What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-25 compared with 2021-02-25 · 196 added, 159 removed, 858 unchanged (29% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Statements of Income

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Pool Corporation

To the Stockholders and Board of Directors

of Pool Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Pool Corporation (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Pool Corporation (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Goodwill

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In addition, we reviewed the allocation of the Company’s fair value to its reporting units and the comparison of the Company’s fair value to its market capitalization.

Valuation of Intangible Assets Resulting from the Acquisition of Porpoise Pool & Patio

Description of the Matter As discussed in Note 2 of the consolidated financial statements, the Company completed its acquisition of Porpoise Pool & Patio, Inc.

(Porpoise) on December 16, 2021, for a total purchase price of approximately $788.7 million, net of cash acquired.

The Company accounted for this transaction under the acquisition method of accounting for business combinations.

Accordingly, the purchase price was allocated, on a preliminary basis, to the assets acquired and liabilities assumed based on their respective fair values, including identified intangible assets of $301.0 million and resulting goodwill of $403.5 million.

Auditing the Company’s accounting for the acquisition of Porpoise was complex due to the significant estimation required by management in determining the fair value of identified intangible assets, both definite and indefinite-lived, which primarily consisted of $109.0 million of customer relationships and $169.0 million of a brand name.

The significant estimation was primarily due to the judgmental nature of the inputs to the valuation models used to measure the fair value of these intangible assets, as well as the sensitivity of the respective fair values to the underlying significant assumptions.

The Company used the relief from royalty method to measure the fair value of the brand name and an excess earnings method to measure the fair value of the customer relationships.

The significant assumptions used to estimate the fair value of the intangible assets included revenue growth rates, earnings metrics, and discount rates.

These significant assumptions are forward-looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit We obtained an understanding of the Company’s process to account for acquisitions, including management’s process to develop the valuation models and assumptions underlying the recognition and valuation of the identified intangible assets.

To test the estimated fair value of the identified intangible assets, our audit procedures included, among others, involvement of a specialist to assist us in the evaluation of the Company’s valuation methodology and testing of the significant assumptions.

For example, we compared the revenue growth rates to historical results and certain peer companies.

Additionally, we tested the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

/s/ Ernst & Young LLP

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Selling and administrative expenses 786,808 659,931 583,679

Impairment of goodwill and other assets 6,944 — —

(Recovery) impairment of goodwill and other assets ( 2,500 ) 6,944 —

Operating income 832,784 464,027 341,246

Interest and other non-operating expenses, net 8,639 12,353 23,772

Income before income taxes and equity earnings 451,674 317,474 292,993

Income before income taxes and equity in earnings 824,145 451,674 317,474

Provision for income taxes 173,812 85,231 56,161

Equity earnings in unconsolidated investments, net 295 262 242

Equity in earnings in unconsolidated investments, net 291 295 262

Net income $ 650,624 $ 366,738 $ 261,575

Earnings per share:

Earnings per share attributable to common stockholders:

Basic $ 16.21 $ 9.14 $ 6.57

Diluted $ 15.97 $ 8.97 $ 6.40

Weighted average shares outstanding:

Weighted average common shares outstanding:

Basic 39,876 40,106 39,833

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Net income $ 650,624 $ 366,738 $ 261,575

Other comprehensive (loss) income:

Other comprehensive income (loss):

Foreign currency translation adjustments ( 4,663 ) 5,210 2,295

Change in unrealized losses and gains on interest rate swaps,

Change in unrealized gains (losses) on interest rate swaps,

net of the change in taxes of $( 3,733 ), $ 2,957 and $ 552

11,198 ( 8,870 ) ( 1,657 )

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

Total other comprehensive income (loss) 6,535 ( 3,660 ) 638

Comprehensive income $ 657,159 $ 363,078 $ 262,213

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Additional paid-in capital 551,963 519,579

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

Retained earnings 526,874 133,870

Accumulated other comprehensive loss ( 7,484 ) ( 14,019 )

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Provision for inventory obsolescence, net of write-offs 3,798 2,362 1,310

(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 )

Provision (benefit) for deferred income taxes 4,650 ( 2,542 ) 3,723

(Gains) losses on sales of property and equipment ( 93 ) 38 ( 85 )

Equity in earnings in unconsolidated investments, net ( 291 ) ( 295 ) ( 262 )

Net losses on foreign currency transactions 325 1,748 1,347

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Payments on revolving line of credit ( 974,506 ) ( 1,145,616 ) ( 1,415,988 )

Proceeds from term loan under credit facility 250,000 — —

Proceeds from asset-backed financing 495,000 326,700 189,000

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Purchases of treasury stock ( 138,039 ) ( 76,199 ) ( 23,188 )

Net cash used in financing activities ( 244,371 ) ( 244,486 ) ( 97,571 )

Net cash provided by (used in) financing activities 526,131 ( 244,371 ) ( 244,486 )

Effect of exchange rate changes on cash and cash equivalents 186 ( 1,376 ) 198

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— — 13,472 — — 13,472

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

Issuance of stock under share-based compensation plans

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— — 14,516 — — 14,516

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

Issuance of stock under share-based compensation plans

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Description of Business

As of December 31, 2020, Pool Corporation and our subsidiaries (the Company , which may be referred to as we, us or our ) operated 398 sales centers in North America, Europe and Australia from which we sell swimming pool supplies, equipment and related leisure products, irrigation and landscape products and hardscape, tile and stone products to pool builders, retail stores, service companies, landscape contractors and golf courses.

We distribute products through four networks:

SCP Distributors (SCP), Superior Pool Products (Superior), Horizon Distributors (Horizon) and National Pool Tile (NPT).

As of December 31, 2021, Pool Corporation and our subsidiaries (the Company , which may be referred to as we, us or our ) operated 410 sales centers in North America, Europe and Australia from which we sell swimming pool supplies, equipment and related leisure products, irrigation and landscape products and hardscape, tile and stone products to pool builders, retail stores, service companies, landscape contractors and others.

We distribute products through five networks:

SCP Distributors (SCP), Superior Pool Products (Superior), Horizon Distributors (Horizon), National Pool Tile (NPT) and Sun Wholesale Supply (Sun Wholesale).

Basis of Presentation and Principles of Consolidation

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To prepare financial statements that conform to GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes.

Our most significant estimates relate to the allowance for doubtful accounts, inventory obsolescence reserves, vendor programs, income taxes, performance-based compensation accruals, goodwill impairment evaluations and the valuation of intangible assets from our recent acquisition of Porpoise Pool & Patio, Inc.

We continually review our estimates and make adjustments as necessary, but actual results could be significantly different from what we expected when we made these estimates.

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.

On January 1, 2020, we adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326):

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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.

We adopted this guidance using the modified retrospective approach by recognizing a cumulative adjustment to retained earnings on the adoption date, which was not material.

Additionally, we elected to apply the practical expedient that allows us to exclude comparative presentation;

thus, we did not restate our prior period balance sheet to reflect the new guidance.

We recorded operating lease assets of approximately $ 175.7 million and operating lease liabilities of approximately $ 181.6 million as of January 1, 2019.

To calculate the present value of our lease liabilities, we used the incremental borrowing rate on December 31, 2018, for operating leases that commenced prior to that date.

The difference between the operating lease assets and operating lease liabilities primarily represents our straight-line rent liability of $ 5.1 million recorded under previous accounting guidance.

Under ASU 2016-02, this liability is considered a reduction of the operating lease asset.

We recorded the remaining difference between our operating lease assets and operating lease liabilities, net of the deferred tax impact, as an adjustment to our retained deficit.

Additionally, we reclassified prepaid rent of $ 4.9 million as of January 1, 2019 to our operating lease asset resulting in a balance of $ 180.6 million as of the adoption date.

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

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.

Segment Reporting

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Seasonality and Weather

Our business is highly seasonal and weather is one of the principal external factors affecting our business.

Our business is seasonal and weather is one of the principal external factors affecting our business.

In general, sales and net income are highest during the second and third quarters, which represent the peak months of swimming pool use, pool and irrigation installation and remodeling and repair activities.

Sales are substantially lower during the first and fourth quarters.

Sales are lower during the first and fourth quarters.

Revenue Recognition

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.

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.

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.

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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.

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 December 2017 enactment of U.S.

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 by the weighted average number of common shares outstanding.

We calculate basic and diluted earnings per share using the two-class method.

Earnings per share under the two-class method is calculated using net income attributable to common stockholders, which is net income reduced by earnings allocated to participating securities.

Our participating securities include share-based payment awards that contain a non-forfeitable right to receive dividends and are considered to participate in undistributed earnings with common shareholders.

