What changed in this filing

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Item 1. Financial Statements

2023-04-27 compared with 2022-10-27 · 67 added, 145 removed, 244 unchanged (46% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Net sales $ 1,206,774 $ 1,412,650

19 unchanged sentences

(In thousands)

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Net income $ 101,699 $ 179,261

Other comprehensive (loss) income:

Foreign currency translation losses ( 11,152 ) ( 3,555 ) ( 18,491 ) ( 3,522 )

Change in unrealized gains on interest rate swaps, net of change in taxes of $( 2,925 ), $( 491 ), $( 8,422 ), and $( 2,818 )

Foreign currency translation gain (loss) 2,469 ( 214 )

Unrealized (loss) gain on interest rate swaps, net of the change in taxes of $ 1,269 and $( 3,866 )

( 3,809 ) 11,598

5 unchanged sentences

(In thousands, except share data)

September 30, September 30, December 31,

March 31, March 31, December 31,

2023 2022 2022

30 unchanged sentences

39,032,631 , 40,110,126 and 39,069,419 shares issued and

outstanding at September 30, 2022, September 30, 2021 and

outstanding at March 31, 2023, March 31, 2022 and

December 31, 2022, respectively

1 unchanged sentence

Retained earnings 665,561 611,583 653,484

Accumulated other comprehensive loss ( 708 ) ( 9,087 ) ( 7,484 )

Accumulated other comprehensive income 4,555 3,900 5,895

Total stockholders’ equity 1,256,750 1,174,278 1,235,194

4 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating activities

Net income $ 101,699 $ 179,261

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation 7,632 7,663

8 unchanged sentences

Accounts payable 332,800 287,449

Accrued expenses and other current liabilities ( 33,284 ) 107,343

Net cash provided by operating activities 307,470 359,065

Accrued expenses and other liabilities ( 35,870 ) ( 60,738 )

Net cash provided by (used in) operating activities 103,203 ( 208,109 )

Investing activities

12 unchanged sentences

Payments on short-term borrowings and current portion of long-term debt ( 1,223 ) ( 784 )

Payments of deferred financing costs — ( 1,610 )

Payments of deferred and contingent acquisition consideration ( 551 ) ( 1,374 )

2 unchanged sentences

Purchases of treasury stock ( 50,549 ) ( 62,420 )

Net cash used in financing activities ( 248,404 ) ( 267,765 )

Net cash (used in) provided by financing activities ( 105,518 ) 228,717

Effect of exchange rate changes on cash and cash equivalents 754 ( 405 )

9 unchanged sentences

Comprehensive

Shares Amount Capital Earnings (Loss) Income Total

Shares Amount Capital Earnings Income Total

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

13 unchanged sentences

Balance at March 31, 2023 39,033 $ 39 $ 586,595 $ 665,561 $ 4,555 $ 1,256,750

— — — 307,283 — 307,283

Foreign currency translation

— — — — ( 7,125 ) ( 7,125 )

Interest rate swaps, net of the change in taxes of $( 1,631 )

— — — — 4,893 4,893

Repurchases of common stock, net of retirements

( 547 ) — — ( 216,261 ) — ( 216,261 )

Share-based compensation

— — 3,914 — — 3,914

Issuance of stock under share-based compensation plans

25 — 1,972 — — 1,972

Declaration of cash dividends

— — — ( 39,896 ) — ( 39,896 )

Balance at June 30, 2022 39,588 40 564,641 662,709 1,668 1,229,058

— — — 190,055 — 190,055

Foreign currency translation

— — — — ( 11,152 ) ( 11,152 )

Interest rate swaps, net of the change in taxes of $( 2,925 )

— — — — 8,776 8,776

Repurchases of common stock, net of retirements

( 549 ) ( 1 ) — ( 192,528 ) — ( 192,529 )

Share-based compensation

— — 4,120 — — 4,120

Issuance of stock under share-based compensation plans

15 — 2,094 — — 2,094

Declaration of cash dividends

— — — ( 39,544 ) — ( 39,544 )

Balance at September 30, 2022 39,054 $ 39 $ 570,855 $ 620,692 $ ( 708 ) $ 1,190,878

Common Stock Additional

1 unchanged sentence

Comprehensive

Shares Amount Capital Earnings Loss Total

Shares Amount Capital Earnings Income Total

Balance at December 31, 2021 40,193 $ 40 $ 551,963 $ 526,874 $ ( 7,484 ) $ 1,071,393

13 unchanged sentences

Balance at March 31, 2022 40,110 $ 40 $ 558,755 $ 611,583 $ 3,900 $ 1,174,278

— — — 259,695 — 259,695

Foreign currency translation

— — — — 1,302 1,302

Interest rate swaps, net of the change in taxes of $ 719

— — — — ( 2,157 ) ( 2,157 )

Repurchases of common stock, net of retirements

( 45 ) — — ( 18,619 ) — ( 18,619 )

