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, 2021 2020 2021 2020 Net sales $ 1,411,448 $ 1,139,229 $ 4,260,027 $ 3,097,362 Cost of sales 969,549 810,531 2,965,311 2,205,555 Gross profit 441,899 328,698 1,294,716 891,807 Selling and administrative expenses 206,023 180,465 591,223 495,186 (Recovery) impairment of goodwill and other assets ( 1,400 ) — ( 1,400 ) 6,944 Operating income 237,276 148,233 704,893 389,677 Interest and other non-operating expenses, net 2,317 1,861 6,862 9,292 Income before income taxes and equity earnings 234,959 146,372 698,031 380,385 Provision for income taxes 50,386 27,360 155,240 73,068 Equity earnings in unconsolidated investments, net 92 86 224 248 Net income $ 184,665 $ 119,098 $ 543,015 $ 307,565 Earnings per share: Basic $ 4.60 $ 2.97 $ 13.53 $ 7.68 Diluted $ 4.54 $ 2.92 $ 13.32 $ 7.53 Weighted average shares outstanding: Basic 40,101 40,123 40,146 40,073 Diluted 40,691 40,839 40,766 40,849 Cash dividends declared per common share $ 0.80 $ 0.58 $ 2.18 $ 1.71 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, 2021 2020 2021 2020 Net income $ 184,665 $ 119,098 $ 543,015 $ 307,565 Other comprehensive (loss) income: Foreign currency translation (losses) gains ( 3,555 ) 2,976 ( 3,522 ) ( 320 ) Change in unrealized gains (losses) on interest rate swaps, net of change in taxes of $( 491 ), $( 51 ), $( 2,818 ), and $ 3,641 1,473 154 8,453 ( 10,923 ) Total other comprehensive (loss) income ( 2,082 ) 3,130 4,931 ( 11,243 ) Comprehensive income $ 182,583 $ 122,228 $ 547,946 $ 296,322 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, 2021 2020 2020 (1) (Unaudited) (Unaudited) Assets Current assets: Cash and cash equivalents $ 83,475 $ 74,749 $ 34,128 Receivables, net 174,987 135,555 122,252 Receivables pledged under receivables facility 301,163 230,857 166,948 Product inventories, net 1,043,407 612,824 780,989 Prepaid expenses and other current assets 23,368 12,696 17,610 Total current assets 1,626,400 1,066,681 1,121,927 Property and equipment, net 111,339 109,086 108,241 Goodwill 281,300 199,360 268,167 Other intangible assets, net 12,067 10,522 12,181 Equity interest investments 1,242 1,314 1,292 Operating lease assets 221,007 180,230 205,875 Other assets 28,878 20,396 21,987 Total assets $ 2,282,233 $ 1,587,589 $ 1,739,670 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 414,156 $ 268,412 $ 266,753 Accrued expenses and other current liabilities 231,794 145,420 143,694 Short-term borrowings and current portion of long-term debt 10,744 11,709 11,869 Current operating lease liabilities 65,442 56,977 60,933 Total current liabilities 722,136 482,518 483,249 Deferred income taxes 30,275 29,476 27,653 Long-term debt, net 352,075 328,225 404,149 Other long-term liabilities 34,176 32,846 38,261 Non-current operating lease liabilities 158,359 125,023 146,888 Total liabilities 1,297,021 998,088 1,100,200 Stockholders’ equity: Common stock, $ 0.001 par value; 100,000,000 shares authorized; 40,079,584 , 40,153,287 and 40,232,210 shares issued and outstanding at September 30, 2021, September 30, 2020 and December 31, 2020, respectively 40 40 40 Additional paid-in capital 542,858 513,030 519,579 Retained earnings 451,401 98,033 133,870 Accumulated other comprehensive loss ( 9,087 ) ( 21,602 ) ( 14,019 ) Total stockholders’ equity 985,212 589,501 639,470 Total liabilities and stockholders’ equity $ 2,282,233 $ 1,587,589 $ 1,739,670 (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, 2021 2020 Operating activities Net income $ 543,015 $ 307,565 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 21,027 20,979 Amortization 1,064 975 Share-based compensation 11,755 11,095 Equity earnings in unconsolidated investments, net ( 224 ) ( 248 ) Impairment of goodwill and other assets — 6,944 Other 5,256 1,092 Changes in operating assets and liabilities, net of effects of acquisitions: Receivables ( 186,772 ) ( 135,129 ) Product inventories ( 267,341 ) 99,767 Prepaid expenses and other assets ( 22,674 ) 311 Accounts payable 146,616 3,385 Accrued expenses and other current liabilities 107,343 72,178 Net cash provided by operating activities 359,065 388,914 Investing activities Acquisition of businesses, net of cash acquired ( 17,887 ) ( 24,655 ) Purchases of property and equipment, net of sale proceeds ( 24,223 ) ( 16,897 ) Net cash used in investing activities ( 42,110 ) ( 41,552 ) Financing activities Proceeds from revolving line of credit 791,508 749,840 Payments on revolving line of credit ( 730,277 ) ( 909,637 ) Proceeds from asset-backed financing 310,000 261,700 Payments on asset-backed financing ( 415,000 ) ( 266,700 ) Payments on term facility ( 6,938 ) ( 6,938 ) Proceeds from short-term borrowings and current portion of long-term debt 7,880 13,255 Payments on short-term borrowings and current portion of long-term debt ( 9,006 ) ( 13,291 ) Payments of deferred financing costs ( 1,610 ) ( 12 ) Payments of deferred and contingent acquisition consideration ( 362 ) ( 281 ) Proceeds from stock issued under share-based compensation plans 11,524 16,696 Payments of cash dividends ( 87,509 ) ( 68,599 ) Purchases of treasury stock ( 137,975 ) ( 76,194 ) Net cash used in financing activities ( 267,765 ) ( 300,161 ) Effect of exchange rate changes on cash and cash equivalents 157 ( 1,035 ) Change in cash and cash equivalents 49,347 46,166 Cash and cash equivalents at beginning of period 34,128 28,583 Cash and cash equivalents at end of period $ 83,475 $ 74,749 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 Accumulated Other Comprehensive Shares Amount Capital Earnings Loss Total Balance at December 31, 2020 40,232 $ 40 $ 519,579 $ 133,870 $ ( 14,019 ) $ 639,470 Net income — — — 98,655 — 98,655 Foreign currency translation — — — — ( 1,268 ) ( 1,268 ) Interest rate swaps, net of the change in taxes of $( 3,046 ) — — — — 9,137 9,137 Repurchases of common stock, net of retirements ( 215 ) — — ( 71,516 ) — ( 71,516 ) Share-based compensation — — 3,837 — — 3,837 Issuance of stock under share-based compensation plans 69 — 2,912 — — 2,912 Declaration of cash dividends — — — ( 23,299 ) — ( 23,299 ) Balance at March 31, 2021 40,086 40 526,328 137,710 ( 6,150 ) 657,928 Net income — — — 259,695 — 259,695 Foreign currency translation — — — — 1,302 1,302 Interest rate swaps, net of the change in taxes of $ 719 — — — — ( 2,157 ) ( 2,157 ) Repurchases of common stock, net of retirements ( 45 ) — — ( 18,619 ) — ( 18,619 ) Share-based compensation — — 3,712 — — 3,712 Issuance of stock under share-based compensation plans 90 — 5,006 — — 5,006 Declaration of cash dividends — — — ( 32,119 ) — ( 32,119 ) Balance at June 30, 2021 40,131 40 535,046 346,667 ( 7,005 ) 874,748 Net income — — — 184,665 — 184,665 Foreign currency translation — — — — ( 3,555 ) ( 3,555 ) Interest rate swaps, net of the change in taxes of $( 491 ) — — — — 1,473 1,473 Repurchases of common stock, net of retirements ( 100 ) — — ( 47,840 ) — ( 47,840 ) Share-based compensation — — 4,206 — — 4,206 Issuance of stock under share-based compensation plans 49 — 3,606 — — 3,606 Declaration of cash dividends — — — ( 32,091 ) — ( 32,091 ) Balance at September 30, 2021 40,080 $ 40 $ 542,858 $ 451,401 $ ( 9,087 ) $ 985,212 5 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 stock 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 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 2020 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 2020 Annual Report on Form 10-K. The results for our three and nine month periods ended September 30, 2021 are not necessarily indicative of the expected results for our fiscal year ending December 31, 2021. Newly Adopted Accounting Pronouncements 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. 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 restricted stock awards lapse. We recorded excess tax benefits of $ 4.2 million in the third quarter of 2021 compared to $ 8.5 million in the third quarter of 2020 and $ 15.9 million in the nine months ended September 30, 2021 compared to $ 22.6 million in the nine months ended September 30, 2020. Retained Earnings We account for the retirement of treasury shares as a reduction of Retained earnings. As of September 30, 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 $ 1.7 billion and cumulative dividends of $ 758.3 million. Accumulated Other Comprehensive Loss The table below presents the components of our Accumulated other comprehensive loss balance (in thousands): September 30, December 31, 2021 2020 2020 Foreign currency translation adjustments $ ( 8,437 ) $ ( 10,447 ) $ ( 4,917 ) Unrealized losses on interest rate swaps, net of tax ( 650 ) ( 11,155 ) ( 9,102 ) Accumulated other comprehensive loss $ ( 9,087 ) $ ( 21,602 ) $ ( 14,019 ) 7 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 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): Scope 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. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope . 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 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. 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, 2021 2020 2021 2020 Net income $ 184,665 $ 119,098 $ 543,015 $ 307,565 Weighted average shares outstanding: Basic 40,101 40,123 40,146 40,073 Effect of dilutive securities: Stock options and employee stock purchase plan 590 716 620 776 Diluted 40,691 40,839 40,766 40,849 Earnings per share: Basic $ 4.60 $ 2.97 $ 13.53 $ 7.68 Diluted $ 4.54 $ 2.92 $ 13.32 $ 7.53 Anti-dilutive stock options excluded from diluted earnings per share computations — — — — 8 Note 3 – Acquisitions In June 2021, we acquired the distribution assets of Vak Pak Builders Supply, Inc., a wholesale distributor of swimming pool equipment, chemicals and supplies, adding one location in Florida. In April 2021, we acquired Pool Source, LLC, a wholesale distributor of swimming pool equipment, chemicals and supplies, adding one location in Tennessee. 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 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 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. These acquisitions did not have a material impact on our financial position or results of operations, either individually or in the aggregate. 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. 