What changed in this filing

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Item 1. Financial Statements

2022-05-12 compared with 2021-11-10 · 250 added, 388 removed, 319 unchanged (67% of the section changed)

19 unchanged sentences

Deferred tax assets

Deferred offering costs

Operating lease right-of-use assets

Intangible assets, net

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Current maturities of long-term debt

Current operating lease liabilities

Accrued expenses and other current liabilities

Total current liabilities

Long-term debt, net of discount and current portion

Long-term debt, net of discount, debt issuance costs and current portion

Deferred income tax liabilities, net

Liability for uncertain tax positions

Non-current operating lease liabilities

Other long-term liabilities

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Preferred stock, $ 0.0001 par value;

100,000,000 and no shares authorized as of October 2, 2021 and December 31, 2020, respectively;

no shares issued and outstanding as of both October 2, 2021 and December 31, 2020

100,000,000 shares authorized as of both April 2, 2022 and December 31, 2021;

no shares issued and outstanding as of both April 2, 2022 and December 31, 2021

Common stock, $ 0.0001 par value;

900,000,000 and 500,000,000 shares authorized as of October 2, 2021 and December 31, 2020, respectively;

119,849,589 and 118,854,249 shares issued and outstanding as of October 2, 2021 and December 31, 2020, respectively

900,000,000 shares authorized as of April 2, 2022 and December 31, 2021;

119,469,747 and 119,445,611 shares issued and outstanding , as of April 2, 2022 and December 31, 2021, respectively

Additional paid-in capital

(Accumulated deficit) retained earnings

Accumulated deficit

Accumulated other comprehensive income

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Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 2, 2021

September 26, 2020

October 2, 2021

September 26, 2020

April 2, 2022

April 3, 2021

Cost of sales

Selling, general and administrative expense

(Loss) income from operations

Underwriting fees related to offering of common stock

Income from operations

Other expense (income):

Interest expense

Loss on extinguishment of debt

Other (income) expense, net

1 unchanged sentence

Earnings from equity method investment

(Loss) income before income taxes

Income before income taxes

Income tax expense

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Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 2, 2021

September 26, 2020

October 2, 2021

September 26, 2020

April 2, 2022

April 3, 2021

Net (loss) income

Other comprehensive (loss) income, net of tax:

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments

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Foreign currency translation adjustments

Repurchase and retirement of treasury stock

Stock-based compensation expense

Balances at March 28, 2020

Foreign currency translation adjustments

Repurchase and retirement of treasury stock

Stock-based compensation expense

Balances at June 27, 2020

Foreign currency translation adjustments

Issuance of common stock

Dividend to Class A unitholders ($ 1.00 per share)

Repurchase and retirement of common stock

( 21,666,653 )

Stock-based compensation expense

Balances at September 26, 2020

Balances at April 3, 2021

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Balances at December 31, 2021

Foreign currency translation adjustments

Dividend ($ 1.00 per share)

Repurchase and retirement of treasury stock

( 21,666,653 )

Stock-based compensation expense

Balances at April 3, 2021

Cumulative effect of adoption of new accounting standard- leases

Foreign currency translation adjustments

Net proceeds from initial public offering

Repurchase and retirement of treasury stock

Sale of common stock

Repurchase and retirement of common stock

( 13,800,244 )

Issuance of restricted stock in connection with the Reorganization

Issuance of common stock upon conversion of Class B units

Stock-based compensation expense

Balances at July 3, 2021

Foreign currency translation adjustments

Retirement of restricted stock

Issuance of common stock upon release of restricted stock units

Stock-based compensation expense

Balances at October 2, 2021

Balances at April 2, 2022

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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(in thousands)

Three Fiscal Quarters Ended

September 26,

Fiscal Quarter Ended

Cash flows from operating activities:

Net (loss) income

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

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

Depreciation and amortization

1 unchanged sentence

Stock-based compensation expense

Other non-cash

Gain on sale of equity method investment

Underwriting fees related to offering of common stock

Loss on extinguishment of debt

Other non-cash, net

Earnings from equity method investment

7 unchanged sentences

Other long-term liabilities

Net cash provided by operating activities

Net cash used in operating activities

Cash flows from investing activities :

Purchases of property and equipment

Proceeds from the sale of property and equipment

Return of equity method investment

Proceeds from the sale of equity method investment

Net cash used in investing activities

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Payments on long-term debt borrowings

Proceeds from borrowings on revolving credit facility

Payments on revolving credit facility

Proceeds from borrowings on revolving credit facilities

Payments on revolving credit facilities

Deferred financing fees paid

Dividend to Class A unitholders

Proceeds from the issuance of common stock

Proceeds from initial public offering, net of underwriting discounts, commissions and offering costs

Repurchase and retirement of treasury stock

Payments of Narellan Group Pty Limited contingent consideration

Net cash provided by (used in) financing activities

Proceeds from sale of common stock

Repurchase and retirement of common stock

Payments of initial public offering costs

Net cash provided by financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash

Net decrease in cash

Cash at beginning of period

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Capitalized internal-use software included in accounts payable – related party

Fair value of equity issued by Parent to settle contingent consideration in connection with the acquisition of Narellan Group Pty Limited

Deferred offering costs included in accounts payable and accrued expenses

Right-of-use operating assets obtained in exchange for lease liabilities

Increase in goodwill from measurement period adjustments related to business combinations

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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on March 3, 2021.

Initial Public Offering, Reorganization and Stock Split

Stock Split, Initial Public Offering and Reorganization

On April 13, 2021, the Company’s certificate of incorporation was amended and restated.

On April 13, 2021, the Company effected a 109,673.709 -for-one stock split of its issued and outstanding shares of common stock.

Accordingly, all share and per share data included in these condensed consolidated financial statements and notes thereto have been adjusted retroactively to reflect the impact of the amended and restated certificate of incorporation and the stock split.

On April 27, 2021, the Company completed its initial public offering (the “IPO”), pursuant to which it issued and sold 23,000,000 shares of common stock, inclusive of 3,000,000 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares.

The aggregate net proceeds received by the Company from the IPO were $ 399.3 million, after deducting underwriting discounts and commissions and other offering costs.

Prior to the closing of the Company’s IPO on April 27, 2021 (the “Closing of the IPO”), the Company’s parent entity, Parent, merged with and into Latham Group, Inc., with Latham Group, Inc.

surviving the merger (the “Reorganization”).

The purpose of the Reorganization was to allow existing indirect owners of the Company to become direct shareholders of the Company.

In connection with the Reorganization, Class A units of the Parent (the “Class A units”) were converted into shares of the Company’s common stock, and Class B units of the Parent (the “Class B units”) were converted into an economically equivalent number of restricted and unrestricted shares of the Company’s common stock on a pro rata basis.

The Reorganization was accounted for as an equity reorganization between entities under common control.

As the Class A units were akin to common shares as all holders held economic interest of the Parent and were entitled to distributions on a pro rata basis to their ownership, the conversion of Class A units to common shares as part of the Reorganization was considered to be equivalent to a stock split , which requires retrospective treatment for accounting purposes.

Accordingly, all share and per share amounts in these condensed consolidated financial statements and related notes have been retroactively restated, where applicable, to give effect to the conversion ratio applied in connection with the Reorganization.

Class B units were historically accounted for as compensatory arrangements in accordance with ASC 718 “ Compensation – Stock Compensation ”, akin to stock appreciation rights, that, when vested, would share on the economic appreciation of the equity value of Parent over the agreed hurdles.

As a result of the Reorganization, the Company determined that only vested Class B units are considered outstanding for accounting purposes.

A portion of the Class B units vest based on continued employment by the holder, or time-vesting units, and the remaining Class B units vest upon defined performance and market conditions, or performance-vesting units.

Therefore, the Company has considered any unvested restricted shares as contingently issuable shares until they vest.

The conversion of time-vesting Class B units to restricted shares is retrospectively included in the weighted-average common shares outstanding for diluted net income (loss) per share using the treasury stock method for each period in which the individual unit holder’s threshold was met at the reporting date and therefore the individual unit holder would have participated in a hypothetical distribution to the Parent unit holders.

The conversion of performance-vesting Class B units to restricted shares is not included in the shares outstanding for diluted net income (loss) per share for any period prior to the Reorganization and IPO as the performance vesting thresholds were not satisfied and the performance units were not considered probable to vest historically.

Prior to the closing of the Company’s IPO on April 27, 2021 (the “Closing of the IPO”), the Company’s parent entity, Parent, merged with and into Latham Group, Inc.

(the “Reorganization”).

Offering of Common Stock

On January 11, 2022, the Company completed an offering of 13,800,000 shares of common stock, par value $ 0.0001 per share, including the exercise in full by the underwriters of their option to purchase up to 1,800,000 additional shares of common stock, at a public offering price of $ 19.50 per share.

The Company received proceeds of $ 257.7 million from this offering, net of $ 11.4 million of underwriting fees.

The proceeds of $ 257.7 million were used to purchase 13,800,000 shares of common stock from certain of the Company’s stockholders, primarily investment funds managed by the Sponsor and Wynnchurch Capital, L.P., and also a small percentage of shares of common stock owned by some of our directors and executive officers.

As of April 2, 2022 and December 31, 2021, 113,720,584 and 113,642,487 shares of common stock are issued and outstanding for accounting purposes, respectively.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The consolidated balance sheet at December 31, 2021 was derived from audited financial statements but does not include all disclosures required by GAAP.

The accompanying unaudited condensed consolidated financial statements as of October 2, 2021 and for the fiscal quarters and three fiscal quarters ended October 2, 2021 and September 26, 2020 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements.

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

These condensed consolidated financial statements should be read in conjunction with Latham Group, Inc.’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2020 included in the Company’s Registration Statement on Form S-1, as amended, File No.

333-254930 on file with the SEC.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of October 2, 2021 and results of operations for the fiscal quarters and three fiscal quarters ended October 2, 2021 and September 26, 2020 and cash flows for the three fiscal quarters ended October 2, 2021 and September 26, 2020 have been made.

The Company’s results of operations for the fiscal quarter and three fiscal quarters ended October 2, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.

The accompanying unaudited condensed consolidated financial statements as of April 2, 2022 and for the fiscal quarters ended April 2, 2022 and April 3, 2021 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements.

Certain information and footnote disclosures

normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

These condensed consolidated financial statements should be read in conjunction with Latham Group, Inc.’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021 included in the Company’s 2021 Annual Report on Form 10-K, filed with the SEC on March 10, 2022 (the “Annual Report”).

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of these condensed consolidated financial statements.

The Company’s results of operations for the fiscal quarter ended April 2, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.

Use of Estimates

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Changes in estimates are recorded in the period in which they become known.

Segment Reporting

The Company identifies operating segments based on how the chief operating decision maker (“CODM”) manages the business, allocates resources, makes operating decisions and evaluates operating performance.

The Company conducts its business as one operating and reportable segment that designs, manufactures and markets in-ground swimming pools, liners and covers.

The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information presented on a consolidated basis for purposes of assessing financial performance and allocating resources.

Although the Company generally has demand for its products throughout the year, its business is seasonal and weather is one of the principal external factors affecting the business.

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Accounting Policies

Refer to the Company’s final prospectus for the IPO filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on April 26, 2021 (“the Prospectus”) for a discussion of the Company’s accounting policies, as updated below.

Stock-based Compensation

Stock-based compensation is measured and recognized based on the grant date fair value of the awards.

The Class B units of the Parent were granted to employees in the form of Profits Interest Units (“PIUs”).

The Company determined the grant date fair value of PIUs using the Black-Scholes option pricing model.

As part of the Reorganization, the vested and unvested PIUs of the Parent, were converted on a pro rata basis into equivalent restricted stock units and restricted stock awards of the Company’s underlying common stock.

The fair value of the awards is expensed using a graded vesting method over the requisite service period in which employees earn the awards.

The Company accounts for forfeitures of stock-based awards as they occur rather than applying an estimated forfeiture rate to stock-based compensation expense.

The Black-Scholes pricing model requires critical assumptions including risk-free rate, volatility, expected term and expected dividend yield.

The expected term is computed using the simplified method.

The Company uses the simplified method to calculate expected term of the PIUs as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

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

Treasury zero-coupon issues similar in duration to the expected term of the stock-based award.

The Company considers the historical volatility of the Company’s stock price, as well as implied volatility.

The Company utilized a dividend yield of zero, as it had no history or plan of declaring dividends on its common stock.

The assumptions underlying these valuations represented the Company’s best estimate, which involved inherent

uncertainties and the application of judgment.

As a result, if the Company had used significantly different assumptions or estimates, the fair value of the Company’s stock-based compensation expense could have been materially different.

Contemporaneously with the pricing of the Company’s IPO, on April 22, 2021, the Company effected its Omnibus Incentive Plan in which it granted to certain employees of the Company restricted stock awards, restricted stock units and option awards inclusive of the as converted Class B units as a result of the Reorganization (see Note 14).

Equity Method Investments

Investments and ownership interests in common stock or in-substance common stock are accounted for under the equity method accounting if the Company has the ability to exercise significant influence over the entity but does not have a controlling financial interest.

Under the equity method, investments are initially recognized at cost and adjusted to reflect the Company’s interest in net earnings, dividends received and other-than-temporary impairments.

The Company records its interest in the net earnings of its equity method investee, along with adjustments for amortization of basis differences, investee capital transactions and other comprehensive income (loss), within earnings from equity method investment in the condensed consolidated statements of operations.

Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to the underlying basis differences.

Profits or losses related to intra-entity sales with its equity method investee are eliminated until realized by the investor or investee.

The Company records its proportionate share of earnings or losses of Premier Holdco, LLC (“Premier Pools & Spas”) within earnings from equity method investment in the condensed consolidated statements of operations on a three-month lag.

The Company recorded its interest in the net earnings of Premier Pools & Spas of $ 0.8 million and $ 1.8 million, respectively, for the fiscal quarter and three fiscal quarters ended October 2, 2021, which included a $ 0.1 million and $ 0.2 million adjustment for the amortization of basis differences, within earnings from equity method investment in the condensed consolidated statements of operations during the fiscal quarter and three fiscal quarters ended October 2, 2021.

As the Company initially invested in Premier Pools & Spas on October 30, 2020, there was no earnings from equity method investment recorded during the fiscal quarter and the three fiscal quarters ended September 26, 2020.

The Company received distributions of $ 1.1 million and $ 2.2 million during the fiscal quarter and three fiscal quarters ended October 2, 2021, respectively.

For presentation in the condensed consolidated statements of cash flows, the Company utilizes the cumulative earnings approach for purposes of determining whether distributions should be classified as either a return on investment, which are be included in operating activities, or a return of investment, which would be included in investing activities.

Under the cumulative earnings approach, the Company compares the distributions received to its cumulative equity-method earnings since inception.

Any distributions received up to the amount of cumulative equity earnings are be considered a return on investment and classified in operating activities.

Any excess distributions would be considered a return of investment and classified in investing activities.

Equity method goodwill is not amortized or tested for impairment;

instead the Company evaluates equity method investments for impairment when events or changes in circumstances indicate that the decline in value below the carrying amount of its equity method investment is determined to be other than temporary.

In such a case, the decline in value below the carrying amount of its equity method investment is recognized in the condensed consolidated statements of operations in the period the impairment occurs.

Refer to the Company’s Annual Report for a discussion of the Company’s accounting policies, as updated below for recently adopted accounting standards.

Recently Issued Accounting Pronouncements

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The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.

This classification will determine whether lease expense is

recognized based on an effective interest method or on a straight-line basis over the term of the lease.

In addition, a lessee is required to record (i) a right-of-use asset and a lease liability on its balance sheet for all leases with accounting lease terms of more than 12 months regardless of whether it is an operating or financing lease and (ii) lease expense in its consolidated statement of operations for operating leases and amortization and interest expense in its consolidated statement of operations for financing leases.

Leases with a term of 12 months or less may be accounted for similar to prior guidance for operating leases today.

This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease.

for operating leases and amortization and interest expense in its consolidated statement of operations for financing leases.

Leases with a term of 12 months or less may be accounted for similar to how operating leases were accounted for under the prior guidance.

In July 2018, the FASB issued ASU No.

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In June 2020, the FASB issued additional guidance delaying the effective date for all entities, except for public business entities.

For public entities, ASU 2016-02 was effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years.

