What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-25 · 118 added, 142 removed, 912 unchanged (22% of the section changed)

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

of Pool Corporation

To the Stockholders and Board of Directors of Pool Corporation

Opinion on the Financial Statements

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

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.

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 disclosure to which it relates.

Valuation of Goodwill

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We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions.

We also involved a specialist to assist in our evaluation of the valuation methodology applied by the Company and the significant assumptions used in estimating the fair value of the Company.

We also involved a specialist to assist in our evaluation of the valuation methodology applied by the Company and certain significant assumptions used in estimating the fair value of the Company.

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 907,024 786,808 659,931

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

Impairment of goodwill and other 605 ( 2,500 ) 6,944

Operating income 1,025,783 832,784 464,027

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Provision for income taxes 236,763 173,812 85,231

Equity in earnings in unconsolidated investments, net 291 295 262

Equity in earnings of unconsolidated investments, net 353 291 295

Net income $ 748,462 $ 650,624 $ 366,738

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Retained earnings 653,484 526,874

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

Accumulated other comprehensive income (loss) 5,895 ( 7,484 )

Total stockholders’ equity 1,235,194 1,071,393

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(Gains) losses on sales of property and equipment ( 527 ) ( 93 ) 38

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

Equity in earnings of unconsolidated investments, net ( 353 ) ( 291 ) ( 295 )

Net losses on foreign currency transactions 48 325 1,748

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Accounts payable 7,597 114,893 ( 9,212 )

Accrued expenses and other current liabilities 149,110 83,019 3,033

Accrued expenses and other liabilities ( 53,275 ) 149,110 83,019

Net cash provided by operating activities 484,854 313,490 397,581

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Purchases of property and equipment, net of sale proceeds ( 43,619 ) ( 37,658 ) ( 21,702 )

Other investments, net 2,013 — —

Net cash used in investing activities ( 50,870 ) ( 849,614 ) ( 146,289 )

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Payments on asset-backed financing ( 205,500 ) ( 430,000 ) ( 321,700 )

Proceeds from term facility — — 185,000

Payments on term facility ( 9,250 ) ( 9,250 ) ( 9,250 )

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Payments of deferred financing costs ( 170 ) ( 2,638 ) ( 12 )

Payments on deferred and contingent acquisition consideration ( 362 ) ( 281 ) ( 312 )

Payments of deferred and contingent acquisition consideration ( 1,374 ) ( 362 ) ( 281 )

Proceeds from stock issued under share-based compensation plans 8,934 17,197 19,824

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Purchases of treasury stock ( 471,229 ) ( 138,039 ) ( 76,199 )

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

Net cash (used in) provided by financing activities ( 411,658 ) 526,131 ( 244,371 )

Effect of exchange rate changes on cash and cash equivalents ( 1,056 ) 186 ( 1,376 )

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Comprehensive

Shares Amount Capital (Deficit) Loss Total

Shares Amount Capital (Deficit) Income (Loss) Total

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

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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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Repurchases of common stock, net of retirements ( 1,234 ) ( 1 ) — ( 471,228 ) — ( 471,229 )

( 360 ) — — ( 138,039 ) — ( 138,039 )

Share-based compensation — — 14,879 — — 14,879

— — 15,187 — — 15,187

Issuance of stock under share-based compensation plans 110 — 8,934 — — 8,934

321 — 17,197 — — 17,197

Declaration of cash dividends — — — ( 150,624 ) — ( 150,624 )

— — — ( 119,581 ) — ( 119,581 )

Balance at December 31, 2022 39,069 $ 39 $ 575,776 $ 653,484 $ 5,895 $ 1,235,194

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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.

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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):

Measurement of Credit Losses on Financial Instruments, and all related amendments, which are codified into Accounting Standards Codification (ASC) 326, using the cumulative-effect transition method related to our trade receivables.

This new standard changes the way companies evaluate credit losses for most financial assets and certain other instruments.

For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses.

The new standard also requires enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination for most financing receivables.

The adoption of this standard did not have a material impact on our financial position or results of operations, and we do not expect the adoption of this guidance to have a material effect on our results of operations in future periods.

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

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

Simplifying the Test for Goodwill Impairment, for our interim impairment tests performed in the period ended March 31, 2020.

This new standard eliminated the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (commonly referred to as Step 2 under the previous guidance).

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

The impact of the new standard is dependent on the specific facts and circumstances of individual impairments, if any.

The adoption of this guidance did not impact our results of operations, statement of financial position or cash flows.

On January 1, 2020, we adopted ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, on a prospective basis.