9 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 September 30, 2021 2020 Level 2 Unrealized gains on interest rate swaps $ 5,488 $ — Unrealized losses on interest rate swaps 6,308 14,828 Level 3 Contingent consideration liabilities $ 983 $ 869 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 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. 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. 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 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 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 September 30, 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, 2021. 10 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: Derivative Inception Date Effective Date Termination Date Notional Amount (in millions) Fixed Interest Rate Forward-starting interest rate swap 1 March 9, 2020 September 29, 2022 February 26, 2027 $ 150.0 0.7400 % Forward-starting interest rate swap 2 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 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. 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, including long-lived assets, goodwill and intangible assets, are recorded at fair value on a nonrecurring basis as a result of impairment charges or business combinations. In the nine months ended September 30, 2021, we did not record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition. Other 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). 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). 11 Note 5 – Debt The table below presents the components of our debt (in thousands): September 30, 2021 2020 Variable rate debt Short-term borrowings $ — $ — Current portion of long-term debt: Australian credit facility 10,744 11,709 Short-term borrowings and current portion of long-term debt 10,744 11,709 Long-term portion: Revolving credit facility 170,255 40,876 Term facility 168,812 178,062 Receivables securitization facility 15,000 110,000 Less: financing costs, net 1,992 713 Long-term debt, net 352,075 328,225 Total debt $ 362,819 $ 339,934 Revolving Credit Facility On September 27, 2021, we entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”) among us, as U.S. Borrower, SCP Distributors Canada Inc., as Canadian Borrower, SCP International, Inc., as Euro Borrower, Wells Fargo Bank, National Association, as Administrative Agent (the “Agent”), and certain other lenders party thereto. The Credit Agreement amended and restated the predecessor senior credit facility (as amended, the “Credit Facility”) principally by increasing the total borrowing capacity from $750.0 million to $1.0 billion through the addition of a delayed-draw term loan facility of $250.0 million. Under this term loan facility, we may draw term loans at any time prior to March 25, 2022. Any such term loans would require quarterly amortization payments aggregating to 20% of the original principal amount of the loan during the third, fourth and fifth years of the loan, with all remaining principal due on September 25, 2026. All other terms of any such term loans would be substantially similar to those governing revolving credit loans under the Credit Agreement. In addition, the Credit Agreement further amended and restated the Credit Facility in the following ways: • extending the maturity of the Credit Facility from September 29, 2022 to September 25, 2026; • making available lower interest rates; • increasing the amount of incremental facility commitments that we can request from $75.0 million to $250.0 million; and • providing additional capacity under certain negative covenants related to indebtedness, liens, investments, acquisitions, share repurchases and dividends. All obligations under the Credit Agreement continue to be guaranteed on an unsecured basis by substantially all of our existing and future domestic subsidiaries. The Credit Agreement also continues to contain various customary affirmative and negative covenants and events of default. The occurrence of any of these events of default would permit the lenders to, among other things, require immediate payment of all amounts outstanding under the Credit Agreement. Revolving borrowings under the Credit Facility bear interest, at our option, at either of the following and, in each case, plus an applicable margin: a. a base rate, which is the highest of (i) the Agent's prime rate, (ii) the Federal Funds Rate plus 0.500% and (iii) (a) prior to the USD LIBOR Transition Date, the Adjusted Eurocurrency Rate for Dollars for a one-month term in effect on such day plus 1.00% and (b) on and after the USD LIBOR Transition Date, Daily Simple RFR for Dollars in effect on such day plus 1.00%; or b. (i) prior to the USD LIBOR Transition Date, the Eurocurrency Rate and (ii) on or after the USD LIBOR Transition Date or a Benchmark Transition Event, the applicable Benchmark Replacement. 12 Borrowings by the Canadian Borrower bear interest, at the Canadian Borrower’s option, at either of the following and, in each case, plus an applicable margin: a. a base rate, which is the greatest of (i) the Canadian Reference Bank prime rate and (ii) the Canadian Dealer Offered Rate (“CDOR”) plus 1.00%; or b. CDOR. Borrowings by the Euro Borrower bear interest at the Eurocurrency rate plus an applicable margin. Borrowings under any swingline loans under the Credit Facility bear interest, at our option, at either of the following and, in each case, plus an applicable margin: a. the LIBOR Market Index Rate; or b. a base rate, which is the highest of (i) the Agent's prime rate, (ii) the Federal Funds Rate plus 0.500% and (iii) (a) prior to the USD LIBOR Transition Date, the Adjusted Eurocurrency Rate for Dollars for a one-month term in effect on such day plus 1.00% and (b) on and after the USD LIBOR Transition Date, Daily Simple RFR for Dollars in effect on such day plus 1.00%. The interest rate margins on borrowings and letters of credit issued under the Credit Agreement are based on our leverage ratio and will range from 0.000% to 0.425% on Base Rate and Canadian Base Rate loans and from 0.910% to 1.425% on CDOR, LIBOR and swingline loans (with all such rates being calculated in accordance with the terms and by reference to the definitions specified in the Credit Agreement). We are also required to pay an annual facility fee with respect to the lenders' aggregate revolving credit commitment, the amount of which is based on our leverage ratio. Term Facility On October 12, 2021, we entered into the First Amendment to the Credit Agreement (as amended, the “Term Facility Agreement”) among us, as Borrower and Bank of America, N.A., as the Lender. Among other items, the amendment provides additional capacity under certain negative covenants related to indebtedness, liens, investments, acquisitions, share repurchases and dividends. All obligations under the Term Facility Agreement, which matures on December 30, 2026, continue to be guaranteed on an unsecured basis by substantially all of our existing and future domestic subsidiaries. The Term Facility Agreement also continues to contain various customary affirmative and negative covenants and events of default. The occurrence of any of these events of default would permit the lenders to, among other things, require immediate payment of all amounts outstanding under the Term Facility Agreement. Borrowings under the term loan facility (the “Term Facility”) available under the Term Facility Agreement bear interest, at our option, at either of the following and, in each case, plus an applicable margin: a. a base rate, which is the greatest of (i) the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the business day next succeeding such day plus 0.50%, (ii) Bank of America's prime rate, or (iii) the Eurodollar Rate (defined below) plus 1.00%; or b. the Eurodollar Rate, which is the greater of (i) the rate per annum equal to the USD LIBOR as administered by the ICE Benchmark Administration, or a comparable or successor administrator approved by the Lender or (ii) a floor rate specified in the Term Facility Agreement. The interest rate margins on the borrowings under the Term Facility Agreement are based on our leverage ratio and will range from 0.000% to 0.625% on Base Rate borrowings and 1.000% to 1.625% on Eurodollar Rate borrowings (with all such rates being calculated in accordance with the terms and by reference to the definitions specified in the Term Facility Agreement). 13 Receivables Securitization Facility 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. Financial Covenants Following their recent amendments, the Credit Facility and Term Facility continue to require us to maintain a maximum average total leverage ratio and a minimum fixed charge coverage ratio consistent with the terms in effect prior to the amendment. As amended, the Credit Facility and Term Facility limit the declaration and payment of dividends on our common stock to a manner consistent with past practice, provided no default or event of default has occurred and is continuing, or would result from the payment of dividends. We may declare and pay quarterly dividends so long as (i) the amount per share of such dividends is not greater than the most recently publicly announced amount dividends per share and (ii) our Average Total Leverage Ratio is less than 3.25 to 1.00 both immediately before and after giving pro forma effect to such dividends. Under the Credit Facility and Term Facility, we may repurchase shares of our common stock provided no default or event of default has occurred and is continuing, or would result from the repurchase of shares, and our maximum average total leverage ratio (determined on a pro forma basis) is less than 3.25 to 1.00. Other covenants include restrictions on our ability to grant liens, incur indebtedness, make investments, merge or consolidate, and sell or transfer assets. Failure to comply with any of our financial covenants or any other terms of any of our debt facilities could result in higher interest rates on our borrowings or the acceleration of the maturities of our outstanding debt. As of September 30, 2021, we were in compliance with all material covenants and financial ratio requirements under our Credit Facility, our Term Facility and our Receivables Facility. 14