What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-25 compared with 2020-02-27 · 145 added, 182 removed, 872 unchanged (27% of the section changed)

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Selling and administrative expenses 659,931 583,679 556,284

Impairment of goodwill and other assets 6,944 — —

Operating income 464,027 341,246 313,889

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Net income $ 366,738 $ 261,575 $ 234,461

Net loss attributable to noncontrolling interest — — 294

Net income attributable to Pool Corporation $ 261,575 $ 234,461 $ 191,633

Earnings per share:

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Net income $ 366,738 $ 261,575 $ 234,461

Other comprehensive income (loss):

Other comprehensive (loss) income:

Foreign currency translation adjustments 5,210 2,295 ( 4,945 )

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( 8,870 ) ( 1,657 ) 1,276

Total other comprehensive income (loss) 638 ( 3,669 ) 6,750

Total other comprehensive (loss) income ( 3,660 ) 638 ( 3,669 )

Comprehensive income $ 363,078 $ 262,213 $ 230,792

Comprehensive loss attributable to noncontrolling interest — — 74

Comprehensive income attributable to Pool Corporation $ 262,213 $ 230,792 $ 198,163

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

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Additional paid-in capital 519,579 485,239

Retained deficit ( 64,740 ) ( 218,646 )

Retained earnings (deficit) 133,870 ( 64,740 )

Accumulated other comprehensive loss ( 14,019 ) ( 10,359 )

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Provision for inventory obsolescence, net of write-offs 2,362 1,310 1,462

Provision (benefit) for deferred income taxes 3,723 4,661 ( 4,636 )

Gains on sales of property and equipment ( 85 ) ( 289 ) ( 285 )

(Benefit) provision for deferred income taxes ( 2,542 ) 3,723 4,661

Losses (gains) on sales of property and equipment 38 ( 85 ) ( 289 )

Equity earnings in unconsolidated investments, net ( 295 ) ( 262 ) ( 242 )

Net losses (gains) on foreign currency transactions 1,347 560 ( 171 )

Impairment of other non-operating asset — — 1,200

Net losses on foreign currency transactions 1,748 1,347 560

Impairment of goodwill and other assets 6,944 — —

Other 410 3,313 808

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Purchases of property and equipment, net of sale proceeds ( 21,702 ) ( 33,362 ) ( 31,580 )

Other investments, net — — 4

Net cash used in investing activities ( 146,289 ) ( 42,263 ) ( 34,158 )

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Proceeds from term facility — 185,000 —

Payments on term facility ( 9,250 ) — —

Proceeds from short-term borrowings and current portion of long-term debt 13,822 30,863 17,127

Payments on short-term borrowings and current portion of long-term debt ( 13,698 ) ( 28,286 ) ( 18,793 )

Payments on deferred and contingent acquisition consideration ( 312 ) ( 661 ) ( 324 )

Purchase of redeemable non-controlling interest — — ( 2,573 )

Payments of deferred financing costs ( 12 ) ( 406 ) ( 106 )

Payments on deferred and contingent acquisition consideration ( 281 ) ( 312 ) ( 661 )

Proceeds from stock issued under share-based compensation plans 19,824 18,574 13,569

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Common Stock Additional

Paid-In Retained Accumulated

Paid-In Retained Earnings Accumulated

Comprehensive

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Balance at December 31, 2017 40,212 $ 40 $ 426,750 $ ( 196,316 ) $ ( 7,328 ) $ 223,146

Net income attributable to Pool Corporation

— — — 234,461 — 234,461

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— — 12,874 — — 12,874

Issuance of shares under incentive stock plans

Issuance of stock under share-based compensation plans

585 — 13,569 — — 13,569

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— — — ( 69,322 ) — ( 69,322 )

Redemption value adjustment of redeemable non-controlling interest

— — ( 360 ) — — ( 360 )

Balance at December 31, 2018 39,506 40 453,193 ( 218,646 ) ( 10,997 ) 223,590

Net income attributable to Pool Corporation

— — — 261,575 — 261,575

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— — 13,472 — — 13,472

Issuance of shares under incentive stock plans

Adoption of ASU 2016-02 — — — ( 709 ) — ( 709 )

Issuance of stock under share-based compensation plans

723 — 18,574 — — 18,574

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Balance at December 31, 2019 40,074 40 485,239 ( 64,740 ) ( 10,359 ) 410,180

Net income attributable to Pool Corporation

— — — 366,738 — 366,738

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— — 14,516 — — 14,516

Adoption of ASU 2016-02 — — — ( 709 ) — ( 709 )

Issuance of shares under incentive stock plans

Issuance of stock under share-based compensation plans

559 — 19,824 — — 19,824

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The Consolidated Financial Statements include the accounts of Pool Corporation and our subsidiaries.

