What changed in this filing

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Item 1. Financial Statements

2023-07-27 compared with 2023-04-27 · 72 added, 44 removed, 267 unchanged (30% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Net sales $ 1,857,363 $ 2,055,818 $ 3,064,138 $ 3,468,468

19 unchanged sentences

(In thousands)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Net income $ 232,250 $ 307,283 $ 333,949 $ 486,544

Other comprehensive (loss) income:

Other comprehensive income (loss):

Foreign currency translation gain (loss) 2,801 ( 7,125 ) 5,271 ( 7,339 )

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

Unrealized gains (losses) on interest rate swaps, net of the change in taxes of $( 1,166 ), $( 1,631 ), $ 104 , and $( 5,497 )

3,497 4,893 ( 313 ) 16,491

Total other comprehensive (loss) income ( 1,340 ) 11,384

Total other comprehensive income (loss) 6,298 ( 2,232 ) 4,958 9,152

Comprehensive income $ 238,548 $ 305,051 $ 338,907 $ 495,696

3 unchanged sentences

(In thousands, except share data)

March 31, March 31, December 31,

June 30, June 30, December 31,

2023 2022 2022

30 unchanged sentences

39,048,604 , 39,588,231 and 39,069,419 shares issued and

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

outstanding at June 30, 2023, June 30, 2022 and

December 31, 2022, respectively

8 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Operating activities

Net income $ 333,949 $ 486,544

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

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

Depreciation 15,292 15,376

9 unchanged sentences

Accrued expenses and other liabilities 13,744 ( 44,276 )

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

Net cash provided by operating activities 376,777 28,731

Investing activities

44 unchanged sentences

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

— — — 232,250 — 232,250

Foreign currency translation

— — — — 2,801 2,801

Interest rate swaps, net of the change in taxes of $( 1,166 )

— — — — 3,497 3,497

Repurchases of common stock, net of retirements

Share-based compensation

— — 5,073 — — 5,073

Issuance of stock under share-based compensation plans

16 — 1,413 — — 1,413

Declaration of cash dividends

— — — ( 42,945 ) — ( 42,945 )

Other — — — ( 307 ) — ( 307 )

Balance at June 30, 2023 39,049 $ 39 $ 593,081 $ 854,559 $ 10,853 $ 1,458,532

Common Stock Additional

17 unchanged sentences

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

— — — 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

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

The results for our three and six-month periods ended June 30, 2023, are not necessarily indicative of the expected results for our fiscal year ending December 31, 2023.

Newly Adopted Accounting Pronouncements

As of June 30, 2023, we adopted Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and all related amendments, which are codified into Accounting Standards Codification (ASC) 848 .

This new standard provides optional expedients and exceptions for applying GAAP 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.

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

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

1 unchanged sentence

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

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.

We recorded excess tax benefits of $ 0.6 million in the second quarter of 2023 compared to $ 1.6 million in the second quarter of 2022 and $ 5.4 million in the six months ended June 30, 2023, compared to $ 8.9 million in the six months ended June 30, 2022.

Retained Earnings

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

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.

As of June 30, 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 $ 1.0 billion.

Accumulated Other Comprehensive Income

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

March 31, December 31,

June 30, December 31,

2023 2022 2022

3 unchanged sentences

Accumulated other comprehensive income $ 10,853 $ 1,668 $ 5,895

Recent Accounting Pronouncements Pending Adoption

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):

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):

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 213,000 for the three months ended March 31, 2023 and 239,000 for the three months ended March 31, 2022.

Participating securities excluded from weighted average common shares outstanding were 205,000 for the three months ended June 30, 2023 and 218,000 for the three months ended June 30, 2022, and 209,000 for the six months ended June 30, 2023 and 229,000 for the six months ended June 30, 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

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

Net income $ 232,250 $ 307,283 $ 333,949 $ 486,544

12 unchanged sentences

Note 3 – Acquisitions

In June 2023, we acquired the distribution assets of Pioneer Pool Products, Inc., a wholesale distributor of swimming pool equipment, chemicals and supplies, adding one location in Alabama.

In May 2023, we acquired the distribution assets of Recreation Supply Company, a wholesale distributor of commercial swimming pool products, adding one location in North Dakota.

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.

13 unchanged sentences

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,

Fair Value at June 30,

Input Level Classification 2023 2022

2 unchanged sentences

Contingent consideration liabilities Level 3 Accrued expenses and other current liabilities $ — $ 582

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 14,633 16,306

14 unchanged sentences

Interest rate swap 2 March 9, 2020 September 29, 2022 February 26, 2027 $ 150.0 0.6690 %

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.

For the interest rate swap contracts in effect at June 30, 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.

These amounts were not material in the three and six-month periods ended June 30, 2023 or June 30, 2022.

We also have in place 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:

5 unchanged sentences

Additionally, failure of our swap counterparties would not eliminate our obligation to continue to make payments under our existing swap agreements if we were in a net pay position.

We amended the floating rate option for our interest rate swap contracts and forward-starting interest rate swap contract, effective June 30, 2023, to reflect the change in the reference rate in our debt agreements from the one month London Interbank Offered Rate Market Index Rate (LIBOR) to the one month Term Secured Overnight Financing Rate Index Rate (Term SOFR).

As permitted by ASC 848, a change in rate only does not qualify as a hedge modification, and we have accounted for and presented our interest rate swaps contracts and forward-starting interest rate swap contract in the same manner as prior to the amendments.

Our interest rate swap contracts and forward-starting interest rate swap contract are subject to master netting arrangements.

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

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.

3 unchanged sentences

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

14 unchanged sentences

Total debt $ 1,184,586 $ 1,595,398

On June 30, 2023, we entered into the Second Amendment to the Second Amended and Restated Credit Agreement (the Credit Facility Amendment) among us as U.S.

Borrower, SCP Distributors Canada Inc.

as Canadian Borrower, SCP International, Inc.

as Euro Borrower, the Subsidiary Guarantors party thereto, Wells Fargo Bank, National Association, as Administrative Agent, and certain other lenders party thereto.

The Credit Facility Amendment updated the index used for the Base Rate (as further defined within the Credit Facility Amendment) from LIBOR to Term SOFR.

The Credit Facility Amendment also increased the maximum amount for the Accounts Securitization (as further defined within the Credit Facility Amendment) from $ 350.0 million to $ 500.0 million and increased the Canadian Dollar Commitment, Euro Commitment and Swingline Commitment (all as further defined within the Credit Facility Amendment) to $ 50.0 million each.

We also entered into the Second Amendment to Credit Agreement (the Term Facility Amendment) on June 30, 2023, among us, as Borrower, the Guarantors party thereto and Bank of America, N.A.

The Term Facility Amendment updated the index used for the Base Rate (as further defined within the Term Facility Amendment) from LIBOR to SOFR.

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