UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172022
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Commission File Number: 0-26640


pool-20220630_g1.jpg
POOL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware36-3943363
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
109 Northpark Boulevard,
Covington, Louisiana
70433-5001
Covington,Louisiana 70433-5001
(Address of principal executive offices)(Zip Code)
985-892-5521
(Registrant’s telephone number, including area code)

(985) 892-5521
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per sharePOOLNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.          YES Yes x    NO     No o


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                        YES Yes x    NO     No o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer☐
Non-accelerated filer  oSmaller reporting company☐
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth companyo
☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     YES o    NO Yes ☐    No x


As of October 26, 2017,July 25, 2022, there were 40,166,80039,590,630 shares of common stock outstanding.






POOL CORPORATION
Form 10-Q
For the Quarter Ended SeptemberJune 30, 20172022


TABLE OF CONTENTS

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PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
POOL CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data) 

Three Months Ended Nine Months EndedThree Months EndedSix Months Ended
September 30, September 30,June 30,June 30,
2017 2016 2017 2016 2022202120222021
Net sales$743,401
 $691,429
 $2,278,005
 $2,125,568
Net sales$2,055,818 $1,787,833 $3,468,468 $2,848,579 
Cost of sales526,795
 491,878
 1,618,114
 1,512,258
Cost of sales1,389,014 1,236,148 2,354,474 1,995,762 
Gross profit216,606
 199,551
 659,891
 613,310
Gross profit666,804 551,685 1,113,994 852,817 
Selling and administrative expenses134,678
 125,385
 392,779
 367,194
Selling and administrative expenses247,916 213,099 459,382 385,200 
Operating income81,928
 74,166
 267,112
 246,116
Operating income418,888 338,586 654,612 467,617 
Interest and other non-operating expenses, net4,009
 2,989
 11,608
 9,954
Interest and other non-operating expenses, net8,523 1,963 13,722 4,545 
Income before income taxes and equity earnings77,919
 71,177
 255,504
 236,162
Income before income taxes and equity in earningsIncome before income taxes and equity in earnings410,365 336,623 640,890 463,072 
Provision for income taxes29,179
 26,807
 89,951
 90,244
Provision for income taxes103,160 76,985 154,482 104,854 
Equity earnings in unconsolidated investments, net43
 51
 121
 113
Equity in earnings of unconsolidated investments, netEquity in earnings of unconsolidated investments, net78 57 136 132 
Net income48,783
 44,421
 165,674
 146,031
Net income$307,283 $259,695 $486,544 $358,350 
Net loss attributable to noncontrolling interest—
 113
 294
 309
Net income attributable to Pool Corporation$48,783
 $44,534
 $165,968
 $146,340
       
Earnings per share:       
Earnings per share attributable to common stockholders:Earnings per share attributable to common stockholders:  
Basic$1.20
 $1.06
 $4.04
 $3.48
Basic$7.71 $6.47 $12.16 $8.92 
Diluted$1.16
 $1.03
 $3.89
 $3.39
Diluted$7.63 $6.37 $12.03 $8.78 
Weighted average shares outstanding:       
Weighted average common shares outstanding:Weighted average common shares outstanding:  
Basic40,659
 42,020
 41,065
 42,092
Basic39,660 40,125 39,795 40,169 
Diluted42,207
 43,119
 42,691
 43,201
Diluted40,064 40,745 40,231 40,800 
       
Cash dividends declared per common share$0.37
 $0.31
 $1.05
 $0.88
Cash dividends declared per common share$1.00 $0.80 $1.80 $1.38 


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

1


POOL CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)

  
 
Three Months Ended Nine Months Ended
 September 30, September 30,
  2017 2016 2017 2016
Net income$48,783
 $44,421
 $165,674
 $146,031
Other comprehensive income (loss):       
Foreign currency translation adjustments1,842
 96
 6,432
 1,367
Change in unrealized gains and losses on interest rate swaps,
net of change in taxes of $(181), $(400), $(432) and $882
283
 625
 675
 (1,379)
Total other comprehensive income (loss)2,125
 721
 7,107
 (12)
Comprehensive income50,908
 45,142
 172,781
 146,019
Comprehensive loss attributable to noncontrolling interest—
 45
 74
 198
Comprehensive income attributable to Pool Corporation$50,908
 $45,187
 $172,855
 $146,217
Three Months EndedSix Months Ended
June 30,June 30,
  2022202120222021
Net income$307,283 $259,695 $486,544 $358,350 
Other comprehensive (loss) income:  
Foreign currency translation (losses) gains(7,125)1,302 (7,339)34 
Change in unrealized gains (losses) on interest rate swaps, net of change in taxes of $(1,631), $719, $(5,497), and $(2,327)4,893 (2,157)16,491 6,980 
Total other comprehensive (loss) income(2,232)(855)9,152 7,014 
Comprehensive income$305,051 $258,840 $495,696 $365,364 


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




















2

POOL CORPORATION
Consolidated Balance Sheets
(In thousands, except share data)

 September 30, September 30, December 31,June 30,June 30,December 31,
 2017 2016 
2016 (1)
202220212021
 (Unaudited) (Unaudited)   (Unaudited)(Unaudited)(Audited)
Assets      Assets   
Current assets:      Current assets:   
Cash and cash equivalents $36,398
 $30,292
 $21,956
Cash and cash equivalents$91,481 $58,465 $24,321 
Receivables, net 90,142
 81,072
 61,437
Receivables, net239,639 210,318 155,259 
Receivables pledged under receivables facility 172,654
 152,333
 104,714
Receivables pledged under receivables facility516,946 375,248 221,312 
Product inventories, net 484,287
 455,156
 486,116
Product inventories, net1,579,101 894,654 1,339,100 
Prepaid expenses and other current assets 14,832
 12,084
 15,318
Prepaid expenses and other current assets43,317 18,716 29,093 
Deferred income taxes —
 5,288
 6,016
Total current assets 798,313
 736,225
 695,557
Total current assets2,470,484 1,557,401 1,769,085 
      
Property and equipment, net 103,880
 84,643
 83,290
Property and equipment, net183,480 111,661 179,008 
Goodwill 189,024
 185,486
 184,795
Goodwill692,972 283,284 688,364 
Other intangible assets, net 13,206
 13,645
 13,326
Other intangible assets, net309,375 12,350 312,814 
Equity interest investments 1,168
 1,152
 1,172
Equity interest investments1,179 1,293 1,231 
Operating lease assetsOperating lease assets259,571 221,068 241,662 
Other assets 16,333
 16,370
 15,955
Other assets45,044 26,978 37,967 
Total assets $1,121,924
 $1,037,521
 $994,095
Total assets$3,962,105 $2,214,035 $3,230,131 
      
Liabilities, redeemable noncontrolling interest and stockholders’ equity      
Liabilities and stockholders’ equityLiabilities and stockholders’ equity   
Current liabilities:      
Current liabilities:   
Accounts payable $209,062
 $199,922
 $230,728
Accounts payable$604,225 $439,453 $398,697 
Accrued expenses and other current liabilities 87,887
 126,654
 64,387
Accrued expenses and other current liabilities195,529 184,437 264,877 
Short-term borrowings and current portion of long-term debt and other long-term liabilities 8,609
 1,298
 1,105
Short-term borrowings and current portion of long-term debtShort-term borrowings and current portion of long-term debt19,731 10,058 11,772 
Current operating lease liabilitiesCurrent operating lease liabilities71,550 63,786 69,070 
Total current liabilities 305,558
 327,874
 296,220
Total current liabilities891,035 697,734 744,416 
      
Deferred income taxes 27,244
 28,359
 34,475
Deferred income taxes42,380 30,440 35,840 
Long-term debt, net 555,964
 388,891
 436,937
Long-term debt, net1,575,667 413,058 1,171,578 
Other long-term liabilities 22,614
 17,945
 18,966
Other long-term liabilities32,109 38,079 31,545 
Non-current operating lease liabilitiesNon-current operating lease liabilities191,856 159,976 175,359 
Total liabilities 911,380
 763,069
 786,598
Total liabilities2,733,047 1,339,287 2,158,738 
      
Redeemable noncontrolling interest —
 2,467
 2,287
      
Stockholders’ equity:      Stockholders’ equity:   
Common stock, $0.001 par value; 100,000,000 shares authorized;
40,122,935, 41,711,888 and 41,089,720 shares issued and
outstanding at September 30, 2017, September 30, 2016 and
December 31, 2016, respectively
 40
 42
 41
Common stock, $0.001 par value; 100,000,000 shares authorized;
39,588,231, 40,131,570 and 40,192,901 shares issued and
outstanding at June 30, 2022, June 30, 2021 and
December 31, 2021, respectively
Common stock, $0.001 par value; 100,000,000 shares authorized;
39,588,231, 40,131,570 and 40,192,901 shares issued and
outstanding at June 30, 2022, June 30, 2021 and
December 31, 2021, respectively
40 40 40 
Additional paid-in capital 420,946
 399,071
 403,162
Additional paid-in capital564,641 535,046 551,963 
Retained deficit (202,693) (113,276) (183,915)
Accumulated other comprehensive loss (7,749) (13,852) (14,078)
Retained earningsRetained earnings662,709 346,667 526,874 
Accumulated other comprehensive income (loss)Accumulated other comprehensive income (loss)1,668 (7,005)(7,484)
Total stockholders’ equity 210,544
 271,985
 205,210
Total stockholders’ equity1,229,058 874,748 1,071,393 
Total liabilities, redeemable noncontrolling interest and stockholders’ equity $1,121,924
 $1,037,521
 $994,095
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$3,962,105 $2,214,035 $3,230,131 
(1)  Derived from audited financial statements.
The accompanying Notes are an integral part of the Consolidated Financial Statements.

3


POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
  Nine Months Ended
  September 30,
  2017 2016
Operating activities    
Net income $165,674
 $146,031
Adjustments to reconcile net income to cash provided by operating activities:    
Depreciation 17,947
 15,020
Amortization 1,132
 1,288
Share-based compensation 9,496
 7,373
Excess tax benefits from share-based compensation —
 (6,582)
Equity earnings in unconsolidated investments, net (121) (113)
Other 1,074
 3,799
Changes in operating assets and liabilities, net of effects of acquisitions:    
Receivables (90,204) (71,936)
Product inventories 9,057
 23,624
Prepaid expenses and other assets (1,523) (1,094)
Accounts payable (27,328) (49,479)
Accrued expenses and other current liabilities 26,816
 75,239
Net cash provided by operating activities 112,020
 143,170
     
Investing activities    
Acquisition of businesses, net of cash acquired (6,879) (19,314)
Purchase of property and equipment, net of sale proceeds (37,709) (30,388)
Payments to fund credit agreement —
 (3,852)
Collections from credit agreement—
 3,300
Other investments, net 4
 21
Net cash used in investing activities (44,584) (50,233)
     
Financing activities    
Proceeds from revolving line of credit 918,338
 873,854
Payments on revolving line of credit (857,609) (866,801)
Proceeds from asset-backed financing 156,600
 145,000
Payments on asset-backed financing (97,800) (90,000)
Proceeds from short-term borrowings, long-term debt and other long-term liabilities 25,001
 15,705
Payments on short-term borrowings, long-term debt and other long-term liabilities (17,497) (16,107)
Payments of deferred and contingent acquisition consideration (199) —
Payments of deferred financing costs (909) —
Purchase of redeemable noncontrolling interest (2,573) —
Excess tax benefits from share-based compensation —
 6,582
Proceeds from stock issued under share-based compensation plans 8,647
 10,978
Payments of cash dividends (43,165) (37,007)
Purchases of treasury stock (141,580) (117,901)
Net cash used in financing activities (52,746) (75,697)
Effect of exchange rate changes on cash and cash equivalents (248) (185)
Change in cash and cash equivalents 14,442
 17,055
Cash and cash equivalents at beginning of period 21,956
 13,237
Cash and cash equivalents at end of period $36,398
 $30,292

 Six Months Ended
June 30,
 20222021
Operating activities  
Net income$486,544 $358,350 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation15,376 13,884 
Amortization4,358 723 
Share-based compensation7,571 7,549 
Equity in earnings of unconsolidated investments, net(136)(132)
Other7,185 4,812 
Changes in operating assets and liabilities, net of effects of acquisitions:  
Receivables(384,245)(295,342)
Product inventories(251,090)(114,792)
Prepaid expenses and other assets(20,573)(16,865)
Accounts payable208,017 170,368 
Accrued expenses and other current liabilities(44,276)58,673 
Net cash provided by operating activities28,731 187,228 
Investing activities  
Acquisition of businesses, net of cash acquired(7,629)(15,162)
Purchases of property and equipment, net of sale proceeds(19,802)(17,333)
Net cash used in investing activities(27,431)(32,495)
Financing activities  
Proceeds from revolving line of credit1,122,186 549,008 
Payments on revolving line of credit(1,128,902)(505,636)
Proceeds from term loan under credit facility250,000 — 
Proceeds from asset-backed financing215,000 260,000 
Payments on asset-backed financing(50,000)(290,000)
Payments on term facility(4,625)(4,625)
Proceeds from short-term borrowings and current portion of long-term debt24,767 4,466 
Payments on short-term borrowings and current portion of long-term debt(16,808)(6,277)
Payments of deferred and contingent acquisition consideration(1,374)(362)
Proceeds from stock issued under share-based compensation plans5,107 7,918 
Payments of cash dividends(72,028)(55,418)
Purchases of treasury stock(278,680)(90,135)
Net cash provided by (used in) financing activities64,643 (131,061)
Effect of exchange rate changes on cash and cash equivalents1,217 665 
Change in cash and cash equivalents67,160 24,337 
Cash and cash equivalents at beginning of period24,321 34,128 
Cash and cash equivalents at end of period$91,481 $58,465 

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

4



POOL CORPORATION
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
(In thousands)

Common StockAdditional
Paid-In		RetainedAccumulated
Other
Comprehensive
SharesAmountCapitalEarnings(Loss) IncomeTotal
Balance at December 31, 202140,193 $40 $551,963 $526,874 $(7,484)$1,071,393 
Net income— — — 179,261 — 179,261 
Foreign currency translation— — — — (214)(214)
Interest rate swaps, net of the change in taxes of $(3,866)— — — — 11,598 11,598 
Repurchases of common stock, net of retirements(138)— — (62,420)— (62,420)
Share-based compensation— — 3,657 — — 3,657 
Issuance of stock under share-based compensation plans55 — 3,135 — — 3,135 
Declaration of cash dividends— — — (32,132)— (32,132)
Balance at March 31, 202240,110$40 $558,755 $611,583 $3,900 $1,174,278 
Net income— — — 307,283 — 307,283 
Foreign currency translation— — — — (7,125)(7,125)
Interest rate swaps, net of the change in taxes of $(1,631)— — — — 4,893 4,893 
Repurchases of common stock, net of retirements(547)— — (216,261)— (216,261)
Share-based compensation— — 3,914 — — 3,914 
Issuance of stock under share-based compensation plans25 — 1,972 — — 1,972 
Declaration of cash dividends— — — (39,896)— (39,896)
Balance at June 30, 202239,588$40 $564,641 $662,709 $1,668 $1,229,058 


5

Common StockAdditional
Paid-In		RetainedAccumulated
Other
Comprehensive
 SharesAmountCapitalEarningsLossTotal
Balance at December 31, 202040,232 $40 $519,579 $133,870 $(14,019)$639,470 
Net income— — — 98,655 — 98,655 
Foreign currency translation— — — — (1,268)(1,268)
Interest rate swaps, net of the change in taxes of $(3,046)— — — — 9,137 9,137 
Repurchases of common stock, net of retirements(215)— — (71,516)— (71,516)
Share-based compensation— — 3,837 — — 3,837 
Issuance of stock under share-based compensation plans69 — 2,912 — — 2,912 
Declaration of cash dividends— — — (23,299)— (23,299)
Balance at March 31, 202140,086 $40 $526,328 $137,710 $(6,150)$657,928 
Net income— — — 259,695 — 259,695 
Foreign currency translation— — — — 1,302 1,302 
Interest rate swaps, net of the change in taxes of $719— — — — (2,157)(2,157)
Repurchases of common stock, net of retirements(45)— — (18,619)— (18,619)
Share-based compensation— — 3,712 — — 3,712 
Issuance of stock under share-based compensation plans90 — 5,006 — — 5,006 
Declaration of cash dividends— — — (32,119)— (32,119)
Balance at June 30, 202140,131 $40 $535,046 $346,667 $(7,005)$874,748 


The accompanying Notes are an integral part of the Consolidated Financial Statements.
6

POOL CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Summary of Significant Accounting Policies


Pool Corporation (the Company, which may be referred to as we, us or our) prepared the unaudited interim Consolidated Financial Statements following U.S. generally accepted accounting principles (GAAP) and the requirements of the Securities and Exchange Commission (SEC) for interim financial information. As permitted under those rules, we have condensed or omitted certain footnotes and other financial information required for complete financial statements. 