All significant intercompany accounts and intercompany transactions have been eliminated.

All of our subsidiaries are wholly owned.

From July 31, 2014 to June 29, 2017, we owned a 60 % interest in Pool Systems Pty.

(PSL), an Australian company.

Our ownership percentage constituted a controlling interest in the acquired company, which required us to consolidate PSL’s financial position and results of operations from the date of acquisition.

On June 29, 2017, we purchased the remaining 40% interest in PSL.

Thus, we have continued to consolidate PSL, but there is no longer a separate noncontrolling interest reported on our Consolidated Statements of Income, nor Redeemable noncontrolling interest reported on our Consolidated Balance Sheets.

All significant intercompany accounts and intercompany transactions have been eliminated.

Use of Estimates

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Newly Adopted Accounting Pronouncements

On January 1, 2019, we adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), and all the related amendments, which are codified into Accounting Standards Codification (ASC) 842.

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.

As the impact from adoption was not material, we did not recognize an adjustment to the beginning balance of retained earnings.

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 eliminated 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.

On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842), and all the related amendments, which are codified into ASC 842.

The adoption of ASU 2016-02 significantly increased assets and liabilities on our Consolidated Balance Sheet as we recorded a right-of-use asset and corresponding liability for each of our existing operating leases.

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The adoption of this guidance did not materially impact our results of operations or cash flows.

For additional information regarding our adoption of this new guidance, see Note 9.

On January 1, 2019, we adopted Accounting Standards Update (ASU) 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities.

The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness.

For additional information regarding our adoption of this guidance, see Note 9.

On January 1, 2019, we adopted ASU 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities.

The new guidance eliminated the requirement to separately measure and report hedge ineffectiveness.

For qualifying cash flow and net investment hedges, the change in the fair value of the hedging instrument will be recorded in Other Comprehensive Income (OCI), and amounts deferred in OCI will be reclassified to earnings in the same income statement line item that is used to present the earnings effect of the hedged item.

The adoption of this standard did not have a material impact on our financial position and we do not expect a material impact in future periods.

On January 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09, Revenue - Revenue from Contracts with Customers, and all the related amendments, which are also codified into Accounting Standards Codification (ASC) 606.

We elected to adopt this guidance using the modified retrospective method.

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

We did not restate prior period information for the effects of the new standard, nor did we adjust the opening balance of our retained deficit to account for the implementation of the new requirements of this standard.

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

See Revenue Recognition within this note for additional information.

On January 1, 2018, we adopted ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments .

The new guidance specifies how cash flows should be classified for debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds for the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance, distributions from equity method investees and beneficial interests in securitization transactions.

Our adoption of ASU 2016-15 had no impact on our Consolidated Statement of Cash Flows as our previous classifications related to contingent consideration payments and distributions from equity method investees is consistent with the requirements of ASU 2016-15.

Segment Reporting

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Under ASC 606, we recognize a sale when a customer obtains control of the product, and we record the amount that reflects the consideration we expect to receive in exchange for such product.

As under the previous accounting guidance, we continue to recognize a sale when a customer picks up product at any sales center, when we deliver product to their premises or job sites via our trucks or when we present the product to a third-party carrier.

We recognize a sale when a customer picks up product at any sales center, when we deliver product to their premises or job sites via our trucks or when we present the product to a third-party carrier.

For bill and hold sales, we determine when the customer obtains control of the product on a case-by-case basis to determine the amount of revenue to recognize each period.

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therefore, we do not have multiple performance obligations for which to allocate the transaction price.

We elected to continue to recognize shipping and handling costs associated with outbound freight in selling and administrative expenses.

We recognize shipping and handling costs associated with outbound freight in selling and administrative expenses.