For nonpublic entities, this guidance is effective for annual periods beginning after December 15, 2021.

Early adoption is permitted.

The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

The Company adopted ASU 2016-02 on January 1, 2022 using the modified retrospective approach and elected the package of practical expedients to use in transition, which permitted us not to reassess, under the new standard, our prior conclusions about lease identification and lease classification.

The adoption resulted in the addition of $ 33.5 million of operating lease right-of-use assets, and $ 34.0 million of operating lease liabilities, a decrease of $ 0.2 million to deferred rent and a decrease of $ 0.3 million to retained earnings for the cumulative effect of initially applying the new standard.

The adoption did not have a material impact on the Company’s Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders’ Equity or Condensed Consolidated Statements of Cash Flows.

See Note 9, “Leases” for additional information related to the Company’s leases and accounting policy elections.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

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The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which is intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its consolidated financial statements.

In addition to that main objective, the amendments in the update make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP.

Additional updates to further clarify the guidance in ASU 2017-12 were issued by the FASB in October 2018 within ASU 2018-16.

For public entities, the amendment is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

For nonpublic entities, ASU 2017-12 is effective for fiscal years beginning after December 15, 2020 and interim periods beginning after December 15, 2021.

Early application is permitted in any interim period after the issuance of the update.

The Company is currently evaluating the impact that the adoption of ASU 2017-12 will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application.

For public entities, ASU 2019-12 is effective for annual periods beginning after December 15, 2020, and interim periods within those reporting periods.

For nonpublic companies, ASU 2019-12 is effective for annual periods beginning after December 15, 2021, and interim periods within those reporting periods.

Early adoption is permitted.

The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments — Equity Securities (Topic 321), Investments — Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.

For public entities, ASU 2020-01 is effective for annual periods beginning after December 15, 2020, and interim periods within those reporting periods.

For nonpublic companies, ASU 2020-01 is effective for annual periods beginning after December 15, 2021, and

interim periods within those reporting periods.

The Company is currently evaluating the impact that the adoption of ASU 2020-01 will have on its consolidated financial statements.

For nonpublic companies, ASU 2020-01 is effective for annual periods beginning after December 15, 2021, and interim periods within those reporting periods.

The adoption of this standard did not have an impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued.

This guidance is effective for all entities upon issuance on March 12, 2020 and may be applied through December 31, 2022.

The expedients and exceptions in this guidance are optional, and the Company is evaluating the potential future financial statement impact of any such expedient or exception that it may elect to apply as the Company evaluates the effects of adopting this guidance on its consolidated financial statements.

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

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Specifically, this guidance applies to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform.

The ASU became effective as of March 12, 2020 and can be adopted anytime during the period of January 1, 2020 through December 31, 2022.

The Company is currently evaluating the impact that the adoption of ASU 2021-01 will have on its consolidated financial statements.

GL International, LLC

On October 22, 2020, Latham Pool Products acquired GL International, LLC (“GLI”) for a total purchase price of $ 79.7 million (the “GLI Acquisition”).

The results of GLI’s operations have been included in the condensed consolidated financial statements since that date.

GLI specializes in manufacturing custom pool liners and safety covers.

As a result, this acquisition expanded the Company’s liner and safety cover product offerings.

In connection with the GLI Acquisition, consideration paid was $ 79.7 million in cash, or $ 74.7 million net of cash acquired of $ 5.0 million, and excluding a net working capital adjustment receivable of $ 0.8 million.

The net working capital adjustment receivable was settled during fiscal quarter ended April 3, 2021.

The cash consideration was funded from existing cash on hand.

This guidance is effective for all entities upon issuance on March 12, 2020 and may be applied through December 31, 2022.

The expedients and exceptions in this guidance are optional.

The Company elected the optional expedient in connection with amending its interest rate swap to replace the reference rate from LIBOR to SOFR to consider the amendment as a continuation of the existing contract without having to perform an assessment that would otherwise be required under GAAP.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which amends ASC 805 by requiring acquiring entities to apply ASC 606 to recognize and measure contract assets and contract liabilities in a business combination.

For public entities, ASU 2021-08 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022.

other entities, ASU 2021-08 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023.

The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments, with early adoption permitted.

The Company is currently evaluating ASU 2021-08 and its potential impact on our consolidated financial statements.

Trojan Leisure Products, LLC d/b/a Radiant Pools

On November 24, 2021, Latham Pool Products acquired Trojan Leisure Products, LLC d/b/a Radiant Pools (“Radiant”) for a total purchase price of $ 90.7 million (the “Radiant Acquisition”).

The results of Radiant’s operations have been included in the consolidated financial statements since that date.

Radiant specializes in manufacturing proprietary vinyl liner aluminum swimming pools which can be built completely in-ground, semi-inground, or above ground.

As a result, this acquisition expanded the Company’s product offerings.

In connection with the Radiant Acquisition, consideration paid was $ 90.7 million in cash, or $ 90.5 million net of cash acquired of $ 0.2 million.

The cash consideration was funded, in part, through long-term debt proceeds of $ 50.0 million.

The Company incurred $ 2.9 million in transaction costs.

The Company accounted for the GLI Acquisition using the acquisition method of accounting in accordance with FASB ASC 805, Business Combinations (“ASC 805”).

Subsequent to the acquisition date, there was an additional amount due to the seller of $ 0.4 million related to the finalization of the net working capital adjustment, which was accounted for as a measurement period adjustment.

The measurement period adjustment resulted in an increase in the total consideration transferred of $ 0.4 million and an increase to goodwill of $ 0.4 million.

The net working capital adjustment payable was recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheet as of April 2, 2022.

The Company accounted for the Radiant Acquisition using the acquisition method of accounting in accordance with ASC 805.

This requires that the assets acquired and liabilities assumed be measured at fair value.

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Inventories were valued using the comparative sales method, less the cost of disposal.

Specific to intangible assets, dealer relationships were valued using the multi-period excess earnings method, whereas trade names were valued using the relief from royalty method.

Specific to intangible assets, customer relationships and backlog were valued using the multi-period excess earnings method, whereas trade names, technology and pool designs were valued using the relief from royalty method.

The Company recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date.

The following summarizes the purchase price allocation for the GLI Acquisition:

The following summarizes the purchase price allocation for the Radiant Acquisition:

(in thousands)

October 22, 2020

November 24, 2021

Total consideration

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Total fair value of net assets acquired, excluding goodwill:

The excess of the purchase price over the fair value of the identifiable assets acquired and the liabilities assumed in the acquisition was allocated to goodwill in the amount of $ 13.1 million.

Goodwill resulting from the GLI Acquisition was attributable to the expanded market share and product offerings.

Goodwill resulting from the GLI Acquisition is deductible for tax purposes.

The excess of the purchase price over the fair value of the identifiable assets acquired and the liabilities assumed in the Radiant Acquisition was allocated to goodwill in the amount of $ 14.1 million.

Goodwill resulting from the Radiant Acquisition was

attributable to the expanded market share and product offerings.

Goodwill resulting from the Radiant Acquisition is deductible for tax purposes.

The Company allocated a portion of the purchase price to specific intangible asset categories as follows:

Amortization Period

Definite-lived intangible assets:

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Dealer relationships

Pro Forma Financial Information (Unaudited)

The following pro forma financial information presents the statements of operations of the Company combined with GLI as if the acquisition occurred on January 1, 2020.

The pro forma results do not include any anticipated synergies, cost savings or other expected benefits of an acquisition.

The pro forma financial information is not necessarily indicative of what the financial results would have been had the acquisition been completed on January 1, 2020 and is not necessarily indicative of the Company’s future financial results.

Fiscal Quarter Ended

Three Fiscal Quarters Ended

(in thousands)

September 26, 2020

The pro forma financial information presented above has been calculated after adjusting for the results of the GLI Acquisition for the fiscal quarter and the three fiscal quarters ended September 26, 2020 to reflect the accounting effects as a result of the acquisition, including the amortization expense from acquired intangible assets, the depreciation and amortization expense from acquired property and equipment, the additional cost of sales from acquired inventory, interest expense from debt financing, and any related tax effects.

EQUITY METHOD INVESTMENT

On October 30, 2020, the Company entered into a securities purchase agreement to purchase 28 % of the common units of Premier Pools & Spas for $ 25.4 million.