This new standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license.

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

Segment Reporting

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Based on available information related to our customers’ returns, we record an allowance for estimated returns, which historically has not been material.

We regularly review our marketing programs, coupons and customary business practices to determine if any variable consideration exists under ASC 606.

We regularly review our marketing programs, coupons and customary business practices to determine if any variable consideration exists.

Other items that we record as reductions to sales include cash discounts, pricing adjustments and credit card fees related to customer payments.

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$ 28,778 $ 9,409 $ 6,755

The increase in advertising costs in 2022 is related to the December 2021 acquisition of Porpoise Pool & Patio, Inc., which primarily relate to an advertising fund based on a percentage of Pinch A Penny franchisee sales.

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

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We record 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.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law.

The IRA implemented a corporate alternative minimum tax (CAMT) of 15 percent on book income of certain large corporations, a one percent excise tax on net stock repurchases and several tax incentives to promote clean energy, among other items.

Both the CAMT and the excise tax provisions of the IRA are effective for tax years beginning after December 31, 2022.

Based on our historical activity, we do not expect the excise tax and other provisions of the IRA to materially impact our results of operations, financial position, or statement of cash flows.

For additional information regarding income taxes, see Note 7.

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We realized net foreign currency transaction losses of $ 0.1 million in 2022, $ 0.3 million in 2021 and $ 1.7 million in 2020.

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

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.

Recurring Fair Value Measurements

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, our deferred compensation plan asset and liability and contingent consideration related to recent acquisitions.

The three levels of the fair value hierarchy under the accounting guidance are described below:

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

Recurring Fair Value Measurements

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

The table below presents our assets and liabilities measured and recorded at fair value on a recurring basis (in thousands):

Fair Value at December 31,

Unrealized gains on interest rate swaps $ 6,054 $ 223

Unrealized losses on interest rate swaps 3,215 12,314

Contingent consideration liabilities $ 985 $ 1,343

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.

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.

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.

Input Level Classification 2022 2021

Unrealized gains on interest rate swaps Level 2 Other assets $ 34,049 $ 6,054

Deferred compensation plan asset Level 1 Other assets 13,148 17,503

Contingent consideration liabilities Level 3 Accrued expenses and other current liabilities

Unrealized losses on interest rate swaps Level 2 Accrued expenses and other current liabilities

Deferred compensation plan liability Level 1 Other long-term liabilities 13,148 17,503

We use significant other observable market data or assumptions (Level 2 inputs) in determining the fair value of our interest rate swaps and forward-starting interest rate swap contracts 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.

Our deferred compensation plan asset represents investments in securities (primarily mutual funds) traded in an active market (Level 1 inputs) held for the benefit of certain employees as part our deferred compensation plan.

We record an equal and offsetting deferred compensation plan liability, which represents our obligation to participating employees.

Changes in the fair value of the plan asset and liability are reflected in Selling and administrative expenses in the Consolidated Statements of Income.

For additional discussion of our nonqualified deferred compensation plan, see Note 11.

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

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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.

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

We recorded goodwill impairment of $ 0.6 million in 2022 and impairment of both goodwill and other assets of $ 6.9 million in 2020.

Our impairment charges in 2020 included goodwill and intangibles impairment charges of $ 4.4 million and $ 2.5 million from a long-term note.

The note balance was subsequently recovered in 2021.

We acquired Porpoise Pool & Patio, Inc.

on December 16, 2021 for $ 788.7 million, net of cash acquired and 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 intangible assets and impairment, see Note 3.

Derivatives and Hedging Activities

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We monitor housing market trends through review of the House Price Index as published by the Federal Housing Finance Agency, which measures the movement of single-family house prices.

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

At the end of each quarter, we perform

a reserve analysis of all accounts with balances greater than $ 20,000 that are more than 60 days past due.

During the year, we write off account balances when we have exhausted reasonable collection efforts and determined that the likelihood of collection is remote.

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Product inventories consist primarily of goods we purchase from manufacturers to sell to our customers.

We record inventory at the lower of cost, using the average cost method, or net realizable value.

We record inventory at the lower of cost, using the moving average cost method, or net realizable value.

We establish our reserve for inventory obsolescence based on inventory turns by class with particular emphasis on stock keeping units with the weakest sales over the expected sellable period, which is the previous 12 months for most products.