We report sales net of tax amounts that we collect from our customers and remit to governmental authorities.

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$ 6,755 $ 7,842 $ 7,390

In December 2017, the Tax Cuts and Jobs Act (the Act) enactment significantly changed U.S.

Due to the complexities presented by the Act, particularly for companies with multi-national operations, the SEC issued Staff Accounting Bulletin (SAB) 118 (SAB 118) to provide guidance to allow companies to record provisional amounts based on reasonable estimates.

As a result of this guidance, we recorded a provisional net benefit to our income tax provision in the fourth quarter of 2017.

We filed our federal income tax return in the third quarter of 2018, and our return to provision adjustment, which addresses the provisional tax benefit we recorded under SAB 118 at December 31, 2017, was not material.

We have considered the impact of the statutory changes from the Act on our estimated effective tax rate for 2019, including reasonable estimates of those provisions effective for the 2019 tax year.

The Act also created a new requirement that certain income earned by foreign subsidiaries, global intangible low-taxed income (GILTI), be included in the gross income of their U.S.

Entities may make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or recognize such taxes as a current-period expense when incurred.

We elected to treat the tax effect of GILTI as a current-period expense when incurred.

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.

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

We record Global Intangible Low Tax Income (GILTI) on foreign earnings as period costs if and when incurred, although we have not realized any impacts since the enactment of U.S.

tax reform enacted in December 2017.

For additional information regarding income taxes, see Note 7.

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Earnings Per Share

We calculate basic earnings per share (EPS) by dividing Net income or loss attributable to Pool Corporation by the weighted average number of common shares outstanding.

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.

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We include realized transaction gains and losses that arise from exchange rate fluctuations in Interest and other non-operating expenses, net on the Consolidated Statements of Income.

We realized a net foreign currency transaction loss of $ 1.3 million in 2019, which included a $ 0.9 million reclassification from Accumulated other comprehensive loss related to the closing of our sales center in Colombia.

We realized a net foreign currency transaction loss of $ 0.6 million in 2018 and a gain of $ 0.2 million in 2017.

We realized net foreign currency transaction losses of $ 1.7 million in 2020, $ 1.3 million in 2019 and $ 0.6 million in 2018.

In 2019, our net foreign currency transaction loss included a $ 0.9 million reclassification from Accumulated other comprehensive loss related to the closing of our sales center in Colombia.

Fair Value Measurements

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Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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):

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 December 31,

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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).

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 as defined in the accounting guidance) that we believe market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk.

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.

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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).

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 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, and $ 2.5 million from a long-term note, as collectability was impacted by the COVID-19 pandemic.

For additional discussion of goodwill and intangibles impairment, see Note 3.

Derivatives and Hedging Activities

If determined to be effective cash flow hedges, we record the changes in the estimated fair value of our interest rate swap contracts to Accumulated other comprehensive income (loss) on the Consolidated Balance Sheets.

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

We assess hedge effectiveness on a quarterly basis.

Our interest rate swap and forward-starting interest rate swap contracts are subject to master netting arrangements.

At inception, we formally designate and document our interest rate swap contracts that qualify for hedge accounting as cash flow hedges of interest payments on variable rate borrowings.

We formally assess, both at inception and at least quarterly, whether the financial instruments used in hedging transactions are effective at offsetting changes in cash flows of the related underlying exposure.

To the extent our derivatives are effective in offsetting the variability of the hedged cash flows, we record the changes in the estimated fair value of our interest rate swap contracts to Accumulated other comprehensive income (loss) on the Consolidated Balance Sheets.

Our interest rate swap contracts 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.

We recognize any differences between the variable interest rate in effect and the fixed interest rate per our swap contracts as an adjustment to interest expense over the life of the swaps.

For our interest rate swap contract currently in effect, a portion of the change in the estimated fair value between periods relates to future interest expense.

For our interest rate swap contracts currently in effect, 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 income (loss) to Interest and other non-operating expenses, net on the Consolidated Statements of Income.

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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.

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

Additionally, we perform a separate reserve analysis on the balance of our accounts receivables with emphasis on the remainder of the past due portion of the aging.

Management estimates future losses based on 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.

At the end of each quarter, we 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.

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

• the level of inventory in relation to historical sales by product, including inventory usage by class based on product sales at both the sales center and on a company-wide basis;

• the level of inventory in relation to historical sales by product, including inventory usage by classification based on product sales at both the sales center and on a company-wide basis;

• changes in customer preferences or regulatory requirements;

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These assumptions are considered unobservable inputs (Level 3 inputs as defined in the accounting guidance).

If the estimated fair value of any of our reporting units falls below its carrying value, we compare the estimated fair value of the reporting unit’s goodwill to its carrying value.

If the carrying value of a reporting unit’s goodwill exceeds its estimated fair value, we perform a calculation to measure impairment, which includes valuing the tangible and intangible assets.

To the extent the carrying value of a reporting unit is greater than its estimated fair value, we record a goodwill impairment charge for the difference, up to the carrying value of the goodwill.

We recognize any impairment loss in operating income.

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Our management reviews these reserves based on consideration of various factors, including but not limited to the age of existing claims, estimated settlement amounts and other historical claims data.

Redeemable Noncontrolling Interest

In July 2014, we purchased a controlling interest in PSL.

Included in the transaction documents was a put/call option deed that granted us an option to purchase the shares held by the noncontrolling interest and granted the holder of the noncontrolling interest an option to require us to purchase its shares in one or two transactions.

In applying the guidance for this transaction, we determined that the financial instrument was embedded in the noncontrolling interest.

As a public company, we were required to classify the noncontrolling interest and the embedded financial instrument as redeemable noncontrolling interest in a separate section of our Consolidated Balance Sheets, between liabilities and equity.

On June 29, 2017, we purchased the remaining 40% interest in PSL.

The actual redemption value exceeded the carrying amount, and we recorded an adjustment to Additional paid in capital as there were no retained earnings attributable to the noncontrolling interest.

The table below presents the changes in Redeemable noncontrolling interest (in thousands):

2019 2018 2017

Redeemable noncontrolling interest, beginning of period $ — $ — $ 2,287

Redemption value adjustment of noncontrolling interest — — 360

Net loss attributable to noncontrolling interest — — ( 294 )

Other comprehensive income attributable to noncontrolling interest — — 220

purchase of redeemable noncontrolling interest — — 2,573

Redeemable noncontrolling interest, end of period $ — $ — $ —

Accumulated Other Comprehensive Loss

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Foreign currency translation adjustments $ ( 4,917 ) $ ( 10,127 )

Unrealized (losses) gains on interest rate swaps, net of tax (1)

Unrealized losses on interest rate swaps, net of tax

( 9,102 ) ( 232 )

Accumulated other comprehensive loss $ ( 14,019 ) $ ( 10,359 )

(1) In February 2018, the Financial Accounting Standards Board (FASB) issued guidance that allows entities the option to reclassify the tax effects related to items in accumulated other comprehensive income (loss) to retained earnings (deficit) if deemed to be stranded in accumulated other comprehensive income (loss) due to U.S.

We do not have any material amounts stranded in Accumulated other comprehensive loss from U.S.

Retained Deficit

We account for the retirement of treasury share repurchases as an increase of our Retained deficit on our Consolidated Balance Sheets.

As of December 31, 2019, the retained deficit 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 $ 1,450.0 million and cumulative dividends of $ 578.9 million.

Retained Earnings

We account for the retirement of treasury share repurchases as an increase of our Retained earnings (deficit) on our Consolidated Balance Sheets.

As of December 31, 2020, the retained earnings 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 $ 670.8 million.

Supplemental Cash Flow Information

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Standard Description Effective Date Effect on Financial Statements and Other Significant Matters

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments

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 will be 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 guidance must be applied using a cumulative-effect transition method.

Annual periods beginning after December 15, 2019 We do not expect this accounting pronouncement will have a material impact on our financial position or results of operations.

ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment

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 current guidance).

Rather, the measurement of a goodwill impairment charge will be based on the excess of a reporting unit’s carrying value over its fair value (Step 1 under the current guidance).

This guidance should be applied prospectively.

Annual and interim impairment tests performed in periods beginning after December 15, 2019 We do not expect this accounting pronouncement will have a material impact on our financial positions, results of operations and related disclosures.

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

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 amendments may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

Annual periods beginning after December 15, 2019 We do not expect this accounting pronouncement will have a material impact on our financial positions, results of operations and related disclosures.