On August 6, 2021, the Company entered into a securities purchase agreement, together with Premier Holdco LLC, Premier Pools Management Corp.

Holdco, Premier Franchise Management Holdco, PFC Holdco, and PPSF, LLC, pursuant to which Premier Group Holdings Inc., an affiliate of Wynnchurch Capital, L.P., acquired 29.8 % of the common units of Premier Pools & Spas in aggregate from all sellers, including the Company.

Sellers who were not related parties of Wynnchurch Capital, L.P.

or the Company determined the purchase price per common unit paid by Premier Group Holdings Inc., indicating the amount paid for the common units of Premier Pools & Spas reflects the price that would be paid in an arm's-length transaction.

As a result of the transaction, the Company received cash proceeds of $ 6.8 million and recorded a gain on the sale of equity method investment of $ 3.9 million, which was recorded within other (income) expense, net on the condensed consolidated statements of operations during the fiscal quarter ended October 2, 2021.

The Company’s post-sale ownership interest in Premier Pools & Spas is 20.1 %.

The Company concluded, both before and after the sale of common units on August 6, 2021, that it holds common stock of Premier Pools & Spas and has the ability to exercise significant influence over Premier Pools & Spas but does not have a controlling financial interest.

Accordingly, the Company accounts for this investment using the equity method of accounting.

The Company’s proportionate share of the earnings or losses of the investee are reported as a separate line in the condensed consolidated statements of operations.

Premier Pools & Spas is a holding company for its manufacturing and franchising companies including PFC LLC, Premier Franchise Management LLC, Premier Pools Management LLC, and Premier Fiberglass LLC (the “Premier Companies”).

The Premier Companies are a leading swimming pool-building brand that uses its franchisee network to sell and install pools around the United States.

In connection with Latham’s Investment in Premier Pools & Spas, the Company entered into an exclusive supply agreement with Premier Pools & Spas, the Premier Companies, and Premier Pools & Spas’ franchisees (“Premier Franchisees”) (together, the “Customer”).

Premier Pools & Spas does not consolidate the operations of the Premier Franchisees.

Per the supply agreement, Latham is the exclusive supplier of the Premier Franchisees for specific pool and pool products.

These products include fiberglass products and package pool products.

The initial term of the supply agreement is ten years .

For the first three years of the supply agreement, the Customer is entitled to a low-teens percentage rebate for all fiberglass pools sold and an additional growth rebate of a low single-digit to low-teens percentage based on year over year sales growth on fiberglass pools (the “Rebates”).

The Rebates will be paid directly to Premier Pools Management Corp.

As of October 2, 2021, the Company’s carrying amount for the equity method investment in Premier Pools & Spas was $ 22.0 million.

During the three fiscal quarters ended October 2, 2021, Premier Pools & Spas paid the Company dividends of $ 2.2 million that are presented on the condensed consolidated statement of cash flows as distribution received from equity method investment of $ 1.8 million and return of equity method investment of $ 0.4 million, respectively.

The Company has elected a three-month financial reporting lag.

The Company recorded its interest in net earnings of Premier Pools & Spas of $ 0.8 million and $ 1.8 million for the fiscal quarter and three fiscal quarters ended October 2, 2021, along with a basis difference adjustment of $ 0.1 million and $ 0.2 million, respectively.

FAIR VALUE MEASUREMENTS

12 unchanged sentences

market approach, income approach or cost approach.

There were no transfers between fair value measurement levels during the three fiscal quarters ended October 2, 2021 or September 26, 2020.

There were no transfers between fair value measurement levels during the fiscal quarters ended April 2, 2022 or April 3, 2021.

Assets and liabilities measured at fair value on a nonrecurring basis

1 unchanged sentence

Such fair value measurements are based predominantly on Level 2 and Level 3 inputs.

Assets and liabilities measured at fair value on a recurring basis

On May 31, 2019 (the “Acquisition Date”), Latham Pool Products acquired Narellan Group Pty Limited and its subsidiaries (collectively “Narellan”) for a total purchase price of $ 35.2 million (the “Narellan Acquisition”).

In connection with the Narellan Acquisition, consideration paid included $ 20.2 million in cash, $ 7.6 million in equity consideration and $ 7.4 million of contingent consideration as of the Acquisition Date.

The Company agreed to pay the contingent consideration in the form of cash and equity consideration to the seller if certain EBITDA targets were achieved for any of the trailing twelve months periods ended December 31, 2019, June 30, 2020 or the year ended December 31, 2020 (the “Contingent Consideration”).

The fair value of the Contingent Consideration at the Acquisition Date was $ 7.4 million.

On September 25, 2020, the Company amended the terms of the Narellan Share Purchase Agreement and settled the Contingent Consideration with the selling shareholders of Narellan based upon estimated EBITDA for the year ended December 31, 2020.

The fair value of the Company’s Contingent Consideration was measured and recorded on the condensed consolidated balance sheets using Level 3 inputs because it was valued based on unobservable inputs and other estimation techniques due to the absence of quoted market prices.

The Company valued the Contingent Consideration using a Monte Carlo simulation, which relied on management’s projections of EBITDA and the estimated probability of achieving such targets.

Estimates of fair value are subjective in nature, involve uncertainties and matters of significant judgment, and are made at a specific point in time.

Thus, changes in key assumptions from period to period could significantly affect the estimate of fair value.

The fair value of the benefit plan assets related to the Company’s pension plan was historically measured and recorded on the condensed consolidated balance sheets using Level 2 inputs.

During the fiscal quarter ended September 26, 2020, the Company terminated its defined benefit pension plan.

Fair value of financial instruments

The Company considers the carrying amounts of cash, trade receivables, prepaid expenses and other current assets, accounts payable, and accrued expenses and other current liabilities, to approximate fair value due to the short-term maturities of these instruments.

The term loan is carried at amortized cost;

however, the Company estimates the fair value of the term loan for disclosure purposes.

The fair value of the term loan is determined using inputs based on observable market data of a non-public exchange using, which are classified as Level 2 inputs.

The following table sets forth the carrying amount and fair value of the term loan (in thousands):

October 2, 2021

Term loans (see Note 7) are carried at amortized cost;

however, the Company estimates the fair value of term loans for disclosure purposes.

The fair value of term loans is determined using inputs based on observable market data of a non-public exchange using, which are classified as Level 2 inputs.

The following table sets forth the carrying amount and fair value of its term loans (in thousands):

April 2, 2022

December 31, 2021

New Term Loan

Amended Term Loan

Interest rate swap

The Company estimates the fair value of the interest rate swap (see Note 8) on a quarterly basis using Level 2 inputs, including the forward LIBOR curve.

The fair value is estimated by comparing (i) the present value of all future monthly fixed rate payments versus (ii) the variable payments based on the forward LIBOR curve.

As of October 2, 2021 and December 31, 2020, the Company’s interest rate swap liability was $ 0.6 million and $ 0.3 million, respectively, which was recorded within other long-term liabilities on the condensed consolidated balance sheets.

The Company estimates the fair value of the interest rate swap (see Note 7) on a quarterly basis using Level 2 inputs, including the forward SOFR curve.

The fair value is estimated by comparing (i) the present value of all future monthly fixed rate payments versus (ii) the variable payments based on the forward SOFR curve.

As of April 2, 2022 and December 31, 2021, the fair value of the Company’s interest rate swap asset was $ 3.3 million and $ 0.5 million, respectively, which was recorded within other assets on the condensed consolidated balance sheets.

GOODWILL AND INTANGIBLE ASSETS, NET

The carrying amount of goodwill as of October 2, 2021 and as of December 31, 2020 was $ 115.2 million and $ 115.8 million, respectively.

The change in the carrying value during the three fiscal quarters ended October 2, 2021 was solely due to fluctuations in foreign currency exchange rates.

The carrying amount of goodwill as of April 2, 2022 and as of December 31, 2021 was $ 129.6 million and $ 128.9 million, respectively.

The change in the carrying value during the fiscal quarter ended April 2, 2022 was due to an increase of $ 0.4 million as a result of a measurement period adjustment (see Note 3) and fluctuations in foreign currency exchange rates.