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 realized net foreign currency transaction losses of $ 0.3 million in 2021, $ 1.7 million in 2020 and $ 1.3 million in 2019.

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.

Our net foreign currency transaction loss in 2019 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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As of December 31, 2021, our Consolidated Balance Sheets reflect $ 0.4 million in Accrued expenses and other current liabilities and $ 0.6 million in Other long-term liabilities related to our estimates for contingent consideration payouts.

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) 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 swaps 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.

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

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.

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).

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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.

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

On December 16, 2021, we acquired Porpoise Pool & Patio, Inc.

for $ 788.7 million, net of cash acquired, subject to certain customary closing adjustments.

Based on our preliminary purchase price allocation, we recognized tangible assets of $ 84.2 million, identifiable intangible assets of $ 301.0 million and resulting goodwill of $ 403.5 million.

For additional discussion of goodwill and other intangible assets, see Note 3.

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.

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We expense all acquisition-related costs as incurred, including any restructuring costs associated with a business combination.

Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.

Significant judgment is often required in estimating the fair value of assets acquired, particularly intangible assets.

Our fair value estimates are based on available historical information and on expectations and assumptions about the future, considering the perspective of market participants.

Significant assumptions related to the acquisition of Porpoise Pool & Patio, Inc.

include expected revenue growth rates, earnings metrics and discount rates.

Unanticipated market or macroeconomic events and circumstances may occur, which could affect the underlying estimates and assumptions.

If our initial acquisition accounting is incomplete by the end of the reporting period in which a business combination occurs, we report provisional amounts for incomplete items.

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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.

We estimate fair value based on an income approach that incorporates our assumptions for determining the present value of future cash flows.

We project future cash flows using management’s assumptions for sales growth rates, operating margins, discount rates and multiples.

To estimate the fair value of our reporting units, we project future cash flows using management’s assumptions for sales growth rates, operating margins, discount rates and earnings multiples.

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

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Foreign currency translation adjustments $ ( 9,580 ) $ ( 4,917 )

Unrealized losses on interest rate swaps, net of tax

Unrealized gain (loss) on interest rate swaps, net of tax

2,096 ( 9,102 )

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Retained Earnings

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

We account for the retirement of treasury share repurchases as a decrease to our Retained earnings on our Consolidated Balance Sheets.

As of December 31, 2021, 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 $ 1.7 billion and cumulative dividends of $ 790.4 million.

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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 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

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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):

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 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.

We do not expect that there will be a material impact to the financial statements as a result of adopting this ASU.

Note 2 - Acquisitions

2021 Acquisitions

On December 16, 2021, we acquired Porpoise Pool & Patio, Inc.

(“Porpoise”) for $ 788.7 million, net of cash acquired, subject to certain customary closing adjustments.

We preliminarily recognized goodwill of $ 403.5 million, other intangible assets of $ 301.0 million and tangible assets of $ 84.2 million, which included $ 57.4 million of acquired land and buildings.

For additional discussion of goodwill and other intangible assets, see Note 3.

The acquisition was funded with borrowings on our Credit Facility.

Porpoise’s primary operations consist of Sun Wholesale Supply, Inc., a wholesale distributor of swimming pool and outdoor-living products, adding one distribution location in Florida.

It also services Pinch A Penny, Inc., a franchisor of independently owned and operated pool and outdoor living-related specialty retail stores.

The final allocation of the fair value of the Porpoise acquisition, including the allocation of goodwill and intangible assets, is not complete, but will be finalized within the allowable measurement period.

We do not expect the future results of this acquisition to have a material impact on our financial position or results of operations.

In December 2021, we acquired the distribution assets of Wingate Supply, Inc., a wholesale distributor of irrigation and landscape maintenance products, adding one location in Florida.

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.

Other than Porpoise Pool & Patio, Inc., w e 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.

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.

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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.

We have completed our acquisition accounting for these acquisitions.

2019 Acquisitions

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We have completed our acquisition accounting for this acquisition.

This acquisition did not have a material impact on our financial position or results of operations.

2018 Acquisitions

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

(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.

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, 2019 $ 198,475

Foreign currency translation adjustments 124

Acquired goodwill 82,497

Foreign currency translation and other adjustments 584

Goodwill (gross) at December 31, 2020 281,556

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Acquired goodwill (1)

Foreign currency translation adjustments 584

Foreign currency translation and other adjustments ( 1,929 )

Goodwill (gross) at December 31, 2021 701,753

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Goodwill (net) at December 31, 2021 $ 688,364

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.