Through June 29, 2017, we owned a 60% interest in Pool Systems Pty. Ltd. (PSL), an Australian company. Our ownership percentage constituted a controlling interest in the acquired company, which required us to consolidate PSL’s financial position and results of operations from the date of acquisition. On June 29, 2017, we purchased the remaining 40% interest in PSL. Thus, we will continue to consolidate PSL, but there will no longer be a separate noncontrolling interest reported on our Consolidated Statements of Income, nor Redeemable noncontrolling interest reported on our Consolidated Balance Sheets. Please see Note 6 - Redeemable Noncontrolling Interest for additional information regarding this transaction.


The interim Consolidated Financial Statements include all normal and recurring adjustments that are necessary for a fair presentation of our financial position and operating results. All significant intercompany accounts and intercompany transactions have been eliminated.


A description of our significant accounting policies is included in our 20162021 Annual Report on Form 10-K. You should read the interim Consolidated Financial Statements in conjunction with the Consolidated Financial Statements and accompanying notes in our 2021 Annual Report.Report on Form 10-K.  The results for our three and nine monthsix-month periods ended SeptemberJune 30, 20172022, are not necessarily indicative of the expected results for our fiscal year ending December 31, 2017.2022.


Variable Interest Entity0Income Taxes


In February 2015, we entered into a five-year credit agreementWe reduce federal and state income taxes payable by the tax benefits associated with a swimming pool retailer. Under this agreementthe exercise of nonqualified stock options and the lapse of restrictions on restricted stock awards. To the extent realized tax deductions exceed the amount of previously recognized deferred tax benefits related revolving note,to share-based compensation, we record an excess tax benefit. We record all excess tax benefits as a component of income tax benefit or expense on the Consolidated Statements of Income in the period in which stock options are exercised or restrictions on restricted stock awards lapse. We recorded excess tax benefits of $1.6 million in the primary lendersecond quarter of operating funds for this entity. The total lending commitment under2022 compared to $7.7 million in the credit agreement is $8.5second quarter of 2021 and $8.9 million which is fully funded. As of Septemberin the six months ended June 30, 2017,2022, compared to $11.7 million in the estimated realizable amount under the credit agreement is recorded within Other assets on our Consolidated Balance Sheets and is collateralized by essentially all of the assets of the business. We have a variable interest in this entity; however, we have no decision-making authority over its activities through voting or other rights. Additionally, we have no obligation to absorb any of its losses, nor do we have the right to receive any residual returns, should either occur. We are not considered the primary beneficiary of this variable interest entity, and therefore we are not required to consolidate this entity’s financial statements.six months ended June 30, 2021.

Retained DeficitEarnings


We account for the retirement of treasury shares as a reduction of retained earnings (deficit).Retained earnings. As of SeptemberJune 30, 2017,2022, the Retained deficitearnings on our Consolidated Balance Sheets reflects cumulative net income, the cumulative impact of adjustments for changes in accounting pronouncements, treasury share retirements since the inception of our share repurchase programs of $1,234.9 million$1.9 billion and cumulative dividends of $410.9$862.4 million.


Newly AdoptedAccumulated Other Comprehensive Income (Loss)

The table below presents the components of our Accumulated other comprehensive income (loss) balance (in thousands):
June 30,December 31,
202220212021
Foreign currency translation adjustments$(16,919)$(4,882)$(9,580)
Unrealized gains (losses) on interest rate swaps, net of tax18,587 (2,123)2,096 
Accumulated other comprehensive income (loss)$1,668 $(7,005)$(7,484)


7

Recent Accounting Pronouncements Pending Adoption

Effective January 1, 2017,The following table summarizes the recent accounting pronouncements that we adopted Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, on a prospective basis and as such, our prior year presentation has not changed. The provisions of this update simplify many key aspects of the accounting for and cash flow presentation of employee share-based compensation transactions, including accounting for income taxes, forfeitures, and statutory withholding requirements. In accordance with the new guidance, we now record all excess tax benefits or tax deficiencies as a component of our Provision for income taxes on our Consolidated Statements of Income. As a result of the adoption, we recognized $7.7 million of excess tax benefits in the first nine months of 2017, which reduced our Provision for income taxes and positively impacted our Net income. Historically, these amounts were recorded as Additional paid in capital in stockholders’ equity on our Consolidated Balance Sheets. Additionally, we now present excess tax benefits or deficiencies as operating cash flows versus reclassifying the amount out of operating cash flows and presenting it in financing activities on the Condensed Consolidated Statements of Cash Flows.



Additional amendments from this guidance related to forfeitures and minimum statutory withholding tax requirements had no impact to our financial position, results of operations or cash flows. As permitted, we continue to estimate forfeitures to determine the amount of compensation cost to be recognized each period rather than electing to account for forfeitures as they occur, and we continue to present the value of shares withheld for minimum statutory tax withholding requirements on the Condensed Consolidated Statements of Cash Flows as a financing activity. Another impact of the adoption is that the calculation of the effect of dilutive securities now excludes any derived excess tax benefits or deficiencies from assumed future proceeds, resulting in an increase in diluted weighted average shares outstanding of approximately 550,000 shares for the nine month period ended September 30, 2017.

Effective January 1, 2017, we adopted ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires we classify all deferred tax assets and liabilities as noncurrent on the balance sheet rather than separately presenting net deferred tax assets or liabilities as current or noncurrent. Additionally, we no longer allocate valuation allowances between current and noncurrent deferred tax assets because those allowances are also now classified as noncurrent. As permitted, we electedplan to adopt this guidance on a prospective basis and as such, our prior year presentation has not changed. The adoption of ASU 2015-17 did not have a material impact on our financial position, results of operations and related disclosures.in future periods:
StandardDescriptionEffective DateEffect on Financial Statements and Other Significant Matters
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting andASU 2021-01, Reference Rate Reform (Topic 848): Scope
Provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include: contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this ASU refine the scope of ASC 848 and clarify some of its guidance as it relates to recent rate reform activities.
The provisions of these updates are only available until December 31, 2022, when the reference rate replacement activity is expected to be completed.Our exposure related to the expected cessation of LIBOR is limited to the interest expense and certain fees we incur on balances outstanding under our three major credit facilities. We do not expect that there will be a material impact to the financial statements as a result of adopting these ASUs.


In January 2017, we adopted ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which requires that we measure inventory at the lower of cost or net realizable value rather than at the lower of cost or market. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The adoption of ASU 2015-11 did not have a material impact on our financial position, results of operations and related disclosures.
8

In January 2017, we adopted ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The adoption of ASU 2015-16 did not have a material impact on our financial position, results of operations and related disclosures.





Note 2 – Earnings Per Share


We calculate basic and diluted earnings per share (EPS) by dividing Netusing the two-class method. Earnings per share under the two-class method is calculated using net income attributable to Pool Corporationcommon stockholders, which is net income reduced by the earnings allocated to participating securities. Our participating securities include share-based payment awards that contain a non-forfeitable right to receive dividends and are considered to participate in undistributed earnings with common shareholders. Participating securities excluded from weighted average number of common shares outstanding.  We include outstanding unvested restricted stock awards of our common stockwere 218 thousand in the second quarter of 2022 and 229 thousand for the six months ended June 30, 2022.

The table below presents the computation of earnings per share, including the reconciliation of basic weighted average share calculation.  Diluted EPS reflects the dilutive effects of potentially dilutive securities, which include in-the-money outstanding stock options and shares to be purchased under our employee stock purchase plan. Using the treasury stock method, the effect of dilutive securities includes these additional shares of common stock that would have been outstanding based on the assumption that these potentially dilutive securities had been issued. As discussed in Note 1, as a result of the adoption of ASU 2016-09, the calculation of the effect of dilutive securities now excludes any derived excess tax benefits or deficiencies from assumed future proceeds, resulting in an increase in diluted weighted average shares outstanding for the three and nine months ended September 30, 2017.(in thousands, except per share data):

 Three Months EndedSix Months Ended
June 30,June 30,
 2022202120222021
Net income$307,283 $259,695 $486,544 $358,350 
Amounts allocated to participating securities(1,680)— (2,762)— 
Net income attributable to common stockholders$305,603 $259,695 $483,782 $358,350 
Weighted average common shares outstanding:  
Basic39,660 40,125 39,795 40,169 
Effect of dilutive securities:  
Stock options and employee stock purchase plan404 620 436 631 
Diluted40,064 40,745 40,231 40,800 
Earnings per share attributable to common stockholders:  
Basic$7.71 $6.47 $12.16 $8.92 
Diluted$7.63 $6.37 $12.03 $8.78 
Anti-dilutive stock options excluded from diluted earnings per share computations (1)
33 — 1 — 
Stock(1)Since these options withhave exercise prices that are higher than the average market prices of our common stock, forincluding them in the periods presented are excluded from the diluted EPS calculation because thewould have an anti-dilutive effect is anti-dilutive.on earnings per share.

The table below presents the computation of EPS, including the reconciliation of basic and diluted weighted average shares outstanding (in thousands, except EPS):


9
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2017 2016 2017 2016
Net income $48,783
 $44,421
 $165,674
 $146,031
Net loss attributable to noncontrolling interest —
 113
 294
 309
Net income attributable to Pool Corporation $48,783
 $44,534
 $165,968
 $146,340
         
Weighted average shares outstanding:        
Basic 40,659
 42,020
 41,065
 42,092
Effect of dilutive securities:        
Stock options and employee stock purchase plan 1,548
 1,099
 1,626
 1,109
Diluted 42,207
 43,119
 42,691
 43,201
         
Earnings per share:        
Basic $1.20
 $1.06
 $4.04
 $3.48
Diluted $1.16
 $1.03
 $3.89
 $3.39
         
Anti-dilutive stock options excluded from diluted earnings per share computations 108
 1
 108
 1




Note 3 – Acquisitions


On July 4, 2017, we acquired New Star Holdings Pty. Ltd. (doing business as Newline Pool Products), a swimming pool equipment and supplies distributor with one distribution center in Brisbane, Australia.

OnIn April 28, 2017,2022, we acquired the distribution assets of Lincoln Equipment,Tri-State Pool Distributors, a wholesale distributor of swimming pool equipment, chemicals and supplies, adding 1 location in West Virginia.

On December 16, 2021, we acquired Porpoise Pool & Patio, Inc. (Lincoln Aquatics)(“Porpoise”) for $788.7 million, net of cash acquired. The acquisition was funded with borrowings on our amended and restated revolving credit facility (the “Credit Facility”). Porpoise’s primary operations, Sun Wholesale Supply, Inc., a nationalwholesale distributor of swimming pool and outdoor-living products, added 1 distribution location in Florida. It also services Pinch A Penny, Inc., a franchisor of independently owned and operated pool and outdoor living-related specialty retail stores.

We preliminarily recognized goodwill of $403.5 million, other intangible assets of $301.0 million and tangible assets of $84.2 million, which included $57.4 million of acquired land and buildings. For additional discussion of goodwill and other intangible assets, see Note 3 of “Notes to Consolidated Financial Statements,” included in Part II, Item 8 of our 2021 Annual Report on Form 10-K. The final allocation of the fair value of the Porpoise acquisition, including the allocation of goodwill and intangible assets, is not complete but will be finalized within the allowable measurement period. We do not expect the future results of this acquisition to have a material impact on our financial position or results of operations.

In December 2021, we acquired the distribution assets of Wingate Supply, Inc., a wholesale distributor of irrigation and landscape maintenance products, adding 1 location in Florida.

In June 2021, we acquired the distribution assets of Vak Pak Builders Supply, Inc., a wholesale distributor of swimming pool equipment, chemicals and supplies, to commercial and institutionaladding 1 location in Florida.

In April 2021, we acquired Pool Source, LLC, a wholesale distributor of swimming pool customers, with two locationsequipment, chemicals and supplies, adding 1 location in California.Tennessee.


WeOther than the Porpoise acquisition, we have completed our acquisition accounting for these acquisitions, subject to adjustments for standard holdback provisions per the terms of the purchase agreements, which are not material. These acquisitions did not have a material impact on our financial position or results of operations.


On April 1, 2016, we acquired the distribution assets of Metro Irrigation Supply Company Ltd., an irrigation and landscape supply company with eight locations in Texas.

We have completed our acquisition accounting for this acquisition. This acquisition did not have a material impact on our financial position or results of operations.


Note 4 – Fair Value Measurements and Interest Rate Swaps


Our assets and liabilities that are measured at fair value on a recurring basis include the unrealized gains or losses on our interest rate swap contracts and contingent consideration related to recent acquisitions. The three levels of the fair value hierarchy under the accounting guidance are described below:


Level 1Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2Inputs to the valuation methodology include:
Level 1    Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2     Inputs to the valuation methodology include:
•quoted prices for similar assets or liabilities in active markets;
•quoted prices for identical or similar assets or liabilities in inactive markets;
•inputs other than quoted prices that are observable for the asset or liability; or
•inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Level 3    Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
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Recurring Fair Value Measurements

The table below presents the estimated fair values of our interest rate swap contracts, our forward-starting interest rate swap contracts and our contingent consideration liabilities (in thousands):
  Fair Value at September 30,
  2017 2016
Level 2    
Unrealized gains on interest rate swaps $1,201
 $32
Unrealized losses on interest rate swaps 1,791
 6,174
     
Level 3    
Contingent consideration liabilities $1,924
 $1,626



 Fair Value at June 30,
20222021
Level 2
Unrealized gains on interest rate swaps$24,828 $4,641 
Unrealized losses on interest rate swaps— 7,425 
Level 3
Contingent consideration liabilities$582 $1,008 
Interest Rate Swaps


We utilize interest rate swap contracts and forward-starting interest rate swap contracts to reduce our exposure to fluctuations in variable interest rates for future interest payments on our unsecured syndicated senior credit facility (the Credit Facility).variable rate borrowings. 


For determining the fair value of our interest rate swap contracts and forward-starting interest rate swap contracts, we use significant other observable market data or assumptions (Level 2 inputs) that we believe market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk.  Our fair value estimates reflect an income approach based on the terms of the interest rate swap contracts and inputs corroborated by observable market data including interest rate curves. We include unrealized gains in Prepaid expenses and other current assets and unrealized losses in Accrued expenses and other current liabilities on the Consolidated Balance Sheets.