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.

This guidance should generally be applied prospectively.

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.

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 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 - Acquisitions

2020 Acquisitions

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.

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.

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.

In December 2020, we acquired TWC Distributors, Inc., a wholesale distributor of irrigation and landscape maintenance products, adding nine locations in Florida and one in Georgia.

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.

These acquisitions did not have a material impact on our financial position or results of operations, either individually or in the aggregate.

2019 Acquisitions

In January 2019, we acquired the distribution assets of W.W.

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In January 2018, we acquired the distribution assets of Tore Pty.

(doing business as Pool Power), a wholesale distributor of pool and spa equipment in South Australia, with one distribution center in Adelaide, Australia.

(doing business as Pool Power), a wholesale distributor of pool and hot tub equipment in South Australia, with one distribution center in Adelaide, Australia.

In November 2018, we acquired the distribution assets of Turf & Garden, Inc., a wholesale distributor of irrigation products and landscape maintenance equipment, parts and supplies with three locations in Virginia and one location in North Carolina.

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These acquisitions did not have a material impact on our financial position or results of operations, either individually or in the aggregate.

2017 Acquisitions

In April 2017, we acquired the distribution assets of Lincoln Equipment, Inc.

(Lincoln Aquatics), a national distributor of equipment and supplies to commercial and institutional swimming pool customers, with one location in California.

In July 2017, we acquired New Star Holdings Pty.

(doing business as Newline Pool Products), a swimming pool equipment and supplies distributor with one distribution center in Brisbane, Australia.

In October 2017, we acquired E-Grupa, a national swimming pool equipment and supplies distributor, with one location in Croatia.

In December 2017, we acquired Kripsol Intermark Malaga S.L.

(Intermark), a swimming pool equipment and supplies distributor, with one location in southern Spain.

In December 2017, we acquired the distribution assets of Chem Quip, Inc.

(Chem Quip), a wholesale distributor of residential and commercial swimming pool equipment, chemicals and supplies, with five distribution locations in central and northern California.

We have completed our acquisition accounting for these acquisitions.

These acquisitions did not have a material impact on our financial position or results of operations, either individually or in the aggregate.

Note 3 - Goodwill and Other Intangible Assets

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Goodwill (gross) at December 31, 2018 $ 198,351

Acquired goodwill 334

Foreign currency translation adjustments 124

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Goodwill (gross) at December 31, 2019 $ 198,475

Acquired goodwill 82,497

Foreign currency translation adjustments 584

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Goodwill (net) at December 31, 2020 $ 268,167

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).

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 recorded these amounts in Impairment of goodwill and other assets on our Consolidated Statements of Income.

In October 2020 and October 2019, we performed our annual goodwill impairment test and did not record any goodwill impairment at the reporting unit level.

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Total other intangibles $ 16,817 $ ( 4,636 ) $ 12,181 $ 15,971 $ ( 4,933 ) $ 11,038

The Horizon and Pool Systems tradenames and trademarks have indefinite useful lives and are not subject to amortization.

However, we evaluate the useful lives of these intangible assets and test for impairment annually.

The NPT tradename, our non-compete agreements and our patents have finite useful lives, and we amortize the estimated fair value of these agreements using the straight-line method over their respective useful lives.

The Horizon tradename has an indefinite useful life and is not subject to amortization.

However, we evaluate the useful life of this intangible asset and test for impairment annually.

The NPT tradename and our non-compete agreements have finite useful lives, and we amortize the estimated fair value of these agreements using the straight-line method over their respective useful lives.

We have not identified any indicators of impairment related to these assets.

The useful lives for our non-compete agreements are based on their contractual terms, and the useful lives for our patents are based on expected future cash flows.

We recognize expenses related to patent renewal costs as incurred.

Other intangible amortization expense was $ 1.0 million in 2019, $ 1.1 million in 2018 and $ 1.0 million in 2017.

The useful lives for our non-compete agreements are based on their contractual terms.

Other intangible amortization expense was $ 1.0 million in both 2020 and 2019 and $ 1.1 million in 2018.