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

Accumulated Other Comprehensive Loss

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

Accumulated Other Comprehensive Income (Loss)

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

Foreign currency translation adjustments $ ( 19,608 ) $ ( 9,580 )

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

2,096 ( 9,102 )

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

Unrealized gains on interest rate swaps, net of tax

Accumulated other comprehensive income (loss) $ 5,895 $ ( 7,484 )

Retained Earnings

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

ASU 2021-01, Reference Rate Reform (Topic 848):

ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848,

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.

The 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:

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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.

Scope, which refined the scope of ASC 848 and clarified some of its guidance as it relates to recent rate reform activities.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848, which extended the date to December 31, 2024.

The provisions of this update are available until December 31, 2024.

In 2022, we adopted the hedge accounting expedient related to the probability of forecasted transactions to assert probability of the hedged interest regardless of any expected modification related to reference rate reform.

We may apply other elections as applicable.

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

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2022 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.

In April 2022, we acquired the distribution assets of Tri-State Pool Distributors, a wholesale distributor of swimming pool equipment, chemicals and supplies, adding one location in West Virginia.

2021 Acquisitions

We acquired Porpoise Pool & Patio, Inc.

(“Porpoise”) on December 16, 2021 for $ 788.7 million, net of cash acquired.

We 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.

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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.

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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

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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.

2019 Acquisitions

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

Adcock, Inc., a wholesale distributor of swimming pool products, equipment, parts and supplies adding two locations in Pennsylvania, one location in North Carolina and one location in Virginia.

We have completed our acquisition accounting for this acquisition.

We have completed our acquisition accounting for all acquisitions discussed above.

Note 3 - Goodwill and Other Intangible Assets

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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.

(“Porpoise”) for $ 788.7 million, net of cash acquired.

The purchase price of Porpoise was allocated to the underlying assets acquired and liabilities assumed based upon their 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.

As a result of the acquisition, we recognized goodwill of $ 403.5 million.

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

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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.

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.

In October 2022, we performed our annual goodwill impairment test and recorded goodwill impairment of $ 0.6 million related to the closure of a Horizon reporting unit in that period.

As of October 1, 2022, we had 249 reporting units with allocated goodwill balances.

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.

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.

Other than our Porpoise reporting unit with $ 403.5 million of goodwill, the most significant goodwill balance for a reporting unit was $ 12.1 million and the average goodwill balance per reporting unit was $ 1.2 million.

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

In the first quarter of 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 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.

We record goodwill and intangibles impairment in Impairment of goodwill and other on our Consolidated Statements of Income.

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

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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.

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.

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

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

Other intangible amortization expense was $ 7.8 million in 2022, $ 1.3 million in 2021 and $ 1.0 million in 2020.

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

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Taxes payable 16,479 106,894

Unrealized losses on interest rate swaps 3,215 12,314

Other current liabilities 59,115 55,846

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Australian credit facility 12,542 10,819

Current portion of term loans under credit facility 12,500 —

Short-term borrowings and current portion of long-term debt 25,042 11,772

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Revolving credit facility 519,711 572,926

Term loan under credit facility 250,000 —

Term loans under credit facility 487,500 250,000

Term facility 157,250 166,500

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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.

On January 4, 2022, we drew the $ 250.0 million incremental term loan and used the net proceeds to reduce our revolving borrowings 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.

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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.

The Credit Facility matures on September 25, 2026.

Term loans under the credit facility require quarterly amortization payments beginning in September 2023 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.

At December 31, 2022, the $ 500.0 million of term loans available under the Credit Facility were fully drawn.

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.

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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.

At December 31, 2022, there was $ 1.0 billion outstanding, a $ 4.8 million standby letter of credit outstanding and $ 225.5 million available for borrowing under the Credit Facility.

The weighted average effective interest rate for the Credit Facility as of December 31, 2022 was approximately 4.4 %, excluding commitment fees.

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The Term Facility matures on December 30, 2026.

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.

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.

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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On November 1, 2022, 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.

As amended, the Receivables Facility has a maximum facility limit of $ 350.0 million in the months of April through August and a funding capacity that ranges from $ 210.0 million to $ 340.0 million during the remaining months of the year.

The amendment also updated the benchmark rate from the London Interbank Offered Rate Market Index Rate to the Term Secured Overnight Financing Rate Index Rate (“TSIR”) and extended the maturity date to November 1, 2024.

Amounts outstanding under the Receivables Facility bear interest at TSIR plus an applicable margin of 0.75 %.

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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At December 31, 2022, there was $ 199.5 million outstanding under the Receivables Facility at a weighted average effective interest rate of 5.2 %, excluding commitment fees.