We recognize any differences between the variable interest rate paymentsin effect and the fixed interest rate settlements fromrates per our swap counterpartiescontracts as an adjustment to interest expense over the life of the swaps. We designated these swaps as cash flow hedges, and toTo the extent our derivatives are effective in offsetting the variability of the hedged cash flows, we record the changes in the estimated fair value of the swapsour interest rate swap contracts to Accumulated other comprehensive lossincome (loss) on ourthe Consolidated Balance Sheets.  To the extent our interest rate swaps are determined to be ineffective, we recognize the changes in the estimated fair value of our swaps in earnings.  


We currently have three interest rate swap contracts in place, two of which became effective on October 19, 2016.November 20, 2020, and terminate on September 29, 2022, and a third that became effective on February 26, 2021, and terminates on February 28, 2025. These swapsswap contracts were previously forward-starting and convert the variable interest rate to a fixed interest rate on our variable rate borrowings. Interest expense related to the notional amounts under these swap contracts that were amended in October 2015 to bringis based on the fixed rates per our forward-starting contracts in line with current market rates and extendplus the hedged period for future interest paymentsapplicable margin on our Credit Facility. As amended,variable rate borrowings. Changes in the estimated fair value of these interest rate swap contracts terminateare recorded to Accumulated other comprehensive income (loss) on November 20, 2019. In the first nine months of 2017, we recognized a benefit of $1.3 million as a result of our determination of ineffectiveness for the period. These amounts were recorded in Interest and other non-operating expenses, net on our Consolidated Statements of Income.Balance Sheets.


The following table provides additional details related to each of these amended swap contracts:
DerivativeInception DateEffective DateTermination DateNotional Amount
(in millions)		Fixed Interest Rate
Interest rate swap 1May 7, 2019November 20, 2020September 29, 2022$75.02.0925%
Interest rate swap 2July 25, 2019November 20, 2020September 29, 2022$75.01.5500%
Interest rate swap 3February 5, 2020February 26, 2021February 28, 2025$150.01.3800%

Derivative Amendment Date 
Notional
Amount
(in millions)
 
Fixed
Interest
Rate
Interest rate swap 1 October 1, 2015 $75.0 2.273%
Interest rate swap 2 October 1, 2015 $25.0 2.111%
Interest rate swap 3 October 1, 2015 $50.0 2.111%

Upon amendment of the original hedge agreements, we were required to freeze the amounts related to the changes in the fair values of these swaps, which are recorded in Accumulated other comprehensive loss. At September 30, 2017, the remaining balance of the unrealized losses was $1.9 million and is being amortized over the effective period of the original forward-starting interest rate swap contracts from October 2016 to September 2018. In the first nine months of 2017, we recorded expense of $1.4 million as amortization of the unrealized loss in Interest and other non-operating expenses, net.


For the three interest rate swap contracts in effect at SeptemberJune 30, 2017,2022, a portion of the change in the estimated fair value between periods relates to future interest expense. Recognition of the change in fair value between periods attributable to accrued interest is reclassified from Accumulated other comprehensive lossincome (loss) on the Consolidated Balance Sheets to Interest and other non-operating expenses, net on the Consolidated Statements of Income. These amounts wereThis amount was not material in the three and nine month periodssix-month period ended SeptemberJune 30, 2017 and September 30, 2016.2022.


In July 2016 we
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We have entered into an additional forward-starting interest rate swap contractcontracts to extend the hedged period for future interest payments on our Credit Facility to its maturity date at that time. Thisvariable rate borrowings. These swap contractcontracts will convert the variable interest rate to a fixed interest rate on borrowings underour variable rate borrowings. We record changes in the Credit Facility. This contract becomes effectiveestimated fair value of these forward-starting interest rate swap contracts to Accumulated other comprehensive income (loss) on November 20, 2019 and terminates on November 20, 2020. the Consolidated Balance Sheets.

The following table provides additional details related to thiseach of our forward-starting interest rate swap contract:contracts:
DerivativeInception DateEffective DateTermination DateNotional
Amount
(in millions)		Fixed
Interest
Rate
Forward-starting interest rate swap 1March 9, 2020September 29, 2022February 26, 2027$150.00.7400%
Forward-starting interest rate swap 2March 9, 2020February 28, 2025February 26, 2027$150.00.8130%
Derivative Inception Date Notional
Amount
(in millions)		 Fixed
Interest
Rate
Forward-starting interest rate swap 1 July 6, 2016 $150.0 1.1425%




Failure of our swap counterparties would result in the loss of any potential benefit to us under our swap agreements. In this case, we would still be obligated to pay the variable interest payments underlying our debt agreements.  Additionally, failure of our swap counterparties would not eliminate our obligation to continue to make payments under our existing swap agreements if we continue to bewere in a net pay position.


Our interest rate swap contracts and forward-starting interest rate swap contracts are subject to master netting arrangements. According to our accounting policy, we do not offset the fair values of assets with the fair values of liabilities related to these contracts.


Contingent Consideration LiabilitiesNonrecurring Fair Value Measurements


As of September 30, 2017,In addition to our Consolidated Balance Sheets reflected $0.7 million in Accrued expensesassets and other current liabilities and $1.2 million in Other long-term liabilities for contingent consideration related to future payouts for our acquisitions of The Melton Corporation, whichthat we acquired in November 2015, Metro Irrigation Supply Company Ltd. and Newline Pool Products. In determining our original estimates for contingent consideration, which are basedmeasure at fair value on a percentage of gross profit for certain products for The Melton Corporationrecurring basis, our assets and a multiple of gross profit for Metro Irrigation Supply Company Ltd., we applied a linear model usingliabilities are also subject to nonrecurring fair value measurements. Generally, our best estimate of gross profit projections for fiscal years 2016 to 2020. The payout for Newline Pool Products is basedassets, including long-lived assets, goodwill and intangible assets, are recorded at fair value on a multiplenonrecurring basis as a result of earnings for the first fiscal year of the acquisition. We based our estimate for the Newline payout on projected operating results for that year. All of our estimates of contingent consideration use Level 3 inputs as defined in the accounting guidance. The maximum total payouts for Metro Irrigation Supply Company Ltd. and Newline Pool Products over the related time periods are $1.0 million and AU$0.5 million, respectively.

impairment charges or business combinations. In the first ninesix months of 2017,ended June 30, 2022, we paid approximately $0.2 million in contingent consideration to The Melton Corporation based on 2016 results. Since the acquisition dates, we have recorded minimal adjustments to our original estimates based on the calculated 2017 payouts related to the fiscal year ended December 31, 2016. Adjustments to thedid not record any significant nonrecurring fair value of contingent consideration are recognizedmeasurements for assets or liabilities in earnings in the period in which we determine that the fair value changed. As of September 30, 2017, we have determined that the contingent consideration liability was in a range of acceptable estimates for all applicable fiscal periods.periods subsequent to their initial recognition.


Other


The carrying values of cash, receivables, accounts payable and accrued liabilities approximate fair value due to the short maturity of those instruments (Level 1 inputs). For the note receivable with our variable interest entity, our determination of the estimated fair value reflects a discounted cash flow model using our estimates, including assumptions related to collectibility (Level 3 inputs). The carrying value of this note receivable, including adjustments, approximates fair value.instruments. The carrying value of long-term debt approximates fair value.value (Level 3 inputs).  Our determination of the estimated fair value reflects a discounted cash flow model using our estimates, including assumptions related to borrowing rates (Level 3 inputs).

12


Note 5 – Debt


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


 June 30,
 20222021
Variable rate debt
Short-term borrowings$10,152 $— 
Current portion of long-term debt:
Australian credit facility9,579 10,058 
Short-term borrowings and current portion of long-term debt19,731 10,058 
Long-term portion:  
Revolving credit facility566,210 152,396 
Term loan under credit facility500,000 — 
Term facility161,875 171,125 
Receivables securitization facility350,000 90,000 
Less: financing costs, net2,418 463 
Long-term debt, net1,575,667 413,058 
Total debt $1,595,398 $423,116 
  September 30,
  2017 2016
Variable rate debt    
Short-term borrowings $—
 $—
Current portion of long-term debt:    
Australian credit facility 8,609
 1,298
Short-term borrowings and current portion of long-term debt and other long-term liabilities 8,609
 1,298
     
Long-term portion:    
Revolving credit facility 415,277
 280,068
Receivables securitization facility 142,300
 110,000
Less: financing costs, net 1,613
 1,177
Long-term debt, net 555,964
 388,891
Total debt  $564,573
 $390,189



Revolving Credit Facility


On September 29, 2017,January 4, 2022, we entered intodrew the $250.0 million incremental term loan available under our December 30, 2021 amendment to our Second Amended and Restated Credit Agreement (the Agreement) among us, as US Borrower, SCP Distributors Canada Inc., as Canadian Borrower, SCP Pool B.V., as Dutch Borrower, Wells Fargo Bank, National Association, as Joint Lead Arranger“Credit Facility”) and Administrative Agent, and certain other joint lead arrangers, syndication agents and lenders. The Agreement amends and restatesused the net proceeds to reduce our existing unsecured syndicated senior credit facility (therevolving borrowings under the Credit Facility) principally inFacility. At June 30, 2022, the following ways:

extends the maturity date to September 29, 2022;
increases the borrowing capacity to $750.0$500.0 million from $465.0 million; and
provides other changes to interest rates, fees and negative covenants as outlined below.

The Credit Facility includes sublimits for the issuance of swinglineterm loans and standby letters of credit. Pursuant to an accordion feature, the aggregate maximum principal amount of the commitmentsavailable under the Credit Facility may be increased at our request and with agreement by the lenders by up to $75.0 million, to a total of $825.0 million.were fully drawn.


Our obligations under the Credit Facility are guaranteed by certain of our subsidiaries. The Credit Facility also contains affirmative and negative covenants and events of default customary for transactions of this type. If we default under the Credit Facility, the lenders may terminate their commitments and may require us to repay all amounts.

Revolving borrowings under the Credit Facility bear interest, at our option, at either of the following and, in each case, plus an applicable margin:

a.a base rate, which is the highest of (i) the Wells Fargo Bank, National Association prime rate, (ii) the Federal Funds Rate plus 0.500% and (iii) the London Interbank Offered Rate (LIBOR) Market Index Rate plus 1.000%; or
b.LIBOR.

Borrowings by the Canadian Borrower bear interest, at the Canadian Borrower’s option, at either of the following and, in each case, plus an applicable margin:

a.a base rate, which is the greatest of (i) the Canadian Reference Bank prime rate and (ii) the annual rate of interest equal to the sum of the Canadian Dealer Offered Rate (CDOR) plus 1.000%; or
b.CDOR.

Borrowings by the Dutch Borrower bear interest at LIBOR plus an applicable margin.

The interest rate margins on the borrowings and letters of credit are based on our leverage ratio and will range from 1.025% to 1.425% on CDOR, LIBOR and swingline loans, and from 0.025% to 0.425% on Base Rate and Canadian Base Rate loans.   Borrowings under the swingline loans are based on the LIBOR Market Index Rate (LMIR) plus any applicable margin.  We are also required to pay an annualaccounts receivable securitization facility fee ranging from 0.100% to 0.200%, depending on our leverage ratio.

Receivables Securitization Facility

The Receivables Securitization Facility (the Receivables Facility)“Receivables Facility”) provides for the sale of certain of our receivables to a wholly owned subsidiary (the Securitization Subsidiary)“Securitization Subsidiary”). The Securitization Subsidiary transfers variable undivided percentage interests in the receivables and related rights to certain third partythird-party financial institutions in exchange for cash proceeds, limited to the applicable funding capacities. Upon payment of the receivables by customers, rather than remitting to the financial institutions the amounts collected, we retain such collections as proceeds for the sale of new receivables until payments become due to the third party financial institutions.


We account for the sale of the receivable interests as a secured borrowing on our Consolidated Balance Sheets. The receivables subject to the agreement collateralize the cash proceeds received from the third partythird-party financial institutions. We classify the entire outstanding balance as Long-term debt, net on our Consolidated Balance Sheets as we intend and have the ability to refinance the obligations on a long-term basis. We present the receivables that collateralize the cash proceeds separately as Receivables pledged under receivables facility on our Consolidated Balance Sheets.



Cash Pooling Arrangement

Certain of our foreign subsidiaries entered into a cash pooling arrangement with a financial institution for cash management purposes. This arrangement allows the participating subsidiaries to withdraw cash from the financial institution to the extent that aggregate cash deposits held by these subsidiaries are available at the financial institution. To the extent the participating subsidiaries are in an overdraft position, such overdrafts are recorded as short-term borrowings under a committed cash overdraft facility. These borrowings bear interest at a variable rate based on the 3-month Euro Interbank Offered Rate (EURIBOR), plus a fixed margin. The facility has a seasonal maximum borrowing capacity of €12.0 million. We are required to pay a commitment fee, which is based on the borrowing capacity schedule. We pay this fee annually, in advance.

Australian Credit Facility

In the second quarter of 2017, PSL entered into a new credit facility, which provides a borrowing capacity of AU$20.0 million, to fund expansion and supplement working capital needs. The facility balance at September 30, 2017 includes borrowings to fund the Newline Pool Products acquisition and the purchase of the noncontrolling interest.



Note 6 – Redeemable Noncontrolling Interest

As discussed in Note 1 - Summary of Significant Accounting Policies, in July 2014, we purchased a controlling interest in PSL. Included in the transaction documents was a put/call option deed that granted us an option to purchase the shares held by the noncontrolling interest, and granted the holder of the noncontrolling interest an option to require us to purchase its shares in one or two transactions. The put/call option deed in this transaction was considered an equity contract and therefore a financial instrument under the accounting guidance. In applying the guidance for this transaction, we determined that the financial instrument was embedded in the noncontrolling interest. As a public company, we were required to classify the noncontrolling interest and the embedded financial instrument as redeemable noncontrolling interest in a separate section of our Consolidated Balance Sheets, between liabilities and equity.

On June 29, 2017, we purchased the remaining 40% interest in PSL. The actual redemption value exceeded the carrying amount, and we recorded an adjustment to Additional paid in capital as there were no retained earnings attributable to the noncontrolling interest.

The table below presents the changes in Redeemable noncontrolling interest (in thousands):


13
 September 30,
 2017 2016
Redeemable noncontrolling interest, beginning of period$2,287
 $2,665
Redemption value adjustment of noncontrolling interest360
 —
Net loss attributable to noncontrolling interest(294) (309)
Other comprehensive income attributable to noncontrolling interest220
 111
Less: purchase of redeemable noncontrolling interest2,573
 —
Redeemable noncontrolling interest, end of period$—
 $2,467






Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations


You should read the following discussion in conjunction with the accompanying interim Consolidated Financial Statements and notes, the Consolidated Financial Statements and accompanying notes in our 2021 Annual Report on Form 10-K and with Management’s Discussion and Analysis included in our 20162021 Annual Report on Form 10-K.  


For a discussion of our base business calculations, see the RESULTS OF OPERATIONSResults of Operations section below.


Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995Forward-Looking Statements


Our disclosure and analysis in thisThis report contains forward-looking information that involves risks and uncertainties.  Our forward‑lookingforward-looking statements express our current expectations or forecasts of possible future results or events, including projections of earnings and other financial performance measures, statements of management’s expectations regarding our strategic, operational and capital allocation plans and objectives and industry, general economic and other forecasts of trends and other matters. Forward-looking statements speak only as of the date of this filing, and we undertake no obligation to publicly update or revise such statements to reflect new circumstances or unanticipated events as they occur.  You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as “anticipate,” “estimate,” “expect,” “intend,” “believe,” “will likely result,” “outlook,” “project,” “may,” “can,” “plan,” “target,” “potential,” “should” and other words and expressions of similar meaning.