The table below presents estimated amortization expense for other intangible assets for the next five years (in thousands):

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Taxes payable 20,676 9,814

Unrealized losses on interest rate swaps 12,314 919

Other current liabilities 25,877 13,485

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Proceeds from the Term Facility were used to pay down the company's revolving credit facility, adding capacity for future share repurchases, acquisitions and growth-oriented working capital expansion.

The Term Facility will be repaid in quarterly installments of 1.250 % of the Term Facility on the last business day of each quarter beginning with the first quarter of 2020.

The total of the quarterly payments will be equal to 33.75 % of the Term Facility with the final principal repayment equal to 66.25 % of the Term Facility due on the Maturity Date.

The Term Facility is repaid in quarterly installments of 1.250 % of the Term Facility on the last business day of each quarter beginning in the first quarter of 2020.

We classify the entire outstanding balance as Long-term debt on our Consolidated Balance Sheets as we intend and have the ability to refinance the obligations on a long-term basis.

The total of the quarterly payments will be equal to 33.75 % of the Term Facility with the final principal repayment, equal to 66.25 % of the Term Facility, due on the maturity date.

Our obligations under the Term Facility are guaranteed by substantially all of our existing and future domestic subsidiaries.

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If we default under the Term Facility, the lenders may terminate their commitments under the Term Facility and may require us to repay all amounts.

At December 31, 2019, the Term Facility was fully drawn with an outstanding balance of $ 185.0 million at a weighted average effective interest rate of 2.5 %.

At December 31, 2020, the Term Facility had an outstanding balance of $ 175.8 million at a weighted average effective interest rate of 2.7 %.

Borrowings under the Term Facility bear interest, at our option, at either of the following and, in each case, plus an applicable margin:

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Other funding capacities range from $ 120.0 million to $ 275.0 million throughout the remaining months of the year.

The Receivables Facility matures on November 1, 2021.

We classify the entire outstanding balance as Long-term debt on our Consolidated Balance Sheets as we intend and have the ability to refinance the obligations on a long-term basis.

The Receivables Facility provides for the sale of certain of our receivables to a wholly owned subsidiary (the Securitization Subsidiary).

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Australian Seasonal Credit Facility

In the second quarter of 2017, PSL entered into a credit facility to fund expansion and supplement working capital needs.

In the second quarter of 2017, Pool Systems Pty.

(PSL) entered into a credit facility to fund expansion and supplement working capital needs.

The credit facility provides a borrowing capacity of AU$ 20.0 million.

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Our borrowing capacity is € 12.0 million.

Maturities of Long-Term Debt

The table below presents maturities of long-term debt, excluding unamortized deferred financing costs, for the next five years (in thousands):

2021 $ 141,119

Interest Rate Swaps

In 2019, we had three interest rate swap contracts in place, which became effective on October 19, 2016.

These swaps were previously forward-starting contracts that were amended in October 2015 to bring the fixed rates per our forward-starting contracts in line with market rates at that time and extend the hedged period for future interest payments on our variable rate borrowings.

These swap contracts terminated on November 20, 2019.

We recognized expense of $ 0.5 million in 2019, a benefit of $ 1.2 million in 2018 and a benefit of $ 2.4 million in 2017 as a result of ineffectiveness.

These amounts were recorded in Interest and other non-operating expenses, net on our Consolidated Statements of Income.

The following table provides additional details related to each of these amended swap contracts:

Derivative Amendment Date Notional

(in millions) Fixed

Interest rate swap 1 October 1, 2015 $ 75.0 2.273 %

Interest rate swap 2 October 1, 2015 25.0 2.111 %

Interest rate swap 3 October 1, 2015 50.0 2.111 %

Upon amendment of the original hedge agreements, we were required to freeze the amounts related to the changes in the fair values of these swaps, which are recorded in Accumulated other comprehensive loss.

On September 30, 2018, these balances became fully amortized.

We recorded expense of $ 1.4 million in 2018 and $ 1.9 million in 2017 as amortization of the unrealized loss in Interest and other non-operating expenses, net.

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

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 recognized no gains or losses through income, nor was there any effect on income from hedge ineffectiveness over the term of the swap contract.

This contract terminates on November 20, 2020.

In 2020, we had one interest rate swap contract in place, which became effective on November 20, 2019 and terminated on November 20, 2020 .

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

Interest expense related to the notional amount under this swap contract was based on the fixed rate plus the applicable margin on our variable rate borrowings.

The following table provides additional details related to this swap contract:

Derivative Inception Date Notional

Derivative Inception Date Effective Date Termination Date Notional

(in millions) Fixed

Interest rate swap 4 July 6, 2016 $ 150.0 1.1425 %

In May and July 2019, we entered into additional 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 contracts become effective on November 20, 2020 and terminate on September 29, 2022.

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

We currently have two interest rate swaps in place, which became effective on November 20, 2020 and terminate on September 29, 2022.

These swap contracts were previously forward-starting and convert the variable interest rate to fixed interest rates on our variable rate borrowings.

Interest expense related to the notional amounts under these swap contracts is based on the fixed rates plus the applicable margin on our variable rate borrowings.

Changes in the estimated fair value of these interest rate swap contracts are recorded to Accumulated other comprehensive loss on the Consolidated Balance Sheets.

The following table provides additional details related to these swap contracts:

Derivative Inception Date Notional

Derivative Inception Date Effective Date Termination Date Notional

(in millions) Fixed

Forward-starting interest rate swap 1 May 7, 2019 $ 75.0 2.0925 %

Forward-starting interest rate swap 2 July 25, 2019 $ 75.0 1.5500 %

On February 5, 2020, we entered into a forward-starting interest rate swap contract with a fixed interest rate of 1.3800 % on a notional amount of $ 150.0 million.

This contract becomes effective on February 26, 2021 and terminates on February 28, 2025.

The net difference between interest paid and interest received related to our swap agreements resulted in an incremental interest benefit of $ 0.3 million in 2019, and an expense of $ 0.3 million in 2018 and $ 1.7 million in 2017.

Interest Rate Swap 2 May 7, 2019 November 20, 2020 September 29, 2022 $ 75.0 2.0925 %

Interest Rate Swap 3 July 25, 2019 November 20, 2020 September 29, 2022 $ 75.0 1.5500 %

We have entered into additional 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

(in millions) Fixed

Forward-Starting Interest Rate Swap 1 February 5, 2020 February 26, 2021 February 28, 2025 $ 150.0 1.3800 %

Forward-Starting Interest Rate Swap 2 March 9, 2020 September 29, 2022 February 26, 2027 $ 150.0 0.7400 %

Forward-Starting Interest Rate Swap 3 March 9, 2020 February 28, 2025 February 26, 2027 $ 150.0 0.8130 %

The net difference between interest paid and interest received related to our swap agreements resulted in an incremental interest expense of $ 0.9 million in 2020, a benefit of $ 0.3 million in 2019 and an expense of $ 0.3 million in 2018.

Failure of our swap counterparties would result in the loss of any potential benefit to us under our swap agreements.

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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.

We previously had three interest rate swap contracts which became effective on October 19, 2016 and terminated on November 20, 2019.

Upon amendment of the original hedge agreements, we were required to freeze the amounts related to the changes in the fair values of these swaps, which were recorded in Accumulated other comprehensive loss.

These balances became fully amortized in 2018, and we recorded expense of $ 1.4 million in 2018 as amortization of the unrealized loss in Interest and other non-operating expenses, net.

We recognized expense of $ 0.5 million in 2019 and a benefit of $ 1.2 million in 2018 as a result of ineffectiveness.

We recorded these amounts in Interest and other non-operating expenses, net on our Consolidated Statements of Income.

Financial and Other Covenants

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however, if it is not met by the end of the extended performance period, then all shares of performance-based restricted stock will be immediately forfeited and canceled.

Since each grant date, we have concluded attainment of these performance conditions to be probable in the first three-year performance period of the performance-based grants for each of the performance-based grants from 2016 through 2019.

Further, we achieved the performance conditions for the 2017 and 2016 grants in the their respective first three-year performance periods.

For each of the performance-based grants from 2016 through 2018, we achieved the performance condition in the initial three-year performance period.

For the performance-based grants in 2019 and 2020, we have concluded that the performance condition is probable to be attained in the initial three-year performance period.

Stock Option Awards

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We estimated the expected term based on the vesting period of the awards and our historical exercise activity for awards with similar characteristics.

The weighted average expected term is impacted by a higher expected term estimate for stock option awards granted to our named executive officers.

