ goodwill and intangibles fair values includes numerous assumptions that are subject to various risks and uncertainties. The principal assumptions, all of which are considered Level 3 inputs, used in our cash flow analyses consisted of changes in market conditions, forecasted future operating results (including sales growth rates and operating margins) and discount rates (including our weighted-average cost of capital). Income Taxes We reduce federal and state income taxes payable by the tax benefits associated with the exercise of nonqualified stock options and the lapse of restrictions on restricted stock awards. To the extent realized tax deductions exceed the amount of previously recognized deferred tax benefits related to share-based compensation, we record an excess tax benefit. 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 $ 8.5 million in the third quarter of 2020 compared to $ 4.5 million in the third quarter of 2019 and $ 22.6 million in the nine months ended September 30, 2020 compared to $ 21.1 million in the nine months ended September 30, 2019. 8 Retained Earnings We account for the retirement of treasury shares as a reduction of Retained earnings (deficit). As of September 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 $ 647.5 million. Accumulated Other Comprehensive Loss The table below presents the components of our Accumulated other comprehensive loss balance (in thousands): September 30, December 31, 2020 2019 2019 Foreign currency translation adjustments $ ( 10,447 ) $ ( 13,156 ) $ ( 10,127 ) Unrealized losses on interest rate swaps, net of tax ( 11,155 ) ( 649 ) ( 232 ) Accumulated other comprehensive loss $ ( 21,602 ) $ ( 13,805 ) $ ( 10,359 ) Recent Accounting Pronouncements Pending Adoption The following table summarizes the recent accounting pronouncements that we plan to adopt in future periods: Standard Description Effective Date Effect on Financial Statements and Other Significant Matters ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes Simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. 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 standard will have on our financial position, results of operations and related disclosures. We do not expect that there will be a material impact to the financial statements as a result of adopting this ASU. ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting Provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include: contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made. 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 standard will have on our financial position, results of operations and related disclosures. Note 2 – Earnings Per Share We calculate basic earnings per share (EPS) by dividing Net income by the weighted average number of common shares outstanding. Diluted EPS reflects the dilutive effects of potentially dilutive securities, which include in-the-money outstanding stock options and shares to be purchased under our employee stock purchase plan. Using the treasury stock method, the effect of dilutive securities includes these additional shares of common stock that would have been outstanding based on the assumption that these potentially dilutive securities had been issued. 9 Stock options with exercise prices that are higher than the average market prices of our common stock for the periods presented are excluded from the diluted EPS calculation because the effect is anti-dilutive. 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 Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net income $ 119,098 $ 79,525 $ 307,565 $ 243,551 Weighted average shares outstanding: Basic 40,123 39,933 40,073 39,750 Effect of dilutive securities: Stock options and employee stock purchase plan 716 932 776 1,061 Diluted 40,839 40,865 40,849 40,811 Earnings per share: Basic $ 2.97 $ 1.99 $ 7.68 $ 6.13 Diluted $ 2.92 $ 1.95 $ 7.53 $ 5.97 Anti-dilutive stock options excluded from diluted earnings per share computations — — — 1 Note 3 – Acquisitions In September 2020, we acquired the distribution assets of Northeastern Swimming Pool Distributors, Inc., a wholesale distributor of swimming pool equipment, chemicals and supplies, adding two locations in Ontario, Canada and one location in Quebec, Canada. In February 2020, we acquired the distribution assets of Master Tile Network LLC, a wholesale distributor of swimming pool tile and hardscape products, adding two locations in Texas, one location in Nevada and one location in Oklahoma. We have completed our acquisition accounting for these acquisitions, subject to adjustments for standard holdback provisions per the terms of the purchase agreements, which are not material. In January 2019, we acquired the distribution assets of W.W. Adcock, Inc., a wholesale distributor of swimming pool products, equipment, parts and supplies, adding two locations in Pennsylvania, one location in North Carolina and one location in Virginia. We have completed our acquisition accounting for this acquisition. Subsequent to September 30, 2020, in October 2020, we acquired Jet Line Products, Inc., a wholesale distributor of swimming pool equipment, chemicals and supplies, adding three locations in New Jersey, three locations in New York, two locations in Texas and one location in Florida. These acquisitions did not have a material impact on our financial position or results of operations, either individually or in the aggregate. 