No assurance can be given that the expected results in any forward-looking statementsstatement will be achieved, and actual results may differ materially due to one or more factors, including impacts on our business from the COVID-19 pandemic and the extent to which strong demand driven by home-centric trends will continue, accelerate or reverse; the sensitivity of our business to weather conditions,conditions; changes in the economy andeconomy; consumer discretionary spending; the housing market or inflation rates; our ability to maintain favorable relationships with suppliers and manufacturers,manufacturers; competition from other leisure product alternatives andor mass merchants,merchants; our ability to continue to execute our growth strategies; excess tax benefits or deficiencies recognized under ASU 2016-09 and other risks detailed in our 20162021 Annual Report on Form 10-K.  For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act.Act of 1995.


OVERVIEW


Financial Results

Our business performed very well in the third quarter of 2017, despite severe weather in Florida, Texas, Puerto Rico and Mexico from Hurricanes Irma, Harvey, Maria and Katia and despite the devastating earthquake in Mexico. While these events are disruptive in the short term, we believe they will not have a material impact on our operating results for the year.


Net sales increased 8% to $743.4 million for15% in the thirdsecond quarter of 20172022 to $2.1 billion compared to $691.4 million$1.8 billion in the thirdsecond quarter of 2016. We realized base2021. Base business sales growthgrew 10%. Our results are indicative of 6%. We had one less selling day in the third quarter of 2017 compared to the same period last year, which we believe negatively impacted base business sales growth by approximately 1%. Continued increases in in swimming pool repair and remodel activities, including major poolhealthy demand for our products as maintenance, replacement, refurbishment and replacement of key pool equipment, led ourconstruction activity remained strong. Net sales growth. The recent weather events negativelybenefited approximately 10% to 11% from elevated price inflation, but were unfavorably impacted our third quarter 2017 net sales by an estimated $4.0 million.1% from currency exchange rate fluctuations.
Gross profit increased 9% for21% to $666.8 million in the thirdsecond quarter of 2017 compared to2022 from $551.7 million in the same period in 2016.of 2021. Base business gross profit improved 7%14% over the thirdsecond quarter of last year.2021. Gross profit as a percentage of net sales (gross margin)margin increased approximately 20150 basis points to 29.1%32.4% in the second quarter of 2022 compared to 30.9% in the thirdsecond quarter of 2016,2021, reflecting product mix and benefits from sourcing initiatives.our supply chain initiatives, increased pricing and recent acquisitions. Base business gross margin increased 100 basis points.
Selling and administrative expenses (operating expenses) increased 7%16% to $247.9 million in the second quarter of 2022 compared to $213.1 million in the thirdsecond quarter of 2016, with base business operating expenses up 5% over the comparable 2016 period.2021, including a 1% benefit from currency exchange rate fluctuations. As a percentage of net sales, base business operating expenses declinedincreased to 17.9% for12.1% in the thirdsecond quarter versus 18.1% last year.of 2022 compared to 11.9% in the same period of 2021. Our operating expenses have increased to support our business growth, including recent acquisitions.
Operating income forin the thirdsecond quarter of 2022 increased 10%24% to $418.9 million compared to $338.6 million in the same period of 2021. Operating margin was 20.4% in 2016. Operating income as a percentage of net sales (operating margin) was 11.0% for the thirdsecond quarter of 20172022 compared to 10.7% for18.9% in the thirdsecond quarter of 2016.2021. Base business operating margin was 20.3%, up 130 basis points from the prior year period.
During the first quarter of 2017, we adoptedWe recorded a $1.6 million, or $0.04 per diluted share, tax benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting,, on in the quarter ended June 30, 2022, compared to a prospective basis. This adoption resulted in atax benefit recorded in our Provision for income taxes of $0.3 million for the three months ended September 30, 2017 and $7.7 million, for the nine months ended September 30, 2017, which positively impacted our net income and earningsor $0.19 per diluted share, but was partially offset by a required increase of approximately 500,000 and 550,000 diluted weighted average shares outstanding, respectively, used to calculate our diluted earnings per share. The total first and second quarter benefit to our diluted earnings per share from the adoption of this new accounting pronouncement was $0.14, and there was no impactrealized in the third quartersame period of 2017.2021.

14


Net income attributableincreased 18% to Pool Corporation was $48.8$307.3 million in the thirdsecond quarter of 20172022 compared to $44.5$259.7 million forin the thirdsecond quarter of 2016.2021. Earnings per share increased to a record $1.16 per diluted share forincreased 20% to $7.63 in the three months ended September 30, 2017 versus $1.03second quarter of 2022 compared to $6.37 in the same period of 2021. Without the impact from ASU 2016-09 in both periods, earnings per diluted share increased 23% to $7.59 in the second quarter of 2022 compared to $6.18 in the second quarter of 2021. See RESULTS OF OPERATIONS below for definitions of our non-GAAP measures and reconciliations of our non-GAAP measures to GAAP measures.
On May 4, 2022, our Board of Directors (our Board) authorized an additional $196.2 million under our share repurchase program bringing its total authorization available to $600.0 million. Further, the same period in 2016.Board announced a 25% increase over the previous quarterly dividend amount to $1.00 per share.

References to product line and product category data throughout this Form 10-Qreport generally reflect data related to the North American swimming pool market, as itthis data is more readily available for analysis and represents the largest component of our operations.

COVID-19 Pandemic

We continue to monitor the ongoing impact of the COVID-19 pandemic, including the effects of recent notable variants of the virus. The health, safety and security of our employees and the communities in which we operate remain our highest priority. We implemented enhanced hygiene and sanitation practices at our sales centers and at our corporate offices in 2020, and we continue to evaluate and maintain them where necessary.

Beginning in the second quarter of 2020, we experienced unprecedented demand as families spent more time at home and sought out opportunities to create or expand home-based outdoor living and entertainment spaces. While this trend has had a positive impact on our financial performance over the past couple of years, it is unclear what the long-term impact will be.

Our industry experienced supply chain constraints in 2021. In response, we have been proactive in making significant investments in inventory to enable us to continue to meet strong customer demand and position ourselves to provide exceptional customer service through the 2022 swimming pool season. While we were challenged by supply chain constraints through the first half of 2022, we have observed improvements in our supply chain dynamics beginning in the second quarter of 2022. These trends, caused in large part from global disruptions related to the COVID-19 pandemic, may persist in the near-term.

We expect the impact of the pandemic on our business and financial results in 2022 will continue to vary by location and depend on numerous evolving factors that we are unable to accurately predict. These factors include the duration and scope of the pandemic, global economic conditions during and after the pandemic, the possible re-institution of governmental restrictions on the activities of our customers, vendors or employees, the possibility of additional subsequent outbreaks, the sustainability of current home-centric trends and other changes in customer and supplier behavior in response to the pandemic.

Financial Position and Liquidity


TotalAs of June 30, 2022, total net receivables, including pledged receivables, increased 13% from September29% compared to June 30, 2016, including a 2% increase from2021, primarily driven by our sales growth and recent acquisitions. Our days sales outstanding (DSO), as calculated on a trailing four quarters basis, was 29.827.2 days at SeptemberJune 30, 2017, an improvement from 30.32022 and 25.8 days at SeptemberJune 30, 2016, reflecting the effectiveness of our collection efforts.2021. Our allowance for doubtful accounts balance was $4.1$6.5 million at SeptemberJune 30, 20172022 and $3.7$5.4 million at SeptemberJune 30, 2016.2021.


Net inventory levels grew 6%increased 77% compared to levels at SeptemberJune 30, 2016.  The2021. We increased our purchasing beginning in the second half of 2021 to improve our customer experience and minimize the impact of longer lead times from our vendors. Our inventory balance also reflects impacts from inflation and recent acquisitions. Our inventory reserve was $7.8$20.9 million at SeptemberJune 30, 20172022 and $8.1$15.2 million at SeptemberJune 30, 2016.2021. Our inventory turns, as calculated on a trailing four quarters basis, were 3.52.8 times at both SeptemberJune 30, 20172022 and September4.1 times at June 30, 2016.2021. Our inventory turns have averaged 3.4 times over the past five years.


Total debt outstanding at SeptemberJune 30, 20172022 was $564.6 million, an increase of $174.4 million, or 45%,$1.6 billion compared to total$423.1 million at June 30, 2021. Our debt at September 30, 2016, primarily because of share repurchases of $199.0 million over the last 12 months,balance has increased between periods as well aswe have utilized debt incurredproceeds to fund business driveninvestments in working capital, growth.recent acquisitions and share repurchases.


Current Trends and Outlook


For a detailed discussion of trends through 2016,2021, see the Current Trends and Outlook section of Management’s Discussion and Analysis included in Part II, Item 7 of our 20162021 Annual Report on Form 10-K.  


In conjunction with the release of
15

We are updating our first quarter 2017 results, we updated our 2017annual earnings guidance from an initial range of $3.80 to $4.00 per diluted share to a range of $4.12 to $4.32 per diluted share, which reflected both an estimated benefit of $0.30 due to the adoption of ASU 2016-09 and $0.02 from better than expected first quarter 2017 operating results. We maintained this guidance following the release of our second quarter 2017 earnings results, which were largely in line with our expectations. Given changes in employee stock option exercise patterns in the third quarter of 2017, we updated our expectations for the remainder of 2017 to include only the $0.14$0.04 tax benefit from ASU 2016-09 realizedrecognized in the first and second quartersquarter of 2017.2022. We expect 2022 diluted EPS of $18.38 to $19.13, including the impact of year-to-date tax benefits of $0.22. Our operating results were in line with our expectations, and we have narrowed ourprevious earnings guidance range disclosed in our First Quarter 2022 Report on Form 10-Q was $18.34 to a$19.09. Our earnings guidance range of $4.01 to $4.11 per diluted share. The estimated impact related to ASU 2016-09 is subject to several assumptions which can vary significantly, including our estimated share price and the period that our employees will exercise shares of outstanding vested options.assumes average weather conditions.


We project base businessexpect sales growth of 6% to 7% for the full year and expectin the range of 17% to 19% as previously disclosed in our 2021 Annual Report on Form 10-K. We project 2022 inflationary product cost increases of approximately 10% to 11% (compared to 7% to 8% in 2021).

Our gross margin to be similar to 2016, including an expected declinetrends depend on the amounts and timing of inflationary product cost increases, sales growth expectations and product mix. We expect a slight improvement in gross margin in the fourth quarter of 2017 due to anticipated product mix changes following major third quarter weather events as well as an unfavorable comparison to fourth quarter 2016 results, which benefited by 20 basis points from an increase in the vendor incentive accrual at year-end. For the year, we have incurred growth-driven expense increases related to labor, facilities expansion and delivery costs, although the growth in these types of operating expenses has moderated as we have moved throughout the year. We expect base business operating expenses as a percentage of net sales for 2017 to decline between 20 and 40 basis points as compared to 2016, resulting in a 20 to 40 basis points increase in base business operating income as a percentage of net sales.

Given our $174.4 million increase in debt as of September 30, 2017 over the prior year and the increase in 30-Day LIBOR of approximately 70 basis points over last year, we expect our Interest and other non-operating expenses, net for the full year 2017of 2022 compared to increase by approximately $1.5 million to $2.0 million over 2016, depending on fourth quarter borrowings to fund future share repurchases.



Excludingthe full year of 2021 given the impact of inflation in the first half of the year. Compared to 2021 periods, we project declines in the latter half of the year.

We project our operating expense growth rate in 2022 will be less than our gross profit growth rate. We expect that our operating expense growth will reflect inflationary increases and incremental costs to support our investment initiatives, including increased investments in our digital transformation initiatives and expansion of our sales center network. We also expect increased expenses from the adoption of ASU 2016-09, we expecttight labor and real estate markets in 2022, which are heightened focus areas in our expense management.

We project that our annual effective tax rate (without the benefit from ASU 2016-09) for 2022 will be consistent with 2016. Our effective tax rate is dependent upon our results of operations and may change if actual results are different from our current expectations, particularly any significant changes in our geographic mix. Due to the adoption of the new accounting standard, weapproximate 25.5%. We expect our effective tax rate will fluctuate from quarter to quarter due to ASU 2016-09, particularly in periods when employees elect to exercise their vested stock options or when restrictions on share-based awards lapse. Based on our comparison of our deferredWe recorded a $8.9 million, or $0.22 per diluted share, tax assetsbenefit from ASU 2016-09 for share-based compensationthe six months ended June 30, 2022. We may recognize additional tax benefits related to the current intrinsic value of the underlying awards, we expect to recognize material incomestock option exercises in 2022 from grants that expire in future years. We have not included any expected tax benefits in periods when these transactions occur. The impact related to ASU 2016-09 is subject to several variables, including our share price and the period in which our employees will exercise sharesguidance beyond what we have recognized as of outstanding vested options.June 30, 2022.

We expect cash provided by operations will exceed net income for the 2017 fiscal year. We anticipate that we mayto continue to use approximately $140.0 million to $160.0 million in cash to fund opportunistic share repurchases through the remainder of 2022 and to use cash for the payment of cash dividends as and when declared by our Board.

The forward-looking statements in 2017.the foregoing section are based on current market conditions, speak only as of the filing date of this report, are based on several assumptions, and are subject to significant risks and uncertainties. See “Cautionary Statement for Forward-Looking Statements.”



RESULTS OF OPERATIONS

As of SeptemberJune 30, 2017,2022, we conducted operations through 346416 sales centers in North America, Europe South America and Australia. For the six months ended June 30, 2022, approximately 95% of our net sales were from our operations in North America.


The following table presents information derived from the Consolidated Statements of Income expressed as a percentage of net sales:

Three Months EndedSix Months Ended
June 30,June 30,
 2022202120222021
Net sales100.0 %100.0 %100.0 %100.0 %
Cost of sales67.6 69.1 67.9 70.1 
Gross profit32.4 30.9 32.1 29.9 
Selling and administrative expenses12.1 11.9 13.2 13.5 
Operating income20.4 18.9 18.9 16.4 
Interest and other non-operating expenses, net0.4 0.1 0.4 0.2 
Income before income taxes and equity in earnings20.0 %18.8 %18.5 %16.3 %
  Three Months Ended Nine Months Ended
  September 30, September 30,
  2017 2016 2017 2016
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 70.9
 71.1
 71.0
 71.1
Gross profit 29.1
 28.9
 29.0
 28.9
Operating expenses 18.1
 18.1
 17.2
 17.3
Operating income 11.0
 10.7
 11.7
 11.6
Interest and other non-operating expenses, net 0.5
 0.4
 0.5
 0.5
Income before income taxes and equity earnings 10.5% 10.3% 11.2% 11.1%


Note: Due to rounding, percentages presented in the table above may not add to Operating income or Income before income taxes and equity in earnings.


We have included the results of operations from the acquisitions in 20172022 and 20162021 in our consolidated results since the acquisition dates.

16




Three Months Ended SeptemberJune 30, 20172022 Compared to Three Months Ended SeptemberJune 30, 20162021
The following table breaks out our consolidated results into the base business component and the excluded component (sales centers excluded from base business):
(Unaudited)Base BusinessExcludedTotal
(in thousands)Three Months EndedThree Months EndedThree Months Ended
 June 30,June 30,June 30,
 202220212022202120222021
Net sales$1,963,974 $1,782,894 $91,844 $4,939 $2,055,818 $1,787,833 
Gross profit625,843 550,509 40,961 1,176 666,804 551,685 
Gross margin31.9 %30.9 %44.6 %23.8 %32.4 %30.9 %
Operating expenses226,728 212,425 21,188 674 247,916 213,099 
Expenses as a % of net sales11.5 %11.9 %23.1 %13.6 %12.1 %11.9 %
Operating income399,115 338,084 19,773 502 418,888 338,586 
Operating margin20.3 %19.0 %21.5 %10.2 %20.4 %18.9 %
(Unaudited) Base Business Excluded Total
(in thousands) Three Months Ended Three Months Ended Three Months Ended
  September 30, September 30, September 30,
  2017 2016 2017 2016 2017 2016
Net sales $734,175
 $691,204
 $9,226
 $225
 $743,401
 $691,429
             
Gross profit 213,788
 199,455
 2,818
 96
 216,606
 199,551
Gross margin 29.1% 28.9% 30.5 % 42.7 % 29.1% 28.9%
             
Operating expenses 131,066
 125,225
 3,612
 160
 134,678
 125,385
Expenses as a % of net sales 17.9% 18.1% 39.2 % 71.1 % 18.1% 18.1%
             
Operating income (loss) 82,722
 74,230
 (794) (64) 81,928
 74,166
Operating margin 11.3% 10.7% (8.6)% (28.4)% 11.0% 10.7%

In our calculation of our base business results, we have excluded the following acquisitions for the periods identified:




Acquired


Acquisition
Date
Net
Sales Centers
Acquired
Net
Sales Centers
Acquired


Periods
Excluded
New Star Holdings Pty. Ltd.Tri-State Pool DistributorsJuly 2017April 20221JulyMay - September 2017June 2022
Lincoln Aquatics (1)
Porpoise Pool & Patio, Inc.		December 20211April 2017- June 2022
Wingate Supply, Inc.2December 2021July1April - September 2017June 2022
Vak Pak Builders Supply, Inc.June 20211April - June 2022 and
June 2021
Pool Source, LLCApril 20211April - June 2022 and
April - June 2021

(1)
We acquired certain distribution assets of this company.


When calculating our base business results, we exclude sales centers that are acquired, closed, or opened in new markets for a period of 15 months. We also exclude consolidated sales centers when we do not expect to maintain the majority of the existing business and existing sales centers that are consolidated with acquired sales centers.


We generally allocate corporate overhead expenses to excluded sales centers on the basis of their net sales as a percentage of total net sales.  After 15 months of operations, we include acquired, consolidated and new market sales centers in the base business calculation including the comparative prior year period.


The table below summarizes the changes in our sales center count during the first ninesix months of 2017:2022:


December 31, 20162021344410 
Acquired locations31 
New locationlocations15 
Closed locations(2)
SeptemberJune 30, 20172022346416 



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Net Sales
 Three Months Ended 
June 30,
(in millions)20222021Change
Net sales$2,055.8 $1,787.8 $268.0 15%
  Three Months Ended  
  September 30,  
(in millions) 2017 2016 Change
Net sales $743.4
 $691.4
 $52.0
 8%


Net sales increased 8%15% in the thirdsecond quarter of 2017 compared to2022 on top of net sales of $1.8 billion and 40% growth in the thirdsecond quarter of 2016, with2021. Base business net sales in the second quarter of 2022 grew 10% over the same period. Our growth was largely driven by inflationary product cost increases and strong demand that boosted sales by 16% in our year-round markets. Volume growth was challenged by unfavorable weather conditions in our seasonal markets and constrained conditions in Europe. Heavy rainfall and cooler temperatures, particularly in the month of April, limited sales in certain of our markets although we observed improvement through the latter half of the second quarter. We believe that our results reflect the positive impact of growth in the installed base businessof pools, robust demand and heightened consumer interest in enhanced pool customizations, and we remain confident in our expectation of 17% to 19% sales up 6%growth for the period. Severe weather events duringfull year of 2022. For more discussion of our expectations for the third quarter of this year, particularly Hurricanes Irma and Harvey, were the most disruptive impact to our sales growth. Sales in Texas largely recovered by the endremainder of the quarter, but sales in Florida remain behind the growth levels experienced prior to Hurricane Irma. We estimate these recent weather events negatively impacted net sales by approximately $4.0 million. Our seasonal markets generated sales growth of 6% during the quarter.year, see “Current Trends and Outlook” above.


The following factors positively impacted our sales growth (listed in order of estimated magnitude):


continued consumer investments in enhancing outdoor living spaces,•inflationary product cost increases of approximately 10 to 11%;
•5% sales growth from recent acquisitions;
•favorable trends for our products including:
◦strong demand for discretionary products, as evidenced by improvements in sales growth rates for product offerings such as equipment and building materials and equipment (see discussion below);
◦market share gains;gains, including those in building materials (see discussion below);
◦increased demand for residential swimming pool maintenance supplies, as the installed base of pools continues to increase; and
•challenges presented in the second quarter including:
◦2% unfavorable impact from currency exchange rate fluctuations and spa chemical sales, our largest product category at 14% of total net sales forcustomer early buys shifted into the quarter, increased 2% over the thirdfirst quarter of 2016 under less attractive2022;
◦cooler, wet weather conditions in 2017our seasonal markets (see discussion below); and excluding
◦unfavorable weather conditions and macroeconomic impacts in Europe (see discussion below).

Higher sales for certain product offerings, such as equipment and building materials, indicate continued strong demand in traditionally discretionary areas, such as pool construction, pool remodeling and equipment upgrades. In the recent Lincoln Aquatics acquisition; and
inflationary product cost increases (estimated at close to 1%).

The following factors negatively impacted our sales growth (listed in order of estimated magnitude):

one less selling day in the thirdsecond quarter of 20172022, sales of equipment, which includes swimming pool heaters, pumps, lights, filters and automation, increased 7% compared to the same period last year, affecting net sales growthand collectively represented approximately 1%; and
recent weather events (described above).

We believe that sales growth rates for certain product offerings, such as building materials and equipment, evidence increased spending in traditionally discretionary areas including pool construction and pool remodeling, as well as equipment upgrades. In the third quarter of 2017, the sales growth rate for equipment, such as swimming pool heaters, pumps, lights and filters, collectively, was similar to the 8% growth rate for total net sales compared to the third quarter of 2016. This increase reflects both the ongoing recovery of replacement activity and continued demand for higher-priced, more energy-efficient products. Sales of building materials, which includes tile, represent approximately 10%26% of net sales for the thirdperiod. Equipment growth in the quarter was limited by supply chain constraints and customer early buys shifted into the first quarter of 2017 and2022. Sales of building materials grew by 9%22% compared to the thirdsecond quarter of 2016.2021 and represented approximately 13% of net sales in the second quarter of 2022. Sales of chemicals, representing 12% of total net sales, increased 25% compared to the second quarter of 2021. The increase in chemical sales was driven by inflation, improved supply and strong demand for non-discretionary maintenance products.


Sales to specialty retailers that sell swimming pool supplies and customers who service large commercial swimming pool installations such as hotels, universities and community recreational facilities are included in the appropriate existing product categories, and growth in this areathese areas is reflected in the numbersdiscussion above. These salesSales to retail customers increased 7% in the second quarter of 2022 compared to the second quarter of 2021 and represented just over 4%approximately 13% of our consolidated net sales for the thirdsecond quarter of 2017 and2022. Certain of our retail customers were adversely impacted by unfavorable weather conditions in the quarter, hindering sales growth. Sales to commercial customers increased 12%23% in the second quarter of 2022 compared to the thirdsecond quarter of 2016, excluding2021 and represented approximately 3% of our net sales for the recent acquisitionsecond quarter of Lincoln Aquatics. With Lincoln Aquatics, commercial2022.

Net sales represent approximatelyin our seasonal markets (not considering Europe), representing 50% of our total base business net sales in the second quarter of 2022, increased 9% compared to the second quarter of 2021. Comparatively, net sales in our year-round markets, representing 45% of our total base business net sales in the second quarter of 2022, increased 16% compared to the second quarter of 2021.

18

Net sales in Europe, representing 5% of our consolidatedtotal net sales in the second quarter of 2022, declined 8% in local currency compared to 31% growth in the second quarter of 2021. While we estimate that net sales in Europe benefited 10% from inflationary product cost increases, our results were negatively impacted by a decline in volume growth driven by macroeconomic uncertainty and this acquisition furthers our efforts to increase not only our focus on the commercial market, but also the resources assigned to this area, including designated warehouse space, increased staffing and additional vendor relationships.poor weather.


Gross Profit
 Three Months Ended 
June 30,
(in millions)20222021Change
Gross profit$666.8 $551.7 $115.1 21%
Gross margin32.4 %30.9 %  
  Three Months Ended  
  September 30,  
(in millions) 2017 2016 Change
Gross profit $216.6
 $199.6
 $17.0
 9%
Gross margin 29.1% 28.9%    


Gross margin forincreased 150 basis points to 32.4% in the thirdsecond quarter of 2017 increased approximately 20 basis points2022 compared to 30.9% in the thirdsecond quarter of 2016. This increase primarily reflects product mix and2021, reflecting benefits from sourcing initiatives.our supply chain initiatives, increased pricing and recent acquisitions. Base business gross margin increased 100 basis points.




Operating Expenses
 Three Months Ended 
June 30,
(in millions)20222021Change
Selling and administrative expenses$247.9 $213.1 $34.8 16%
Operating expenses as a % of net sales12.1 %11.9 %  
  Three Months Ended  
  September 30,  
(in millions) 2017 2016 Change
Operating expenses $134.7
 $125.4
 $9.3
 7%
Operating expenses as a % of net sales 18.1% 18.1%    


Operating expenses increased 7%16% in the thirdsecond quarter of 20172022 compared to the thirdsecond quarter of 2016, with base business operating expenses up 5% compared to the same period last year. Increased growth-driven labor and freight expenses, as well as higher performance-based and equity-based compensation costs comprised the majority of our operating expense growth.2021, including a 1% benefit from currency exchange rate fluctuations. As a percentage of net sales, base business operating expenses declinedincreased to 17.9% for12.1% in the thirdsecond quarter versus 18.1% last year.of 2022 compared to 11.9% in the same period of 2021. Our operating expenses have increased to support our business growth, including recent acquisitions. Employee-related expenses increased as we expand our workforce and reward employees through performance-based compensation. Other incremental operating expense increases related to growth-driven facility and freight costs, and investments in our digital transformation initiatives.


Interest and Other Non-operatingNon-Operating Expenses, Net


Interest and other non-operating expenses, net for the second quarter of 2022 increased $1.0$6.6 million compared to the thirdsecond quarter of 2016,2021, primarily due to higher interest rates on ouraverage debt and an increaselevels between periods. Our average outstanding debt was $1.6 billion in borrowings.the second quarter of 2022 versus $376.8 million for the second quarter of 2021. Our weighted average effective interest rate increaseddecreased to 2.7% for the third quarter of 20172.0% from 2.0% for the third quarter of 2016 on higher average outstanding debt of $535.5 million versus $426.7 million2.7% for the respective periods.


Income Taxes


Our effective income tax rate was 37.4%25.1% for the three months ended SeptemberJune 30, 2017 and 37.7%2022 compared to 22.9% for the three months ended SeptemberJune 30, 2016. Our third quarter effective income tax rate is typically lower compared to other quarters, primarily due to the timing of our accounting for uncertain tax positions, including the expiration of statutes of limitations. The decline also reflects2021. We recorded a $0.3$1.6 million tax benefit recordedfrom ASU 2016-09 in the quarter ended June 30, 2022 compared to a tax benefit of $7.7 million realized in the same period last year. Without the benefit from ASU 2016-09 in both periods, our provisioneffective tax rate was 25.5% for income taxes from the adoptionsecond quarter of ASU 2016-09.2022 and 25.2% for the second quarter of 2021.


Net Income and Earnings Per Share


Net income attributableincreased 18% to Pool Corporation increased 10% to $48.8$307.3 million in the thirdsecond quarter of 20172022 compared to $259.7 million in the thirdsecond quarter of 2016.2021. Earnings per diluted share increased 20%to $1.16 for$7.63 in the thirdsecond quarter of 2017 versus $1.03 per diluted share for2022 compared to $6.37 in the comparablesame period in 2016. The adoption of 2021. Without the impact from ASU 2016-09 did not have an impact ourin both periods, earnings per diluted share increased 23% to $7.59 in the thirdsecond quarter of 2017.2022 compared to $6.18 in the second quarter of 2021. See the reconciliation of GAAP to non-GAAP measures below.



19



NineSix Months Ended SeptemberJune 30, 20172022 Compared to NineSix Months Ended SeptemberJune 30, 20162021
The following table breaks out our consolidated results into the base business component and the excluded component (sales centers excluded from base business):
(Unaudited)Base BusinessExcludedTotal
(in thousands)Six Months EndedSix Months EndedSix Months Ended
 June 30,June 30,June 30,
 202220212022202120222021
Net sales$3,292,100 $2,840,676 $176,368 $7,903 $3,468,468 $2,848,579 
Gross profit1,039,122 850,948 74,872 1,869 1,113,994 852,817 
Gross margin31.6 %30.0 %42.5 %23.6 %32.1 %29.9 %
Operating expenses420,655 383,710 38,727 1,490 459,382 385,200 
Expenses as a % of net sales12.8 %13.5 %22.0 %18.9 %13.2 %13.5 %
Operating income618,467 467,238 36,145 379 654,612 467,617 
Operating margin18.8 %16.4 %20.5 %4.8 %18.9 %16.4 %

(Unaudited) Base Business Excluded Total
(in thousands) Nine Months Ended Nine Months Ended Nine Months Ended
  September 30, September 30, September 30,
  2017 2016 2017 2016 2017 2016
Net sales $2,246,446
 $2,116,393
 $31,559
 $9,175
 $2,278,005
 $2,125,568
             
Gross profit 650,419
 610,454
 9,472
 2,856
 659,891
 613,310
Gross margin 29.0% 28.8% 30.0% 31.1% 29.0% 28.9%
             
Operating expenses 383,636
 365,287
 9,143
 1,907
 392,779
 367,194
Expenses as a % of net sales 17.1% 17.3% 29.0% 20.8% 17.2% 17.3%
             
Operating income 266,783
 245,167
 329
 949
 267,112
 246,116
Operating margin 11.9% 11.6% 1.0% 10.3% 11.7% 11.6%
In our calculation of base business results, we have excluded the following acquisitions for the periods identified:


Acquired

Acquisition
Date
Net
Sales Centers
Acquired

Periods
Excluded
Tri-State Pool DistributorsApril 20221May - June 2022
Porpoise Pool & Patio, Inc.December 20211January - June 2022
Wingate Supply, Inc.December 20211January - June 2022
Vak Pak Builders Supply, Inc.June 20211January - June 2022 and June 2021
Pool Source, LLCApril 20211January - June 2022 and April - June 2021
TWC Distributors, Inc.December 202010January - February 2022 and January - February 2021


Acquired

Acquisition
Date
Net
Sales Centers
Acquired

Periods
Excluded
New Star Holdings Pty. Ltd.July 20171July - September 2017
Lincoln Aquatics (1)
April 20172May - September 2017
Metro Irrigation Supply Company Ltd. (1)
April 20168
January - June 2017 and
April - June 2016
The Melton Corporation (1)
November 20152
January 2017 and
January 2016
Seaboard Industries, Inc. (1)
October 20153
January 2017 and
January 2016

(1)
We acquired certain distribution assets of each of these companies.


For a more detailed explanation of how we calculated base business results and a summary of the changes in our sales centers since December 31, 2016,2021, please refer to the discussion under the heading Three Months Ended SeptemberJune 30, 20172022 Compared to Three Months Ended SeptemberJune 30, 2016.2021.