In 2018, the weighted average expected term is impacted by a higher expected term estimate for stock option awards granted to our named executive officers.

There were no stock option awards granted to named executive officers in 2019 or 2020.

The risk-free interest rate is based on the U.S.

Treasury zero-coupon issues with a remaining term approximating the expected term of the option.

We determined the expected dividend yield based on the anticipated dividends over the expected term.

We determined the expected dividend yield based on the dividends we anticipate paying over the expected term.

For purposes of recognizing share-based compensation expense, we ratably expense the estimated fair value of employee stock options over the options’ requisite service period.

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At December 31, 2020, the unamortized compensation expense related to stock option awards totaled $ 2.8 million.

We anticipate that this expense will be recognized over a weighted average period of 2.3 years.

We anticipate recognizing this expense over a weighted average period of 2.6 years.

Restricted Stock Awards

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At December 31, 2020, the unamortized compensation expense related to the restricted stock awards totaled $ 12.7 million.

We anticipate that this expense will be recognized over a weighted average period of 2.8 years.

We anticipate recognizing this expense over a weighted average period of 2.9 years.

The table below presents the total number of restricted stock awards that vested for the past three years and the related fair value of those awards (in thousands, except share amounts):

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No more than 956,250 shares of our common stock may be issued under the ESPP.

For the two six month offering periods in 2019, 2018 and 2017, our employees purchased the following aggregate number of shares:

For the two six month offering periods in each of the last three years, our employees purchased the following aggregate number of shares:

2020 2019 2018

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Note 7 - Income Taxes

In December 2017, the Tax Cuts and Jobs Act (the Act) enactment significantly changed U.S.

As of December 31, 2017, we had not completed our accounting for the tax effects of the Act.

In accordance with SAB 118, we recorded provisional amounts related to the transition tax, impacts of the Act on state taxes, provisions of the Act related to deferred tax balances, and foreign tax implications.

As a result of the Act, we recorded a provisional tax benefit of $ 12.0 million in the fourth quarter of 2017, which primarily reflected the re-measurement of our net deferred tax liability to the new U.S.

Federal tax rate.

As of December 31, 2018, we resolved our contingent accounting related to the tax effects of the Act.

We filed our federal income tax return in the third quarter of 2018, and our return to provision adjustment, which addressed the provisional tax benefit recorded under SAB 118 and was not material.

We reduce federal and state income taxes payable by the tax benefits associated with the exercise of deductible nonqualified stock options and the lapse of restrictions on deductible restricted stock awards.

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Stock-based compensation ( 6.34 ) ( 7.40 ) ( 5.23 )

Re-measurement of net deferred tax liability — — ( 4.46 )

Other, primarily state income tax rate 4.43 3.99 4.42

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Depreciation 17,350 17,401

Interest rate swaps — 486

Total non-current 106,195 96,297

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As of December 31, 2020, United States income taxes were not provided on earnings or cash balances of our foreign subsidiaries, outside of the provisions of the transition tax from U.S.

tax reform enacted in December 2017.

As we have historically invested or expect to invest the undistributed earnings indefinitely to fund current cash flow needs in the countries where held, additional income tax provisions may be required.

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Net income $ 366,738 $ 261,575 $ 234,461

Net loss attributable to noncontrolling interest — — 294

Net income attributable to Pool Corporation $ 261,575 $ 234,461 $ 191,633

Weighted average shares outstanding:

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NCC owns and operates an office building in Covington, Louisiana.

We lease corporate and administrative offices from NCC, occupying approximately 60,000 square feet of office space and pay rent of $ 0.1 million per month.

We lease corporate and administrative offices from NCC, occupying approximately 60,000 square feet of office space, and we pay rent of $ 0.1 million per month.

Our lease term ends May 2025.

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Note 11 - Employee Benefit Plans

We offer a 401(k) savings and retirement plan, which is a defined contribution plan and provides benefits for substantially all employees who meet length of service requirements.

We offer a 401(k) savings and retirement plan, which is a defined contribution plan that provides benefits for substantially all employees who meet length of service requirements.

Eligible employees are able to contribute up to 75 % of their compensation, subject to the federal dollar limit.

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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-K

Item 8. Financial Statements and Supplementary Data