Depending on the funding source used by the financial institutions to purchase the receivables, amounts outstanding under the Receivables Facility bear interest at one of the following and, in each case, plus an applicable margin of 0.75 %:

for financial institutions using the commercial paper market, commercial paper rates based on the applicable variable rates in the commercial paper market at the time of issuance;

for financial institutions not using the commercial paper market, LMIR.

We also pay an unused fee of 0.35 % on the excess of the facility limit over the average daily capital outstanding.

We also pay an unused fee on the excess of the facility limit over the average daily capital outstanding.

The unused fee is 0.25 % if utilization is less than 50 % or 0.35 % otherwise.

We pay this fee monthly in arrears.

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2023 $ 34,292

2026 1,074,211

Interest Rate Swaps

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.

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

Our interest rate swaps in effect during the year were previously forward-starting and converted the variable interest rate to a fixed interest rate on a portion of our variable rate borrowings.

Interest expense related to the notional amounts under our swap contracts was 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 were recorded to Accumulated other comprehensive loss on the Consolidated Balance Sheets.

Two of our interest rate swap contracts terminated on September 29, 2022.

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

Derivative Inception Date Effective Date Termination Date Notional

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

We currently have two interest rate swap contracts in place.

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

Derivative Inception Date Effective Date Termination Date Notional

(in millions) Fixed

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.

These swap contracts will convert the variable interest rate to a fixed interest rate on our variable rate borrowings.

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

Interest rate swap 4 March 9, 2020 September 29, 2022 February 26, 2027 $ 150.0 0.7400 %

We have entered into an additional forward-starting interest rate swap contract to extend the hedged period for future interest payments on a portion of our variable rate borrowings.

The following table provides details related to our forward-starting interest rate swap contract:

Derivative Inception Date Effective Date Termination Date Notional

(in millions) Fixed

Forward-starting interest rate swap 1 March 9, 2020 September 29, 2022 February 26, 2027 $ 150.0 0.7400 %

Forward-starting interest rate swap 1 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 $ 4.3 million in 2021 and $ 0.9 million in 2020 and a benefit of $ 0.3 million in 2019.

The net difference between interest paid and interest received related to our swap agreements resulted in an interest benefit of $ 0.8 million in 2022, and incremental expense of $ 4.3 million in 2021 and $ 0.9 million in 2020.

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

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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.

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.

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

For each of the performance-based grants from 2016 through 2019, we achieved the performance condition in the initial three-year performance period.

For each of the performance-based grants from 2016 through 2020, we achieved the performance condition in the initial three-year

performance period.

For the performance-based grants in 2021 and 2022, we have concluded that the performance condition is probable to be attained in the initial three-year performance period.

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Granted 75,202 371.80

274,253 52.64

Forfeited 12,157 260.53

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

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

The risk-free

interest rate is based on the U.S.

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

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Vested 78,931 137.60

23,016 273.55

Balance unvested at December 31, 2022 212,717 $ 256.97

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Net operating losses 987 2,524

Interest rate swaps — 3,023

Other 4,139 3,839

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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 income of $ 0.6 million in 2021 and interest expense of $ 1.0 million in 2020 and $ 0.6 million in 2019.

For unrecognized tax benefits, we had interest income of $ 0.1 million in 2022 and $ 0.6 million in 2021 and interest expense of $ 1.0 million in 2020.

Accrued interest related to unrecognized tax benefits was approximately $ 1.6 million at December 31, 2022 and $ 1.6 million at December 31, 2021.

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income tax examinations by tax authorities for years before 2019.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law.

Among other items, the IRA implemented a CAMT of 15 percent on book income of certain large corporations, a one percent excise tax on net stock repurchases and several tax incentives to promote clean energy.

Both the CAMT and the excise tax provisions of the IRA are effective for tax years beginning after December 31, 2022.

Based on our historical activity, we do not expect the excise tax and other provisions of the IRA to materially impact our results of operations, financial position, statement of cash flows.

Note 8 - Earnings Per Share

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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.

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

Participating securities excluded from weighted average common shares outstanding were 221,000 for the year ended December 31, 2022 and 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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Stock options and employee stock purchase plan

604 759 1,032

Diluted 39,806 40,480 40,865

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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.

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.

We exclude short-term leases from our Consolidated Balance Sheets and combine lease and non-lease components.

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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Note 10 - Related Party Transactions

Our policy for related party transactions is included in our written Audit Committee Charter.

This policy requires that our Audit Committee review and approve all related party transactions required to be disclosed in our Annual Proxy Statement or required to be approved based on Nasdaq rules.

We lease corporate and administrative offices from NCC, an entity we have held a 50 % ownership interest in since 2005.

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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