20



Net Sales
 Six Months Ended 
June 30,
(in millions)20222021Change
Net sales$3,468.5 $2,848.6 $619.9 22%
  Nine Months Ended  
  September 30,  
(in millions) 2017 2016 Change
Net sales $2,278.0
 $2,125.6
 $152.4
 7%


Net sales for the first ninesix months of 20172022 increased 7%22% compared to the same period last year. Base business net sales increased 16%. Our results in the first half of the year with muchwere driven by continued strong demand for outdoor living products and elevated price inflation. While we have been challenged by supply chain and labor constraints, we have observed improvements in our supply chain dynamics beginning in the second quarter of this2022. Following our astounding 33% sales growth resultingin the first quarter of 2022, results in our seasonally significant second quarter were dampened by unfavorable weather conditions in certain markets. We expect that our results will continue to benefit from favorable industry trends in the 6% improvementlong-term, including growth in the installed base business sales.of pools, robust demand and heightened consumer interest in enhanced pool customizations.


The following factors contributed toimpacted our sales growth (listed in order of estimated magnitude):


continued improvement in consumer•inflationary product cost increases of approximately 10% to 11% (compared to our historical average of 1% to 2%);
•favorable trends for our products including:
◦strong demand for discretionary expenditures, including market recovery in remodelingproducts, as evidenced by sales growth for product offerings such as equipment and replacement activitybuilding materials (see discussion below);
◦market share growth, particularlygains, including those in building materials and commercial product categories;(see discussion below);
◦increased demand for residential swimming pool and spa chemicalmaintenance supplies, as the installed base of pools continues to grow;
•6% sales our largest product category at 13%growth from recent acquisitions;
•1% sales growth from an extra selling day in the first half of total net sales for the nine months ended September 30, 2017, increased 3%2022 compared to the first nine monthshalf of 2016, excluding the recent Lincoln Aquatics acquisition;2021; and
inflationary (estimated at close to 1%) product cost increases.•challenges presented in 2022 including:

◦1% unfavorable impact from currency exchange rate fluctuations;
We believe that◦cooler, wet weather conditions in our seasonal markets (see discussion below); and
◦unfavorable weather conditions and macroeconomic impacts in Europe (see discussion below).

Higher sales growth rates for certain product offerings, such as equipment and building materials, and equipment, evidence increased spendingindicate continued strong demand in traditionally discretionary areas, includingsuch as pool construction, pool remodeling as well asand equipment upgrades. In the first ninesix months of 2017, the2022, sales growth rate forof equipment, such aswhich includes swimming pool heaters, pumps, lights, filters and filters, collectively, was similar to the 7% growth rate for total net salesautomation, increased approximately 12% compared to the same period last year. Equipment collectively represented 27% of net sales in 2016. This increase reflects both the ongoing recoveryfirst six months of replacement activity and continued demand for higher-priced, more energy-efficient products.2022. Sales of building materials which includes tile, represent approximately 11% of net sales for the first nine months of 2017 and grew by 12%25% compared to the first ninesix months of 2016.2021 and represented approximately 13% of net sales in the first six months of 2022. Sales of chemicals, representing 11% of total net sales, increased 35% compared to the first six months of 2021. The increase in chemical sales was driven by inflation, improved supply and strong demand for non-discretionary maintenance products.


Sales to specialty retailers that sell swimming pool supplies and customers who service large commercial installations such as hotels, universities and community recreational facilities are included in the appropriate existing product categories, and growth in this areathese areas is reflected in the numbersdiscussion above. TheseIn the first six months of 2022, sales to retail customers increased 13% compared to the first six months of 2021 and represented approximately 12% of our consolidated net sales. Certain of our retail customers were adversely impacted by unfavorable weather conditions in the second quarter, hindering sales growth. Sales to commercial customers increased 27% in the first six months of 2022 compared to the first six months of 2021 and represented approximately 4% of our consolidated net sales forin the first ninesix months of 2017 and2022.

Net sales in our seasonal markets (not considering Europe), representing 47% of our total base business net sales in the first half of 2022, increased 12%16% compared to the same periodfirst half of 2021. Comparatively, net sales in 2016, excludingour year-round markets, representing 48% of our total base business net sales in the recent acquisitionfirst half of Lincoln Aquatics.2022, increased 20% compared to the first half of 2021.


Net sales in Europe, representing 5% of our total net sales in the first half of 2022, were flat in local currency compared to 49% growth in the first half of 2021. While we estimate that net sales in Europe benefited 10% from inflationary product cost increases, our results were negatively impacted by a decline in volume growth driven by macroeconomic uncertainty and poor weather.
21

Gross Profit
 Six Months Ended 
June 30,
(in millions)20222021Change
Gross profit$1,114.0 $852.8 $261.2 31%
Gross margin32.1 %29.9 %  
  Nine Months Ended  
  September 30,  
(in millions) 2017 2016 Change
Gross profit $659.9
 $613.3
 $46.6
 8%
Gross margin 29.0% 28.9%    


Gross margin forimproved 220 basis points to 32.1% in the ninesix months ended SeptemberJune 30, 2017 was2022 compared to 29.9% in line with gross margin for the ninefirst six months ended September 30, 2016.



of 2021. This improvement reflects focused supply chain management initiatives to address inflation, increased pricing and benefits from our recent acquisitions.
Operating Expenses
 Six Months Ended 
June 30,
(in millions)20222021Change
Selling and administrative expenses$459.4 $385.2 $74.2 19%
Operating expenses as a % of net sales13.2 %13.5 %  
  Nine Months Ended  
  September 30,  
(in millions) 2017 2016 Change
Operating expenses $392.8
 $367.2
 $25.6
 7%
Operating expenses as a % of net sales 17.2% 17.3%    


ForOperating expenses for the six months ended June 30, 2022 increased 19% compared to the first ninesix months of 2017,2021, including a 1% benefit from currency exchange rate fluctuations. Our operating expenses were up 7% over the same period last year, with basehave increased to support our business operating expenses up 5%. The increasegrowth, including recent acquisitions. Our expense growth reflects increases in base business operating expenses was primarily due to higher growth-driven labor, facility and freight expenses, as well as greater employee-related health insurance costs, equity-based compensation,along with increased investments in technology and technology spending as we continue to invest in our business. Operating expenses as a percentage of net sales was consistent for the first nine months of 2017 and 2016 and improved by 20 basis points on a base business basis.higher performance-based compensation.


Interest and Other Non-operatingNon-Operating Expenses, Net


Interest and other non-operating expenses, net for the first ninesix months of 20172022 increased $1.7$9.2 million compared to the same period last year, primarily due to higher interest rates on ouraverage debt and an increase in borrowings.levels between periods. Our average outstanding debt was $1.4 billion for the first six months of 2022 versus $387.1 million for the same period of 2021. Our weighted average effective interest rate increaseddecreased to 2.6% for the first nine months of 20171.8% from 2.0% for the same period of 2016 on higher average outstanding debt of $501.0 million versus $437.3 million2.5% for the respective periods.


Income Taxes


Our effective income tax rate was 35.2%24.1% for the ninesix months ended SeptemberJune 30, 20172022 compared to 38.2%22.6% for the ninesix months ended SeptemberJune 30, 2016. The decline2021. We recorded a $8.9 million, or $0.22 per diluted share, tax benefit from ASU 2016-09 in the six months ended June 30, 2022compared to a $11.7 million, or $0.29 per diluted share, tax benefit in the same period of 2021. Without the benefits from ASU 2016-09, our effective income tax rate is primarily due towas 25.5% for the $7.7 million tax benefit recorded in our provisionsix months ended June 30, 2022 and 25.2% for income taxes, which reflects the impact of the adoption of ASU 2016-09.six months ended June 30, 2021.


Net Income and Earnings Per Share


Net income increased 36% to $486.5 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Earnings per diluted share increased 37% to $12.03 for the six months ended June 30, 2022 versus $8.78 per diluted share for the first ninesix months of 2017, including a favorable $0.14ended June 30, 2021. Without the impact from ASU 2016-09 in both periods, earnings per diluted share increased 39% to $11.81 for the six months ended June 30, 2022 compared to $8.49 for the six months ended June 30, 2021. See the reconciliation of GAAP to non-GAAP measures below.


22

Reconciliation of Non-GAAP Financial Measures

Adjusted Diluted EPS

We have included adjusted diluted EPS, a non-GAAP financial measure, as a supplemental disclosure, because we believe this measure is useful to investors and others in assessing our period-to-period operating performance.

Adjusted diluted EPS is a key measure used by management to demonstrate the impact of tax benefits from the adoption of ASU 2016-09 increasedon our diluted EPS and to $3.89 perprovide investors and others with additional information about our potential future operating performance to supplement GAAP measures.

We believe this measure should be considered in addition to, not as a substitute for, diluted share on Net income attributable to Pool Corporation of $166.0 million, compared to $3.39 per diluted share on Net income attributable to Pool Corporation of $146.3 millionEPS presented in accordance with GAAP, and in the comparable 2016 period.context of our other disclosures within this Form 10-Q. Other companies may calculate this non-GAAP financial measure differently than we do, which may limit its usefulness as a comparative measure.
The table below presents a reconciliation of diluted EPS to adjusted diluted EPS.

(Unaudited)Three Months EndedSix Months Ended
June 30,June 30,
2022202120222021
Diluted EPS$7.63 $6.37 $12.03 $8.78 
ASU 2016-09 tax benefit(0.04)(0.19)(0.22)(0.29)
Adjusted diluted EPS$7.59 $6.18 $11.81 $8.49 




23


Seasonality and Quarterly Fluctuations


Our business is highly seasonal. In general, sales and operating income are highest during the second and third quarters, which represent the peak months of both swimming pool use and installation and irrigation and landscape maintenanceinstallations and installation.maintenance. Sales are substantially lower during the first and fourth quarters, when we may incur net losses.quarters. In 2016,2021, we generated approximately 63%60% of our net sales and 85%69% of our operating income in the second and third quarters of the year.


We typically experience a build-up of product inventories and accounts payable during the winter months in anticipation of the peak selling season.  Excluding borrowings to finance acquisitions and share repurchases, our peak borrowing usually occurs during the second quarter, primarily because extended payment terms offered by our suppliers typically are payable in April, May and June, while our peak accounts receivable collections typically occur in June, July and August.


The following table presents certain unaudited quarterly data for the first second and thirdsecond quarters of 2017,2022, the four quarters of 20162021 and the third and fourth quarterquarters of 2015.2020.  We have included income statement and balance sheet data for the most recent eight quarters to allow for a meaningful comparison of the seasonal fluctuations in these amounts.  In our opinion, this information reflects all normal and recurring adjustments considered necessary for a fair presentation of this data.  Due to the seasonal nature of our industry, theThe results of any one or more quarters are not necessarily a good indication of results for an entire fiscal year or of continuing trends.future trends for a variety of reasons, including the seasonal nature of our business, the recent pandemic-driven increased demand for our products and the impact of new and acquired sales centers.


(Unaudited)QUARTER
(in thousands)202220212020
 SecondFirstFourthThirdSecondFirstFourthThird
Statement of Income Data
Net sales$2,055,818 $1,412,650 $1,035,557 $1,411,448 $1,787,833 $1,060,745 $839,261 $1,139,229 
Gross profit666,804 447,189 322,376 441,899 551,685 301,131 239,095 328,698 
Operating income418,888 235,723 127,891 237,276 338,586 129,031 74,351 148,233 
Net income307,283 179,261 107,609 184,665 259,695 98,655 59,174 119,098 
Balance Sheet Data
Total receivables, net$756,585 $679,927 $376,571 $476,150 $585,566 $487,602 $289,200 $366,412 
Product inventories, net1,579,101 1,641,155 1,339,100 1,043,407 894,654 977,228 780,989 612,824 
Accounts payable604,225 685,946 398,697 414,156 439,453 634,998 266,753 268,412 
Total debt1,595,398 1,505,073 1,183,350 362,819 423,116 433,171 416,018 339,934 
(Unaudited) QUARTER
(in thousands) 2017 2016 2015
  Third Second First Fourth Third Second First Fourth
Statement of Income Data                
Net sales $743,401
 $988,163
 $546,441
 $445,235
 $691,429
 $918,889
 $515,250
 $415,075
Gross profit 216,606
 289,664
 153,621
 127,777
 199,551
 270,736
 143,023
 118,295
Operating income 81,928
 154,186
 30,998
 9,743
 74,166
 142,420
 29,530
 5,979
Net income 48,783
 94,620
 22,270
 2,572
 44,421
 85,247
 16,363
 2,579
                 
Balance Sheet Data                
Total receivables, net $262,796
 $370,285
 $290,019
 $166,151
 $233,405
 $351,012
 283,758
 $156,756
Product inventories, net 484,287
 542,805
 647,884
 486,116
 455,156
 493,254
 595,393
 474,275
Accounts payable 209,062
 273,309
 465,928
 230,728
 199,922
 265,349
 438,705
 246,554
Total debt 564,573
 553,480
 490,217
 438,042
 390,189
 500,606
 450,457
 328,045



We expect that our quarterly results of operations will continue to fluctuate depending on the timing and amount of revenue contributed by new and acquired sales centers.  Based on our peak summer selling season, we generally open new sales centers and close or consolidate sales centers, when warranted, either in the first quarter before the peak selling season begins or in the fourth quarter after the peak selling season ends.



24


Weather is one of the principal external factors affecting our business.  The table below presents some of the possible effects resulting from various weather conditions.


WeatherPossible Effects
Hot and dry•Increased purchases of chemicals and supplies
for existing swimming pools
•Increased purchases of above-ground pools and
irrigation and lawn care products
WeatherPossible Effects
Hot and dry•
Increased purchases of chemicals and supplies
for existing swimming pools
•
Increased purchases of above-ground pools and
irrigation products
Unseasonably cool weather or extraordinary amounts of rain•Fewer pool and irrigation and landscape installations
of rain•installations
•Decreased purchases of chemicals and supplies
•
Decreased purchases of impulse items such as
above-ground pools and accessories
Unseasonably early warming trends in spring/late cooling trends in fall•A longer pool and landscape season, thus positively
trends in fallimpacting our sales
(primarily in the northern half of the U.S. and Canada)
Unseasonably late warming trends in spring/early cooling trends in fall•A shorter pool and landscape season, thus negatively
trends in fallimpacting our sales
(primarily in the northern half of the U.S. and Canada)


Weather Impacts on 20172022 and 20162021 Results


Severe stormsWe observed unfavorable weather conditions in the third quarter of 2017, particularly Hurricanes Irma and Harvey, hindered our sales growth in Florida and Texas, although Texas largely recovered by the end of September. In the Central and Midwest, temperatures were normal for this time of year, contrasting with the above-average temperatures in the third quarter of 2016. The West experienced record heat and normal rainfall in the third quarter of 2017, similar to the above average heat in the same period last year.

Cold and wet weathercertain markets throughout the Mid-South and North impacted those seasonal markets in the middle of the second quarter whileof 2022. Heavy rainfall and cooler temperatures throughout the weather impact overall for the quarter was fairly neutral. Temperaturesnortheastern United States and precipitation throughout most areas other than those described above, were normal, with only Texas benefiting from drier weatherCanada resulted in slower sales activity and limited sales growth in the second quarter of 2017 compared2022. Additionally, results in Europe continued to be impacted by unfavorable weather conditions. In contrast, our southern markets benefited from above-average temperatures, particularly in Texas. In the abovesecond quarter of 2021, overall weather conditions favorably impacted sales growth with the average rainfall experiencedU.S. temperature in June 2021 being the same period of 2016.hottest on record in 127 years.