Intangible Assets

Intangible assets, net as of October 2, 2021 consisted of the following (in thousands):

October 2, 2021

Intangible assets, net as of April 2, 2022 consisted of the following (in thousands):

April 2, 2022

Trade names and trademarks

3 unchanged sentences

Non-competition agreements

The Company recognized $ 5.5 million and $ 16.6 million of amortization expense related to intangible assets during the fiscal quarter and the three fiscal quarters ended October 2, 2021, respectively.

The Company recognized $ 7.2 million and $ 5.6 million of amortization expense related to intangible assets during the fiscal quarters ended April 2, 2022 and April 3, 2021, respectively.

Intangible assets, net as of December 31, 2021 consisted of the following (in thousands):

5 unchanged sentences

Non-competition agreements

The Company recognized $ 4.0 million and $ 12.2 million of amortization expense related to intangible assets during the fiscal quarter and the three fiscal quarters ended September 26, 2020, respectively.

The Company estimates that amortization expense related to definite-lived intangible assets will be as follows in each of the next five years and thereafter (in thousands):

4 unchanged sentences

Inventories, net consisted of the following (in thousands):

October 2, 2021

April 2, 2022

December 31, 2021

3 unchanged sentences

The components of the Company’s outstanding debt obligations consisted of the following (in thousands):

October 2, 2021

April 2, 2022

December 31, 2021

New Term Loan

Amended Term Loan

New Revolving Credit Facility

Unamortized discount and debt issuance costs

1 unchanged sentence

Total long-term debt

Revolving Credit Facility

On December 18, 2018, the Latham Pool Products entered into an agreement (the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC (“Nomura”) that included a revolving line of credit (the “Revolver”) and letters of credit (“Letters of Credit” or collectively with the Revolver, the “Revolving Credit Facility”), as well as a term loan (as described below).

The Revolving Credit Facility is available to finance ongoing general corporate and working capital needs with the Revolver of up to $ 30.0 million.

The Revolving Credit Facility matures on December 18, 2023.

On April 27, 2021, upon completion of the IPO, the Company used $ 16.0 million of the net proceeds from the IPO to repay $ 16.0 million then outstanding on the Revolver.

The Revolving Credit Facility allows for either Eurocurrency borrowings, bearing interest ranging from 4.50 % to 4.75 %, or base rate borrowings, bearing interest ranging from 3.50 % to 3.75 % depending on the First Lien Net Leverage Ratio, as defined in the Credit Agreement.

A commitment fee accrues on any unused portion of the commitments under the Revolving Credit Facility.

The commitment fee is due and payable quarterly in arrears and is equal to the applicable margin times the actual daily amount by which the $ 30.0 million initial commitment exceeds the sum of the outstanding borrowings under the Revolver and outstanding Letters of Credit obligations.

The applicable margin ranges from 0.375 % to 0.500 % as determined by the Company’s First Lien Net Leverage Ratio as defined in the Credit Agreement.

On February 23, 2022, Latham Pool Products entered into an agreement (the “New Credit Agreement”) with Barclays Bank PLC, which provides a senior secured multicurrency revolving line of credit (the “New Revolving Credit Facility”) in an initial principal amount of $ 75.0 million and a U.S.

Dollar senior secured term loan facility (the “New Term Loan Facility”) in an initial principal

amount of $ 325.0 million (the “Refinancing”).

On the closing date, proceeds under the agreement were used to repay $ 294.0 million and terminate the Credit Agreement (as defined below) and for general corporate purposes.

New Revolving Credit Facility

On February 23, 2022, Latham Pool Products entered into the New Credit Agreement with Barclays Bank PLC, which provides a senior secured multicurrency revolving line of credit in an initial principal amount of $ 75.0 million.

The New Revolving Credit Facility may be utilized to finance ongoing general corporate and working capital needs and permits Latham Pools Products to borrow loans in U.S.

Dollars, Canadian Dollars, Euros and Australian Dollars.

The New Revolving Credit Facility matures on February 23, 2027.

Loans outstanding under the New Revolving Credit Facility denominated in U.S.

Dollars and Canadian Dollars bear interest, at the borrower’s option, at a rate per annum based on Term SOFR or CDO (each, as defined in the New Credit Agreement), as applicable, plus a margin of 3.50 %, or at a rate per annum based on the Base Rate or the Canadian Prime Rate (each, as defined in the New Credit Agreement), plus a margin of 2.50 %.

Loans outstanding under the New Revolving Credit Facility denominated in Euros or Australian Dollars bear interest based on EURIBOR or the AUD Rate (each, as defined in the New Credit Agreement), respectively, plus a margin of 3.50 %.

A commitment fee accrues on any unused portion of the commitments under the New Revolving Credit Facility.

The commitment fee is due and payable quarterly in arrears and is, initially, 0.375 % per annum and will, thereafter, accrue at a rate per annum ranging from 0.25 % to 0.50 %, depending on the First Lien Net Leverage Ratio.

Borrowings under the New Revolving Credit Facility are due at maturity.

The Company incurred debt issuance costs of $ 0.8 million related to the New Revolving Credit Facility.

The debt issuance costs were recorded within other assets on the condensed consolidated balance and are being amortized over the life of the New Revolving Credit Facility.

The Company is required to meet certain financial covenants, including maintaining specific liquidity measurements.

There are also negative covenants, including certain restrictions on the Company’s ability to incur additional indebtedness, create liens, make investments, consolidate or merge with other entities, enter into transactions with affiliates and make prepayments.

As of October 2, 2021 and December 31, 2020, the Company was in compliance with all financial-related covenants related to the Credit Agreement.

There were no amounts outstanding as of both October 2, 2021 and December 31, 2020, on the Revolving Credit Facility or Letters of Credit.

As of April 2, 2022, there was $ 10.0 million outstanding on the New Revolving Credit Facility.

New Term Loan Facility

Pursuant to the New Credit Agreement, Latham Pool Products also borrowed $ 325.0 million in term loans.

The New Term Loan Facility matures on February 23, 2029.

Loans outstanding under the New Term Loan Facility bear interest, at the borrower’s option, at a rate per annum based on Term SOFR (as defined in the New Credit Agreement), plus a margin ranging from 3.75 % to 4.00 %, depending on the First Lien Net Leverage Ratio (as defined in the Credit Agreement, the “First Lien Net Leverage Ratio”), or based on the Base Rate (as defined in the Credit Agreement), plus a margin ranging from 2.75 % to 3.00 %, depending on the First Lien Net Leverage Ratio.

Loans under the Term Loan Facility are subject to scheduled quarterly amortization payments equal to 0.25 % of the initial principal amount of the Term Loan Facility.

The New Credit Agreement contains customary mandatory prepayment provisions, including requirements to make mandatory prepayments with 50 % of any excess cash flow and with 100 % of the net cash proceeds from the incurrence of indebtedness not otherwise permitted to be incurred by the covenants, asset sales and casualty and condemnation events, in each case, subject to customary exceptions.

The Company recorded $ 6.1 million of debt issuance costs and $ 4.9 million of debt discount related to the New Term Loan Facility as a direct reduction to the carrying amount of long-term debt on the condensed consolidated balance sheet.

Outstanding borrowings as of April 2, 2022 were $ 314.1 million, net of discount and debt issuance costs of $ 10.9 million.

In connection with the New Term Loan, the Company is subject to various financial reporting, financial and other covenants, including maintaining specific liquidity measurements.

As of April 2, 2022, the unamortized debt issuance costs and discount on the New Term Loan were $ 6.0 million and $ 4.8 million, respectively.

The effective interest rate was 4.96 % at April 2, 2022.

As of April 2, 2022, the Company was in compliance with all financial covenants under the New Credit Agreement.

Revolving Credit Facility

On December 18, 2018, Latham Pool Products entered into an agreement (the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC that included a revolving line of credit (the “Revolver”) and letters of credit (“Letters of Credit” or collectively with the Revolver, the “Revolving Credit Facility”), as well as a Term Loan (as described and defined below).

The Revolving Credit Facility was utilized to finance ongoing general corporate and working capital needs with the Revolver of up to $ 30.0 million.

The Revolving Credit Facility was terminated in connection with the Refinancing.

Term Loan Facility

On December 18, 2018, in connection with the Acquisition, the Company entered into the Credit Agreement with Nomura to borrow $ 215.0 million (the “Original Term Loan”).

The Company incurred debt issuance costs of $ 11.5 million related to the transaction.