(1) Primarily includes the acquisition of Porpoise Pool & Patio, Inc.

On December 16, 2021, we acquired Porpoise Pool & Patio, Inc.

(“Porpoise”) for $ 788.7 million, net of cash acquired, subject to certain customary closing adjustments.

The purchase price of Porpoise was preliminarily allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition.

Tangible assets acquired were $ 84.2 million, which included $ 57.4 million of acquired land and buildings.

As a result of the acquisition, we recognized goodwill of $ 403.5 million, which represents anticipated cost synergies from combined operations.

Other intangible assets of $ 301.0 million acquired as part of our acquisition of Porpoise included the following:

• $ 169.0 million for the Pinch A Penny brand name, which was determined to be indefinite-lived;

• $ 109.0 million for customer relationships and $ 22.0 million for franchise agreements, both of which were determined to have useful lives of 20 years;

• $ 1.0 million for a non-compete agreement.

We determined the Pinch A Penny brand name to be indefinite-lived based on our plan of continued franchise expansion using the brand name and Pinch A Penny’s well-established reputation and recognized brand name within the swimming pool industry, including their competitive market position, and history of successful performance by branded stores.

The fair value of intangible assets was determined using income methodologies.

We valued the acquired brand name and franchise agreements using the relief from royalty method.

For customer relationships, we used the multi-period excess earnings method.

Significant assumptions (Level 3 inputs) used in developing these valuations included the estimated annual net cash flows for each intangible asset, royalty rates, the discount rate that appropriately reflects the risk inherent in each future cash flow stream and the assessment of each asset’s life cycle, among other factors.

We determined the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions.

In October 2021 and October 2020, we performed our annual goodwill impairment test and did not record any goodwill impairment at the reporting unit level.

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The most significant goodwill balance for a reporting unit was $ 12.1 million and the average goodwill balance per reporting unit was $ 1.1 million.

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

We determined certain impairment triggers had occurred due to the impact of the COVID-19 pandemic on expected future operating cash flows, and 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.

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

Other intangible assets consisted of the following (in thousands):

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Horizon tradename $ 8,400 $ — $ 8,400 $ 8,400 $ — $ 8,400 Indefinite

Pool Systems tradename and trademarks — — — 990 — 990 Indefinite

Pinch A Penny brand name 169,000 — 169,000 — — — Indefinite

National Pool Tile (NPT) tradename 1,500 ( 1,037 ) 463 1,500 ( 962 ) 538 20

Non-compete agreements 8,096 ( 3,891 ) 4,205 6,917 ( 3,674 ) 3,243 4.58

Patents — — — 470 ( 470 ) — 5

Customer relationships 109,000 ( 214 ) 108,786 — — — 20

Franchise agreements 22,000 ( 40 ) 21,960 — — — 20

Total other intangibles $ 317,996 $ ( 5,182 ) $ 312,814 $ 16,817 $ ( 4,636 ) $ 12,181

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.

The Horizon tradename and Pinch A Penny brand name each have an indefinite useful life and are not subject to amortization.

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

The NPT tradename, our non-compete agreements, customer relationships and franchise 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.

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

Other intangible amortization expense was $ 1.3 million in 2021 and $ 1.0 million in both 2020 and 2019.

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

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Revolving credit facility 572,926 109,024

Term loan under credit facility 250,000 —

Term facility 166,500 175,750

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Total debt $ 1,183,350 $ 416,018

Revolving Credit Facility

On September 29, 2017, we, along with our wholly owned subsidiaries, SCP Distributors Canada Inc., as the Canadian Borrower, and SCP Pool B.V., as the Dutch Borrower, amended and restated our unsecured syndicated senior credit facility (the Credit Facility).

The Credit Facility borrowing capacity increased to $ 750.0 million from $ 465.0 million under a five -year revolving credit facility.

We also extended the maturity date of the agreement to September 29, 2022.

As amended on November 7, 2019, SCP Pool B.V.

was removed as the Dutch Borrower and replaced with SCP International, Inc.

as the Euro Borrower.

The Credit Facility includes sublimits for the issuance of swingline loans and standby letters of credit.

Pursuant to an accordion feature, the aggregate maximum principal amount of the commitments under the Credit Facility may be increased at our request and with agreement by the lenders by up to $ 75.0 million, to a total of $ 825.0 million.