Unseasonably mildOverall, weather benefited salesconditions in the first quarter of 2017. However, while2022 were less favorable than weather trends earlyconditions in the year normally have a seasonally larger impact,first quarter of 2021. Sales benefited from above-average temperatures along much of the comparisonwest and the east coast, although Texas experienced cooler-than-normal temperatures. In addition, some seasonal markets had unfavorable weather compared to the first quarter of 2016 was especially tough given the benefit of the warmer-than-normal2021 when construction activity started earlier than normal. Similarly, results in Europe were hindered by unfavorable weather across nearly all markets in the United States inconditions. In the first quarter of 2016. For2021, sales benefited from favorable and generally mild weather conditions throughout the first quartercontiguous United States. In February 2021, Texas experienced the most costly winter storm event on record for the United States, which damaged many swimming pools and added to already strong replacement activity.

CRITICAL ACCOUNTING ESTIMATES
We prepare our Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles (GAAP), which require management to make estimates and assumptions that affect reported amounts and related disclosures. Management identifies critical accounting estimates as:
•those that require the use of 2017, Texasassumptions about matters that are inherently and surrounding markets experienced record warm temperatures,highly uncertain at the time the estimates are made; and
•those for which when coupled with below-average precipitation for that area, spurred higher sales growth. In two of the more seasonal regions where we operate, below-average temperatureschanges in the Northestimates or assumptions, or the use of different estimates and above-average precipitationassumptions, could have a material impact on our consolidated results of operations or financial condition.
Management has discussed the development, selection and disclosure of our critical accounting estimates with the Audit Committee of our Board.  For a description of our critical accounting estimates that require us to make the most difficult, subjective or complex judgments, please see our 2021 Annual Report on Form 10-K.  We have not changed any of these policies from those previously disclosed in the West negatively impacted our first quarter 2017 sales growth.that report.



25




Recent Accounting Pronouncements
See Note 1 of “Notes to Consolidated Financial Statements,” included in Part I, Item 1 of this Form 10-Q for discussion of recent accounting pronouncements.

LIQUIDITY AND CAPITAL RESOURCES


Liquidity is defined as the ability to generate adequate amounts of cash to meet short-term and long-term cash needs. We assess our liquidity in terms of our ability to generate cash to fund our operating activities, taking into consideration the seasonal nature of our business. Significant factors which could affect our liquidity include the following:


•cash flows generated from operating activities;
•the adequacy of available bank lines of credit;
acquisitions;•the quality of our receivables;
scheduled debt payments;•acquisitions;
•dividend payments;
•capital expenditures;
•changes in income tax laws and regulations;
•the timing and extent of share repurchases; and
•the ability to attract long-term capital with satisfactory terms.


Our primary capital needs are seasonal working capital requirementsobligations, debt repayment obligations and other general corporate purposes,initiatives, including acquisitions, opening new sales centers, dividend payments and share repurchases. Our primary working capital obligations are for the purchase of inventory, payroll, rent, other facility costs and selling and administrative expenses. Our working capital obligations fluctuate during the year, driven primarily by seasonality and the timing of inventory purchases. Our primary sources of working capital are cash from operations supplemented by bank borrowings, which have historically been sufficient to support our growth and finance acquisitions. The same principle applies to funds used forWe have funded our capital expenditures and share repurchases.repurchases in substantially the same manner.


We prioritize our use of cash based on investing in our business, maintaining a prudent debtcapital structure and returning moneycash to our shareholders.shareholders through dividends and share repurchases. Our specific priorities for the use of cash are as follows:


•capital expenditures primarily for maintenance and newgrowth of our sales center capital expenditures;network, technology-related investments and fleet vehicles;
•investing in inventory and funding other operating expenses;
•strategic acquisitions executed opportunistically;
•payment of cash dividends as and when declared by our Board of Directors (Board);Board;
•repayment of debt to maintain an average total target leverage ratio (as defined below) between 1.5 and 2.0; and
•repurchases of our common stock under our Board authorizedBoard-authorized share repurchase program.


For 2017, weWe focus our capital expenditure plans principally on the needs of our sales centers, and in recent years have increased our spending on information technology. We project capital expenditures in 2022 will be approximately 1.5%approximate our historical average of net sales as we expand facilities and purchase delivery vehicles to address growth opportunities. Over the last five years, capital expenditures have averaged roughly 1.0% of net sales. Capital expenditures were 1.4%0.7% of net sales in 2016,2021, 0.6% of net sales in 2020 and 1.0% of net sales in 20152019 and 0.8%have averaged roughly 1.0% of net sales in 2014.over the past five years.


Sources and Uses of Cash


The following table summarizes our cash flows (in thousands):
 Six Months Ended
June 30,
 20222021
Operating activities$28,731 $187,228 
Investing activities(27,431)(32,495)
Financing activities64,643 (131,061)

26

  Nine Months Ended
  September 30,
  2017 2016
Operating activities $112,020
 $143,170
Investing activities (44,584) (50,233)
Financing activities (52,746) (75,697)

CashNet cash provided by operating activities of $112.0operations was $28.7 million decreased duringfor the first ninesix months of 20172022 compared to $187.2 million for the first ninesix months of 2016 due2021. The decrease in our operating cash flows was driven by federal tax payments of $79.5 million in 2022, which were allowed to a combination of growth-related increasesbe deferred and included in inventoriesaccrued expenses and receivables and the payment of our normal scheduled payment of our third quarter estimated taxes. These estimated payments for the third quarter of 2016other liabilities at December 31, 2021. Additional impacts relate to growth-driven working capital outflows, including increased inventory purchases, which were deferred as allowed for areas affectedlargely offset by severe storms and floodingan increase in Louisiana.net income.

CashNet cash used in investing activities for the first ninesix months of 20172022 decreased compared to the first ninesix months of 2016. While we made increased investments2021 due to a decrease in cash used for the acquisition of businesses of $7.5 million, offset by an increase in capital expenditures of $2.5 million.
Net cash provided by financing activities increased $195.7 million to $64.6 million for vehicle additions in the first ninesix months of 2017, our2022 compared to net cash used for acquisitions was considerably lower in the current period.


Cash used in financing activities decreasedof $131.1 million for the first ninesix months of 2017 compared to the first nine months of 2016, which2021. The increase in cash provided by financing activities reflects a $65.4$404.7 million increase in amounts provided by net borrowings,debt proceeds, partially offset by a $23.7$188.5 million increase in amounts used for share repurchases. Dividendsrepurchases and an increase in dividends paid to shareholders increased by $6.2 million in the first nine months of 2017 compared to the first nine months of 2016.$16.6 million.


Future Sources and Uses of Cash
Revolving
Credit Facility
On September 29, 2017, we
Our Credit Facility, as amended and restated our existing senioron December 30, 2021, provides for $1.25 billion in borrowing capacity consisting of a $750.0 million five-year unsecured revolving credit facility (theand a $500.0 million term loan facility. The Credit Facility) principally in the following ways:

extends the maturity date to September 29, 2022;
increases the borrowing capacity toFacility includes a $750.0 million from $465.0 million;
increasesrevolving credit facility and sublimits for the issuance of swingline loans;
decreasesloans and standby letters of credit. The term loans require quarterly amortization payments aggregating to 20% of the pricing of all loans; and
provides additional capacity under certain negative covenants related to indebtedness, liens, investments and dispositions of assets.

Pursuant to an accordion feature, the aggregate maximumoriginal principal amount of the commitments underloan during the third, fourth and fifth years of the loan, with all remaining principal due on the Credit Facility may be increased at our request and with agreement by the lenders by upmaturity date of September 25, 2026. We intend to $75.0 million, to a total of $825.0 million. We intendcontinue to use the Credit Facility for general corporate purposes, for future share repurchases and to fund future growth initiatives.

At SeptemberJune 30, 2017,2022, there was $415.3$566.2 million of revolving borrowings outstanding, a $4.2$500.0 million term loan, a $4.8 million standby letter of credit outstanding and $330.5$179.0 million available for borrowing under the Credit Facility.  We utilizeCurrently, we pay interest rate swap contractson revolving and forward-starting interest rate swap contracts to reduce our exposure to fluctuations in variable interest rates for future interest payments onterm loan borrowings under the Credit Facility.  As of September 30, 2017, we have three interestFacility at a variable rate swap contracts in place that became effective on October 19, 2016. These swap contracts were previously forward-starting and were amended in October 2015 to bring the fixed rates per our forward-starting contracts in line with current market rates and extend the hedged period for future interest payments on our Credit Facility. Now effective, these amended swap contracts convert the Credit Facility’s variable interest rate to fixed rates of 2.273% on a notional amount of $75.0 million and 2.111% on two separate notional amounts, one $25.0 million and the other $50.0 million, totaling $75.0 million. Interest expense related to the notional amounts under these swap contracts is based on the fixed ratesone month London Interbank Offered Rate (LIBOR), plus thean applicable margin on the Credit Facility. These interest rate swap contracts will terminate on November 20, 2019.
In July 2016 we entered into a forward-starting interest rate swap contract to extend the hedged period for future interest payments on our Credit Facility to its maturity date at that time. This swap contract will convert the Credit Facility’s variable interest rate to a fixed rate of 1.1425% on a notional amount of $150.0 million. The contract becomes effective on November 20, 2019 and terminates on November 20, 2020.
margin. The weighted average effective interest rate for the Credit Facility as of SeptemberJune 30, 20172022 was approximately 2.7%2.6%, excluding commitment fees.
Financial covenants
Term Facility
Our Term Facility, as amended on October 12, 2021, provides for $185.0 million in borrowing capacity and matures on December 30, 2026. Proceeds from the Term Facility were used to pay down the Credit Facility include maintenancein December 2019, adding borrowing capacity for future share repurchases, acquisitions and growth-oriented working capital expansion. The Term Facility is repaid in quarterly installments of a maximum average total leverage ratio and a minimum fixed charge coverage ratio.  As1.250% of September 30, 2017, the calculations of these two covenants are detailed below:
Maximum Average Total Leverage Ratio. OnTerm Facility on the last business day of each fiscal quarter beginning in the first quarter of 2020. We classify the entire outstanding balance as Long-term debt on our averageConsolidated Balance Sheets as we intend and have the ability to refinance the obligations on a long-term basis. The total leverage ratio must be less than 3.25 to 1.00.  Average Total Leverage Ratio is the ratio of the trailing twelve months (TTM) Average Total Funded Indebtedness plusquarterly payments will be equal to 33.75% of the TTM Average Accounts Securitization Proceeds divided byTerm Facility with the TTM EBITDA (as those terms are defined infinal principal repayment, equal to 66.25% of the Credit Facility).  As of September 30, 2017, our average total leverage ratio equaled 1.60 (compared to 1.54 as ofTerm Facility, due on the maturity date. We may prepay amounts outstanding under the Term Facility without penalty other than interest breakage costs.

At June 30, 2017) and2022, there was $161.9 million outstanding under the TTMTerm Facility with a weighted average total debt amount used in this calculation was $496.5 million.
effective interest rate of 2.8%. We pay interest on borrowings under the Term Facility at a variable rate based on the one month LIBOR, plus an applicable margin.

Minimum Fixed Charge Coverage Ratio. On the last day of each fiscal quarter, our fixed charge ratio must be greater than or equal to 2.25 to 1.00.  Fixed Charge Ratio is the ratio of the TTM EBITDAR divided by TTM Interest Expense paid or payable in cash plus TTM Rental Expense (as those terms are defined in the Credit Facility).  As of September 30, 2017, our fixed charge ratio equaled 5.50 (compared to 5.52 as of June 30, 2017) and TTM Rental Expense was $53.5 million.


The Credit Facility also limits the declaration and payment of dividends on our common stock to no more than 50% of the preceding year’s Net Income (as defined in the Credit Facility), provided no default or event of default has occurred and is continuing, or would result from the payment of dividends.  Additionally, we may declare and pay quarterly dividends notwithstanding that the aggregate amount of dividends paid would be in excess of the 50% limit described above so long as (i) the amount per share of such dividends does not exceed the amount per share paid during the most recent fiscal year in which we were in compliance with the 50% limit and (ii) our Average Total Leverage Ratio is less than 3.00 to 1.00 both immediately before and after giving pro forma effect to such dividends. Further, dividends must be declared and paid in a manner consistent with our past practice.
Under the Credit Facility, we may repurchase shares of our common stock provided no default or event of default has occurred and is continuing, or would result from the repurchase of shares, and our maximum average total leverage ratio (determined on a pro forma basis) is less than 2.50 to 1.00. Other covenants include restrictions on our ability to grant liens, incur indebtedness, make investments, merge or consolidate, and sell or transfer assets. Failure to comply with any of our financial covenants or any other terms of the Credit Facility could result in penalty payments, higher interest rates on our borrowings or the acceleration of the maturities of our outstanding debt.
Receivables Securitization Facility

Our two-year accounts receivable securitization facility (the Receivables FacilityFacility) offers us a lower costlower-cost form of financing, with a peak funding capacity offinancing. Under this facility, we can borrow up to $220.0$350.0 million between May 1April through June and June 30, which includes an additional seasonal funding capacity that is available between March 1 and July 31. Other funding capacities range from $65.0$175.0 million to $150.0$315.0 million throughoutduring the remaining months of the year. The Receivables Facility matures on November 1, 2023. We classify the entire outstanding balance as Long-term debt on our Consolidated Balance Sheets as we intend and have the ability to refinance the obligations on a long-term basis.

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The Receivables Facility provides for the sale of certain of our receivables to a wholly ownedwholly-owned subsidiary (the Securitization Subsidiary). The Securitization Subsidiary transfers variable undivided percentage interests in the receivables and related rights to certain third partythird-party financial institutions in exchange for cash proceeds, limited to the applicable funding capacities. Upon payment of the receivables by customers, rather than remitting to the financial institutions the amounts collected, we retain such collections as proceeds for the sale of new receivables until payments become due.
The Receivables Facility contains terms and conditions (including representations, covenants and conditions precedent) customary for transactions of this type. Additionally, an amortization event will occur if we fail to maintain a maximum average total leverage ratio (average total funded debt/EBITDA) of 3.25 to 1.00 and a minimum fixed charge coverage ratio (EBITDAR/cash interest expense plus rental expense) of 2.25 to 1.00.
At SeptemberJune 30, 2017,2022, there was $142.3$350.0 million outstanding under the Receivables Facility at a weighted average effective interest rate of 2.0%2.5%, excluding commitment fees.

Financial Covenants
Financial covenants of the Credit Facility and the Term Facility include maintenance of a maximum average total leverage ratio and a minimum fixed charge coverage ratio, which are our most restrictive financial covenants.  As of SeptemberJune 30, 2017,2022, the calculations of these two covenants are detailed below:
•Maximum Average Total Leverage Ratio. On the last day of each fiscal quarter, our average total leverage ratio must be less than 3.25 to 1.00.  Average Total Leverage Ratio is the ratio of the trailing twelve months (TTM) Average Total Funded Indebtedness plus the TTM Average Accounts Securitization Proceeds divided by the TTM EBITDA (as those terms are defined in the Credit Facility).  As of June 30, 2022, our average total leverage ratio equaled 1.15 (compared to 1.06 as of March 31, 2022) and the TTM average total indebtedness amount used in this calculation was $1.2 billion.