The Original Term Loan was amended on May 29, 2019, to provide additional borrowings of $ 23.0 million at a discount of $ 0.7 million (the “First Amendment”) to fund the Narellan Acquisition.

Any portion of the First Amendment not used to fund the Narellan Acquisition was required to be applied to repay the First Amendment in an aggregate amount equal to such portion of the First Amendment, without any premium or penalty.

On August 6, 2020, the Company entered into a Form of Affiliated Lender Assignment and Assumption with Nomura (the “Assignment”).

Under the Assignment, the Company repaid $ 5.0 million of the outstanding principal balance.

On October 14, 2020, the Company entered into a subsequent amendment under the Original Term Loan with Nomura to borrow an additional $ 20.0 million (the “Second Amendment” and collectively with the Original Term Loan and the First Amendment, the “Term Loan”).

The Company accounted for the borrowings under the Second Amendment as new debt and recorded $ 0.1 million of third-party costs as a direct reduction to the carrying amount of long-term debt on the condensed consolidated balance sheet.

There were no financing costs incurred with the Second Amendment.

The Term Loan has a maturity date of June 18, 2025.

Interest and principal payments are due quarterly.

On January 25, 2021, the Company entered into a subsequent amendment to the Term Loan with Nomura to borrow an additional $ 175.0 million (the “Third Amendment” and collectively with the “Term Loan”, the “Amended Term Loan”).

In connection with the Third Amendment, the Company is required to repay the outstanding principal balance of the Amended Term Loan in fixed quarterly payments of $ 5.8 million, commencing March 31, 2021.

The amendment did not change the maturity date of the Term Loan and the Amended Term Loan bears interest under the same terms as the Term Loan.

The Company accounted for $ 165.0 million of the borrowings under the Third Amendment as new debt and $ 10.0 million of the borrowings under the Third Amendment as a debt modification.

The Company recorded an aggregate of $ 1.2 million of debt issuance costs as a direct reduction to the carrying amount of long-term debt on the condensed consolidated balance sheet.

During the fiscal quarter ended July 3, 2021, in accordance with the terms of the Amended Term Loan, the Company elected to change the terms of the prepayment schedule from an inverse application

to a pro rata application and as a result the Company is required to repay the outstanding principal balance of the Amended Term Loan in fixed quarterly payments of $ 3.6 million, commencing June 30, 2021.

The Amended Term Loan allowed for the $ 175.0 million of proceeds to be distributed to Class A unitholders.

On February 2, 2021, the Company used the proceeds of the Amended Term Loan to repurchase and retire treasury stock of $ 64.9 million and to pay a dividend to Class A unitholders of $ 110.0 million.

On April 27, 2021, upon completion of the IPO, the Company used $ 152.7 million of the net proceeds from the IPO to repay $ 152.7 million of the Amended Term Loan.

The Term Loan bears interest at (1) a base rate equal to the highest of (i) the Federal Funds Rate plus 1∕2 of 1% , (ii) the “prime rate” published in the Money Rates section of the Wall Street Journal and (iii) LIBOR (2) plus a Loan Margin of (i) 6.00 % for Eurocurrency Rate Loans and (ii) 5.00 % for Base Rate Loans, as defined in the Credit Agreement.

Principal payments under the First Amendment were calculated as 0.629 % of the outstanding principal balance.

Outstanding borrowings as of October 2, 2021 and December 31, 2020 were $ 234.2 million and $ 221.5 million, respectively, net of discount and debt issuance costs of $ 4.1 million and $ 6.7 million, respectively.

In connection with the Term Loan, the Company is subject to various financial reporting, financial and other covenants, including maintaining specific liquidity measurements.

As of October 2, 2021, the unamortized debt issuance costs and discount on the Term Loan were $ 2.9 million and $ 1.2 million, respectively.

As of December 31, 2020, the unamortized debt issuance costs and discount on the Term Loan were $ 6.3 million and $ 0.4 million, respectively.

The effective interest rate was 7.24 % at October 2, 2021.

Interest rate risk associated with the Company’s Credit Agreement is managed through an interest rate swap which the Company executed on April 30, 2020.

Pursuant to the Credit Agreement, Latham Pool Products also borrowed $ 215.0 million in term loans (the “Term Loan”).

The Term Loan was amended on May 29, 2019, to provide additional borrowings of $ 23.0 million, which was accounted for as a modification to the Term Loan, to fund our acquisition of Narellan Group Pty Limited and its subsidiaries (the “Narellan Acquisition”) (the “First Amendment”).

On October 14, 2020, we amended the First Amendment to provide additional borrowings of $ 20.0 million, which was accounted for as new debt (the “Second Amendment”).

The Second Amendment was further amended on January 25, 2021, to provide an additional incremental term loan of $ 175.0 million (the “Third Amendment”).

On January 25, 2021, Latham Pool Products borrowed the incremental term loan, and the proceeds were used on February 2, 2021 to purchase and retire equity interests and to pay a distribution.

On March 31, 2021, we amended our Term Loan to revise the applicable reporting requirements (the “Fourth Amendment”).

On November 24, 2021, we amended the Term Loan to provide additional borrowings of $ 50 million (the “Fifth Amendment”).

The proceeds from this incremental term loan were used to finance the Radiant Acquisition in part.

The Term Loan, collectively with the First Amendment, Second Amendment, Third Amendment, the Fourth Amendment and the Fifth Amendment, is referred to as the “Amended Term Loan.” The Amended Term Loan was repaid and terminated in connection with the Refinancing.

Interest Rate Risk

Interest rate risk associated with the New Credit Agreement is managed through an interest rate swap that the Company executed on April 30, 2020.

The swap has an effective date of May 18, 2020 and a termination date of May 18, 2023.

Under the terms of the swap, the Company fixed its LIBOR borrowing rate at 0.442 % on a notional amount of $ 200.0 million.

In February of 2022, the Company amended its interest rate swap to change the index rate from LIBOR to SOFR in connection with the entry into the New Credit Agreement.

Under the terms of the amended swap, the Company fixed its SOFR borrowing rate at 0.496 % on a notional amount of $ 200.0 million.

The interest rate swap is not designated as a hedging instrument for accounting purposes (see Note 2 and Note 4).

Debt Maturities

Principal payments due on the outstanding debt in the next five fiscal years, excluding any potential payments based on excess cash flow levels, are as follows (in thousands):

1 unchanged sentence

Remainder of fiscal 2022

The obligations under the Credit Agreement are guaranteed by certain wholly owned subsidiaries (the “Guarantors”) of the Company as defined in the security agreement.

The obligations under the Credit Agreement are secured by substantially all of the Guarantors’ tangible and intangible assets, including their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts and security accounts.

The Credit Agreement also restricts payments and other distributions unless certain conditions are met, which could restrict the Company’s ability to pay dividends.

The obligations under the New Credit Agreement are guaranteed by certain wholly owned subsidiaries (the “Guarantors”) of the Company as defined in the security agreement.

The obligations under the New Credit Agreement are secured by substantially all of the Guarantors’ tangible and intangible assets, including their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts and security accounts.

The New Credit Agreement also restricts payments and other distributions unless certain conditions are met, which could restrict the Company’s ability to pay dividends.

PRODUCT WARRANTIES

The warranty reserve activity consisted of the following (in thousands):

Three Fiscal Quarters Ended

October 2, 2021

September 26, 2020

Fiscal Quarter Ended

April 2, 2022

April 3, 2021

Balance at the beginning of the year

2 unchanged sentences

Balance at the end of the year

On January 1, 2022, the Company adopted ASU 2016-02, "Leases (Topic 842),"

and the related amendments (collectively "ASC 842").

The optional transition method of adoption was used, in which the cumulative effect of initially applying the new standard to existing leases was $ 0.3 million to record the operating lease right-of-use assets and the related liabilities as of January 1, 2022.

Under this method of adoption, the comparative information has not been revised and continues to be reported under the previously applicable lease accounting guidance (ASC 840).

For leases with initial terms greater than 12 months, the Company considers these right-of-use assets and records the related asset and obligation at the present value of lease payments over the term.

For leases with initial terms equal to or less than 12 months, the Company does not consider them as right-of-use assets and instead considers them short-term lease costs that are recognized on a straight-line basis over the lease term.

The Company’s leases may include escalation clauses, renewal options and/or termination options that are factored into the Company’s determination of lease term and lease payments when it is reasonably certain the option will be exercised.

The Company has elected to take the practical expedient and not separate lease and non-lease components of contracts.

The Company estimates an incremental borrowing rate to discount the lease payments based on information available at lease commencement because the implicit rate of the lease is generally not known.

The Company leases vehicles, manufacturing facilities, office space, land, and equipment under operating leases.

The Company determines if an arrangement is a lease at inception.

A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company does not have material finance leases.

The components of lease expense for the fiscal quarter ended April 2, 2022 were as follows (in thousands):

Fiscal Quarter Ended

April 2, 2022

Operating lease expense

Short-term lease expense

Variable lease expense

Total lease expense

The table below presents supplemental information related to leases as of April 2, 2022:

April 2, 2022

Weighted-average remaining lease term (years)

Operating leases

Weighted-average discount rate

Operating leases

The table below presents supplemental information related to the cash flows for operating leases recorded on the condensed consolidated statements of cash flows (in thousands):

Fiscal Quarter Ended

April 2, 2022

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

The following table summarizes maturities of operating lease liabilities as of April 2, 2022 (in thousands):

Operating Leases

Remainder of fiscal 2022

Total lease payments

Present value of lease liability

The following table sets forth the Company’s disaggregation of net sales by product line (in thousands):

Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 2, 2021

September 26, 2020

October 2, 2021

September 26, 2020

April 2, 2022

April 3, 2021

In-ground Swimming Pools

The effective income tax rate for the fiscal quarter and three fiscal quarters ended October 2, 2021 was ( 223.8 )% and ( 39.3 )%, respectively, compared to 24.7 % and 30.6 % for the fiscal quarter and three fiscal quarters ended September 26, 2020, respectively.

The effective income tax rate for the fiscal quarter ended April 2, 2022 was 215.1 %, compared to 25.3 % for the fiscal quarter ended April 3, 2021.

The difference between the U.S.

federal statutory income tax rate and our effective income tax rate for the fiscal quarter and three fiscal quarters ended October 2, 2021 was primarily attributable to the discrete impact of stock compensation expense pursuant to the Reorganization.

The results for the quarter include pre-tax stock compensation expense of $ 25.4 million and $ 98.9 million for fiscal quarters and three fiscal quarters ended October 2, 2021 related to the Reorganization for which there is no associated tax benefit.

federal statutory income tax rate and the Company’s effective income tax rate for the fiscal quarter ended April 2, 2022 was primarily attributable to the discrete impact of stock compensation expense for which there is no associated tax benefit.

The difference between the U.S.

federal statutory income tax rate and our effective income tax rate for the fiscal quarter and three fiscal quarters ended September 26, 2020 was impacted by a variety of factors, primarily stemming from impact of state taxes.

The pre-tax income for three fiscal quarters ended September 26, 2020 included losses in tax jurisdictions for which the company did not record a tax benefit, which increased the effective income tax rate for the fiscal quarter ended September 26, 2020.

SHAREHOLDERS’ EQUITY

Equity Structure Prior to Reorganization

Prior to the IPO and the Reorganization, the Parent owned 100 % of the issued and outstanding common stock of the Company.

The capital structure of the Parent consisted of two different classes of limited partnership interests, Class A and Class B units (profits interests).

Prior to the Reorganization, none of the Class B units would have been vested for accounting purposes due to the Parent’s $0 Repurchase Right, which applied in the event of a voluntary termination or termination without cause, since it functions as a vesting condition.

Equity Structure Subsequent to the Reorganization

On April 13, 2021, the Company’s certificate of incorporation was amended, which amended and restated certain terms of the certificate of incorporation.

Under the amended certificate of incorporation, the Company had authority to issue 500,000,000 shares of common stock, par value $ 0.0001 per share.

On April 12, 2021, the Company’s board of directors declared and on April 13, 2021, the Company effected a 109,673.709 -for-one stock split of its issued and outstanding shares of common stock.

As a part of the equity Reorganization, on April 22, 2021, 194,207,115 Class A units converted into 97,187,596 shares of common stock and 26,158,894 Class B units converted into 4,145,987 shares of common stock and 8,340,126 shares of unvested restricted stock.

Refer to Note 1 for detail regarding the Company’s Reorganization and conversion of Class A and Class B units to common and restricted shares.

Amendment and Restatement of Certificate of Incorporation

On April 22, 2021, the Company’s certificate of incorporation was further amended and restated to, among other things, increase the authorized shares to 1,000,000,000 , of which 900,000,000 are shares of common stock, par value $ 0.0001 per share and 100,000,000 are shares of preferred stock, par value 0.0001 per share.

As of October 2, 2021 and December 31, 2020, 112,153,832 and 118,854,249 shares of common stock are issued and outstanding for accounting purposes, respectively.

PROFITS INTEREST UNITS

Prior to the Reorganization, the Company’s Parent granted PIUs in the form of Class B units of the Parent to certain key employees and directors for purposes of retaining them and enabling such individuals to participate in the long-term growth and financial success of the Company.

The following table summarizes the activity for all PIUs during the three fiscal quarters ended October 2, 2021 and the year ended December 31, 2020:

Weighted-Average

Number of PIUs

Balance at January 1, 2020

( 2,152,315 )

Balance at December 31, 2020

( 1,266,068 )

Balance at April 21, 2021

Converted at IPO in connection with the Reorganization

( 26,158,894 )

Balance at October 2, 2021

On January 29, 2021 an employee holder of PIUs terminated his employment with the Company, at which time all 1,055,057 of his performance-vesting units were forfeited.

At the time of his termination, the employee held 527,528 of time-vesting units, of which 211,011 time-vesting units were vested.

Per the terms of his termination agreement, the Company accelerated the vesting of an additional 105,506 time-vesting units, such that the total time-vesting units vested were equal to 316,517 upon his termination and the remaining 211,011 of unvested time-vesting units were forfeited upon his termination.

As the employee’s profits interest units had not vested from an accounting perspective, the retention and immediate vesting of the retained time-vesting units was accounted for as a cancellation of the original award and a new grant under the revised terms.

A cumulative catch-up charge of $ 1.1 million was recorded during the fiscal quarter ended April 3, 2021 to reflect the incremental fair value of the awards as of the date of the modification, as compared to the grant-date fair value.

federal statutory income tax rate and the Company’s effective income tax rate for the fiscal quarter ended April 3, 2021 was impacted by a variety of factors, primarily the impact of state taxes.

STOCK-BASED COMPENSATION

2 unchanged sentences

The maximum aggregate number of shares reserved for issuance under the Omnibus Incentive Plan is 13,170,212 shares.

The maximum grant date fair value of cash and equity awards that may be awarded to a non-employee director under the Omnibus Incentive Plan during any one fiscal year, together with any cash fees paid to such non-employee director during such fiscal year, will be $ 750 thousand.

Contemporaneously with the pricing of the Company’s IPO, on April 22, 2021 the Company granted 8,340,126 of restricted stock awards, 341,301 of restricted stock units and 886,862 of option awards under the Omnibus Incentive Plan to employees of the Company.

Of the 8,340,126 restricted stock awards granted, (i) 6,799,414 vest every six months in equal installments beginning on December 27, 2021 and ending on December 27, 2023, and (ii) 1,540,712 vest every six months in equal installments, beginning on December 27, 2021 and ending on December 27, 2024.

Of the 341,301 restricted stock unit awards granted, (i) 251,828 vest 1/3 on the nine-month anniversary of the Closing of the IPO, 1/3 on the first anniversary of the Closing of the IPO, and 1/3 on the two-year anniversary of the Closing of the IPO;

(ii) 22,367 vest on the first anniversary of the Closing of the IPO;

(iii) 51,316 vest on the nine-month anniversary of the Closing of the IPO;

and (iv) 15,790 vest evenly on each of the first three anniversaries of the Closing of the IPO.

All 886,862 of the option awards vest 25 % annually on each of the first four anniversaries of the Closing of the IPO.

The option awards were granted with a strike price of $ 19.00 per share.

Under the terms of the Omnibus Incentive Plan, all stock options will expire if not exercised within ten years of the grant date.

Stock-based compensation expense for the fiscal quarters and three fiscal quarters ended October 2, 2021 was $ 27.6 million and $ 104.6 million, respectively.

Stock-based compensation expense for the fiscal quarters and three fiscal quarters ended September 26, 2020 was and $ 1.0 million and $ 1.4 million, respectively.

Stock-based compensation expense of $ 1.9 million and $ 25.7 was recorded

in cost of sales and selling, general and administrative expense, respectively, for the fiscal quarter ended October 2, 2021.

Stock-based compensation expense of $ 6.8 million and $ 97.8 was recorded in cost of sales and selling, general and administrative expense, respectively, for the three fiscal quarters ended October 2, 2021.

Stock-based compensation expense for the fiscal quarters and three fiscal quarters ended September 26, 2020 was recorded in selling, general and administrative expense on the condensed consolidated statements of operations.

Of the $ 104.6 million of stock-based compensation expense recorded during the three fiscal quarters ended October 2, 2021, $ 0.5 million was due to the accelerated vesting of restricted stock and $ 49.0 million was due to the modification as a result of the Reorganization.

Refer to Note 12 above for detail regarding the Company’s equity-based awards issued in the form of PIUs prior to the Reorganization and IPO.

As of October 2, 2021, total unrecognized stock-based compensation expense related to all unvested stock-based awards of $ 106.2 million, which is expected to be recognized over a weighted-average period of 1.49 years.

Stock-based compensation expense for the fiscal quarters ended April 2, 2022 and April 3, 2021 was $ 16.9 million and $ 1.5 million, respectively.

Stock-based compensation expense of $ 1.2 million and $ 15.7 was recorded in cost of sales and selling, general and administrative expense, respectively, for the fiscal quarter ended April 2, 2022.

Stock-based compensation expense for the fiscal quarter ended April 3, 2021 was recorded in selling, general and administrative expense on the condensed consolidated statements of

As of April 2, 2022, total unrecognized stock-based compensation expense related to all unvested stock-based awards was $ 64.1 million, which is expected to be recognized over a weighted-average period of 1.45 years.

The following table sets forth the significant assumptions used in the Black-Scholes option-pricing model on a weighted-average basis to determine the fair value of option awards granted:

Three Fiscal Quarters Ended

October 2, 2021

Fiscal Quarter Ended

April 2, 2022

Risk-free interest rate

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Restricted Stock Awards

The following table represents the Company’s restricted stock awards activity during the three fiscal quarters ended October 2, 2021:

The following table represents the Company’s restricted stock awards activity during the fiscal quarter ended April 2, 2022:

Average Grant-

1 unchanged sentence

Outstanding at January 1, 2022

Outstanding at October 2, 2021

Outstanding at April 2, 2022

Restricted Stock Units

The following table represents the Company’s restricted stock units activity during the three fiscal quarters ended October 2, 2021:

The following table represents the Company’s restricted stock units activity during the fiscal quarter ended April 2, 2022:

Average Grant-

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Outstanding at January 1, 2022

Outstanding at October 2, 2021

Outstanding at April 2, 2022

Stock Options

The following table represents the Company’s stock option activity during the three fiscal quarters ended October 2, 2021:

The following table represents the Company’s stock option activity during the fiscal quarter ended April 2, 2022:

Exercise Price

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Outstanding on January 1, 2022

Outstanding at October 2, 2021

Vested and expected to vest at October 2, 2021

Options exercisable at October 2, 2021

Outstanding at April 2, 2022

Vested and expected to vest at April 2, 2022

Options exercisable at April 2, 2022

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock .

The weighted average grant-date fair value of stock options granted during the three fiscal quarters ended October 2, 2021 was $ 7.20 per share.

The weighted average grant-date fair value of stock options granted during the fiscal quarter ended April 2, 2022 was $ 6.51 per share.

NET INCOME (LOSS) PER SHARE

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Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 2, 2021

September 26, 2020

October 2, 2021

September 26, 2020

April 2, 2022

April 3, 2021

Net (loss) income attributable to common stockholders

3 unchanged sentences

Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 2, 2021

September 26, 2020

October 2, 2021

September 26, 2020

April 2, 2022

April 3, 2021

Restricted stock awards

5 unchanged sentences

A co-founder of BrightAI Services has served on the Company’s board of directors since December 9, 2020.

During the three fiscal quarters ended October 2, 2021 and the year ended December 31, 2020, the Company incurred $ 1.9 million and $ 0.5 million, respectively, associated with services performed by BrightAI, which is recorded as construction in progress within property and equipment, net on the condensed consolidated balance sheet as of October 2, 2021.

As of October 2, 2021 and December 31, 2020, the Company had accounts payable - related party to BrightAI of $ 1.1 million and $ 0.5 million, respectively.

There were no services rendered by BrightAI during the three fiscal quarters ended September 26, 2020.

During the fiscal quarter ended April 2, 2022 and the year ended December 31, 2021, the Company incurred $ 0.3 million and $ 2.1 million, respectively, associated with services performed by BrightAI, which is recorded as construction in progress within property and equipment, net on the

condensed consolidated balance sheet as of April 2, 2022.

As of both April 2, 2022 and December 31, 2021, the Company had accounts payable - related party to BrightAI of $ 0.9 million.

Expense Reimbursement and Management Fees

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the reasonable out-of-pocket costs and expenses in connection with monitoring and overseeing their investment in the Company.

There were no management fees incurred by the Company during the three fiscal quarters ended October 2, 2021 and September 26, 2020.

The Company reimbursed less than $ 0.1 million of out-of-pocket costs and expenses to the Sponsor and Wynnchurch Capital, L.P.

during both the three fiscal quarters ended October 2, 2021 and September 26, 2020.

As of October 2, 2021, there were no outstanding amounts payable to the Sponsor and Wynnchurch Capital, L.P.

As of September 26, 2020, there was less than $ 0.1 million outstanding amounts payable to the Sponsor and Wynnchurch Capital, L.P.

Operating Lease

In May 2019, in connection with the Narellan Acquisition, the Company assumed an operating lease for the manufacture, sale and storage of swimming pools and associated equipment with Acquigen Pty Ltd, which is owned by an employee who is also a shareholder of the Company.

The lease expires in June 2028.

As of October 2, 2021 and December 31, 2020, future minimum lease payments related to this lease totaled $ 3.6 million and $ 4.2 million, respectively.

The Company recognized $ 0.1 million of rent expense related to this lease during each of the fiscal quarters ended October 2, 2021 and September 26, 2020, as well as $ 0.4 million and $ 0.3 million of rent expense during the three fiscal quarters ended October 2, 2021 and September 26, 2020, which is recognized within selling, general and administrative expense on the condensed consolidated statements of operations.

SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

During 2020, the Company made operational changes in how its CODM manages the business including organizational alignment, performance assessment and resource allocation.

The segment disclosure is based on the intention to provide the users of the financial statements with a view of the business from the Company’s perspective.

The Company conducts its business as one operating and reportable segment that designs, manufactures and markets in-ground swimming pools, liners and covers.

Geographic Information

Net sales by geography is based on the delivery address of the customer as specified in purchase order.

Net sales by geographic area was as follows (in thousands):

Fiscal Quarter Ended

Three Fiscal Quarters Ended

October 2, 2021

September 26, 2020

October 2, 2021

September 26, 2020

United States

Our long-lived assets by geographic area, which consist of property and equipment, net assets were as follows (in thousands):

Long-lived assets

United States

There were no management fees incurred by the Company during the fiscal quarters ended April 2, 2022 and April 3, 2021.

The Company did not reimburse any out-of-pocket costs or expenses to the Sponsor and Wynnchurch Capital, L.P.

during both the fiscal quarters ended April 2, 2022 and April 3, 2021.

As of both April 2, 2022 and December 31, 2021, there were no outstanding amounts payable to the Sponsor and Wynnchurch Capital, L.P.

SUBSEQUENT EVENTS

On May 10, 2022, the Company approved a stock repurchase program (the “Repurchase Program”), which authorized the Company to repurchase up to $ 100 million of the Company’s shares of common stock over the next three years .

The Company may effect these repurchases in open market transactions, privately negotiated purchases or other acquisitions.

The Company is not obligated to repurchase any of its shares of its common stock under the Repurchase Program and the timing and amount of any repurchases will depend on market conditions, the Company’s stock price, alternative uses of capital, the terms of the Company’s debt instruments and other factors.

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