10 Note 4 – Fair Value Measurements and Interest Rate Swaps Our assets and liabilities that are measured at fair value on a recurring basis include the unrealized gains or losses on our interest rate swap contracts and contingent consideration related to recent acquisitions. The three levels of the fair value hierarchy under the accounting guidance are described below: Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 Inputs to the valuation methodology include: • quoted prices for similar assets or liabilities in active markets; • quoted prices for identical or similar assets or liabilities in inactive markets; • inputs other than quoted prices that are observable for the asset or liability; or • inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Recurring Fair Value Measurements 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 September 30, 2020 2019 Level 2 Unrealized gains on interest rate swaps $ — $ 631 Unrealized losses on interest rate swaps 14,828 1,532 Level 3 Contingent consideration liabilities $ 869 $ 745 Interest Rate Swaps We utilize interest rate swap contracts and forward-starting interest rate swap contracts to reduce our exposure to fluctuations in variable interest rates for future interest payments on our variable rate borrowings. For determining the fair value of our interest rate swap and forward-starting interest rate swap contracts, we use significant other observable market data or assumptions (Level 2 inputs) that we believe market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk. Our fair value estimates reflect an income approach based on the terms of the interest rate swap contracts and inputs corroborated by observable market data including interest rate curves. We include unrealized gains in Prepaid expenses and other current assets and unrealized losses in Accrued expenses and other current liabilities on the Consolidated Balance Sheets. We recognize any differences between the variable interest rate in effect and the fixed interest rates per our swap contracts as an adjustment to interest expense over the life of the swaps. If determined to be effective cash flow hedges, we record the changes in the estimated fair value of the swaps to Accumulated other comprehensive loss on our Consolidated Balance Sheets. If any of our interest rate swaps were determined to be ineffective, we would 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 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. For this interest rate swap, we have not recognized any gains or losses through income, nor has there been any effect on income from hedge ineffectiveness over the term of the swap contract. 11 The following table provides additional details related to this swap contract: Derivative Inception Date Effective Date Termination Date Notional Amount (in millions) Fixed Interest Rate 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 September 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 nine month period ended September 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. These swap contracts will convert the variable interest rate to a fixed interest rate on our variable rate borrowings. The following table provides details related to each of our forward-starting interest rate swap contracts: Derivative Inception Date Effective Date Termination Date Notional Amount (in millions) Fixed Interest Rate Forward-starting interest rate swap 1 May 7, 2019 November 20, 2020 September 29, 2022 $ 75.0 2.0925 % Forward-starting interest rate swap 2 July 25, 2019 November 20, 2020 September 29, 2022 $ 75.0 1.5500 % Forward-starting interest rate swap 3 February 5, 2020 February 26, 2021 February 28, 2025 $ 150.0 1.3800 % Forward-starting interest rate swap 4 March 9, 2020 September 29, 2022 February 26, 2027 $ 150.0 0.7400 % Forward-starting interest rate swap 5 March 9, 2020 February 28, 2025 February 26, 2027 $ 150.0 0.8130 % Failure of our swap counterparties would result in the loss of any potential benefit to us under our swap agreements. In this case, we would still be obligated to pay the variable interest payments underlying our debt agreements. Additionally, failure of our swap counterparties would not eliminate our obligation to continue to make payments under our existing swap agreements if we continue to be in a net pay position. Our interest rate swap and forward-starting interest rate swap contracts are subject to master netting arrangements. According to our accounting policy, we do not offset the fair values of assets with the fair values of liabilities related to these contracts. 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 amounts of our Australian reporting units. See Goodwill and Intangibles Impairment within Note 1 for more information on goodwill and intangibles impairment recognized in the period ended March 31, 2020. Other 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). The carrying value of long-term debt approximates fair value (Level 3 inputs). Our determination of the estimated fair value reflects a discounted cash flow model using our estimates, including assumptions related to borrowing rates (Level 3 inputs). 12 Note 5 – Debt The table below presents the components of our debt (in thousands): September 30, 2020 2019 Variable rate debt Short-term borrowings $ — $ 2,116 Current portion of long-term debt: Australian credit facility 11,709 9,724 Short-term borrowings and current portion of long-term debt 11,709 11,840 Long-term portion: Revolving credit facility 40,876 375,235 Term facility 178,062 — Receivables securitization facility 110,000 161,200 Less: financing costs, net 713 715 Long-term debt, net 328,225 535,720 Total debt $ 339,934 $ 547,560 Our accounts receivable securitization facility (the Receivables Facility) provides for the sale of certain of our receivables to a wholly owned subsidiary (the Securitization Subsidiary). The Securitization Subsidiary transfers variable undivided percentage interests in the receivables and related rights to certain third-party financial institutions in exchange for cash proceeds, limited to the applicable funding capacities. We account for the sale of the receivable interests as a secured borrowing on our Consolidated Balance Sheets. The receivables subject to the agreement collateralize the cash proceeds received from the third-party financial institutions. We classify the entire outstanding balance as Long-term debt, net on our Consolidated Balance Sheets as we intend and have the ability to refinance the obligations on a long-term basis. We present the receivables that collateralize the cash proceeds separately as Receivables pledged under receivables facility on our Consolidated Balance Sheets. 13