Share-based compensation

— — 3,712 — — 3,712

Issuance of stock under share-based compensation plans

90 — 5,006 — — 5,006

Declaration of cash dividends

— — — ( 32,119 ) — ( 32,119 )

Balance at June 30, 2021 40,131 40 535,046 346,667 ( 7,005 ) 874,748

— — — 184,665 — 184,665

Foreign currency translation

— — — — ( 3,555 ) ( 3,555 )

Interest rate swaps, net of the change in taxes of $( 491 )

— — — — 1,473 1,473

Repurchases of common stock, net of retirements

( 100 ) — — ( 47,840 ) — ( 47,840 )

Share-based compensation

— — 4,206 — — 4,206

Issuance of stock under share-based compensation plans

49 — 3,606 — — 3,606

Declaration of cash dividends

— — — ( 32,091 ) — ( 32,091 )

Balance at September 30, 2021 40,080 $ 40 $ 542,858 $ 451,401 $ ( 9,087 ) $ 985,212

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

9 unchanged sentences

You should read the interim Consolidated Financial Statements in conjunction with the Consolidated Financial Statements and accompanying notes in our 2022 Annual Report on Form 10-K.

The results for our three and nine-month periods ended September 30, 2022, are not necessarily indicative of the expected results for our fiscal year ending December 31, 2022.

The results for our three-month period ended March 31, 2023, are not necessarily indicative of the expected results for our fiscal year ending December 31, 2023.

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

1 unchanged sentence

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

We recorded excess tax benefits of $ 0.6 million in the third quarter of 2022 compared to $ 4.2 million in the third quarter of 2021 and $ 9.5 million in the nine months ended September 30, 2022, compared to $ 15.9 million in the nine months ended September 30, 2021.

We recorded excess tax benefits of $ 4.8 million in the first quarter of 2023 compared to $ 7.3 million in the first quarter of 2022.

Retained Earnings

We account for the retirement of treasury shares as a reduction of Retained earnings.

As of September 30, 2022, the Retained earnings on our Consolidated Balance Sheets reflects cumulative net income, the cumulative impact of adjustments for changes in accounting pronouncements, treasury share retirements since the inception of our share repurchase programs of $ 2.1 billion and cumulative dividends of $ 902.0 million.

Accumulated Other Comprehensive Loss

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

September 30, December 31,

As of March 31, 2023, the Retained earnings on our Consolidated Balance Sheets reflects cumulative net income, the cumulative impact of adjustments for changes in accounting pronouncements, treasury share retirements since the inception of our share repurchase programs of $ 2.2 billion and cumulative dividends of $ 980.1 million.

Accumulated Other Comprehensive Income

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

March 31, December 31,

2023 2022 2022

Foreign currency translation adjustments $ ( 17,139 ) $ ( 9,794 ) $ ( 19,608 )

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

Unrealized gains on interest rate swaps, net of tax

21,694 13,694 25,503

Accumulated other comprehensive loss $ ( 708 ) $ ( 9,087 ) $ ( 7,484 )

Accumulated other comprehensive income $ 4,555 $ 3,900 $ 5,895

Recent Accounting Pronouncements Pending Adoption

The following table summarizes the recent accounting pronouncements that we plan to adopt in future periods:

The following table summarizes recent accounting pronouncements that we plan to adopt in future periods:

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

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

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

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

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

The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met.

These transactions include:

contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity.

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

Deferral of the Sunset Date of Topic 848 ASU 2020-04, Reference Rate Reform (Topic 848), provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.

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 contract modifications, hedging relationships and sale or transfer of debt securities classified as held-to-maturity.

Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made.

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

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

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

Our exposure related to the expected cessation of LIBOR is limited to the interest expense and certain fees we incur on balances outstanding under our three major credit facilities.

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

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 for using optional expedients and exceptions to December 31, 2024.

The provisions of these updates 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 any of the optional expedient or exceptions from these ASUs.

Note 2 – Earnings Per Share

2 unchanged sentences

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 213 thousand in the third quarter of 2022 and 223 thousand for the nine months ended September 30, 2022.

Participating securities excluded from weighted average common shares outstanding were 213,000 for the three months ended March 31, 2023 and 239,000 for the three months ended March 31, 2022.

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):

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Net income $ 101,699 $ 179,261

12 unchanged sentences

Note 3 – Acquisitions

In March 2023, we acquired the distribution assets of Pro-Water Irrigation & Landscape Supply, Inc., a wholesale distributor of irrigation and landscape supply products, adding two locations in Arizona.

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.

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

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

The acquisition was funded with borrowings on our amended and restated revolving credit facility (the “Credit Facility”).

Porpoise’s primary operations, Sun Wholesale Supply, Inc., a wholesale distributor of swimming pool and outdoor-living products, added 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.

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 of “Notes to Consolidated Financial Statements,” included in Part II, Item 8 of our 2021 Annual Report on Form 10-K.

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 the Porpoise acquisition, 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.

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.

Note 4 – Fair Value Measurements and Interest Rate Swaps

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:

6 unchanged sentences

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

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 and contingent consideration related to recent acquisitions.