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

The Credit Facility contains terms and provisions (including representations, covenants and conditions) and events of default customary for transactions of this type.

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

Credit Facility

On December 30, 2021, we entered into the First Amendment to the Second Amended and Restated Credit Agreement Credit Agreement, which increased the total borrowing capacity of our Credit Facility to $ 1.25 billion from $ 1.0 billion through the addition of an incremental delayed-draw term loan facility of $ 250.0 million.

Subsequent to December 31, 2021, we drew the $ 250.0 million incremental term loan amount on January 4, 2022 and used the same amount to reduce our revolving borrowings.

At that time, $ 413.4 million remained available for borrowing under the Credit Facility.

Previously, 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.

We drew the entire $ 250.0 million delayed-draw term loan on December 15, 2021 and used the proceeds to fund our acquisition of Porpoise Pool & Patio, Inc.

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;

• providing additional capacity under certain negative covenants related to indebtedness, liens, investments, acquisitions, share repurchases and dividends.

Term loans under the credit facility 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.

The Credit Agreement continues to include a $ 750.0 million revolving credit facility and sublimits for the issuance of swingline loans and standby letters of credit.

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.

At December 31, 2021, there was $ 822.9 million outstanding, a $ 4.8 million standby letter of credit outstanding and $ 422.3 million available for borrowing under the Credit Facility.

The weighted average effective interest rate for the Credit Facility as of December 31, 2021 was approximately 1.2 %, excluding commitment fees.

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 base rate, which is the highest of (i) the Wells Fargo Bank, National Association prime rate, (ii) the Federal Funds Rate plus 0.500 % and (iii) the London Interbank Offered Rate (LIBOR) Market Index Rate plus 1.000 %;

Revolving and term borrowings under the Credit Facility bear interest, at our option, at either of the following and, in each case, plus an applicable margin:

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 1.000 % and (b) on and after the USD LIBOR Transition Date, Daily Simple RFR for Dollars in effect on such day plus 1.000 %;

(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.

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 base rate, which is the greatest of (i) the Canadian Reference Bank prime rate and (ii) the annual rate of interest equal to the sum of the Canadian Dealer Offered Rate (CDOR) plus 1.000 %;

Borrowings by the Euro Borrower bear interest at LIBOR plus an applicable margin.

The interest rate margins on the borrowings and letters of credit are based on our leverage ratio and will range from 1.025 % to 1.425 % on CDOR, LIBOR and swingline loans, and from 0.025 % to 0.425 % on Base Rate and Canadian Base Rate loans.

Borrowings under the swingline loans are based on the LIBOR Market Index Rate (LMIR) plus any applicable margin.

We are also required to pay an annual facility fee ranging from 0.100 % to 0.200 %, depending on our leverage ratio.

a base rate, which is the greatest of (i) the Canadian Reference Bank prime rate and (ii) the Canadian Dealer Offered Rate (“CDOR”) plus 1.000 %;

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:

the LIBOR Market Index Rate;

The interest rate margins on the 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 agreement, the amount of which is based on our leverage ratio.

Term Facility

On December 30, 2019, we along with certain of our subsidiaries entered into a $ 185.0 million term facility (the “Term Facility”) with Bank of America, N.A.

pursuant to a credit agreement subsequently amended on October 12, 2021, (as amended, the “Term Facility Agreement”) among us, as Borrower and Bank of America, N.A., as the Lender.

Among other items, the amendment provided additional capacity under certain negative covenants related to indebtedness, liens, investments, acquisitions, share repurchases and dividends.

The Term Facility matures on December 30, 2026.

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 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.

Under the Term Facility, we are required to make quarterly amortization payments in 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.

The Term Facility contains terms and provisions (including representations, covenants and conditions) customary for transactions of this type.

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.

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

The Term Facility Agreement contains 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.

At December 31, 2021, the Term Facility had an outstanding balance of $ 166.5 million at a weighted average effective interest rate of 2.9 %.

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

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 one-half of one percent ( 0.50 %), (ii) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” or (iii) the Eurodollar Rate (defined below) plus one percent ( 1.00 %);

the Eurodollar Rate, which is the rate per annum equal to the LIBOR as administered by the ICE Benchmark Administration (or any successor administrator), as published on the applicable Bloomberg screen page with a term equivalent to the applicable interest period.

The interest rate margins on the borrowings are based on our leverage ratio and will range from 1.125 % to 1.625 % on Eurodollar Rate borrowings and 0.125 % to 0.625 % on Base Rate borrowings.

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 %;

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 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).

Receivables Securitization Facility

On November 1, 2019, we and certain of our subsidiaries entered into an amendment of our two -year accounts receivable securitization facility (the Receivables Facility).

As amended, the Receivables Facility has a peak seasonal funding capacity of up to $ 295.0 million for the month of May, which includes an additional seasonal funding capacity that is available between March 1 and July 31.

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.

On November 1, 2021, we and certain of our subsidiaries entered into an agreement (the “Amended Receivables Purchase Agreement”) amending our two -year receivable securitization facility.

Among other items, the amendment removed seasonal facility limits and increased the maximum facility limit to $ 350.0 million in the months of April through June and from $ 175.0 million to $ 315.0 million during the remaining months of the year.

We also extended the maturity date to November 1, 2023.

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.

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The Receivables Facility is subject to terms and conditions (including representations, covenants and conditions precedent) customary for transactions of this type.

Failure to maintain certain ratios or meet certain of these covenants could trigger an amortization event.

Additionally, an amortization event will occur if we fail to meet certain covenants, including maintaining a maximum average total leverage ratio (average total funded debt/EBITDA) of 3.25 to 1.00 and a minimum fixed charge coverage ratio (EBITDAR/cash interest expense plus rental expense) of 2.25 to 1.00.

At December 31, 2021, there was $ 185.0 million outstanding under the Receivables Facility at a weighted average effective interest rate of 0.9 %, excluding commitment fees.

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Interest Rate Swaps

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 Effective Date Termination Date Notional

(in millions) Fixed

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.

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 rate 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.

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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 %

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.

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(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 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 %

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.

The net difference between interest paid and interest received related to our swap agreements resulted in an incremental interest expense of $ 4.3 million in 2021 and $ 0.9 million in 2020 and a benefit of $ 0.3 million in 2019.

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.

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.

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

Financial covenants of the Credit Facility, Term Facility and Receivables Facility are closely aligned and include a minimum fixed charge coverage ratio and maintenance of a maximum average total leverage ratio, which are our most restrictive covenants.

The Credit Facility and the Term Facility also limit the declaration and payment of dividends on our common stock to no more than 50 % of the preceding year’s Net Income (as defined in the Credit Facility and the Term Facility), provided no default or event of default has occurred and is continuing, or would result from the payment of dividends.

Additionally, we may declare and pay quarterly dividends notwithstanding that the aggregate amount of dividends paid would be in excess of the 50 % limit described above so long as (i) the amount per share of such dividends does not exceed the amount per share paid during the most recent fiscal year in which we were in compliance with the 50 % limit and (ii) our Average Total Leverage Ratio is less than 3.00 to 1.00 both immediately before and after giving pro forma effect to such dividends.

Further, dividends must be declared and paid in a manner consistent with our past practice.

Under the Credit Facility and the 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 2.50 to 1.00.

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 the Credit Facility and Term Facility could result in penalty payments, higher interest rates on our borrowings or the acceleration of the maturities of our outstanding debt.

Failure to comply with any of our financial covenants or any other terms of the Credit Facility and the Term Facility could result in higher interest rates on our borrowings or the acceleration of the maturities of our outstanding debt.

As of December 31, 2021, we were in compliance with all covenants and financial ratio requirements related to the Credit Facility, the Term Facility and the Receivables Facility.

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Financing costs deferred 2,638 12

Write-off of fully amortized deferred financing costs ( 3,726 ) —

Balance at end of year 4,042 5,130

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Share-based awards to our non-employee directors vest one year from the grant date.

Beginning with 2016 grants, certain restricted stock awards to our employees contain performance-based criteria in addition to the service-based vesting criteria described above.

Restricted stock awards to our employees contain performance-based criteria in addition to the service-based vesting criteria described above.

The awards provide for a three -year performance period for the metric to be achieved.

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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.

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.

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We recognize compensation cost for awards with graded vesting using the graded vesting recognition method.

We estimate a forfeiture rate to calculate our share-based compensation expense for our share-based awards based on an analysis of actual forfeitures.

We continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover, and other factors.

The following table presents the total share-based compensation expense for stock option awards for the past three years (in thousands):

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Employee Stock Purchase Plan

In March 1998, the Board adopted the SCP Pool Corporation Employee Stock Purchase Plan (the ESPP).