•Minimum Fixed Charge Coverage Ratio. On the last day of each fiscal quarter, our fixed charge ratio must be greater than or equal to 2.25 to 1.00.  Fixed Charge Ratio is the ratio of the TTM EBITDAR divided by TTM Interest Expense paid or payable in cash plus TTM Rental Expense (as those terms are defined in the Credit Facility).  As of June 30, 2022, our fixed charge ratio equaled 12.22 (compared to 12.38 as of March 31, 2022) and TTM Rental Expense was $75.4 million.
The Credit Facility and Term Facility limit the declaration and payment of dividends on our common stock to a manner consistent with past practice, provided no default or event of default has occurred and is continuing, or would result from the payment of dividends.  We may declare and pay quarterly dividends so long as (i) the amount per share of such dividends is not greater than the most recently publicly announced amount of dividends per share and (ii) our Average Total Leverage Ratio is less than 3.25 to 1.00 both immediately before and after giving pro forma effect to such dividends. Under the Credit Facility and Term Facility, we may repurchase shares of our common stock provided no default or event of default has occurred and is continuing, or would result from the repurchase of shares, and our maximum average total leverage ratio (determined on a pro forma basis) is less than 3.25 to 1.00.  

Other covenants in each of our credit facilities include restrictions on our ability to grant liens, incur indebtedness, make investments, merge or consolidate, and sell or transfer assets.  Failure to comply with any of our financial covenants or any other terms of our credit facilities could result in, among other things, higher interest rates on our borrowings or the acceleration of the maturities of our outstanding debt.

Interest Rate Swaps
We utilize interest rate swap contracts and forward-starting interest rate swap contracts to reduce our exposure to fluctuations in variable interest rates for future interest payments on our variable rate borrowings.   Interest expense related to the notional amounts under all swap contracts is based on the fixed rates plus the applicable margin on the respective borrowings.
As of June 30, 2022, we had three interest rate swap contracts in place and two forward-starting interest rate swap contracts, each of which has the effect of converting our exposure to variable interest rates on our variable rate borrowings to fixed interest rates. For more information, see Note 4 of “Notes to Consolidated Financial Statements” included in Part I, Item 1 of this Form 10-Q.

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Compliance and Future Availability
As of June 30, 2022, we were in compliance with all material covenants and financial ratio requirements under our Credit Facility, our Term Facility and our Receivables Facility.  We believe we will remain in compliance with all material covenants and financial ratio requirements throughout the next twelve months.  For additional information regarding our debt arrangements, see Note 5 of “Notes to Consolidated Financial Statements,” included in Part II, Item 8 of our 20162021 Annual Report on Form 10-K.10-K, as updated by Note 5 of “Notes to Consolidated Financial Statements,” included in Part I, Item 1 of this Form 10-Q.
We believe we have adequate availability of capital to fund present operations and the current capacity to finance any working capital needs that may arise.  We continually evaluate potential acquisitions and hold discussions with acquisition candidates.  If suitable acquisition opportunities arise that would require financing, we believe that we would have the ability to finance any such transactions.
As of October 26, 2017, $53.4July 25, 2022, $422.8 million of the current Board authorizedBoard-authorized amount under our share repurchase program remained available.  We expect to repurchase additional shares on the open market from time to time depending on market conditions.  We plan to fund these repurchases with cash provided by operations and borrowings under the above-described credit and receivables facilities.


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CRITICAL ACCOUNTING ESTIMATES
We prepare our Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles (GAAP), which require management to make estimates and assumptions that affect reported amounts and related disclosures. Management identifies critical accounting estimates as:

those that require the use of assumptions about matters that are inherently and highly uncertain at the time the estimates are made; and
those for which changes in the estimate or assumptions, or the use of different estimates and assumptions, could have a material impact on our consolidated results of operations or financial condition.


Management has discussed the development, selection and disclosure of our critical accounting estimates with the Audit Committee of our Board.  For a description of our critical accounting estimates that require us to make the most difficult, subjective or complex judgments, please see our 2016 Annual Report on Form 10-K.  We have not changed these policies from those previously disclosed.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (ASU 2014-09). The FASB also issued subsequent amendments to ASU 2014-09 to provide clarification on the guidance. ASU 2014-09 will be effective for annual periods beginning after December 15, 2017, which for us will be in the period beginning January 1, 2018. We are continuing to perform our detailed evaluation, using a five-step model specified in the guidance, to assess the impacts of the new standard.

Under the new standard, revenue will be recognized when we satisfy our performance obligation by transferring promised products or services to our customer. The standard allows for application of the guidance to a portfolio of contracts or performance obligations with similar characteristics. Since our individual sales transactions are very similar in nature, we anticipate applying the guidance to all transactions as a portfolio. We expect that the effects of applying this guidance to the portfolio would not differ materially from applying the guidance to individual performance obligations within that portfolio.
Our revenue recognition will be achieved upon delivery of products as there are no other promised services as part of our contracts with customers that are material in the context of the contract. Because our shipping and handling activities are performed before the customer obtains control of the goods, we do not consider these activities to be a promised service to the customer. Rather shipping and handling are activities to fulfill our promise to transfer the goods. Product warranties do not constitute a performance obligation for us, as products are warrantied directly by the manufacturer or the third party carrier.
To determine the amount of consideration to which we expect to be entitled in exchange for transferring promised goods, we have considered if variable consideration exists. We have reviewed our standard terms and conditions and our customary business practices to determine the transaction price. We have reviewed our pricing policies including marketing programs, coupons and free products for the purpose of determining whether we have any variable or non-cash consideration. We do not issue future-dated coupons or free product rebates. When we process manufacturer coupons, we record the customer sales price as revenue and receive reimbursement of the coupon value from the manufacturer. In addition, we reviewed our current accounting policies related to returns and price concessions for which no material changes in policy were noted. Volume rebates is a sales incentive program where we make a cash payment or apply credit to a customer account on a quarterly or annual basis, if the customer reaches a specified level of purchases. The volume rebates are accounted for as a reduction of the transaction price, and a liability is recorded until the related payment to the customer is made. We do not offer any volume discounts. We will continue our accounting policy election to exclude from revenue all amounts we collect and remit to governmental authorities.
The majority of our sales transactions do not require any additional performance obligation after delivery, therefore we do not have multiple performance obligations for which we will have to allocate the transaction price. We do not offer customer loyalty programs.
We expect to recognize revenue when control of the product has been transferred to the customer upon delivery to the customer or the freight carrier, if delivered by a third party, as we believe our performance obligation will be satisfied at that point in time.

We expect to apply the guidance using the modified retrospective transition method. Based on our analysis performed to date, we do not expect the adoption of ASU 2014-09 will have a material impact on our financial position or results of operations, but we expect it will result in additional disclosures regarding our revenue recognition policies. We also do not expect the adoption will require material or significant changes to our internal controls over financial reporting. We have expanded our revenue recognition inquiries to additional departments and updated our questionnaires primarily to identify matters that would signal variable consideration implications under the new guidance. We are also in the process of drafting additional pricing policies to address potential revenue recognition implications.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to record most leases on their balance sheets but recognize expenses in a manner similar to current guidance. ASU 2016-02 will be effective for annual periods beginning after December 15, 2018. The guidance is required to be applied using a modified retrospective approach. The adoption of ASU 2016-02 will have a significant impact on our Consolidated Balance Sheets as we will be recording a right-of-use asset and corresponding liability for our current operating leases. We are evaluating the effect that ASU 2016-02 will have on our results of operations and related disclosures. We are primarily focused on evaluating our internal controls over financial reporting, including information technology requirements, related to the adoption of this new accounting pronouncement.



In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments, which changes the way companies evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. The new standard also requires enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination for most financing receivables. ASU 2016-13 will be effective for annual periods beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018. We have not elected to early adopt this guidance. The guidance must be applied using a cumulative-effect transition method. We are currently evaluating the effect that ASU 2016-13 will have on our financial position, results of operations and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, which may change the classification of certain cash receipts and cash payments on an entity’s statement of cash flows. The new guidance specifies how cash flows should be classified for debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds for the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance, distributions from equity method investees and beneficial interests in securitization transactions. Current guidance for these topics is principles-based, requiring judgment in application and creating diversity in practice. ASU 2016-15 will be effective for annual periods beginning after December 15, 2017 and must be applied retrospectively. Early adoption is permitted for all entities. We have not elected to early adopt this guidance. We are currently evaluating the effect that ASU 2016-15 will have on our financial position and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (commonly referred to as Step 2 under the current guidance). Rather, the measurement of a goodwill impairment charge will be based on the excess of a reporting unit’s carrying value over its fair value (Step 1 under the current guidance). ASU 2017-04 will be effective for annual and interim impairment tests performed in periods beginning after December 15, 2019 and should be applied prospectively. Early adoption is permitted for annual and interim goodwill impairment tests beginning after January 1, 2017. We are currently evaluating the effect that ASU 2017-04 will have on our financial position, results of operations and related disclosures.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
There have been no material changes during the six months ended June 30, 2022 from what we reported in our 2021 Annual Report on Form 10-K for the year ended December 31, 2016 that affect fiscal 2017.10-K. For additional information on our interest rate risk, refer to “Quantitative and Qualitative Disclosures about Market Risk” included in Part II, Item 7A in our 2021 Annual Report on Form 10-K.
Currency Risk
There have been no material changes during the six months ended June 30, 2022 from what we reported in our 2021 Annual Report on Form 10-K for the year ended December 31, 2016 that affect fiscal 2017.10-K. For additional information on our currency risk, refer to “Quantitative and Qualitative Disclosures about Market Risk” included in Part II, Item 7A in our 2021 Annual Report on Form 10-K.

Item 4.  Controls and Procedures
The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the Act).  The rules refer to the controls and other procedures designed to ensure that information required to be disclosed in reports that we file or submit under the Act is (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.  As of SeptemberJune 30, 2017,2022, management, including theour CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures.  Based on that evaluation, management, including theour CEO and CFO, concluded that as of SeptemberJune 30, 2017,2022, our disclosure controls and procedures were effective.
We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.  Based on the most recent evaluation, we have concluded that no change in our internal control over financial reporting occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The effectiveness of our system of disclosure controls and procedures or internal control over financial reporting is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating such systems, the assumptions used in identifying the likelihood of future events and the inability to eliminate misconduct completely. As a result, there can be no assurance that our control systems will detect all errors or fraud. By their nature, our system can provide only reasonable assurance regarding management's control objectives.

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PART II.  OTHER INFORMATION


Item 1.  Legal Proceedings
From time to time, we are subject to various claims and litigation arising in the ordinary course of business, including product liability, personal injury, commercial, contract and employment matters. While the outcome of any litigation is inherently unpredictable, based on currently available facts and our current insurance coverages, we do not believe that the ultimate resolution of any of these matters will have a material adverse impact on our financial condition, results of operations or cash flows.

Item 1A.  Risk Factors
There have been no material changes from the risk factors disclosed in Part I, Item 1A “Risk Factors” in our 2021 Annual Report on Form 10-K for the year ended December 31, 2016.10-K.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
The table below summarizes the repurchases of our common stock in the thirdsecond quarter of 2017:2022:
Period
Total Number
of Shares
Purchased (1)
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plan
Maximum Approximate
Dollar Value of Shares
That May Yet be Purchased
Under the Plan (2)
April 1-30, 202268,974 $420.64 68,974 $413,772,800 
May 1-31, 2022306,365 $399.26 306,361 $487,683,064 
June 1-30, 2022171,431 $378.75 171,431 $422,753,395 
Total546,770 $395.53 546,766  
(1)These shares may include shares of our common stock surrendered to us by employees in order to satisfy minimum tax withholding obligations in connection with certain exercises of employee stock options or lapses upon vesting of restrictions on previously restricted share awards, and/or to cover the exercise price of such options granted under our share-based compensation plans. There were 4 shares surrendered for this purpose in the second quarter of 2022.
(2)In May 2022, our Board authorized an additional $196.2 million under our share repurchase program for the repurchase of shares of our common stock in the open market at prevailing market prices. As of July 25, 2022, $422.8 million of the authorized amount remained available under our current share repurchase program.
Our Board may declare future dividends at their discretion, after considering various factors, including our earnings, capital requirements, financial position, contractual restrictions and other relevant business considerations. For a description of restrictions on dividends in our Credit Facility, Term Facility and Receivables Facility, see the “Liquidity and Capital Resources” section of Management’s Discussion and Analysis in Part I, Item 2 of this Form 10-Q. We cannot assure shareholders or potential investors that dividends will be declared or paid any time in the future if our Board determines that there is a better use of our funds.

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Period 
Total Number
of Shares
Purchased (1)
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plan (2)
 
Maximum Approximate
Dollar Value of Shares
That May Yet be Purchased
Under the Plan (3)
July 1 - 31, 2017 287,641
 $109.65
 287,641
 $159,133,234
August 1 - 31, 2017 871,775
 $107.25
 871,590
 $65,654,104
September 1 - 30, 2017 79,335
 $99.19
 79,335
 $57,785,144
Total 1,238,751
 $107.29
 1,238,566
  
(1)

These shares may include shares of our common stock surrendered to us by employees in order to satisfy minimum tax withholding obligations in connection with certain exercises of employee stock options or lapses upon vesting of restrictions on previously restricted share awards, and/or to cover the exercise price of such options granted under our share-based compensation plans.  There were 185 shares surrendered for this purpose in the third quarter of 2017.
(2)
In May 2017, our Board authorized an additional $150.0 million under our share repurchase program for the repurchase of shares of our common stock in the open market at prevailing market prices or in privately negotiated transactions.
(3)
As of October 26, 2017, $53.4 million of the authorized amount remained available under our current share repurchase program.




Item 6.  Exhibits


Exhibits filed as part of this report are listed below.
Incorporated by Reference
No.Description
FiledFiled/ Furnished with this

Form 10-Q
FormFile No.Date Filed
Restated Certificate of Incorporation of the Company.10-Q000-266408/9/2006
Amended and Restated Composite Bylaws of the Company.8-K000-2664012/20/20122/8/2019
Form of certificate representing shares of common stock of the Company.8-K000-266405/19/2006
Certification by Mark W. JoslinChief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.X
Certification by Manuel J. Perez de la MesaChief Executive Officer pursuant to Rule 13a-14(a) and 15d‑14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.X
Certification by Manuel J. Perez de la MesaChief Executive Officer and Mark W. JoslinChief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.X
101.INS+Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.X
101.SCH+Inline XBRL Taxonomy Extension Schema DocumentX
101.CAL+Inline XBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEF+Inline XBRL Taxonomy Extension Definition Linkbase DocumentX
101.LAB+Inline XBRL Taxonomy Extension Label Linkbase DocumentX
101.PRE+Inline XBRL Taxonomy Extension Presentation Linkbase DocumentX
104+Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)X
+ Attached as Exhibit 101 to this report are the following items formatted in XBRL (ExtensibleiXBRL (Inline Extensible Business Reporting Language):
1.Consolidated Statements of Income for the three and nine months ended September 30, 2017 and September 30, 2016;
2.Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and September 30, 2016;
3.Consolidated Balance Sheets at September 30, 2017, December 31, 2016 and September 30, 2016;
4.Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and
September1.Consolidated Statements of Income for the three and six months ended June 30, 2016;2022 and
5.Notes to Consolidated Financial Statements.

June 30, 2021;

2.Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and June 30, 2021;

3.Consolidated Balance Sheets at June 30, 2022, December 31, 2021 and June 30, 2021;
4.Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and June 30, 2021;

5.Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022 and June 30, 2021; and
6.Notes to Consolidated Financial Statements.

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SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on October 31, 2017.
July 28, 2022.
POOL CORPORATION
By:/s/ Mark W. JoslinMelanie Housey Hart
Mark W. JoslinMelanie Housey Hart
Senior Vice President and Chief Financial Officer, and duly authorized signatory on behalf of the registrant















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