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

Fair Value at September 30,

Unrealized gains on interest rate swaps $ 36,529 $ 5,488

Unrealized losses on interest rate swaps — 6,308

Contingent consideration liabilities $ 546 $ 983

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

Fair Value at March 31,

Input Level Classification 2023 2022

Unrealized gains on interest rate swaps Level 2 Other assets $ 28,970 $ 18,817

Deferred compensation plan asset Level 1 Other assets 14,014 18,338

Contingent consideration liabilities Level 3 Accrued expenses and other current liabilities $ — $ 600

Unrealized losses on interest rate swaps Level 2 Accrued expenses and other current liabilities — 514

Deferred compensation plan liability Level 1 Other long-term liabilities 14,014 18,338

Interest Rate Swaps

We utilize interest rate swap contracts and forward-starting interest rate swap contracts to reduce our exposure to fluctuations in variable interest rates for future interest payments on our variable rate borrowings.

For determining the fair value of our interest rate swap contracts and forward-starting interest rate swap contracts, we use significant other observable market data or assumptions (Level 2 inputs) that we believe market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk.

We use significant other observable market data or assumptions (Level 2 inputs) in determining the fair value of our interest rate swap contracts and forward-starting interest rate swap contract that we believe market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk.

Our fair value estimates reflect an income approach based on the terms of the interest rate swap contracts and inputs corroborated by observable market data including interest rate curves.

We include unrealized gains in Prepaid expenses and other current assets and unrealized losses in Accrued expenses and other current liabilities on the Consolidated Balance Sheets.

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

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

In the third quarter of 2022, two of our interest rate swap contracts terminated on September 29, 2022.

These former swap contracts 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 these swap contracts was based on the fixed rates plus the applicable margin on our variable rate borrowings.

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

Derivative Inception Date Effective Date Termination Date Notional Amount

(in millions) Fixed Interest Rate

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

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

We currently have two swap contracts in place.

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

These swap contracts were previously forward-starting and convert 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 these swap contracts is based on the fixed rates plus the applicable margin on a portion of 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.

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

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

3 unchanged sentences

Interest rate swap 2 March 9, 2020 September 29, 2022 February 26, 2027 $ 150.0 0.7400 %

For the interest rate swap contracts in effect at September 30, 2022, a portion of the change in the estimated fair value between periods relates to future interest expense.

Recognition of the change in fair value between periods attributable to accrued interest is reclassified from Accumulated other comprehensive loss on the Consolidated Balance Sheets to Interest and other non-operating expenses, net on the Consolidated Statements of Income.

This amount was not material in the three- or nine-month periods ended September 30, 2022.

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

This swap contract will convert the variable interest rate to a fixed interest rate on a portion of our variable rate borrowings.

We record changes in the estimated fair value of this forward-starting interest rate swap contract to Accumulated other comprehensive loss on the Consolidated Balance Sheets.

For the interest rate swap contracts in effect at March 31, 2023, a portion of the change in the estimated fair value between periods relates to future interest expense.

Recognition of the change in fair value between periods attributable to accrued interest is reclassified from Accumulated other comprehensive income on the Consolidated Balance Sheets to Interest and other non-operating expenses, net on the Consolidated Statements of Income.

These amounts were not material in the three-month periods ended March 31, 2023 or March 31, 2022.

We have entered into a 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:

7 unchanged sentences

According to our accounting policy, we do not offset the fair values of assets with the fair values of liabilities related to these contracts.

Nonrecurring Fair Value Measurements

In addition to our assets and liabilities that we measure at fair value on a recurring basis, our assets and liabilities are also subject to nonrecurring fair value measurements.

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

In the three- or nine months ended September 30, 2022, we did not record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition.

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.

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

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

The carrying value of our long-term debt approximates its 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).

Nonrecurring Fair Value Measurements

In addition to our assets and liabilities that we measure at fair value on a recurring basis, our assets and liabilities are also subject to nonrecurring fair value measurements.

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

In the three months ended March 31, 2023 and March 31, 2022, we did not record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition.

Note 5 – Debt

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

September 30,

Variable rate debt

Short-term borrowings $ 3,011 $ 10,854

Current portion of long-term debt:

Australian credit facility 11,319 10,411

Current portion of term loans under credit facility 18,750 —

Short-term borrowings and current portion of long-term debt $ 33,080 $ 21,265

7 unchanged sentences

Total debt $ 1,365,750 $ 1,505,073

On January 4, 2022, we drew the $ 250.0 million incremental term loan available under our December 30, 2021 amendment to our Second Amended and Restated Credit Agreement (the “Credit Facility”) and used the net proceeds to reduce our revolving borrowings under the Credit Facility.

At September 30, 2022, the $ 500.0 million of term loans available under the Credit Facility were fully drawn.

Our accounts receivable securitization facility (the “Receivables Facility”) provides for the sale of certain of our receivables to a wholly-owned subsidiary (the “Securitization Subsidiary”).

5 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements