What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-07 compared with 2022-03-10 · 335 added, 334 removed, 914 unchanged (42% of the section changed)

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Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2021, 2020 and 2019

Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2022, 2021 and 2020

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022, 2021 and 2020

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Opinion on the Financial Statements

We have audited the accompanying consolidated statements of operations of Latham Group, Inc.

(formerly Latham Topco, Inc.) and its subsidiaries (the Company) for the year ended December 31, 2019, the related consolidated statements of comprehensive income, stockholders' equity and cash flows for the year ended December 31, 2019, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, except for effects of the adjustments, if any, as might have been determined to be necessary had we been engaged to audit the Company's restatement of the effects of the Reorganization, as described below, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Reorganization

We were not engaged to audit the effects of the adjustments to retrospectively reflect the Reorganization as of and for the year ended December 31, 2019, as discussed in Note 1 to the financial statements.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Except as discussed above, we conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

According, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

/s/ RSM US LLP

We served as the Company’s auditor from 2006 to 2019.

Blue Bell, Pennsylvania

December 15, 2020, except for Note 21, as to which the date is March 10, 2021, and except for the effects of the stock split described in Note 1, as to which the date is April 14, 2021

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Latham Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Latham Group, Inc.

and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

The consolidated financial statements of the Company for the year ended December 31, 2019, before the effects of the adjustments to retrospectively reflect the Reorganization discussed in Note 1 to the financial statements, were audited by other auditors whose report, dated December 15, 2020 (except for Note 21, as to which the date is March 10, 2021, and except for the effects of the Stock Split described in Note 1, as to which the date is April 14, 2021), expressed an unqualified opinion on those statements.

We have also audited the adjustments to the 2019 consolidated financial statements to retrospectively reflect the Reorganization, as discussed in Note 1 to the financial statements.

In our opinion, such retrospective adjustments are appropriate and have been properly applied.

However, we were not engaged to audit, review, or apply any procedures to the 2019 consolidated financial statements of the Company other than with respect to the retrospective adjustments, and accordingly, we do not express an opinion or any other form of assurance on the 2019 consolidated financial statements taken as a whole

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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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

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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 December 31, 2021 and 2020, respectively;

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

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

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

Common stock, $ 0.0001 par value;

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

119,445,611 and 118,854,249 shares issued and outstanding as of December 31, 2021 and 2020, respectively

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

114,667,975 and 119,445,611 shares issued and outstanding , as of December 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

(Accumulated deficit) retained earnings

Accumulated other comprehensive income

Accumulated deficit

Accumulated other comprehensive (loss) income

Total stockholders’ equity

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Selling, general, and administrative expense

(Loss) income from operations

Underwriting fees related to offering of common stock

Income (loss) from operations

Other expense (income):

Interest expense

Other (income) expense, net

Total other expense (income), net

Loss on extinguishment of debt

Other expense (income), net

Total other expense, net

Earnings from equity method investment

(Loss) income before income taxes

Income tax (benefit) expense

Income (loss) before income taxes

Income tax expense

Net (loss) income

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Foreign currency translation adjustments

Benefit pension plan adjustments

Total other comprehensive (loss) income, net of tax

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Balances at December 31, 2019

Cumulative effect of adoption of new revenue recognition standard (Note 2)

Foreign currency translation adjustments

Defined benefit pension plan adjustment

Proceeds from issuance of common stock

Repurchase and retirement of treasury stock

Stock-based compensation expense

Balances at December 31, 2019

Foreign currency translation adjustments

Proceeds from issuance of common stock

Repurchase and retirement of treasury stock

Repurchase and retirement of common stock

Contingent consideration settlement

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Net proceeds from initial public offering

Repurchase and retirement of treasury stock

Repurchase and retirement of common stock

( 33,931,091 )

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Balances at December 31, 2021

Cumulative effect of adoption of new accounting standard- leases

Foreign currency translation adjustments

Proceeds from sale of common stock

Repurchase and retirement of common stock

( 13,800,244 )

Repurchases and retirements of common stock under Repurchase Program

( 4,483,620 )

Retirement of restricted stock

Issuance of common stock upon release of restricted stock units

Stock-based compensation expense

Balances at December 31, 2022

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

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Amortization of deferred financing costs and debt discount

Non-cash lease expense

Deferred income taxes

Stock-based compensation expense

Other non-cash

Underwriting fees related to offering of common stock

Loss on extinguishment of debt

Other non-cash, net

Gain on sale of portion of equity method investment

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Acquisitions of businesses, net of cash acquired

Equity method investment in Premier Pools & Spas

Return of equity method investment

Equity method investment in Premier Pools & Spas

Proceeds from the sale of portion of equity method investment

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Payments on long-term debt borrowings

Proceeds from borrowings on revolving credit facility

Proceeds from borrowings on revolving credit facilities

Payments on revolving credit facility

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Dividend to Class A unitholders

Proceeds from issuance of common stock

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

Repurchases and retirements of common stock

Payments of Narellan Group Pty Limited contingent consideration

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Deferred offering costs included in accounts payable and accrued expenses

Fair value of contingent consideration recorded in connection with acquisition of Narellan Group Pty Limited

Fair value of 758,694 and 3,548,568 shares of common stock issued during the years ended December 31, 2020 and 2019, respectively, in connection with the acquisition of Narellan Group Pty Limited

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

Fair value of 758,694 shares of common stock issued during the year ended December 31, 2020 in connection with the acquisition of Narellan Pty Limited

Change in defined benefit pension plan liability

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(“the Company”) wholly owns Latham Pool Products, Inc.

(“Latham Pool Products”) (together, “Latham”) and a designer, manufacturer and marketer of in-ground residential swimming pools in North America, Australia and New Zealand.

(“Latham Pool Products”) (together, “Latham”) a designer, manufacturer, and marketer of in-ground residential swimming pools in North America, Australia, and New Zealand.

Latham offers a portfolio of pools and related products, including in-ground swimming pools, pool liners, and pool covers.

On December 18, 2018, Latham Investment Holdings, LP (“Parent”), an investment fund managed by affiliates of Pamplona Capital Management (the “Sponsor”), Wynnchurch Capital, L.P.

and management acquired all of the outstanding equity interests of Latham Topco., Inc.

On December 18, 2018, Latham Investment Holdings, LP (“Parent”), an investment fund managed by affiliates of Pamplona Capital Management (the “Sponsor”), Wynnchurch Capital, L.P., and management acquired all of the outstanding equity interests of Latham Topco., Inc.

a newly incorporated entity in the State of Delaware.

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Sales periods having severe weather may also affect net sales.

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.

Revenue Recognition

The Company adopted accounting standards codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), on January 1, 2019 using the modified retrospective method.

This standard applies to all contracts with customers, except for contracts that are within the scope of other standards.

The adoption of ASC 606 resulted in a net decrease to retained earnings (accumulated deficit) of $ 1.7 million, a reduction to prepaid expenses of $ 1.2 million and an increase to accrued expenses of $ 0.5 million as of January 1, 2019, as a result of adjusting the timing of recording customer incentives to more closely match the revenues to which they are associated.

Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services.

Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:

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The Company recognizes revenue on the transaction price less any estimated rebates, cash discounts, or other sales incentives.

Customer rebates, cash discounts, and other sales incentives are estimated by applying the portfolio approach using the most-likely-amount method and are recorded as a reduction to revenue at the time of the initial sale.

Customer rebates, cash discounts, and other sales incentives are estimated by applying the portfolio approach using the most-likely-amount method and are recorded as a reduction to revenue.

Estimates are updated each reporting period and any changes are allocated to the performance obligations on the same basis as at inception.

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The Company does not engage in contracts greater than one year, and therefore does not have any contract costs capitalized as of December 31, 2022, and 2021.

As a practical expedient, the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the period between the transfer of a promised good to a customer and when the customer pays for that product is one year or less.

As a practical expedient, the Company does not adjust the promised amount of consideration for the effects of a significant financing component since the period between the transfer of a promised good to a customer and when the customer pays for that product is one year or less.

The Company offers limited assurance-type warranties on most of its products, which assure that the product will comply with agreed upon specifications.

These assurance-type warranties are not separately priced and are not considered separate performance obligations.

The Company also offers optional extended service contracts which are separately priced.

The Company also offers optional extended service contracts that are separately priced.

The Company recognizes revenue related to extended service contracts over the term of the contract.

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The Company records shipping and handling costs associated with outbound freight as cost of sales when the related revenue is recognized in the accompanying consolidated statements of operations.

Exit or Disposal Costs

The Company accounts for exit or disposal of activities in accordance with ASC 420, Exit or Disposal Cost Obligations .

The Company defines an exit or disposal activity as one that includes but is not limited to a program which is planned and controlled by management and materially changes either the scope of a business or the manner in which that business is conducted.

Business exit costs may include (i) one-time termination benefits related to employee separations, (ii) contract termination costs and (iii) other related costs associated with exit or disposal activities.

The Company records one-time employee termination benefits as an operating expense when the benefit arrangement is communicated to the employee and no significant future services are required.

Trade Receivables, Net

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Generally, the Company does not require collateral from its customers.

The Company provides extended payment terms to certain customers.

During the years ended December 31, 2022, 2021 and 2020, one customer represented approximately 20.3 %, 25.0 % and 22.3 % of the Company’s net sales, respectively.

As of December 31, 2022 and 2021, outstanding trade receivables related to this customer were $ 1.6 million and $ 10.7 million, respectively.

The Company provides extended payment terms to qualified customers for sales under its “Early Buy” program, which allows customers to take delivery in December and receive payment terms for April through June of the following year.

Fair Value Measurements

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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.

The Company also uses the equity method of accounting for investments in a partnership or limited liability company with specific ownership accounts, if the Company has an ownership interest of 5% or more.

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.

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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 consolidated statements of operations on a three-month lag.

The Company recorded its interest in the net earnings of Premier Pools & Spas of $2.2 million for the year ended December 31, 2021, which included a $0.3 million adjustment for the amortization of basis differences, within earnings from equity method investment in the consolidated statements of operations during the year ended December 31, 2021.

As the Company initially invested in Premier Pools & Spas on October 30, 2020, there was no earnings from equity method investment recorded during year ended December 31, 2020.

The Company received distributions of $2.2 million during the year ended December 31, 2021.

For presentation in the 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.

For presentation in the 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 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.

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The Company periodically reviews its inventory for slow moving or obsolete items and writes down the related products to estimated net realizable value.

As of December 31, 2021 and 2020, the Company’s reserves for estimated slow moving products or obsolescence were $ 2.7 million and $ 1.8 million, respectively.

As of December 31, 2022 and 2021, the Company’s reserve for estimated slow moving products or obsolescence was $ 4.6 million and $ 2.7 million, respectively.

Property and Equipment, Net

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When property and equipment is sold or retired, the asset cost and accumulated depreciation and amortization are removed from the respective accounts and a gain or loss is recognized, if any, on the consolidated statements of operations.

The Company capitalizes external costs and directly attributable internal costs to acquire or create internal-use software which are incurred subsequent to the completion of the preliminary project state.

These costs relate to activities such as software design, configuration, coding, testing and installation and exclude training and maintenance.

The Company capitalizes external costs and directly attributable internal costs to acquire or create internal-use software that are incurred subsequent to the completion of the preliminary project state.

These costs relate to activities such as software design, configuration, coding, testing, and installation, and they exclude training and maintenance.

Once the software is substantially complete and ready for its intended use, capitalized development costs are amortized straight-line over the estimated useful life of the software, generally not to exceed five years .

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The Company evaluates the carrying value of its long-lived assets for impairment whenever events or circumstances indicate that the carrying value of the assets may not be recoverable.

Conditions that may indicate impairment include, but are not limited to, a significant decrease in the market price of an asset, a significant adverse change in the extent or manner in which an asset is being used or a significant decrease in its physical condition, and operating or cash flow performance that demonstrates continuing losses associated with an asset or asset group.

Conditions that may indicate impairment include, but are not limited to, a significant decrease in the market price of an asset, a significant adverse change in the extent or manner in which an

asset is being used or a significant decrease in its physical condition, and operating or cash flow performance that demonstrates continuing losses associated with an asset or asset group.

The Company also considers non-financial data such as changes in the operating environment, competitive information, market trends, and business relationships.

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Franchise relationships

Order backlog

The Company accounts for goodwill as the excess of the purchase price over the net amount of identifiable assets acquired and liabilities assumed in a business combination measured at fair value.

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rather, the Company tests goodwill for impairment annually on the first day of the Company’s fourth fiscal quarter and whenever events occur or changes in circumstances indicate that impairment may have occurred.

Historically, including for the Company’s annual impairment test conducted during the year ended December 31, 2020, the Company had two reporting units for the purpose of performing its goodwill impairment test.

In November 2020, the Company made changes to its internal organizational structure, including roles and responsibilities and to its internal reporting, resulting in a change to segment management.

As a result of the change in segment management and in the information that is regularly reviewed, the results of the previous two reporting units are no longer being reviewed for profitability on an individual basis.

Due to these factors, the Company recognized a change in reporting units effective in November 2020 and determined that only one reporting unit exists.

The Company completed an assessment of any potential impairment for all reporting units immediately prior to and after the reporting unit change and determined that no impairment existed.

The Company has one reporting unit for goodwill impairment testing purposes.

Impairment testing is performed for the Company’s reporting unit by first assessing qualitative factors to see if further testing of goodwill is required.

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In future periods, changes in facts, circumstances, and new information may require the Company to change the recognition and measurement estimates with regard to individual tax positions.

Changes in recognition and measurement estimates are recorded in income tax (benefit) expense and liability in the period in which such changes occur.

The Company’s policy is to classify interest and penalties related to unrecognized tax benefits as a component of income tax (benefit) expense within the consolidated statements of operations.

Changes in recognition and measurement estimates are recorded in income tax expense (benefit) and liability in the period in which such changes occur.

The Company’s policy is to classify interest and penalties related to unrecognized tax benefits as a component of income tax expense (benefit) within the consolidated statements of operations.

The Company had $ 0.6 million of accrued interest and no accrued penalties as of December 31, 2022.

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

The fair value of the Company’s common stock is determined based on the quoted market price of the Company’s common stock for purposes of computing stock compensation expense.

The fair value of the Company’s common stock is determined based on the quoted market price of the Company’s common stock for purposes of computing stock-based compensation expense.

For stock options, the Company uses a Black-Scholes model for estimating the grant date fair value.

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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 have no history or plan of declaring dividends on its common stock.

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

The Company utilized a dividend yield of zero, since it has 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.

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

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.

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

Foreign Currency Translation and Foreign Currency Transactions

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Earnings Per Share

Basic net income per share is calculated by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

Diluted net income per share is calculated by dividing net income available to common stockholders by the diluted weighted-average number of shares of common stock outstanding for the period.

Basic net income per share is calculated by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

Diluted net income (loss) per share is calculated by dividing net income (loss) available to common stockholders by the diluted weighted-average number of shares of common stock outstanding for the period.

Potentially dilutive shares are included in the diluted per-share calculations when the effect of their inclusion is dilutive.

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The Company accounts for the retirement of treasury stock by deducting its par value from common stock and reflecting any excess of cost over par value as a deduction from additional paid-in capital on the consolidated balance sheets.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation in the consolidated financial statements and the accompanying notes.

Recently Issued Accounting Pronouncements

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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.

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 adoption of ASU-2016-02 will have a material impact on the Company’s consolidated balance sheets.

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 the Company to not reassess, under the new standard, its 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 consolidated statements of operations, consolidated statements of stockholders’ equity, or consolidated statements of cash flows.

See Note 13, “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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ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis.

For public entities that are SEC filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.

For public entities that are U.S.

Securities and Exchange Commission filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim

periods within those fiscal years.

For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years.

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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 adopted ASU 2019-12 during the year ended December 31, 2021.

The adoption of this standard required no cumulative-effect adjustments and did not have a material impact on the Company’s financial position or results of operations.

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.

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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.

The adoption of this standard during the year ended December 31, 2022 did not have a material 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):

Scope , which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

Scope , that clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

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.

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.

For all 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 its consolidated financial statements.

Narellan Group Pty Limited

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Narellan is a fiberglass pool manufacturer based in Australia with operations in Australia, New Zealand, and Canada.

The acquisition expanded the Company’s market share with a broader geographical footprint.

The acquisition expanded the Company’s operations to a broader geographical footprint.

Additionally, the acquisition provided the Company with an increase in dealer and franchise relationships.

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The Contingent Consideration was settled through a cash payment of $ 6.6 million and the issuance of an additional 758,697 shares of common stock as equity consideration, which had a contractual value of $ 2.2 million and was recorded as a capital contribution on the consolidated statements of stockholders’ equity.

As the fair value of the common stock issued of $ 2.8 million exceeded the contractual value of $ 2.2 million and the selling shareholders are also employees of the Company, the Company recorded the excess remuneration paid to the selling shareholders of $ 0.6 million as stock-based compensation in the consolidated statements of operations and as contributed capital in the consolidated statements of stockholders’ equity as of and for the year-ended December 31, 2020.

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

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

The Company estimated, using Level 3 inputs, the fair value of certain fixed assets using a combination of the cost approach and the market approach.

Inventories were valued using the comparative sales method.

Specific to intangible assets, dealer relationships and franchise relationships were valued using the multi-period excess earnings method, whereas trade names and proprietary 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 Company’s acquisition of Narellan:

(in thousands)

Total consideration

Allocation of purchase price:

Trade receivables

Prepaid expenses and other current assets

Property and equipment

Intangible assets

Deferred tax asset

Total assets acquired

Accounts payable

Accrued expenses and other current liabilities

Deferred tax liabilities

Total liabilities assumed

Total fair value of net assets acquired, excluding goodwill

Total consideration was comprised of the following:

(in thousands)

Cash consideration

Fair value of equity consideration

Fair value of contingent consideration

Total consideration

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 $ 9.8 million.

Goodwill resulting from the acquisition was attributable to the expanded market share and broader geographical footprint.

The goodwill recognized is not deductible for tax purposes.

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

Definite-lived intangible assets:

(in thousands)

Period (in years)

Trade names and trademarks

Patented technology

Franchise relationships

Dealer relationships

The following are the net sales and net loss from Narellan included in the Company’s results from the Acquisition Date through December 31, 2019:

(in thousands)

Since the fair value of the common stock issued of $ 2.8 million exceeded the contractual value of $ 2.2 million and the selling shareholders were also employees of the Company as of the settlement date, the Company recorded the excess remuneration paid to the selling shareholders of $ 0.6 million as stock-based compensation in the consolidated statements of operations and as contributed capital in the consolidated statements of stockholders’ equity as of and for the year-ended December 31, 2020.

GL International, LLC

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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 inground, semi-inground, or above ground.

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

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

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The Company incurred $ 2.9 million in transaction costs.

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 was paid during the fiscal quarter ended July 2, 2022.

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

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

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.

Specific to intangible assets, customer relationships and order 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.

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Dealer relationships

Order backlog

The following are the net sales and net income from Radiant included in the Company’s results from the Radiant Acquisition Date through December 31, 2021:

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December 31, 2021

Other Business Combinations

During the fiscal quarter ended December 31, 2022, the Company completed the acquisition of certain fiberglass pool manufacturing assets in Seminole, Oklahoma that qualified as a business combination.

This transaction resulted in an increase to goodwill, but was not material to our consolidated financial statements, and as a result, additional business combination disclosures for this acquisition have been omitted.

There were no other business combinations during the year ended December 31, 2022.

Pro Forma Financial Information (Unaudited)

The following pro forma financial information presents the statements of operations of the Company with Narellan, GLI and Radiant as if the acquisitions occurred on January 1, 2019.

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

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

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The pro forma financial information presented above reflects the effects as a result of the acquisitions, 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.

Transaction costs for GLI and Radiant are reflected within pro forma net income for the year ended December 31, 2019.

Transaction costs for Radiant are reflected within pro forma net income for the year ended December 31, 2020.

EQUITY METHOD INVESTMENT

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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 consolidated statements of operations during the fiscal year ended December 31, 2021.

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

The Company’s post-sale ownership interest in Premier Pools & Spas was 20.1 % following such transaction.

On December 17, 2021, Premier Pools & Spas issued additional non-voting common units to Premier Group Holdings Inc.

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The Company’s ownership interest in Premier Pools & Spas after the issuance of additional non-voting common units is 18.2 % while its’ voting interest remains 20.1 %.

The Company concluded 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 historically has concluded that it held common stock of Premier Pools & Spas and had the ability to exercise significant influence over Premier Pools & Spas but did not have a controlling financial interest.

As required when there is a change in facts or circumstances, the Company reassessed its ability to exercise significant influence during the fiscal quarter ended December 31, 2022.

The Company concluded that it no longer had the ability to exercise significant influence.

However, the Company also considered that it has an ownership interest of greater than 5% in Premier Pools & Spas, which is a limited liability company with specific ownership accounts.

Accordingly, because of the legal form of the investee, the Company continues to account for this investment using the equity method of accounting since it is not required to demonstrate the ability to exercise significant influence under the relevant guidance.

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

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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.

These products include fiberglass products and packaged pool products.

The initial term of the supply agreement is ten years .

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

As of December 31, 2021, the Company’s carrying amount for the equity method investment in Premier Pools & Spas was $ 23.4 million.

Holdco, assuming the Premier Franchisees are in good standing with respect to amounts owed to the Company.

As of December 31, 2022 and 2021, the Company’s carrying amount for the equity method investment in Premier Pools & Spas was $ 25.1 million and $ 23.4 million, respectively.

During the fiscal year ended December 31, 2022, Premier Pools & Spas paid the Company dividends of $ 2.5 million that are presented on the consolidated statement of cash flows as distribution received from equity method investment.

During the fiscal year ended December 31, 2021, Premier Pools & Spas paid the Company dividends of $ 2.2 million that are presented on the 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 $ 2.2 million for the fiscal year ended December 31, 2021, along with a basis difference adjustment of $ 0.3 million.

The Company recorded its interest in net earnings of Premier Pools & Spas of $ 4.2 million and $ 2.2 million for the years ended December 31, 2022 and 2021, respectively, which included basis difference adjustments of $ 0.2 million and $ 0.3 million, respectively.

FAIR VALUE MEASUREMENTS

Assets and liabilities measured at fair value on a nonrecurring basis

The Company’s non-financial assets such as goodwill, intangible assets and property and equipment are measured at fair value upon acquisition or remeasured to fair value when an impairment charge is recognized.

The Company’s non-financial assets such as goodwill, intangible assets and property and equipment are measured at fair value upon acquisition and remeasured to fair value when an impairment charge is recognized.

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

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):

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 because of the short-term maturities of these instruments.

Term loans are carried at amortized cost;

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

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

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

New Term Loan

Amended Prior Term Loan

Interest rate swap

The Company estimates the fair value of the interest rate swap 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 December 31, 2021, the Company’s interest rate swap asset was $ 0.5 million, which was recorded within other assets on the consolidated balance sheets.

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

The Company estimates the fair value of the interest rate swap 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 December 31, 2022 and 2021, the Company’s interest rate swap asset was $ 3.5 million and $ 0.5 million, respectively, which was recorded within other assets on the consolidated balance sheets.

GOODWILL AND INTANGIBLE ASSETS, NET

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Balance as of December 31, 2020

Acquisition of GLI

Foreign currency translation adjustment

Balance as of December 31, 2021

Acquisition of Radiant

Measurement period adjustment

Foreign currency translation adjustment

Balance as of December 31, 2022

The Company performed an annual test for goodwill impairment in the fourth quarter of the fiscal year ended December 31, 2021 in accordance with Step 0 of ASC 350 and determined that goodwill was not impaired.

The Company performed an annual test for goodwill impairment in the fourth quarter of the fiscal years ended December 31, 2022 and 2021 in accordance with Step 0 of ASC 350 and determined that goodwill was not impaired.

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Dealer relationships

Order backlog

Non-competition agreements

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Dealer relationships

Order backlog

Non-competition agreements

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

New Term Loan

Amended Prior Term Loan

Unamortized discount and debt issuance costs

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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 was utilized 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.

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 (the “New Term Loan”) in an initial principal amount of $ 325.0 million (the “Refinancing”).

On the closing date, proceeds under the New Credit Agreement were used to terminate the Credit Agreement (as defined below) by repayment of $ 294.0 million of outstanding debt thereunder and for general corporate purposes.

As of December 31, 2022, the Company was in compliance with all financial covenants under the New Credit Agreement

New Revolving Credit Facility

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 (as defined in the New Credit Agreement, 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 consolidated balance sheet 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, make prepayments with respect to certain indebtedness, and make restricted payments and other distributions.

As of December 31, 2022, there were no outstanding borrowings on the New Revolving Credit Facility.

New Term Loan

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

The New Term Loan matures on February 23, 2029.

Loans outstanding under the New Term Loan 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, or based on the Base Rate (as defined in the New Credit Agreement), plus a margin ranging from 2.75 % to 3.00 %, depending on the First Lien Net Leverage Ratio.

Loans under the New Term Loan are subject to scheduled quarterly amortization payments of $ 812,500 , equal to 0.25 % of the initial principal amount of the New Term Loan.

The New Term Loan 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 as a direct reduction to the carrying amount of long-term debt on the consolidated balance sheet.

Outstanding borrowings as of December 31, 2022 were $ 312.9 million, net of discount and debt issuance costs of $ 9.7 million.

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

As of December 31, 2022, the unamortized debt issuance costs and discount on the New Term Loan were $ 5.4 million and $ 4.3 million, respectively.

The effective interest rate was 9.14 % at December 31, 2022, including the impact of the Company’s interest rate swap.

Prior 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 “Prior Revolving Credit Facility”) in the amount of up to $ 30 million, as well as the Prior Term Loan (as described and defined below).

The Prior Revolving Credit Facility was utilized to finance ongoing general corporate and working capital needs.

The Prior Revolving Credit Facility allowed 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 accrued on any unused portion of the commitments under the Prior Revolving Credit Facility.

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

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

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

There were no amounts outstanding as of December 31, 2021 and 2020 on the Revolver or Letters of Credit.

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 Company’s acquisition of Narellan.

Any portion of the First Amendment not used to fund the acquisition of Narellan 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 $4.975 million of the outstanding principal balance, which was accepted as full repayment of $5.0 million of the outstanding principal balance.

The Company treated the $25.0 thousand as a gain on extinguishment of debt and recorded it within interest expense, net in its consolidated statements of operations during the year ended December 31, 2020.

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 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”).

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 consolidated balance sheet.

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.

On November 24, 2021, the Company entered into a subsequent amendment to the Amended Term Loan with Nomura to provide for incremental term loans in an aggregate principal amount of $50.0 million.

The new loans will have terms identical including with respect to, among other things, maturity, the interest rate and amortization.

The other terms of the Amended Term Loan remained unchanged.

Under the Amended Term Loan, the Company is required to repay the outstanding principal balance in fixed quarterly payments of $4.3 million, commencing December 31, 2021, with a final payment of $228.0 million due on June 18, 2025.

The Company accounted for $22.6 million of the borrowings under the November 2021 amendment as new debt and $27.4 million of the borrowings under the Fifth Amendment as a debt modification.

The Company did not incur a material amount of issuance costs in connection with the additional borrowings under the Amended Term Loan.

The Amended 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.

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

There were no amounts outstanding as of December 31, 2021 on the Revolver or Letters of Credit.

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

Prior Term Loan

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

The Prior 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 Prior Term Loan, to fund the Company’s acquisition of Narellan Group Pty Limited and its subsidiaries (the “First Amendment”).

On October 14, 2020, Latham Pool Products 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, Latham Pool Products amended its Term Loan to revise the applicable reporting

requirements (the “Fourth Amendment”).

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 Prior Term Loan.

On November 24, 2021, Latham Pool Products 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 Prior Term Loan, collectively with the First Amendment, Second Amendment, Third Amendment, the Fourth Amendment, and the Fifth Amendment, is referred to as the “Amended Prior Term Loan.”

The Amended Prior Term Loan bore 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.

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

Under the Amended Term Loan, the Company is required to make mandatory prepayments based on the Company’s excess cash flow for the year, as follows (as a percentage of the Company’s excess cash flow for the year):

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

Under the Amended Prior Term Loan, the Company was required to make mandatory prepayments based on the Company’s excess cash flow for the year, as follows (as a percentage of the Company’s excess cash flow for the year):

Net Leverage Ratio

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> 2.00:1.00 and ≤ 2.50:1.00

Net Leverage Ratio in the table above is defined, as of any date of determination, as the ratio of net indebtedness at such date to consolidated earnings before interest, taxes, depreciation and amortization.

There was no estimated mandatory prepayment to be paid as of December 31, 2021 or 2020.

There are also negative covenants, including, but not limited to, 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 December 31, 2021 and 2020, the Company was in compliance with all financial-related covenants related to the Term Loan.

As of December 31, 2021, the unamortized debt issuance costs and discount on the Amended Term Loan were $2.5 million and $1.1 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.

Net Leverage Ratio in the table above was defined, as of any date of determination, as the ratio of net indebtedness at such date to consolidated earnings before interest, taxes, depreciation, and amortization.

There was no estimated mandatory prepayment to be paid as of December 31, 2021.

There also was negative covenants, including, but not limited to, 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 December 31, 2021, the Company was in compliance with all financial-related covenants related to the Term Loan.

As of December 31, 2021, the unamortized debt issuance costs and discount on the Amended Prior Term Loan were $ 2.5 million and $ 1.1 million, respectively.

The effective interest rate was 7.04 % at December 31, 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.

The Amended Prior 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.

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):

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.

The ownership chain between Latham Pool Products and the Company consists of a series of holding companies with no material assets, liabilities, or standalone operations other than indirect equity interests in Latham Pool Products.

COMPOSITION OF CERTAIN BALANCE SHEET ACCOUNTS

Accrued Expenses and Other Current Liabilities

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Accrued payroll

Deferred offering costs

Accrued interest

Accrued third-party services

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Deferred revenue

Other accrued expenses

Total accrued expenses and other current liabilities

Allowance for Bad Debt

The allowance for bad debt consisted of the following (in thousands):

Balance at the beginning of the year

Bad debt expense

Write-offs, net of recoveries

Balance at the end of the year

PRODUCT WARRANTIES

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Balance at the end of the year

EXIT OR DISPOSAL COSTS

On November 8, 2022, the Company approved a cost reduction plan focused on efforts to improve efficiencies and decrease costs.

The plan involved the closure of the Company’s manufacturing facility in Bossier City, Louisiana, and a reduction to the Company’s workforce.

The Company expects to incur charges for employee severance and related costs, as well as fixed asset and facility related expenses, of approximately $ 1.6 million.

During the year ended December 31, 2022, the Company recognized costs related to the plan totaling $ 1.1 million, comprised primarily of $ 1.0 million for severance and related costs and $ 0.1 million of fixed asset and facility related expenses.

These charges were included in cost of sales and selling, general, and administrative expenses in the consolidated statements of operations.

The remaining costs under the plan of approximately $ 0.5 million are expected to be incurred and recognized in 2023.

The Company did not have an exit or disposal cost related liability as of December 31, 2022 or 2021.

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

As of December 31, 2022, our operating leases substantially have remaining terms of one year to eleven years , some of which include options to extend and/or terminate the leases.

The Company does not have material finance leases.

The components of lease expense for the year ended December 31, 2022 were as follows (in thousands):

December 31, 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 December 31, 2022:

December 31, 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 consolidated statements of cash flows (in thousands):

December 31, 2022

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

Operating cash flows for operating leases

The following table summarizes maturities of operating lease liabilities as of December 31, 2022:

Operating Leases

Total lease payments

Present value of lease liability

Under ASC 840, the minimum annual rental commitments under non-cancelable operating leases as of December 31, 2021 were as follows (in thousands):

Under ASC 840, rental expense during the years ended December 31, 2021 and 2020 was $ 8.8 million and $ 6.8 million, respectively.

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

In-ground Swimming Pools

The allowance for bad debt activity during the years ended December 31, 2021, 2020 and 2019 was as follows (in thousands):

Balance at the beginning of the year

Bad debt expense

Balance at the end of the year

The Company is subject to United States federal, state, and local income taxes, as well as other foreign income taxes.

The domestic and foreign components of its (loss) income before income taxes are as follows (in thousands):

(Loss) income before income taxes:

The domestic and foreign components of its income (loss) before income taxes are as follows (in thousands):

Income (loss) before income taxes:

Current and deferred income tax expense (benefit) is composed of the following (in thousands):

Current income tax expense (benefit):

Total current tax (benefit) expense

Current income tax expense:

Total current tax expense

Deferred income tax (benefit) expense:

Total deferred tax (benefit) expense

Total income tax (benefit) expense

Total income tax expense

The reconciliation of the statutory federal income tax rate with the Company’s effective income tax rate is as follows (% of Income (Loss) Before Income Taxes):

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Nondeductible stock compensation

Canadian restructuring

Stock compensation shortfall (windfall)

Canadian branch income

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Balance at December 31

The Inflation Reduction Act (“IRA”) was passed into law on August 16, 2022.

The key provisions from the IRA include the implementation of a 15% alternative book income minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives.

The Company evaluated the key provisions under the IRA and concluded that the provisions are not applicable to Latham for year ended December 31, 2022.

On December 22, 2017, the U.S.

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tax code, including, but not limited to (1) reducing the U.S.

federal corporate tax rate from 35 % to 21 % effective January 1, 2018, (2) bonus depreciation that allows for full expensing of qualified property, (3) interest expense deduction limitation rules, and (4) new international tax provisions including, but not limited to, GILTI and Foreign Derived Intangible Income (“FDII”).

federal corporate tax rate from 35 % to 21 % effective January 1, 2018, (2) bonus depreciation that allows for full expensing of qualified property, (3) interest expense deduction limitation rules, and (4) new international tax provisions including, but not limited to, global intangible low-tax income (“GILTI”) and Foreign Derived Intangible Income (“FDII”).

The Act also required companies to record/pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred.

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The Company has elected with respect to its treatment of GILTI to account for taxes on GILTI as incurred.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in response to the coronavirus ("COVID-19") pandemic.

The CARES Act is aimed at providing assistance and health care for individuals, families, and businesses affected by COVID-19 and generally supporting the U.S.

The CARES Act, among other things, includes provisions related to refundable payroll tax credits, deferment of the employer portion of social security payments, net operating loss carryback periods, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property.

The CARES Act did not have a material impact on the Company’s consolidated financial condition or results of operations for the years ended December 31, 2021 and 2020.

On December 27, 2020, the Consolidated Appropriations Act (“CAA”) was enacted in further response to the COVID-19 pandemic.

The CAA extended many of the provisions enacted by the CARES Act, the extension of which likewise did not have a material impact on the Company’s consolidated financial statements for the years ended December 31, 2021 and 2020.

In December 2019, the FASB issued ASU 2019-12, which is intended to enhance and simplify various aspects of the accounting for income taxes.

The amendments in this update remove certain exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

ASU 2019-12 also clarifies and amends existing guidance to improve consistent application of the accounting for franchise taxes, enacted changes in tax laws or rates, and transactions that result in a step-up in the tax basis of goodwill.

The adoption of this standard during the year ended December 31, 2021 required no cumulative-effect adjustments and did not have a material impact on the Company’s financial position or results of operations.

For the year ended December 31, 2022, the Act's amendments to research and development (“R&D”) expenditures no longer permit an immediate deduction for R&D expenditures, including those related to internally developed software, in the tax year that such costs are incurred.

Companies are now required to capitalize and amortize all R&D expenditures and requires taxpayers to determine the proper amount of their R&D costs.

The Company considered these new requirements and recorded the deferred tax asset on the capitalization of the R&D expenditures.

In addition, the Act Section 163(j) provides for a change to the interest deduction limitation for tax years starting January 1, 2022, and later.

Taxable income no longer is adjusted for depreciation, amortization, and depletion in arriving at adjusted taxable income ("ATI"), resulting in lower ATI and potentially a greater interest disallowance.

The Company adjusted the interest expense limitation calculation within the GILTI calculation to account for the Section 163(j) update.

Deferred Income Taxes

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Future branch taxes

Gross deferred tax assets

Valuation allowance

Total deferred tax asset

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Net deferred tax liabilities

ASC 740 requires that the Company reduce its deferred income tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized.

After consideration of all evidence, both positive and negative, management concluded that it is more likely than not that it will be able to realize all of its deferred tax assets and that a valuation allowance of $ 12.7 million is no longer necessary as of December 31, 2021.

ASC 740, Income Taxes , requires that the Company reduce its deferred income tax assets by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that all or a portion of a deferred tax asset will not be realized.

After consideration of all evidence, both positive and negative, management concluded that it is more likely than not that it would be able to realize all of its deferred tax assets and that a valuation allowance of $ 12.7 million was no longer necessary as of December 31, 2021.

Accordingly, the valuation allowance was released during the year ended December 31, 2021.

For the year ended December 31, 2022, management considered all evidence, both positive and negative, and concluded that it is more likely than not that it will be able to realize all of its deferred tax assets and no valuation allowance was needed.

As of December 31, 2022, the Company had net operating loss (“NOL”) carryforwards of approximately $ 7.3 million (tax effected), which will be available to offset future taxable income and tax liabilities.

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Accordingly, additional provisions on federal and foreign tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.

The Company files a federal consolidated tax return which includes all U.S.

The Company files a federal consolidated tax return that includes all U.S.

entities as well several combined/consolidated state tax returns and separate state tax returns.

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The Company is subject to the regular examination of our income tax returns by tax authorities.

The Company does not have any audits in process.

The Company does not have any federal audits in process.

Examinations in material jurisdictions or changes in laws, rules, regulations, or interpretations by local taxing authorities could result in impacts to tax years open under statute or to foreign operating structures currently in place.

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Tax years and tax periods ended December 31, 2018 through present are open for state examination.

The Company’s 2019 Illinois return is currently under examination by the state of Illinois.

Tax years and tax periods from June 30, 2019 through present are currently open for examination in Canada.

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COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases certain property and equipment under agreements generally with terms of five years or less and may include certain renewal options.

Rental expense during the years ended December 31, 2021, 2020 and 2019 was $ 8.8 million, $ 6.8 million and $ 6.1 million, respectively.

The minimum annual rental commitments under non-cancelable operating leases as of December 31, 2021 are due as follows (in thousands):

In the normal course of its business, the Company is involved in various legal proceedings involving contractual and employment relationships, product liability claims, trademark rights, and a variety of other matters.

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( 1,266,068 )

Balance at December 31, 2020

( 1,266,068 )

Converted at IPO in connection with the Reorganization

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December 31, 2020

December 31, 2019

Expected volatility

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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.

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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 years ended December 31, 2021 and 2020 was $ 128.8 million and $ 1.8 million, respectively.

Stock-based compensation expense of $ 8.7 million and $ 120.1 million was recorded in cost of sales and selling, general and administrative expense, respectively, for the year ended December 31, 2021.

Stock-based compensation expense for the year ended December 31, 2020 was recorded in selling, general and administrative expense on the consolidated statements of operations.

Of the $ 128.8 million of stock-based compensation expense recorded during the year ended December 31, 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.

The following table summarizes the Company’s stock-based compensation expense:

Cost of sales

Selling, general, and administrative

Of the $ 128.8 million of stock-based compensation expense recorded during the year ended December 31, 2021, $ 0.5 million was related to the accelerated vesting of restricted stock and $ 49.0 million was related to the modification as a result of the Reorganization.

Refer to Note 18 above for detail regarding the Company’s equity-based awards issued in the form of PIUs prior to the Reorganization and IPO.

The recognized income tax benefit related to stock-based compensation was $ 0.8 million for the year ended December 31, 2022.

There was no recognized income tax benefit related to stock-based compensation for the years ended December 31, 2020 and 2019.

As of December 31, 2021, total unrecognized stock-based compensation expense related to all unvested stock-based awards of $ 73.6 million, which is expected to be recognized over a weighted-average period of 1.45 years.

The recognized income tax benefit related to stock-based compensation was $ 0.1 million for the year ended December 31, 2021.

There was no recognized income tax benefit related to stock-based compensation for the year ended December 31, 2020.

As of December 31, 2022, total unrecognized stock-based compensation expense related to all unvested stock-based awards was $ 22.9 million, which is expected to be recognized over a weighted-average period of 1.20 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:

December 31, 2021

Risk-free interest rate

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( 2,746,520 )

( 1,014,976 )

Outstanding at December 31, 2022

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(in thousands)

Outstanding on January 1, 2021

Outstanding at January 1, 2022

Outstanding at December 31, 2022

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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 year ended December 31, 2021 was $ 7.25 per share.

The weighted average grant-date fair value of stock options granted during the years ended December 31, 2022 and 2021 was $ 5.53 per share and $ 7.25 per share, respectively.

SHAREHOLDER’S EQUITY

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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.

Prior to the Reorganization, none of the Class B units would have been vested for accounting purposes because of 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.

Reorganization

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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 respective the individual holders’ ownership, the conversion of Class A units to common shares as part of the Reorganization was considered to be the equivalent to a stock split, which requires retrospective treatment for accounting purposes.

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 respective ownership, the conversion of Class A units to common shares as part of the Reorganization was considered to be the equivalent to a stock split, which requires retrospective treatment for accounting purposes.

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

As a result of the retrospective application of the Reorganization, any transaction between the Company and Parent has been eliminated from these consolidated financial statements as these represent intercompany transactions.

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.

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 in 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.

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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 used to calculate 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, if dilutive.

and therefore the individual unit holder would have participated in a hypothetical distribution to the Parent unit holders, if dilutive.

The conversion of performance-vesting Class B units to restricted shares is not included in the weighted-average shares outstanding used to calculate 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.

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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.

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 the Company’s directors and executive officers.

Repurchase Program

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.

During the year ended December 31, 2022, the Company repurchased and concurrently retired 4,483,620 shares of the Company’s common stock for an aggregate amount of $ 23.0 million, pursuant to the Repurchase Program.

All of the shares were repurchased under a Rule 10b5-1 trading plan.

As of December 31, 2022, approximately $ 77.0 million remained available for share repurchases pursuant to the Repurchase Program.

As of and December 31, 2022 and 2021, 112,091,756 and 113,642,487 shares of common stock are issued and outstanding for accounting purposes, respectively.

NET INCOME PER SHARE

NET (LOSS) INCOME PER SHARE

Basic and diluted net income per share attributable to common stockholders was calculated as follows (in thousands, except share and per share data):

Year Ended December 31,

Net income attributable to common stockholders

Net (loss) income attributable to common stockholders

Weighted-average common shares outstanding

Net income per share attributable to common stockholders

Net (loss) income per share attributable to common stockholders:

The following table includes the number of shares that may be dilutive common shares in the future that were not included in the computation of diluted net income per share because the effect was anti-dilutive:

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

During the years ended December 31, 2021 and 2020, the Company incurred $ 2.1 million and $ 0.5 million, respectively, associated with services performed by BrightAI, which is recorded as construction in progress within in property and equipment, net on the consolidated balance sheet as of December 31, 2021.

During the years ended December 31, 2022, 2021 and 2020, the Company incurred $ 0.2 million, $ 2.1 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 consolidated balance sheets as of December 31, 2022 and 2021.

As of December 31, 2022 and 2021, the Company had accounts payable - related party to BrightAI of $ 0.4 million and $ 0.9 million, respectively.

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on April 27, 2021.

The Stockholders’ Agreement requires the Company to reimburse the Sponsor and Wynnchurch Capital, L.P.

The Stockholders’ Agreement requires the Company to reimburse the Sponsor and Wynnchurch Capital,

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 both the years ended December 31, 2021 and 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 years ended December 31, 2021 and 2020.

As of both December 31, 2021 and 2020, there were no outstanding amounts payable to the Sponsor and Wynnchurch Capital, L.P.

There were no management fees incurred by the Company during the years ended December 31, 2022, 2021 and 2020.

The Company reimbursed $ 0.2 million, less than $ 0.1 million and less than $ 0.1 million of out-of-pocket costs and expenses to the Sponsor during the years ended December 31, 2022, 2021, and 2020.

As of December 31, 2022 and 2021, there were less than $ 0.1 million and no outstanding amounts payable to the Sponsor, respectively.

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

during each of the years ended December 31, 2022, 2021, and 2020.

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

Operating Lease

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The lease expires in June 2028.

The Company recognized $ 0.5 million, $ 0.4 million and $ 0.2 million of rent expense related to this lease during the years ended December 31, 2021, 2020 and 2019, respectively, which is recognized within selling, general and administrative expense on the consolidated statements of operations.

The Company recognized $ 0.5 million and $ 0.4 million of rent expense related to this lease during the years ended December 31, 2021 and 2020, respectively, which is recognized within selling, general, and administrative expense on the consolidated statements of operations.

As of December 31, 2021, the individual was no longer employed by the Company and, therefore, no longer considered a related party.

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Preferred stock, $ 0.0001 par value;

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

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

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

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

Common stock, $ 0.0001 par value;

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

119,445,611 and 118,854,249 shares issued and outstanding as of December 31, 2021 and 2020, respectively

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

114,667,975 and 119,445,611 shares issued and outstanding, as of December 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

(Accumulated deficit) retained earnings

Accumulated other comprehensive income

Accumulated deficit

Accumulated other comprehensive (loss) income

Total stockholders’ equity

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Cash flows from investing activities:

Distribution from subsidiary

Investment in subsidiary

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

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

Repurchase and retirement of treasury stock

Proceeds from issuance of common stock

Net cash provided by financing activities

Repurchase and retirement of common stock

Net cash (used in) provided by financing activities

Net increase in cash

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has no material assets or standalone operations other than its ownership in its consolidated subsidiaries.

Under the terms of the Credit Agreement entered into by the Latham Pool Products, a wholly owned subsidiary of LIMC, which itself is a wholly owned subsidiary of Latham Group, Inc., Latham Pool Products is restricted from making dividend payments, loans or advances to Latham Group, Inc., unless certain conditions are met.

Under the terms of the New Credit Agreement entered into by the Latham Pool Products, a wholly owned subsidiary of LIMC, which itself is a wholly owned subsidiary of Latham Group, Inc., Latham Pool Products is restricted from making dividend payments, loans or advances to Latham Group, Inc., unless certain conditions are met.

As of December 31, 2022 and 2021, substantially all of the consolidated net assets of Latham Pool Products are considered restricted net assets as defined in Rule 4-08(e)(3) of Regulation S-X.

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These condensed parent company financial statements have been prepared using the same accounting principles and policies described in the notes to the condensed financial statements, with the only exception being that the parent company accounts for its subsidiary using the equity method.

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

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.

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In addition, during the year ended December 31, 2020, the Company issued 205,197 shares of common stock for an aggregate of $ 0.6 million.

SUBSEQUENT EVENTS

Secondary Offering

All of the net proceeds from this offering were used to purchase 13,800,000 shares of common stock from certain of our stockholders.

In connection with the offering the Company incurred approximately $ 12.9 million in expenses, including underwriter fees.

Debt Refinancing

Dollar senior secured term loan facility (the “New Term Loan Facility”) in an initial principal amount of $ 325.0 million.

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

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.

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

The New Revolving Credit Facility is not subject to amortization.

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 New Credit Agreement, the “First Lien Net Leverage Ratio”), or based on the Base Rate (as defined in the New Credit Agreement), plus a margin ranging from 2.75 % to 3.00 %, depending on the First Lien Net Leverage Ratio.

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

The Company also amended its interest rate swap to change the index rate from LIBOR to SOFR in connection with the New Credit Agreement.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data