We maintain the Pool Corporation Amended and Restated Employee Stock Purchase Plan (the ESPP), which was last approved by the Board and our stockholders in 2016.

Under the ESPP, employees who meet minimum age and length of service requirements may purchase stock at 85 % of the lower of:

as amended in May 2016, the closing price of our common stock at the end of a six month plan period ending either July 31 or January 31;

the closing price of our common stock at the end of a six month plan period ending either July 31 or January 31;

the average of the beginning and ending closing prices of our common stock for such six month period.

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Note 7 - Income Taxes

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.

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 or deficiencies as income tax benefit or expense in the income statement.

We recorded excess tax benefits of $ 28.6 million to our income tax provision in 2020, $ 23.5 million in 2019 and $ 15.3 million in 2018.

Income before income taxes and equity earnings is attributable to the following jurisdictions (in thousands):

Income before income taxes and equity in earnings is attributable to the following jurisdictions (in thousands):

Year Ended December 31,

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A reconciliation of the U.S.

federal statutory tax rate to our effective tax rate on Income before income taxes and equity earnings is as follows:

federal statutory tax rate to our effective tax rate on Income before income taxes and equity in earnings is as follows:

Year Ended December 31,

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Total effective tax rate 21.09 % 18.87 % 17.69 %

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 or deficiencies as income tax benefit or expense in the income statement.

We recorded excess tax benefits of $ 30.0 million to our income tax provision in 2021, $ 28.6 million in 2020 and $ 23.5 million in 2019.

The table below presents the components of our deferred tax assets and liabilities (in thousands):

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Depreciation 19,369 17,350

Interest rate swaps 710 —

Total non-current 121,953 106,195

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We record interest expense related to unrecognized tax benefits in Interest and other non-operating expenses, net, while we record related penalties in Selling and administrative expenses on our Consolidated Statements of Income.

For unrecognized tax benefits, we had interest expense of $ 1.0 million in 2020, $ 0.6 million in 2019 and $ 0.2 million in 2018.

For unrecognized tax benefits, we had interest income of $ 0.6 million in 2021 and interest expense of $ 1.0 million in 2020 and $ 0.6 million in 2019.

Accrued interest related to unrecognized tax benefits was approximately $ 1.6 million at December 31, 2021 and $ 2.7 million at December 31, 2020.

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Note 8 - Earnings Per Share

We calculate basic and diluted earnings per share using the two-class method.

Earnings per share under the two-class method is calculated using net income attributable to common stockholders, which is net income reduced by the earnings allocated to participating securities.

Participating securities excluded from weighted average common shares outstanding were 268,000 for the year ended December 31, 2021.

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

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Net income $ 650,624 $ 366,738 $ 261,575

Weighted average shares outstanding:

Amounts allocated to participating securities ( 4,321 ) — —

Net income attributable to common stockholders $ 646,303 $ 366,738 $ 261,575

Weighted average common shares outstanding:

Basic 39,876 40,106 39,833

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Diluted 40,480 40,865 40,865

Earnings per share:

Earnings per share attributable to common stockholders:

Basic $ 16.21 $ 9.14 $ 6.57

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Based on our leasing practices and contract negotiations, we determined that we are not reasonably certain to exercise the renewal options and, as such, we have not included optional renewal periods in our measurement of operating lease assets, liabilities and expected lease terms.

We elected to apply the package of practical expedients available within ASU 2016-02, which is intended to provide some relief to issuers.

Electing this option allowed us to retain our existing assessment of whether an arrangement is or contains a lease, is classified as an operating or financing lease and contains initial direct costs.

With our adoption of ASC 842, Leases , we elected to retain our existing assessment of whether an arrangement is or contains a lease, is classified as an operating or financing lease and contains initial direct costs.

We also elected the practical expedients that allow us to exclude short-term leases from our Consolidated Balance Sheets and to combine lease and non-lease components.

For additional discussion of our adoption of this accounting guidance, see Note 1.

For leases with step rent provisions whereby the rental payments increase incrementally over the life of the lease, we recognize expense on a straight-line basis determined by the total lease payments over the lease term.

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The table below presents the amount of cash paid for amounts included in the measurement of lease liabilities (in thousands):

2021 2020 2019

Operating cash flows for lease liabilities $ 67,197 $ 60,723 $ 56,617

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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