What changed in this filing

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Item 1. Financial Statements

2021-04-29 compared with 2020-10-30 · 46 added, 158 removed, 264 unchanged (44% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

Net sales $ 1,060,745 $ 677,288

6 unchanged sentences

Income before income taxes and equity earnings 126,449 30,799

Provision for income taxes 27,360 19,593 73,068 53,569

Income tax provision (benefit) 27,869 ( 25 )

Equity earnings in unconsolidated investments, net 75 88

11 unchanged sentences

(In thousands)

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

Net income $ 98,655 $ 30,912

Other comprehensive income (loss):

Foreign currency translation gains (losses) 2,976 ( 2,156 ) ( 320 ) ( 734 )

Foreign currency translation losses ( 1,268 ) ( 5,430 )

Change in unrealized gains (losses) on interest rate swaps, net of change in taxes of $( 3,046 ) and $ 2,837

6 unchanged sentences

(In thousands, except share data)

September 30, September 30, December 31,

March 31, March 31, December 31,

2021 2020 2020 (1)

30 unchanged sentences

40,086,256 , 39,930,962 and 40,232,210 shares issued and

outstanding at September 30, 2020, September 30, 2019 and

outstanding at March 31, 2021, March 31, 2020 and

December 31, 2020, respectively

9 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating activities

41 unchanged sentences

Common Stock Additional

Paid-In Retained Earnings Accumulated

Paid-In Retained Accumulated

Comprehensive

Shares Amount Capital (Deficit) Loss Total

Shares Amount Capital Earnings Loss Total

Balance at December 31, 2020 40,232 $ 40 $ 519,579 $ 133,870 $ ( 14,019 ) $ 639,470

13 unchanged sentences

Balance at March 31, 2021 40,086 $ 40 $ 526,328 $ 137,710 $ ( 6,150 ) $ 657,928

— — — 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

— — — 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

Common Stock Additional

12 unchanged sentences

— — 3,654 — — 3,654

Adoption of ASU 2016-02

— — — ( 709 ) — ( 709 )

Issuance of stock under share-based compensation plans

3 unchanged sentences

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

— — — 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

— — — 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.

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You should read the interim Consolidated Financial Statements in conjunction with the Consolidated Financial Statements and accompanying notes in our 2020 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.

The results for our three month period ended March 31, 2021 are not necessarily indicative of the expected results for our fiscal year ending December 31, 2021.

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.

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,

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).

On January 1, 2021, we adopted Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes .

This new standard simplified 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 were required to be applied on a prospective basis, while certain amendments were required to be applied on a retrospective or modified retrospective basis.

The adoption of this standard did not have a material impact on our consolidated financial statements or related disclosures, and we do not expect a material impact in future periods.

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.

1 unchanged sentence

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.

We recorded excess tax benefits of $ 4.0 million in the first quarter of 2021 compared to $ 8.0 million in the first quarter of 2020.

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.

As of March 31, 2021, 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 $ 1.6 billion and cumulative dividends of $ 694.1 million.

Accumulated Other Comprehensive Loss

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

September 30, December 31,

March 31, December 31,

2021 2020 2020

Foreign currency translation adjustments $ ( 6,185 ) $ ( 15,557 ) $ ( 4,917 )

Unrealized losses on interest rate swaps, net of tax

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

35 ( 8,742 ) ( 9,102 )

3 unchanged sentences

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

ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting and ASU 2021-01, Reference Rate Reform (Topic 848):

Provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.

3 unchanged sentences

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.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

The amendments in this ASU refine the scope of ASC 848 and clarify some of its guidance as it relates to recent rate reform activities.

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

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

Note 2 – Earnings Per Share

4 unchanged sentences

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

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

Net income $ 98,655 $ 30,912

9 unchanged sentences

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

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 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 unchanged sentences

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,

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

Fair Value at March 31,

Unrealized gains on interest rate swaps $ 8,180 $ —

3 unchanged sentences

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.

For determining the fair value of our interest rate swap contracts 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.

1 unchanged sentence

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.

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

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.

We currently have three interest rate swap contracts in place, two of which became effective on November 20, 2020, and terminate on September 29, 2022, and a third that became effective on February 26, 2021, and terminates on February 28, 2025.

These swap contracts were previously forward-starting and convert the variable interest rate to a fixed interest rate 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 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.

Interest rate swap 1 May 7, 2019 November 20, 2020 September 29, 2022 $ 75.0 2.0925 %

Interest rate swap 2 July 25, 2019 November 20, 2020 September 29, 2022 $ 75.0 1.5500 %

Interest rate swap 3 February 5, 2020 February 26, 2021 February 28, 2025 $ 150.0 1.3800 %

For the interest rate swap contracts in effect at March 31, 2021, 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.

This amount was not material in the three month period ended March 31, 2021.

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.

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

The following table provides details related to each of our forward-starting interest rate swap contracts:

1 unchanged sentence

(in millions) Fixed

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 1 March 9, 2020 September 29, 2022 February 26, 2027 $ 150.0 0.7400 %

3 unchanged sentences

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.

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.

1 unchanged sentence

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.

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).

Generally, our assets, including long-lived assets, goodwill and intangible assets, are recorded at fair value on a nonrecurring basis as a result of impairment charges.

During the first quarter of 2021, we did not record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition.

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

The carrying value of long-term debt approximates fair value (Level 3 inputs).

2 unchanged sentences

The table below presents the components of our debt (in thousands):

September 30,

Variable rate debt

17 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements