UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2021~~March 31, 2022


☐			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 CORPORATION
(Exact name of registrant as specified in its charter)

Delaware		36-3943363
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

109 Northpark Boulevard,
Covington,	Louisiana	70433-5001
(Address of principal executive offices)		(Zip Code)

(985) 892-5521

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	POOL	Nasdaq 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 x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x 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,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

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 ☐ No x

As of ~~October~~April 25, ~~2021,~~2022, there were ~~40,087,971~~40,073,690 shares of common stock outstanding.

POOL CORPORATION

Form 10-Q

For the Quarter Ended ~~September 30, 2021~~March 31, 2022

TABLE OF CONTENTS



			Page
PART I. FINANCIAL INFORMATION

	Item 1. Financial Statements (Unaudited)

		Consolidated Statements of Income	1
		Consolidated Statements of Comprehensive Income	2
		Consolidated Balance Sheets	3
		Condensed Consolidated Statements of Cash Flows	4
		Consolidated Statements of Changes in Stockholders’ Equity	5
		Notes to Consolidated Financial Statements	76

	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		1512

	Item 3. Quantitative and Qualitative Disclosures about Market Risk		3224

	Item 4. Controls and Procedures		3224

PART II. OTHER INFORMATION

	Item 1. Legal Proceedings		3325

	Item 1A. Risk Factors		3325

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3325

	Item 6. Exhibits		3426

SIGNATURE			3627

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 Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020			2022		2021
Net sales	Net sales	$	1,411,448	$	1,139,229	$	4,260,027	$	3,097,362	Net sales	$	1,412,650	$	1,060,745
Cost of sales	Cost of sales	969,549		810,531		2,965,311		2,205,555		Cost of sales	965,461		759,614
Gross profit	Gross profit	441,899		328,698		1,294,716		891,807		Gross profit	447,189		301,131
Selling and administrative expenses	Selling and administrative expenses	206,023		180,465		591,223		495,186		Selling and administrative expenses	211,466		172,100
(Recovery) impairment of goodwill and other assets		(1,400)		—		(1,400)		6,944

Operating income	Operating income	237,276		148,233		704,893		389,677		Operating income	235,723		129,031
Interest and other non-operating expenses, net	Interest and other non-operating expenses, net	2,317		1,861		6,862		9,292		Interest and other non-operating expenses, net	5,198		2,582
Income before income taxes and equity earnings		234,959		146,372		698,031		380,385
Income before income taxes and equity in earnings										Income before income taxes and equity in earnings	230,525		126,449
Provision for income taxes	Provision for income taxes	50,386		27,360		155,240		73,068		Provision for income taxes	51,322		27,869
Equity earnings in unconsolidated investments, net		92		86		224		248
Equity in earnings of unconsolidated investments, net										Equity in earnings of unconsolidated investments, net	58		75

Net income	Net income	$	184,665	$	119,098	$	543,015	$	307,565	Net income	$	179,261	$	98,655

Earnings per share:
Earnings per share attributable to common stockholders:										Earnings per share attributable to common stockholders:
Basic	Basic	$	4.60	$	2.97	$	13.53	$	7.68	Basic	$	4.46	$	2.45
Diluted	Diluted	$	4.54	$	2.92	$	13.32	$	7.53	Diluted	$	4.41	$	2.42
Weighted average shares outstanding:
Weighted average common shares outstanding:										Weighted average common shares outstanding:
Basic	Basic	40,101		40,123		40,146		40,073		Basic	39,932		40,215
Diluted	Diluted	40,691		40,839		40,766		40,849		Diluted	40,392		40,846

Cash dividends declared per common share	Cash dividends declared per common share	$	0.80	$	0.58	$	2.18	$	1.71	Cash dividends declared per common share	$	0.80	$	0.58

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

POOL CORPORATION

Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020			2022		2021
Net income	Net income	$	184,665	$	119,098	$	543,015	$	307,565	Net income	$	179,261	$	98,655
Other comprehensive (loss) income:	Other comprehensive (loss) income:									Other comprehensive (loss) income:
Foreign currency translation (losses) gains		(3,555)		2,976		(3,522)		(320)
Change in unrealized gains (losses) on interest rate swaps, net of change in taxes of $(491), $(51), $(2,818), and $3,641		1,473		154		8,453		(10,923)
Total other comprehensive (loss) income		(2,082)		3,130		4,931		(11,243)
Foreign currency translation losses										Foreign currency translation losses	(214)		(1,268)
Change in unrealized gains on interest rate swaps, net of change in taxes of $(3,866) and $(3,046)										Change in unrealized gains on interest rate swaps, net of change in taxes of $(3,866) and $(3,046)	11,598		9,137
Total other comprehensive income										Total other comprehensive income	11,384		7,869
Comprehensive income	Comprehensive income	$	182,583	$	122,228	$	547,946	$	296,322	Comprehensive income	$	190,645	$	106,524

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

POOL CORPORATION

Consolidated Balance Sheets

(In thousands, except share data)


		September 30,		September 30,		December 31,			March 31,		March 31,		December 31,
		2021		2020		2020 (1)			2022		2021		2021 (1)
		(Unaudited)		(Unaudited)					(Unaudited)		(Unaudited)
Assets	Assets							Assets
Current assets:	Current assets:							Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	83,475	$	74,749	$	34,128	Cash and cash equivalents	$	35,365	$	27,078	$	24,321
Receivables, net	Receivables, net	174,987		135,555		122,252		Receivables, net	195,951		122,938		155,259
Receivables pledged under receivables facility	Receivables pledged under receivables facility	301,163		230,857		166,948		Receivables pledged under receivables facility	483,976		364,664		221,312
Product inventories, net	Product inventories, net	1,043,407		612,824		780,989		Product inventories, net	1,641,155		977,228		1,339,100
Prepaid expenses and other current assets	Prepaid expenses and other current assets	23,368		12,696		17,610		Prepaid expenses and other current assets	42,310		25,390		29,093
Total current assets	Total current assets	1,626,400		1,066,681		1,121,927		Total current assets	2,398,757		1,517,298		1,769,085

Property and equipment, net	Property and equipment, net	111,339		109,086		108,241		Property and equipment, net	180,504		109,830		179,008
Goodwill	Goodwill	281,300		199,360		268,167		Goodwill	688,350		267,914		688,364
Other intangible assets, net	Other intangible assets, net	12,067		10,522		12,181		Other intangible assets, net	310,848		11,854		312,814
Equity interest investments	Equity interest investments	1,242		1,314		1,292		Equity interest investments	1,184		1,305		1,231
Operating lease assets	Operating lease assets	221,007		180,230		205,875		Operating lease assets	260,285		209,036		241,662
Other assets	Other assets	28,878		20,396		21,987		Other assets	42,213		24,456		37,967
Total assets	Total assets	$	2,282,233	$	1,587,589	$	1,739,670	Total assets	$	3,882,141	$	2,141,693	$	3,230,131

Liabilities and stockholders’ equity	Liabilities and stockholders’ equity							Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:							Current liabilities:
Accounts payable	Accounts payable	$	414,156	$	268,412	$	266,753	Accounts payable	$	685,946	$	634,998	$	398,697
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	231,794		145,420		143,694		Accrued expenses and other current liabilities	179,552		134,670		264,877
Short-term borrowings and current portion of long-term debt	Short-term borrowings and current portion of long-term debt	10,744		11,709		11,869		Short-term borrowings and current portion of long-term debt	21,265		12,409		11,772
Current operating lease liabilities	Current operating lease liabilities	65,442		56,977		60,933		Current operating lease liabilities	71,685		61,265		69,070
Total current liabilities	Total current liabilities	722,136		482,518		483,249		Total current liabilities	958,448		843,342		744,416

Deferred income taxes	Deferred income taxes	30,275		29,476		27,653		Deferred income taxes	40,944		31,134		35,840
Long-term debt, net	Long-term debt, net	352,075		328,225		404,149		Long-term debt, net	1,483,808		420,762		1,171,578
Other long-term liabilities	Other long-term liabilities	34,176		32,846		38,261		Other long-term liabilities	32,940		38,945		31,545
Non-current operating lease liabilities	Non-current operating lease liabilities	158,359		125,023		146,888		Non-current operating lease liabilities	191,723		149,582		175,359
Total liabilities	Total liabilities	1,297,021		998,088		1,100,200		Total liabilities	2,707,863		1,483,765		2,158,738

Stockholders’ equity:	Stockholders’ equity:							Stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized; 40,079,584, 40,153,287 and 40,232,210 shares issued and outstanding at September 30, 2021, September 30, 2020 and December 31, 2020, respectively		40		40		40
Common stock, $0.001 par value; 100,000,000 shares authorized; 40,110,126, 40,086,256 and 40,192,901 shares issued and outstanding at March 31, 2022, March 31, 2021 and December 31, 2021, respectively								Common stock, $0.001 par value; 100,000,000 shares authorized; 40,110,126, 40,086,256 and 40,192,901 shares issued and outstanding at March 31, 2022, March 31, 2021 and December 31, 2021, respectively	40		40		40
Additional paid-in capital	Additional paid-in capital	542,858		513,030		519,579		Additional paid-in capital	558,755		526,328		551,963
Retained earnings	Retained earnings	451,401		98,033		133,870		Retained earnings	611,583		137,710		526,874
Accumulated other comprehensive loss		(9,087)		(21,602)		(14,019)
Accumulated other comprehensive income (loss)								Accumulated other comprehensive income (loss)	3,900		(6,150)		(7,484)
Total stockholders’ equity	Total stockholders’ equity	985,212		589,501		639,470		Total stockholders’ equity	1,174,278		657,928		1,071,393
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,282,233	$	1,587,589	$	1,739,670	Total liabilities and stockholders’ equity	$	3,882,141	$	2,141,693	$	3,230,131

(1) Derived from audited financial statements.

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

POOL CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2021		2020			2022		2021
Operating activities	Operating activities					Operating activities
Net income	Net income	$	543,015	$	307,565	Net income	$	179,261	$	98,655
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash (used in) provided by operating activities:						Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation	Depreciation	21,027		20,979		Depreciation	7,663		6,884
Amortization	Amortization	1,064		975		Amortization	2,192		421
Share-based compensation	Share-based compensation	11,755		11,095		Share-based compensation	3,657		3,837

Equity earnings in unconsolidated investments, net		(224)		(248)
Impairment of goodwill and other assets		—		6,944
Equity in earnings of unconsolidated investments, net						Equity in earnings of unconsolidated investments, net	(58)		(75)

Other	Other	5,256		1,092		Other	5,777		2,723
Changes in operating assets and liabilities, net of effects of acquisitions:	Changes in operating assets and liabilities, net of effects of acquisitions:					Changes in operating assets and liabilities, net of effects of acquisitions:
Receivables	Receivables	(186,772)		(135,129)		Receivables	(303,400)		(199,672)
Product inventories	Product inventories	(267,341)		99,767		Product inventories	(306,582)		(200,185)
Prepaid expenses and other assets	Prepaid expenses and other assets	(22,674)		311		Prepaid expenses and other assets	(23,330)		(5,507)
Accounts payable	Accounts payable	146,616		3,385		Accounts payable	287,449		369,665
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	107,343		72,178		Accrued expenses and other current liabilities	(60,738)		367
Net cash provided by operating activities		359,065		388,914
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(208,109)		77,113

Investing activities	Investing activities					Investing activities
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	(17,887)		(24,655)		Acquisition of businesses, net of cash acquired	—		(683)
Purchases of property and equipment, net of sale proceeds	Purchases of property and equipment, net of sale proceeds	(24,223)		(16,897)		Purchases of property and equipment, net of sale proceeds	(9,159)		(8,839)

Net cash used in investing activities	Net cash used in investing activities	(42,110)		(41,552)		Net cash used in investing activities	(9,159)		(9,522)

Financing activities	Financing activities					Financing activities
Proceeds from revolving line of credit	Proceeds from revolving line of credit	791,508		749,840		Proceeds from revolving line of credit	564,288		342,500
Payments on revolving line of credit	Payments on revolving line of credit	(730,277)		(909,637)		Payments on revolving line of credit	(604,960)		(308,656)
Proceeds from term loan under credit facility						Proceeds from term loan under credit facility	250,000		—
Proceeds from asset-backed financing	Proceeds from asset-backed financing	310,000		261,700		Proceeds from asset-backed financing	155,000		110,000
Payments on asset-backed financing	Payments on asset-backed financing	(415,000)		(266,700)		Payments on asset-backed financing	(50,000)		(125,000)
Payments on term facility	Payments on term facility	(6,938)		(6,938)		Payments on term facility	(2,313)		(2,313)
Proceeds from short-term borrowings and current portion of long-term debt	Proceeds from short-term borrowings and current portion of long-term debt	7,880		13,255		Proceeds from short-term borrowings and current portion of long-term debt	10,277		4,280
Payments on short-term borrowings and current portion of long-term debt	Payments on short-term borrowings and current portion of long-term debt	(9,006)		(13,291)		Payments on short-term borrowings and current portion of long-term debt	(784)		(3,740)
Payments of deferred financing costs		(1,610)		(12)

Payments of deferred and contingent acquisition consideration	Payments of deferred and contingent acquisition consideration	(362)		(281)		Payments of deferred and contingent acquisition consideration	(1,374)		(362)

Proceeds from stock issued under share-based compensation plans	Proceeds from stock issued under share-based compensation plans	11,524		16,696		Proceeds from stock issued under share-based compensation plans	3,135		2,912
Payments of cash dividends	Payments of cash dividends	(87,509)		(68,599)		Payments of cash dividends	(32,132)		(23,299)
Purchases of treasury stock	Purchases of treasury stock	(137,975)		(76,194)		Purchases of treasury stock	(62,420)		(71,516)
Net cash used in financing activities		(267,765)		(300,161)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	228,717		(75,194)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	157		(1,035)		Effect of exchange rate changes on cash and cash equivalents	(405)		553
Change in cash and cash equivalents	Change in cash and cash equivalents	49,347		46,166		Change in cash and cash equivalents	11,044		(7,050)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	34,128		28,583		Cash and cash equivalents at beginning of period	24,321		34,128
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	83,475	$	74,749	Cash and cash equivalents at end of period	$	35,365	$	27,078

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

POOL CORPORATION

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

(In thousands)


		Common Stock			Additional Paid-In		Retained		Accumulated Other Comprehensive					Common Stock			Additional Paid-In		Retained		Accumulated Other Comprehensive
		Shares	Amount		Capital		Earnings		Loss		Total			Shares	Amount		Capital		Earnings		Income		Total
Balance at December 31, 2020		40,232	$	40	$	519,579	$	133,870	$	(14,019)	$	639,470
Balance at December 31, 2021													Balance at December 31, 2021	40,193	$	40	$	551,963	$	526,874	$	(7,484)	$	1,071,393
Net income	Net income	—	—		—		98,655		—		98,655		Net income	—	—		—		179,261		—		179,261
Foreign currency translation	Foreign currency translation	—	—		—		—		(1,268)		(1,268)		Foreign currency translation	—	—		—		—		(214)		(214)
Interest rate swaps, net of the change in taxes of $(3,046)		—	—		—		—		9,137		9,137
Interest rate swaps, net of the change in taxes of $(3,866)													Interest rate swaps, net of the change in taxes of $(3,866)	—	—		—		—		11,598		11,598
Repurchases of common stock, net of retirements	Repurchases of common stock, net of retirements	(215)	—		—		(71,516)		—		(71,516)		Repurchases of common stock, net of retirements	(138)	—		—		(62,420)		—		(62,420)
Share-based compensation	Share-based compensation	—	—		3,837		—		—		3,837		Share-based compensation	—	—		3,657		—		—		3,657

Issuance of stock under share-based compensation plans	Issuance of stock under share-based compensation plans	69	—		2,912		—		—		2,912		Issuance of stock under share-based compensation plans	55	—		3,135		—		—		3,135
Declaration of cash dividends	Declaration of cash dividends	—	—		—		(23,299)		—		(23,299)		Declaration of cash dividends	—	—		—		(32,132)		—		(32,132)
Balance at March 31, 2021		40,086	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 plans		90	—		5,006		—		—		5,006
Declaration of cash dividends		—	—		—		(32,119)		—		(32,119)
Balance at June 30, 2021		40,131	40		535,046		346,667		(7,005)		874,748
Net income		—	—		—		184,665		—		184,665
Foreign currency translation		—	—		—		—		(3,555)		(3,555)
Interest rate swaps, net of the change in taxes of $(491)		—	—		—		—		1,473		1,473
Repurchases of common stock, net of retirements		(100)	—		—		(47,840)		—		(47,840)
Share-based compensation		—	—		4,206		—		—		4,206
Issuance of stock under share-based compensation plans		49	—		3,606		—		—		3,606
Declaration of cash dividends		—	—		—		(32,091)		—		(32,091)
Balance at September 30, 2021		40,080	$	40	$	542,858	$	451,401	$	(9,087)	$	985,212
Balance at March 31, 2022													Balance at March 31, 2022	40,110	$	40	$	558,755	$	611,583	$	3,900	$	1,174,278


		Common Stock			Additional Paid-In		Retained Earnings		Accumulated Other Comprehensive					Common Stock			Additional Paid-In		Retained		Accumulated Other Comprehensive
		Shares	Amount		Capital		(Deficit)		Loss		Total			Shares	Amount		Capital		Earnings		Loss		Total
Balance at December 31, 2019		40,074	$	40	$	485,239	$	(64,740)	$	(10,359)	$	410,180
Balance at December 31, 2020													Balance at December 31, 2020	40,232	$	40	$	519,579	$	133,870	$	(14,019)	$	639,470
Net income	Net income	—	—		—		30,912		—		30,912		Net income	—	—		—		98,655		—		98,655
Foreign currency translation	Foreign currency translation	—	—		—		—		(5,430)		(5,430)		Foreign currency translation	—	—		—		—		(1,268)		(1,268)
Interest rate swaps, net of the change in taxes of $2,837		—	—		—		—		(8,510)		(8,510)
Repurchases of common stock, net of retirements		(362)	—		—		(66,619)		—		(66,619)
Share-based compensation		—	—		3,654		—		—		3,654

Issuance of stock under share-based compensation plans		219	—		6,358		—		—		6,358
Declaration of cash dividends		—	—		—		(22,147)		—		(22,147)
Balance at March 31, 2020		39,931	40		495,251		(122,594)		(24,299)		348,398
Net income		—	—		—		157,555		—		157,555
Foreign currency translation		—	—		—		—		2,134		2,134
Interest rate swaps, net of the change in taxes of $855		—	—		—		—		(2,567)		(2,567)
Interest rate swaps, net of the change in taxes of $(3,046)													Interest rate swaps, net of the change in taxes of $(3,046)	—	—		—		—		9,137		9,137
Repurchases of common stock, net of retirements	Repurchases of common stock, net of retirements	(19)	—		—		(3,584)		—		(3,584)		Repurchases of common stock, net of retirements	(215)	—		—		(71,516)		—		(71,516)
Share-based compensation	Share-based compensation	—	—		3,567		—		—		3,567		Share-based compensation	—	—		3,837		—		—		3,837
Issuance of stock under share-based compensation plans	Issuance of stock under share-based compensation plans	130	—		4,453		—		—		4,453		Issuance of stock under share-based compensation plans	69	—		2,912		—		—		2,912
Declaration of cash dividends	Declaration of cash dividends	—	—		—		(23,165)		—		(23,165)		Declaration of cash dividends	—	—		—		(23,299)		—		(23,299)
Balance at June 30, 2020		40,042	40		503,271		8,212		(24,732)		486,791
Net income		—	—		—		119,098		—		119,098
Foreign currency translation		—	—		—		—		2,976		2,976
Interest rate swaps, net of the change in taxes of $(51)		—	—		—		—		154		154
Repurchases of common stock, net of retirements		(20)	—		—		(5,990)		—		(5,990)
Share-based compensation		—	—		3,874		—		—		3,874
Issuance of stock under share-based compensation plans		131	—		5,885		—		—		5,885
Declaration of cash dividends		—	—		—		(23,287)		—		(23,287)
Balance at September 30, 2020		40,153	$	40	$	513,030	$	98,033	$	(21,602)	$	589,501
Balance at March 31, 2021													Balance at March 31, 2021	40,086	$	40	$	526,328	$	137,710	$	(6,150)	$	657,928

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

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.

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 ~~2020~~2021 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 ~~2020~~2021 Annual Report on Form 10-K. The results for our ~~three and nine month periods~~three-month period ended ~~September 30, 2021~~March 31, 2022, are not necessarily indicative of the expected results for our fiscal year ending December 31, ~~2021.~~2022.

~~Newly Adopted Accounting Pronouncements~~

~~On January 1, 2021, we adopted Accounting Standards Update (ASU) 2019-12,~~ ~~Income Taxes (Topic 740),Simplifying the Accounting for Income Taxes~~. This new standard simplified the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. Most amendments were required to be applied on a prospective basis, while certain amendments were required to be applied on a retrospective or modified retrospective basis. The adoption of this standard did not have a material impact on our consolidated financial statements or related disclosures, and we do not expect a material impact in future periods.

~~Income~~0Income Taxes

We reduce federal and state income taxes payable by the tax benefits associated with the exercise of nonqualified stock options and the lapse of restrictions on restricted stock awards. To the extent realized tax deductions exceed the amount of previously recognized deferred tax benefits related 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 ~~$4.2~~$7.3 million in the ~~third~~first quarter of ~~2021~~2022 compared to ~~$8.5~~$4.0 million in the ~~third~~first quarter of ~~2020 and $15.9 million in the nine months ended September 30, 2021 compared to $22.6 million in the nine months ended September 30, 2020.~~2021.

Retained Earnings

We account for the retirement of treasury shares as a reduction of Retained earnings. As of ~~September 30, 2021,~~March 31, 2022, the Retained earnings on our Consolidated Balance Sheets reflects cumulative net income, the cumulative impact of adjustments for changes in accounting pronouncements, treasury share retirements since the inception of our share repurchase programs of $1.7 billion and cumulative dividends of ~~$758.3~~$822.5 million.

Accumulated Other Comprehensive ~~Loss~~Income (Loss)

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

September 30, December 31,
2021 2020 2020
Foreign currency translation adjustments $ (8,437) $ (10,447) $ (4,917)
Unrealized losses on interest rate swaps, net of tax (650) (11,155) (9,102)
Accumulated other comprehensive loss $ (9,087) $ (21,602) $ (14,019)


	March 31,				December 31,
	2022		2021		2021
Foreign currency translation adjustments	$	(9,794)	$	(6,185)	$	(9,580)
Unrealized gains on interest rate swaps, net of tax	13,694		35		2,096
Accumulated other comprehensive income (loss)	$	3,900	$	(6,150)	$	(7,484)

Recent Accounting Pronouncements Pending Adoption

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


Standard	Description	Effective Date	Effect on Financial Statements and Other Significant Matters
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and ASU 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.	We ~~are currently evaluating~~do not expect that there will be a material impact to the ~~effect~~financial statements as a result of adopting these ~~standards will have on our financial position, results of operations and related disclosures.~~ASUs.

Note 2 – Earnings Per Share

We calculate basic and diluted earnings per share ~~(EPS) by dividing Net~~using the two-class method. Earnings per share under the two-class method is calculated using net income attributable to common 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. Diluted EPS reflects~~outstanding were 239,000 for 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.three months ended March 31, 2022.

~~Stock~~The table below presents the computation of earnings per share, including the reconciliation of basic and diluted weighted average shares outstanding (in thousands, except per share data):


	Three Months Ended
	March 31,
	2022		2021
Net income	$	179,261	$	98,655
Amounts allocated to participating securities	(1,051)		—
Net income attributable to common stockholders	$	178,210	$	98,655

Weighted average common shares outstanding:
Basic	39,932		40,215
Effect of dilutive securities:
Stock options and employee stock purchase plan	460		631
Diluted	40,392		40,846

Earnings per share attributable to common stockholders:
Basic	$	4.46	$	2.45
Diluted	$	4.41	$	2.42

Anti-dilutive stock options excluded from diluted earnings per share computations (1)	1		—

(1)Since these options ~~with~~have exercise prices that are higher than the average market prices of our common stock, ~~for~~including them in the ~~periods presented are excluded from the diluted EPS~~ calculation ~~because the~~would have an anti-dilutive effect ~~is anti-dilutive.~~

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

Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Net income $ 184,665 $ 119,098 $ 543,015 $ 307,565
Weighted average shares outstanding:
Basic 40,101 40,123 40,146 40,073
Effect of dilutive securities:
Stock options and employee stock purchase plan 590 716 620 776
Diluted 40,691 40,839 40,766 40,849
Earnings per share:
Basic $ 4.60 $ 2.97 $ 13.53 $ 7.68
Diluted $ 4.54 $ 2.92 $ 13.32 $ 7.53
Anti-dilutive stock options excluded from diluted earnings per share computations — — — —

on earnings per share.

Note 3 – Acquisitions

On December 16, 2021, we acquired Porpoise Pool & Patio, Inc. (“Porpoise”) for $788.7 million, net of cash acquired, subject to certain customary closing adjustments. The acquisition was funded with borrowings on our amended and restated revolving credit facility (the “Credit Facility”). Porpoise’s primary operations, Sun Wholesale Supply, Inc., a wholesale distributor of swimming pool and outdoor-living products, added 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, adding 1 location in Florida.

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

~~In December 2020,~~Other than the Porpoise acquisition, we ~~acquired the distribution assets of TWC Distributors, Inc., a wholesale distributor of irrigation and landscape maintenance products, adding 9 locations in Florida and 1 in Georgia.~~

In October 2020, we acquired Jet Line Products, Inc., a wholesale distributor of swimming pool equipment, chemicals and supplies, adding 3 locations in New Jersey, 3 locations in New York, 2 locations in Texas and 1 location in Florida.

In September 2020, we acquired the distribution assets of Northeastern Swimming Pool Distributors, Inc., a wholesale distributor of swimming pool equipment, chemicals and supplies, adding 2 locations in Ontario, Canada.

In February 2020, we acquired the distribution assets of Master Tile Network LLC, a wholesale distributor of swimming pool tile and hardscape products, adding 2 locations in Texas, 1 location in Nevada and 1 location in Oklahoma.

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, either individually or in the aggregate.~~

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

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,
2021 2020
Level 2
Unrealized gains on interest rate swaps $ 5,488 $ —
Unrealized losses on interest rate swaps 6,308 14,828
Level 3
Contingent consideration liabilities $ 983 $ 869


	Fair Value at March 31,
	2022		2021
Level 2
Unrealized gains on interest rate swaps	$	18,817	$	8,180
Unrealized losses on interest rate swaps	514		8,088

Level 3
Contingent consideration liabilities	$	600	$	993

Interest Rate Swaps

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 in effect and the fixed interest rates per our swap contracts as an adjustment to interest expense over the life of the swaps. To the extent our derivatives are effective in offsetting the variability of the hedged cash flows, we record the changes in the estimated fair value of our interest rate swap contracts to Accumulated other comprehensive ~~loss~~income (loss) on the Consolidated Balance Sheets.

We currently have three interest rate swap contracts in place, two of which became effective on 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 swap 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 is based on the fixed rates plus the applicable margin on our variable rate borrowings. Changes in the estimated fair value of these interest rate swap contracts are recorded to Accumulated other comprehensive ~~loss~~income (loss) on the Consolidated Balance Sheets.

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

Derivative

Inception Date

Effective Date

Termination Date

Notional Amount
(in millions)

Fixed Interest Rate

Interest rate swap 1

May 7, 2019

November 20, 2020

September 29, 2022

$75.0

2.0925%

Interest rate swap 2

July 25, 2019

November 20, 2020

September 29, 2022

$75.0

1.5500%

Interest rate swap 3

February 5, 2020

February 26, 2021

February 28, 2025

$150.0

1.3800%

For the interest rate swap contracts in effect at ~~September 30, 2021,~~March 31, 2022, a portion of the change in the estimated fair value between periods relates to future interest expense. Recognition of the change in fair value between periods attributable to accrued interest is reclassified from Accumulated other comprehensive ~~loss~~income (loss) on the Consolidated Balance Sheets to Interest and other non-operating expenses, net on the Consolidated Statements of Income. This amount was not material in the ~~nine-month~~three-month period ended ~~September 30, 2021.~~March 31, 2022.

109

We have entered into forward-starting interest rate swap contracts to extend the hedged period for future interest payments on our variable rate borrowings. These swap contracts will convert the variable interest rate to a fixed interest rate on our variable rate borrowings. Changes in the estimated fair value of these forward-starting interest rate swap contracts are recorded to Accumulated other comprehensive ~~loss~~income (loss) on the Consolidated Balance Sheets.

The following table provides details related to each of our forward-starting interest rate swap contracts:

Derivative

Inception Date

Effective Date

Termination Date

Notional
Amount
(in millions)

Fixed
Interest
Rate

Forward-starting interest rate swap 1

March 9, 2020

September 29, 2022

February 26, 2027

$150.0

0.7400%

Forward-starting interest rate swap 2

March 9, 2020

February 28, 2025

February 26, 2027

$150.0

0.8130%

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 be 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.

Nonrecurring Fair Value Measurements

In addition to our assets and liabilities that we measure at fair value on a recurring basis, our assets and liabilities are also subject to nonrecurring fair value measurements. Generally, our assets, including long-lived assets, goodwill and intangible assets, are recorded at fair value on a nonrecurring basis as a result of impairment charges or business combinations. In the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, we did not record any significant nonrecurring fair value measurements for assets or liabilities in 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. The carrying value of long-term debt approximates fair 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).

1110

Note 5 – Debt

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

September 30,
2021 2020
Variable rate debt
Short-term borrowings $ — $ —
Current portion of long-term debt:
Australian credit facility 10,744 11,709
Short-term borrowings and current portion of long-term debt 10,744 11,709
Long-term portion:
Revolving credit facility 170,255 40,876
Term facility 168,812 178,062
Receivables securitization facility 15,000 110,000
Less: financing costs, net 1,992 713
Long-term debt, net 352,075 328,225
Total debt $ 362,819 $ 339,934

~~Revolving Credit Facility~~


	March 31,
	2022		2021
Variable rate debt
Short-term borrowings	$	10,854	$	2,216
Current portion of long-term debt:
Australian credit facility	10,411		10,193
Short-term borrowings and current portion of long-term debt	21,265		12,409

Long-term portion:
Revolving credit facility	532,253		142,868
Term loan under credit facility	500,000		—
Term facility	164,188		173,438
Receivables securitization facility	290,000		105,000
Less: financing costs, net	2,633		544
Long-term debt, net	1,483,808		420,762
Total debt	$	1,505,073	$	433,171

On ~~September 27,~~January 4, 2022, we drew the $250.0 million incremental term loan available under our December 30, 2021 ~~we entered into the~~amendment to our Second Amended and Restated Credit Agreement (the “Credit Agreement”) among us, as U.S. Borrower, SCP Distributors Canada Inc., as Canadian Borrower, SCP International, Inc., as Euro Borrower, Wells Fargo Bank, National Association, as Administrative Agent (the “Agent”), and certain other lenders party thereto. The Credit Agreement amended and restated the predecessor senior credit facility (as amended, the “Credit Facility”) ~~principally by increasing~~and used the ~~total borrowing capacity from $750.0 million~~net proceeds to $1.0 billion through the addition of a delayed-draw term loan facility of $250.0 million. Under this term loan facility, we may draw term loans at any time prior to March 25, 2022. Any such term loans would require quarterly amortization payments aggregating to 20% of the original principal amount of the loan during the third, fourth and fifth years of the loan, with all remaining principal due on September 25, 2026. All other terms of any such term loans would be substantially similar to those governingreduce our revolving ~~credit loans under the Credit Agreement.~~

~~In addition, the Credit Agreement further amended and restated the Credit Facility in the following ways:~~

•~~extending the maturity of the Credit Facility from September 29, 2022 to September 25, 2026;~~

•~~making available lower interest rates;~~

•~~increasing the amount of incremental facility commitments that we can request from $75.0 million to $250.0 million; and~~

•~~providing additional capacity under certain negative covenants related to indebtedness, liens, investments, acquisitions, share repurchases and dividends.~~

All obligations under the Credit Agreement continue to be guaranteed on an unsecured basis by substantially all of our existing and future domestic subsidiaries. The Credit Agreement also continues to contain various customary affirmative and negative covenants and events of default. The occurrence of any of these events of default would permit the lenders to, among other things, require immediate payment of all amounts outstanding under the Credit Agreement.

~~Revolving~~ borrowings under the Credit ~~Facility bear interest, at our option, at either~~Facility. At March 31, 2022, $500.0 million of ~~the following and, in each case, plus an applicable margin:~~

a.a base rate, which is the highest of (i) the Agent's prime rate, (ii) the Federal Funds Rate plus 0.500% and (iii) (a) prior to the USD LIBOR Transition Date, the Adjusted Eurocurrency Rate for Dollars for a one-month term ~~in effect on such day plus 1.00% and (b) on and after the USD LIBOR Transition Date, Daily Simple RFR for Dollars in effect on such day plus 1.00%; or~~

b.~~(i) prior to the USD LIBOR Transition Date, the Eurocurrency Rate and (ii) on or after the USD LIBOR Transition Date or a Benchmark Transition Event, the applicable Benchmark Replacement.~~

~~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 Canadian Dealer Offered Rate (“CDOR”) plus 1.00%; or~~

b.~~CDOR.~~

~~Borrowings by the Euro Borrower bear interest at the Eurocurrency rate plus an applicable margin.~~

~~Borrowings under any swingline~~ loans available under the Credit Facility ~~bear interest, at our option, at either of the following and, in each case, plus an applicable margin:~~

a.~~the LIBOR Market Index Rate; or~~

b.a base rate, which is the highest of (i) the Agent's prime rate, (ii) the Federal Funds Rate plus 0.500% and (iii) (a) prior to the USD LIBOR Transition Date, the Adjusted Eurocurrency Rate for Dollars for a one-month term in effect on such day plus 1.00% and (b) on and after the USD LIBOR Transition Date, Daily Simple RFR for Dollars in effect on such day plus 1.00%.

The interest rate margins on borrowings and letters of credit issued under the Credit Agreement are based on our leverage ratio and will range from 0.000% to 0.425% on Base Rate and Canadian Base Rate loans and from 0.910% to 1.425% on CDOR, LIBOR and swingline loans (with all such rates being calculated in accordance with the terms and by reference to the definitions specified in the Credit Agreement). We are also required to pay an annual facility fee with respect to the lenders' aggregate revolving credit commitment, the amount of which is based on our leverage ratio.

~~Term Facility~~

On October 12, 2021, we entered into the First Amendment to the Credit Agreement (as amended, the “Term Facility Agreement”) among us, as Borrower and Bank of America, N.A., as the Lender. Among other items, the amendment provides additional capacity under certain negative covenants related to indebtedness, liens, investments, acquisitions, share repurchases and dividends.

All obligations under the Term Facility Agreement, which matures on December 30, 2026, continue to be guaranteed on an unsecured basis by substantially all of our existing and future domestic subsidiaries. The Term Facility Agreement also continues to contain various customary affirmative and negative covenants and events of default. The occurrence of any of these events of default would permit the lenders to, among other things, require immediate payment of all amounts outstanding under the Term Facility Agreement.

Borrowings under the term loan facility (the “Term Facility”) available under the Term Facility Agreement 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 greatest of (i) the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the business day next succeeding such day plus 0.50%, (ii) Bank of America's prime rate, or (iii) the Eurodollar Rate (defined below) plus 1.00%; or

b.the Eurodollar Rate, which is the greater of (i) the rate per annum equal to the USD LIBOR as administered by the ICE Benchmark Administration, or a comparable or successor administrator approved by the Lender or (ii) a floor rate specified in the Term Facility Agreement.

The interest rate margins on the borrowings under the Term Facility Agreement are based on our leverage ratio and will range from 0.000% to 0.625% on Base Rate borrowings and 1.000% to 1.625% on Eurodollar Rate borrowings (with all such rates being calculated in accordance with the terms and by reference to the definitions specified in the Term Facility Agreement).

~~Receivables Securitization Facility~~were fully drawn.

Our accounts receivable securitization facility (the “Receivables Facility”) provides for the sale of certain of our receivables to a wholly owned subsidiary (the “Securitization Subsidiary”). The Securitization Subsidiary transfers variable undivided percentage interests in the receivables and related rights to certain third-party financial institutions in exchange for cash proceeds, limited to the applicable funding capacities.

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-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.

~~Financial Covenants~~

Following their recent amendments, the Credit Facility and Term Facility continue to require us to maintain a maximum average total leverage ratio and a minimum fixed charge coverage ratio consistent with the terms in effect prior to the amendment.

As amended, 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 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 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 any of our debt facilities could result in higher interest rates on our borrowings or the acceleration of the maturities of our outstanding debt.

~~As of September 30, 2021, we were in compliance with all material covenants and financial ratio requirements under our Credit Facility, our Term Facility and our Receivables Facility.~~

1411

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 ~~2020~~2021 Annual Report on Form 10-K and with Management’s Discussion and Analysis in our ~~2020~~2021 Annual Report on Form 10-K.

For a discussion of our base business calculations, see the Results of Operations section below.

Forward-Looking Statements

This report contains forward-looking information that involves risks and uncertainties. Our forward-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 plans and objectives and industry, general economic and other forecasts of trends, future dividend payments and share repurchases, 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 statement 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; changes in the ~~economy and~~economy; consumer discretionary spending; the housing ~~market;~~market or inflation rates; our ability to maintain favorable relationships with suppliers and manufacturers; competition from other leisure product alternatives ~~and~~or mass 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 ~~2020~~2021 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 of 1995.

OVERVIEW

~~Impact of the COVID-19 Pandemic~~Financial Results

~~We continue to monitor the effects of the COVID-19 pandemic, which began impacting our business and the global economy~~Net sales increased 33% in the first quarter of ~~2020.~~

We are designated as an essential business in almost all of our markets. Our products are used to maintain and protect outdoor commercial, residential and municipal environments through chemically-balanced, virus and bacteria-free swimming pool water. We also supply products used in the prevention of runoff, flood, fire and other natural disasters. These products are essential to the health and safety of the general public. In limited instances, we have had to close facilities as a result of government regulations, as well as COVID-19 cases. The direct impact of any closures to date have not had a material impact on our operations.

Beginning in the middle of March 2020, when stay-at-home orders related to the COVID-19 pandemic were initially issued, we experienced sales declines across most markets. As stay-at-home restrictions eased in late April through early May, our business not only rebounded, but accelerated. Throughout the remainder of 2020, we experienced unprecedented demand as families spent more time at home and sought out opportunities to create or expand existing home-based outdoor living and entertainment spaces, and these trends have continued in 2021 to date. While this trend has had a positive impact on our financial performance over the past year and a half, it is unclear what the long-term impact will be. In addition, governmental restrictions in 2020 had a material impact on some of our customers, limiting their ability to operate in certain geographies for a short period of time.

Our balance sheet is strong with low leverage and sufficient access to additional capital. Supply disruptions have largely been limited to categories with the greatest demand (including heat-related equipment, chemicals, in-ground swimming pools and above-ground swimming pools) and have not had a material impact on our net sales. Beginning in the second quarter of 2021 and continuing through the third quarter, we have made significant investments in inventory to support increased demand and help manage potential supply chain disruptions that could negatively impact customer service. Continued impacts from the COVID-19 pandemic, coupled with heightened demand, could adversely impact our supply chain, making it difficult to source and receive products needed to keep our customers adequately supplied.

Given the uncertainties caused by the COVID-19 pandemic in 2020, we reduced capital expenditures and operating costs for labor, fuel, utilities, advertising, meetings, travel and entertainment. Capital expenditures in 2020 were $21.7 million or approximately 65% of 2019 capital expenditures. Although we have increased our capital spending in 2021, we expect our capital expenditures for the year to be lower than our historical average of 1.0% of net sales due to our significant sales growth. Our expense growth through the third quarter of 2021 was partially offset by lower discretionary spending for advertising, meetings, travel and entertainment, which we expect to continue through the end of the year as business travel activity lagged in the third quarter of 2021 with the onset of the Delta variant.

The health, safety and security of our employees has been, and remains, our highest priority. We have adapted our operations and implemented a number of measures to facilitate a safer sales center environment for both our customers and employees, which includes following best practices and guidelines from the Centers for Disease Control and Prevention (CDC). 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.

We expect the impact of the pandemic on our business and financial results in 2021 will continue to vary by location and depend on numerous evolving factors that we are not able to accurately predict. These factors include the duration and scope of the pandemic, global economic conditions during and after the pandemic, the re-institution of governmental actions that could restrict 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 Results~~

~~In the third quarter of 2021, net sales increased 24%~~2022 to $1.4 billion compared to $1.1 billion in the ~~third~~first quarter of ~~2020, while base~~2021. Base business sales grew ~~19%~~26%. ~~This growth is on top of 27% growth~~The increase in ~~the third quarter of last year, bringing~~ our ~~year-to-date net~~ sales ~~growth to $1.2 billion. Our sales~~reflects continued ~~to benefit from elevated~~strong demand for outdoor living products ~~along with favorable weather conditions. Our rigorous commitment~~in addition to ~~operating efficiency~~elevated price inflation of approximately 10% to 12%. Sales also benefited approximately 5% from both accelerated customer early buys and ~~capacity creation, along with our strategic focus on inventory purchases~~an extra selling day in the first quarter of 2022 compared to ~~serve demand has allowed us to fulfill our customers' high volumes.~~the first quarter of 2021.

Gross profit increased ~~34%~~49% to ~~$441.9~~$447.2 million in the ~~third~~first quarter of ~~2021~~2022 from ~~$328.7~~$301.1 million in the same period of ~~2020.~~2021. Base business gross profit improved ~~29%~~38% over the ~~third~~first quarter of ~~2020.~~2021. Gross margin increased ~~240~~330 basis points to ~~31.3%~~31.7% in the ~~third~~first quarter of ~~2021~~2022 compared to ~~28.9%~~28.4% in the ~~third~~first quarter of ~~2020,~~2021, while base business gross margin increased ~~250~~270 basis ~~points, primarily reflecting benefits from~~points. Our prior year strategic initiative to build inventory benefited our ~~supply chain management initiatives.~~

gross margin in the first quarter of 2022.

Selling and administrative expenses (operating expenses)~~, including the recovery of goodwill and other assets,~~ increased ~~13%~~23% to ~~$204.6~~$211.5 million in the third quarter of 2021 compared to $180.5 million in the third quarter of 2020, while base business operating expenses grew 7%, primarily due to growth-driven labor, facility and freight costs, along with increased investments in technology. In the third quarter of 2021, we recovered $1.4 million of a $2.5 million note impairment recorded in the first quarter of ~~2020.~~2022 compared to $172.1 million in the first quarter of 2021. Our operating expenses have increased as we expand our workforce and reward our employees through performance-based compensation. Other incremental operating expense increases relate to recent acquisitions, growth-driven facility and freight costs and increased investments in our digital transformation initiatives. As a percentage of net sales, operating expenses decreased to ~~14.5%~~15.0% in the ~~third~~first quarter of ~~2021~~2022 compared to ~~15.8%~~16.2% in the same period of ~~2020, reflecting continued strong expense control.~~2021.

Operating income in the ~~third~~first quarter of ~~2021~~2022 increased ~~60%~~83% to ~~$237.3~~$235.7 million compared to ~~$148.2~~$129.0 million in the same period in ~~2020.~~2021. Operating margin was ~~16.8%~~16.7% in the ~~third~~first quarter of ~~2021~~2022 compared to ~~13.0%~~12.2% in the ~~third~~first quarter of ~~2020 while base~~2021. Base business operating margin was ~~17.1%~~16.5%, up ~~410~~430 basis points from the prior year period.

We recorded a ~~$4.2~~$7.3 million, or ~~$0.10~~$0.18 per diluted share, tax benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, in the quarter ended ~~September 30, 2021,~~March 31, 2022, compared to a tax benefit of ~~$8.5~~$4.0 million, or ~~$0.21~~$0.10 per diluted share, realized in the same period of ~~2020.~~2021.

Net income increased ~~55%~~82% to ~~$184.7~~$179.3 million in the ~~third~~first quarter of ~~2021~~2022 compared to ~~$119.1~~$98.7 million in the ~~third~~first quarter of ~~2020.~~2021. Earnings per diluted share increased ~~55%~~82% to ~~$4.54~~$4.41 in the ~~third~~first quarter of ~~2021~~2022 compared to ~~$2.92~~$2.42 in the same period of ~~2020.~~2021. Without the impact from ASU 2016-09 in both periods, earnings per diluted share ~~increased 64% to $4.44~~was $4.23 in the ~~third~~first quarter of ~~2021~~2022 compared to ~~$2.71~~$2.32 in the ~~third~~first quarter of ~~2020.~~2021.

References to product line and product category data throughout this report generally reflect data related to the North American swimming pool market, as it 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 remains 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 and through the first quarter of 2022, 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 constrained supply chain dynamics in 2021, which has continued in the first quarter of 2022. 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 into the 2022 swimming pool season. 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

As of ~~September 30, 2021,~~March 31, 2022, total net receivables, including pledged receivables, increased ~~30%~~39% compared to ~~September 30, 2020,~~March 31, 2021, primarily driven by our sales growth and recent acquisitions. Our days sales outstanding (DSO), as calculated on a trailing four quarters basis, was ~~25.7~~26.4 days at ~~September 30, 2021~~March 31, 2022 and ~~27.6~~26.6 days at ~~September 30, 2020.~~March 31, 2021. Our allowance for doubtful accounts balance was ~~$5.4~~$6.0 million at ~~September 30, 2021~~March 31, 2022 and ~~$5.3~~$4.7 million at ~~September 30, 2020.~~March 31, 2021.

Net inventory levels increased ~~70%~~68% compared to levels at ~~September 30, 2020.~~March 31, 2021. We increased our purchasing beginning in the second half of 2021 to alleviate the impact of longer lead times from our vendors and ensure product availability for our customers. Our inventory balance ~~has increased as we have made significant investments in inventory throughout the year to support elevated demand~~also reflects impacts from inflation and ~~help manage potential supply chain disruptions that could negatively impact customer service.~~recent acquisitions. Our inventory reserve was ~~$15.7~~$19.8 million at ~~September 30, 2021~~March 31, 2022 and ~~$11.4~~$13.7 million at ~~September 30, 2020.~~March 31, 2021. Our inventory turns, as calculated on a trailing four quarters basis, were ~~3.8~~3.1 times at ~~September 30, 2021~~March 31, 2022 and ~~3.7~~4.0 times at ~~September 30, 2020.~~

Accrued expenses and other current liabilities increased 59% compared to September 30, 2020, primarily due to higher income tax payables. As allowed for companies impacted by Hurricane Ida, we deferred our 2021 third quarter estimated federal tax payment of $56.0 million, which will be paid in January 2022.March 31, 2021. Our inventory turns have averaged 3.4 times over the past five years.

Total debt outstanding at ~~September 30, 2021~~March 31, 2022 was ~~$362.8 million,~~$1.5 billion, up 7%$1.1 billion compared to total debt at ~~September 30, 2020.~~March 31, 2021. We ~~have used~~utilized debt proceeds ~~over the past 12 months primarily~~ to fund ~~business-driven~~investments in working capital ~~growth, acquisitions, payments of cash dividends~~ and ~~share repurchases.~~our 2021 acquisitions.

Current Trends and Outlook

For a detailed discussion of trends through ~~2020,~~2021, see the Current Trends and Outlook section of Management’s Discussion and Analysis included in Part II, Item 7 of our ~~2020~~2021 Annual Report on Form 10-K.

~~Upon reporting our results through the third quarter of 2021, we increased our 2021~~We expect 2022 diluted EPS ~~guidance range~~of $18.34 to ~~$14.85 to $15.35,~~$19.09, including the impact of year-to-date tax benefits of ~~$0.39.~~$0.18. Our previous ~~2021~~ earnings guidance range disclosed in our ~~Second Quarter~~ 2021 ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K was ~~$13.75~~$17.19 to ~~$14.25,~~$17.94, including an estimated $0.19 tax benefits of $0.29 for the first six months of 2021. We increased our range based on exceeding our third quarter expectations, along with expected continued gross margin improvement through the end of 2021.benefit. Our ~~2021~~ earnings guidance range assumes average weather ~~conditions and no adverse impacts from a resurgence of COVID-19 and related government responses.~~conditions.

We ~~project net~~expect sales growth ~~for~~at the higher end of the 17% to 19% range previously disclosed in our 2021 ~~to exceed 30% based~~Annual Report on ~~expectations of continued elevated demand trends, a solid backlog of customer projects and inflationary benefits.~~Form 10-K. We ~~estimate that sales will be favorably impacted by~~project 2022 inflationary product cost increases of 6%approximately 10% to 11% (compared to 7% ~~(above our historical average of 1%~~ to ~~2%), which we began to realize~~8% in the second quarter of 2021. Inflationary product costs had a greater impact in the third quarter of 2021, and we expect this to continue through the end of the year. Impacts from the COVID-19 pandemic, coupled with heightened demand, could adversely impact our supply chain, making it difficult to source and receive products needed to keep our customers adequately supplied. To address known and anticipated supply chain constraints, beginning in the second quarter of 2021 and into the third quarter, we have made significant investments in inventory in product areas where we forecasted continued high demand. Our strong inventory position has allowed us to gain share and to continue to provide exceptional service in a high demand and tight supply chain environment.2021).

~~Based~~Our gross margin trends depend on ~~our supply chain management efforts implemented during~~ the ~~second quarter~~amounts and timing of ~~2021, coupled with the current~~ inflationary ~~environment, we believe~~price increases, sales growth expectations and product mix. We expect relatively neutral gross margin trends for the full year of ~~2021 has the potential to increase more than 170 basis points~~2022 compared to the full year of ~~2020.~~2021. Compared to 2021 periods, we project a modest improvement in the second quarter of 2022 and 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 ~~expenses to~~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 ~~growth expectations. Combined with purposeful expense management, we believe this will drive operating margin improvement of 350 basis points for the full year of 2021 compared to 2020.~~center network. We expect ~~performance-based compensation for the full year of 2021 to increase approximately $15 million~~increased expenses from ~~2020 due to~~tight labor and real estate markets in 2022, which are heightened focus areas in our ~~projected 2021 net sales growth with most of this increase recognized through the third quarter of 2021 based on year-to-date results.~~expense management.

We project that our annual effective tax rate (without the benefit from ASU 2016-09) for ~~2021~~2022 will approximate ~~25.0%, which is consistent with 2020. Due to ASU 2016-09, we~~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. We recorded a ~~$15.9~~$7.3 million, or ~~$0.39~~$0.18 per diluted share, tax benefit from ASU 2016-09 for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. We may recognize additional tax benefits related to stock option exercises in ~~2021~~2022 from grants that expire in future years. We have not included any expected tax benefits in our guidance beyond what we have recognized as of ~~September 30, 2021.~~March 31, 2022.

We have made significant investments in inventory throughout the year to support increased demand and help manage potential supply chain disruptions that could negatively impact customer service. While these investments will negatively impact our cash provided by operations in 2021, we believe that our investments in inventory will provide benefits to our customers and favorably impact our gross margin through the end of this year and into at least the first quarter of next year. We expect to continue to use cash to fund opportunistic share repurchases through the remainder of ~~2021. We also expect~~2022 and to use cash for the payment of cash dividends as and when declared by our Board of Directors ~~(the~~(our Board).

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

RESULTS OF OPERATIONS

As of ~~September 30, 2021,~~March 31, 2022, we conducted operations through ~~409~~414 sales centers in North America, Europe and Australia. For the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, approximately 94% 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 Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020			2022		2021
Net sales	Net sales	100.0	%	100.0	%	100.0	%	100.0	%	Net sales	100.0	%	100.0	%
Cost of sales	Cost of sales	68.7		71.1		69.6		71.2		Cost of sales	68.3		71.6
Gross profit	Gross profit	31.3		28.9		30.4		28.8		Gross profit	31.7		28.4
Selling and administrative expenses	Selling and administrative expenses	14.6		15.8		13.9		16.0		Selling and administrative expenses	15.0		16.2
(Recovery) impairment of goodwill and other assets		(0.1)		—		—		0.2

Operating income	Operating income	16.8		13.0		16.5		12.6		Operating income	16.7		12.2
Interest and other non-operating expenses, net	Interest and other non-operating expenses, net	0.2		0.2		0.2		0.3		Interest and other non-operating expenses, net	0.4		0.2
Income before income taxes and equity earnings		16.6	%	12.8	%	16.4	%	12.3	%
Income before income taxes and equity in earnings										Income before income taxes and equity in earnings	16.3	%	11.9	%

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 acquisitions in ~~2021~~2022 and ~~2020~~2021 in our consolidated results since the acquisition dates.

1814

Three Months Ended ~~September 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~September 30, 2020~~March 31, 2021

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 Business Excluded Total
(in thousands) Three Months Ended Three Months Ended Three Months Ended
September 30, September 30, September 30,
2021 2020 2021 2020 2021 2020
Net sales $ 1,348,758 $ 1,136,946 $ 62,690 $ 2,283 $ 1,411,448 $ 1,139,229
Gross profit 423,238 328,140 18,661 558 441,899 328,698
Gross margin 31.4 % 28.9 % 29.8 % 24.4 % 31.3 % 28.9 %
Operating expenses (1)
192,061 179,990 12,562 475 204,623 180,465
Expenses as a % of net sales 14.2 % 15.8 % 20.0 % 20.8 % 14.5 % 15.8 %
Operating income (1)
231,177 148,150 6,099 83 237,276 148,233
Operating margin 17.1 % 13.0 % 9.7 % 3.6 % 16.8 % 13.0 %

~~(1)Base business and total reflect a $1.4 million recovery of goodwill and other assets in 2021.~~


(Unaudited)	Base Business						Excluded						Total
(in thousands)	Three Months Ended						Three Months Ended						Three Months Ended
	March 31,						March 31,						March 31,
	2022			2021			2022			2021			2022			2021
Net sales	$	1,328,126		$	1,057,782		$	84,524		$	2,963		$	1,412,650		$	1,060,745

Gross profit	413,278			300,439			33,911			692			447,189			301,131
Gross margin	31.1		%	28.4		%	40.1		%	23.4		%	31.7		%	28.4		%

Operating expenses	193,927			171,285			17,539			815			211,466			172,100
Expenses as a % of net sales	14.6		%	16.2		%	20.8		%	27.5		%	15.0		%	16.2		%

Operating income (loss)	219,351			129,154			16,372			(123)			235,723			129,031
Operating margin	16.5		%	12.2		%	19.4		%	(4.2)		%	16.7		%	12.2		%

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

Periods

Excluded

Porpoise Pool & Patio, Inc.

December 2021

January - March 2022

Wingate Supply, Inc.

December 2021

January - March 2022

Vak Pak Builders Supply, Inc.

June 2021

~~July~~January - ~~September 2021~~March 2022

Pool Source, LLC

April 2021

~~July~~January - ~~September 2021~~March 2022

TWC Distributors, Inc.

December 2020

~~July~~January - ~~September~~February 2022 and January - February 2021

~~Jet Line Products, Inc.~~

~~October 2020~~

~~July - September 2021~~

~~Northeastern Swimming Pool Distributors, Inc.~~

~~September 2020~~

~~July - September 2021 and September 2020~~

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 ~~nine~~three months of ~~2021:~~2022:


December 31, ~~2020~~2021			~~398~~410
~~Acquired locations~~			2
New locations			104
~~Consolidated location~~			~~(1)~~
~~September 30, 2021~~March 31, 2022			~~409~~414

1915

Net Sales


		Three Months Ended								Three Months Ended
		September 30,								March 31,
(in millions)	(in millions)	2021		2020		Change			(in millions)	2022		2021		Change
Net sales	Net sales	$	1,411.4	$	1,139.2	$	272.2	24%	Net sales	$	1,412.7	$	1,060.7	$	352.0	33%

Net sales increased ~~24%~~33% in the ~~third~~first quarter of ~~2021~~2022 compared to the ~~third~~first quarter of ~~2020,~~2021, while base business net sales grew ~~19%~~26% over the same period. ~~Our sales in the third quarter of 2021 continued to benefit from elevated demand for our outdoor living products along with favorable weather conditions.~~

The following factors benefited our sales (listed in order of estimated magnitude):

•strong demand for discretionary products, as evidenced by improvements in sales growth rates for product offerings such as equipment and building materials (see discussion below);

•market share gains, including those in building materials (see discussion below);

•increased demand for residential swimming pool maintenance supplies due to increased usage, as evidenced by improvements in sales growth rates to retail customers (see discussion below);

•~~market share gains, including those in building materials (see discussion below);~~

•inflationary product cost increases of approximately 10 to 12%;

•7% ~~(compared to our historical average of 1% to 2%);~~sales growth from recent acquisitions; and

•5% sales growth from ~~recent acquisitions.~~both accelerated customer early buys and an extra selling day in the first quarter of 2022 compared to the first quarter of 2021.

Higher sales growth rates for certain product offerings, such as equipment and building materials, reflect ~~increased spending~~continued strong demand in traditionally discretionary areas, such as pool construction, pool remodeling and equipment upgrades. In the ~~third~~first quarter of ~~2021,~~2022, sales for equipment, which includes swimming pool heaters, pumps, lights, filters and automation, increased ~~23%~~18% compared to the same period last year, and collectively represented approximately ~~28%~~29% of net sales for the period. Sales of building materials grew ~~24%~~29% compared to the ~~third~~first quarter of ~~2020~~2021 and represented approximately ~~12%~~14% of net sales in the ~~third~~first quarter of 2022.

In the first quarter of 2022, sales for chemicals, representing 9% of total net sales, increased 58% compared to the first quarter of 2021. The increase in chemicals was driven by inflation, improved supply and strong demand for non-discretionary maintenance products.

Sales to customers who service large commercial installations and specialty retailers that sell swimming pool supplies are included in the appropriate existing product categories, and growth in these areas is reflected in the numbers in the ~~paragraph~~paragraphs above. Sales to retail customers increased ~~16%~~27% in the ~~third~~first quarter of 2022 compared to the first quarter of 2021 ~~compared to the third quarter of 2020~~ and represented approximately ~~11%~~10% of our net sales for the ~~third~~first quarter of ~~2021.~~2022. Sales to commercial customers increased ~~25%~~34% in the ~~third~~first quarter of 2022 compared to the first quarter of 2021 ~~compared to the third quarter of 2020, as business~~ and ~~leisure travel improved in 2021 as public facilities reopened following COVID-19 related closures in 2020. Sales to commercial customers~~ represented approximately 3%4% of our net sales for the ~~third~~first quarter of ~~2021.~~2022.

Gross Profit


		Three Months Ended										Three Months Ended
		September 30,										March 31,
(in millions)	(in millions)	2021			2020			Change			(in millions)	2022			2021			Change
Gross profit	Gross profit	$	441.9		$	328.7		$	113.2	34%	Gross profit	$	447.2		$	301.1		$	146.1	49%
Gross margin	Gross margin	31.3		%	28.9		%				Gross margin	31.7		%	28.4		%

Gross margin increased ~~240~~330 basis points to ~~31.3%~~31.7% in the ~~third~~first quarter of ~~2021~~2022 compared to ~~28.9%~~28.4% in the ~~third~~first quarter of ~~2020. Gross~~2021. Base business gross margin ~~was~~increased 270 basis points. Our prior year strategic initiative to build inventory benefited our gross margin in the first quarter of 2022. Product mix and continued positive impacts from our ongoing pricing efforts also favorably impacted ~~by benefits from focused supply chain management initiatives during this inflationary environment and improvements in rates earned under~~ our ~~vendor programs due to increased inventory purchases.~~gross margin.

2016

Operating Expenses


		Three Months Ended										Three Months Ended
		September 30,										March 31,
(in millions)	(in millions)	2021			2020			Change			(in millions)	2022			2021			Change
Selling and administrative expenses	Selling and administrative expenses	$	206.0		$	180.5		$	25.5	14%	Selling and administrative expenses	$	211.5		$	172.1		$	39.4	23%
Recovery of goodwill and other assets		(1.4)			—			(1.4)		(100)%

Operating expenses as a % of net sales	Operating expenses as a % of net sales	14.5		%	15.8		%				Operating expenses as a % of net sales	15.0		%	16.2		%

Operating expenses ~~including the recovery of goodwill and other assets,~~ increased 13% in the third quarter of 2021 compared to the third quarter of 2020, while base business operating expenses grew 7%, primarily due to growth-driven labor, facility and freight costs along with increased investments in technology. In the third quarter of 2021, we recovered $1.4 million of a $2.5 million note impairment recorded23% in the first quarter of ~~2020.~~2022 compared to the first quarter of 2021. Our compensation expense has increased as we expand our workforce and reward our employees through performance-based compensation. Other incremental operating expense increases relate to recent acquisitions, growth-driven facility and freight costs and increased investments in our digital transformation initiatives. As a percentage of net sales, operating expenses decreased to ~~14.5%~~15.0% in the ~~third~~first quarter of ~~2021~~2022 compared to ~~15.8%~~16.2% in the same period of ~~2020, reflecting continued strong expense control.~~

~~Interest and Other Non-Operating Expenses, Net~~

Interest and other non-operating expenses, net for the third quarter of 2021 increased $0.5 million compared to the third quarter of 2020. Our weighted average effective interest rate increased to 2.8% for the third quarter of 2021 from 1.9% for the third quarter of 2020 on average outstanding debt of $354.3 million versus $331.5 million for the respective periods.

~~Income Taxes~~

Our effective income tax rate was 21.4% for the three months ended September 30, 2021 compared to 18.7% for the three months ended September 30, 2020. We recorded a $4.2 million tax benefit from ASU 2016-09 in the quarter ended September 30, 2021 compared to a tax benefit of $8.5 million realized in the same period last year. Without the benefits from ASU 2016-09, our effective tax rate was 23.2% for the third quarter of 2021 and 24.5% for the third quarter of 2020. Our third quarter effective income tax rate is typically lower compared to other quarters due to the timing of our accounting for uncertain tax positions, including the expiration of statutes of limitations.

~~Net Income and Earnings Per Share~~

Net income increased 55% to $184.7 million in the third quarter of 2021 compared to $119.1 million in the third quarter of 2020. Earnings per diluted share increased 55% to $4.54 in the third quarter of 2021 compared to $2.92 in the same period of 2020. Without the impact from ASU 2016-09 in both periods, earnings per diluted share increased 64% to $4.44 in the third quarter of 2021 compared to $2.71 in the third quarter of 2020.

~~Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020~~

~~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 Business Excluded Total
(in thousands) Nine Months Ended Nine Months Ended Nine Months Ended
September 30, September 30, September 30,
2021 2020 2021 2020 2021 2020
Net sales $ 4,052,044 $ 3,091,270 $ 207,983 $ 6,092 $ 4,260,027 $ 3,097,362
Gross profit 1,237,728 889,494 56,988 2,313 1,294,716 891,807
Gross margin 30.5 % 28.8 % 27.4 % 38.0 % 30.4 % 28.8 %
Operating expenses (1)
549,913 500,196 39,910 1,934 589,823 502,130
Expenses as a % of net sales 13.6 % 16.2 % 19.2 % 31.7 % 13.8 % 16.2 %
Operating income (1)
687,815 389,298 17,078 379 704,893 389,677
Operating margin 17.0 % 12.6 % 8.2 % 6.2 % 16.5 % 12.6 %

~~(1)Base business and total reflect a $1.4 million recovery of goodwill and other assets in 2021 and $6.9 million of impairment from goodwill and other assets recorded in the first quarter of 2020.~~

~~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~~

~~Vak Pak Builders Supply, Inc.~~

~~June 2021~~

~~June - September 2021~~

~~Pool Source, LLC~~

~~April 2021~~

~~April - September 2021~~

~~TWC Distributors, Inc.~~

~~December 2020~~

~~January - September 2021~~

~~Jet Line Products, Inc.~~

~~October 2020~~

~~January - September 2021~~

~~Northeastern Swimming Pool Distributors, Inc.~~

~~September 2020~~

~~January - September 2021 and September 2020~~

~~Master Tile Network LLC~~

~~February 2020~~

~~January - May 2021 and February - May 2020~~

~~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, 2020, please refer to the discussion under the heading~~ ~~Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020.~~

~~Net Sales~~

Nine Months Ended
September 30,
(in millions) 2021 2020 Change
Net sales $ 4,260.0 $ 3,097.4 $ 1,162.6 38%

Net sales for the first nine months of 2021 increased 38% compared to the same period last year, while base business net sales increased 31%. During the first nine months of 2021, maintenance, refurbishment and construction activity remained strong as families continued to create and expand home-based outdoor living spaces. Through the third quarter of 2021, households continued to invest in outdoor living spaces, contributing to the robust demand for our products and yielding sales gains across nearly all categories.

~~The following factors benefited our sales (listed in order of estimated magnitude):~~

•~~strong demand for discretionary products, as evidenced by improvements in sales growth rates for product offerings such as equipment and building materials (see discussion below);~~

•increased demand for residential swimming pool maintenance supplies due to earlier pool openings and increased usage, as evidenced by improvements in sales growth rates to retail customers (see discussion below);

•~~market share gains, including those in building materials (see discussion below);~~

•~~7% sales growth from recent acquisitions; and~~

•~~inflationary product cost increases of approximately 6% to 7% (compared to our historical average of 1% to 2%).~~

We believe that sales growth rates for certain product offerings, such as equipment, building materials and above-ground pools and spas, evidence increased spending in traditionally discretionary areas, such as pool construction, pool remodeling and equipment upgrades. In the first nine months of 2021, sales for equipment, which includes swimming pool heaters, pumps, lights, filters and automation, increased approximately 39% compared to the same period last year. Equipment collectively represented 28% of net sales in the first nine months of 2021. ~~Sales of building materials grew 30% compared to the first nine months of 2020 and represented approximately 11% of net sales in the first nine months of 2021.~~

Sales to customers who service large commercial installations and specialty retailers that sell swimming pool supplies are included in the appropriate existing product categories, and growth in these areas is reflected in the numbers in the paragraph above. In the first nine months of 2021, sales to retail customers increased 21% and represented approximately 13% of our consolidated net sales. Sales to commercial customers increased 24% in the first nine months of 2021, as business and leisure travel improved in 2021 as public facilities reopened following COVID-19 related closures in 2020. Sales to commercial customers represented approximately 3% of our consolidated net sales in the first nine months of 2021.

~~Gross Profit~~

Nine Months Ended
September 30,
(in millions) 2021 2020 Change
Gross profit $ 1,294.7 $ 891.8 $ 402.9 45%
Gross margin 30.4 % 28.8 %

Gross margin improved 160 basis points to 30.4% in the nine months ended September 30, 2021 compared to 28.8% in the first nine months of 2020. This improvement primarily reflects focused supply chain management initiatives to address inflation, with most of the year-to-date benefits realized in the second and third quarters of 2021. Also, with our increased purchase volumes, improvements in rates earned under our vendor programs benefited our gross margin compared to the same period in 2020.

~~Operating Expenses~~

Nine Months Ended
September 30,
(in millions) 2021 2020 Change
Selling and administrative expenses $ 591.2 $ 495.2 $ 96.0 19%
(Recovery) impairment of goodwill and other assets (1.4) 6.9 (8.3) (120)%
Operating expenses as a % of net sales 13.8 % 16.2 %

Operating expenses, including the recovery of goodwill and other assets in 2021 and impairment in 2020, for the nine months ended September 30, 2021 increased 17% compared to the first nine months of 2020. In the first quarter of 2020, we recorded impairment charges of $6.9 million, which included $2.5 million from a note and non-cash goodwill and intangibles impairment charges of $4.4 million. In the third quarter of 2021, we recovered $1.4 million of the previously impaired note. Without the impact of the recovery in 2021 and the prior year impairment charges, operating expenses were up 19%, primarily due to growth-driven labor, performance-based compensation, facility and freight costs along with increased investments in technology.

Interest and Other Non-Operating Expenses, Net

Interest and other non-operating expenses, net for the first ~~nine months~~quarter of ~~2021 decreased $2.4~~2022 increased $2.6 million compared to the ~~same period last year.~~first quarter of 2021, primarily due to higher average debt levels between periods. Our average outstanding debt was $1.3 billion in the first quarter of 2022 versus $397.3 million for the first quarter of 2021. Our weighted average effective interest rate ~~increased~~decreased to ~~2.6% for the first nine months of 2021~~1.5% from 2.2% ~~for the same period of 2020 on average outstanding debt of $376.2 million versus $439.4 million~~ for the respective periods.

Income Taxes

Our effective income tax rate was ~~22.2%~~22.3% for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 compared to ~~19.2%~~22.0% for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. We recorded a ~~$15.9~~$7.3 million ~~or $0.39 per diluted share,~~ tax benefit from ASU 2016-09 in the ~~nine months~~quarter ended ~~September 30, 2021~~March 31, 2022 compared to a ~~$22.6~~tax benefit of $4.0 million ~~or $0.55 per diluted share, tax benefit~~realized in the same period ~~of 2020.~~last year. Without the ~~benefits~~benefit from ASU 2016-09 in both periods, our effective tax rate was ~~24.5%~~25.4% for the ~~nine months ended September 30, 2021~~first quarter of 2022 and 25.2% for the ~~nine months ended September 30, 2020.~~first quarter of 2021.

Net Income and Earnings Per Share

Net income increased ~~77%~~82% to ~~$543.0~~$179.3 million ~~for~~in the ~~nine months ended September 30, 2021~~first quarter of 2022 compared to ~~the nine months ended September 30, 2020. Adjusted net income for~~$98.7 million in the first ~~nine months~~quarter of ~~2021, without the note recovery in 2021 and the prior year impact of non-cash impairments, both net of tax, increased 73%.~~2021. Earnings per diluted share increased to $13.32 for the nine months ended September 30, 2021 versus $7.53 per diluted share for the nine months ended September 30, 2020. Adjusted diluted EPS (as calculated in the reconciliation below) increased 81% to $12.90 for the nine months ended September 30, 2021 compared to $7.13 for the nine months ended September 30, 2020. See the reconciliation of GAAP to non-GAAP measures below.

~~Reconciliation of Non-GAAP Financial Measures~~

~~Adjusted Income Statement Information~~

We have included adjusted net income and adjusted diluted EPS, which are non-GAAP financial measures, as supplemental disclosures, because we believe these measures are useful to investors and others in assessing our period-to-period operating performance.

Adjusted net income and adjusted diluted EPS are key measures used by management to demonstrate the impact of our non-cash and non-recurring charges and to provide investors and others with additional information about our potential future operating performance to supplement GAAP measures.

We believe these measures should be considered in addition to, not as a substitute for, net income and diluted EPS presented in accordance with GAAP, respectively, and in the context of our other disclosures within this Form 10-Q. Other companies may calculate these non-GAAP financial measures differently than we do, which may limit their usefulness as comparative measures.

~~The table below presents a reconciliation of net income to adjusted net income.~~

(Unaudited) Nine Months Ended
(in thousands) September 30,
2021 2020
Net income $ 543,015 $ 307,565
(Recovery) impairment of goodwill and other assets (1,400) 6,944
Tax impact on (recovery) impairment of note (1)
351 (654)
Adjusted net income $ 541,966 $ 313,855

~~(1)~~As described in our First Quarter 2020 Quarterly Report on Form 10-Q, our effective tax rate at March 31, 2020 was a 0.1% benefit. Excluding impairment from goodwill and intangibles and tax benefits from ASU 2016-09 recorded$4.41 in the first quarter of ~~2020, our effective tax rate for~~2022 compared to $2.42 in the same period of 2021. Without the impact from ASU 2016-09 in both periods, earnings per diluted share increased 82% to $4.23 in the first quarter of ~~2020 was 25.4%, which we used~~2022 compared to ~~calculate~~$2.32 in the ~~tax impact related to the $2.5 million note impairment.~~

~~The table below presents a reconciliation~~first quarter of ~~diluted EPS to adjusted diluted EPS.~~

(Unaudited) Nine Months Ended
September 30,
2021 2020
Diluted EPS $ 13.32 $ 7.53
After-tax non-cash (recovery) impairment charges (0.03) 0.15
Adjusted diluted EPS excluding after-tax (recovery) impairment charges 13.29 7.68
ASU 2016-09 tax benefit (0.39) (0.55)
Adjusted diluted EPS excluding after-tax (recovery) impairment charges and tax benefit $ 12.90 $ 7.13
2021.

2517

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 installations and maintenance. Sales are ~~substantially~~ lower during the first and fourth ~~quarters, when we may incur net losses.~~quarters. In ~~2020,~~2021, we generated approximately ~~61%~~60% of our net sales and ~~76%~~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 third quarters~~quarter of ~~2021,~~2022, the four quarters of ~~2020~~2021 and the fourth, ~~quarter~~third and second quarters of ~~2019.~~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 (and recent pandemic-driven increased demand for our products), the~~The results of any one or more quarters are not necessarily a good indication of results for an entire fiscal year or of continuing future ~~trends.~~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)	(Unaudited)	QUARTER																(Unaudited)	QUARTER
(in thousands)	(in thousands)	2021						2020								2019		(in thousands)	2022		2021								2020
		Third		Second		First		Fourth		Third		Second		First		Fourth			First		Fourth		Third		Second		First		Fourth		Third		Second
Statement of Income Data	Statement of Income Data																	Statement of Income Data
Net sales	Net sales	$	1,411,448	$	1,787,833	$	1,060,745	$	839,261	$	1,139,229	$	1,280,846	$	677,288	$	582,234	Net sales	$	1,412,650	$	1,035,557	$	1,411,448	$	1,787,833	$	1,060,745	$	839,261	$	1,139,229	$	1,280,846
Gross profit	Gross profit	441,899		551,685		301,131		239,095		328,698		373,481		189,629		162,050		Gross profit	447,189		322,376		441,899		551,685		301,131		239,095		328,698		373,481
Operating income	Operating income	237,276		338,586		129,031		74,351		148,233		205,857		35,588		25,798		Operating income	235,723		127,891		237,276		338,586		129,031		74,351		148,233		205,857
Net income	Net income	184,665		259,695		98,655		59,174		119,098		157,555		30,912		18,024		Net income	179,261		107,609		184,665		259,695		98,655		59,174		119,098		157,555

Balance Sheet Data	Balance Sheet Data																	Balance Sheet Data
Total receivables, net	Total receivables, net	$	476,150	$	585,566	$	487,602	$	289,200	$	366,412	$	453,405	$	345,915	$	226,539	Total receivables, net	$	679,927	$	376,571	$	476,150	$	585,566	$	487,602	$	289,200	$	366,412	$	453,405
Product inventories, net	Product inventories, net	1,043,407		894,654		977,228		780,989		612,824		628,418		858,190		702,274		Product inventories, net	1,641,155		1,339,100		1,043,407		894,654		977,228		780,989		612,824		628,418
Accounts payable	Accounts payable	414,156		439,453		634,998		266,753		268,412		346,272		517,620		261,963		Accounts payable	685,946		398,697		414,156		439,453		634,998		266,753		268,412		346,272
Total debt	Total debt	362,819		423,116		433,171		416,018		339,934		438,804		586,050		511,407		Total debt	1,505,073		1,183,350		362,819		423,116		433,171		416,018		339,934		438,804

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.

2618

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.


Weather		Possible 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

Unseasonably cool weather or extraordinary amounts	•	Fewer pool and irrigation and landscape
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	•	A longer pool and landscape season, thus positively
trends in fall		impacting our sales
(primarily in the northern half of the U.S. and Canada)

Unseasonably late warming trends in spring/early cooling	•	A shorter pool and landscape season, thus negatively
trends in fall		impacting our sales
(primarily in the northern half of the U.S. and Canada)

Weather Impacts on ~~2021~~2022 and ~~2020~~2021 Results

~~Generally favorable~~Overall, weather conditions benefited sales in the third quarter of 2021. Temperatures ranged from above-average to substantially above-average throughout most of the contiguous United States with September being the fifth warmest on record. Precipitation was below-average in most of the western half of the United States and normal to above-average in the eastern half. Likewise, results in the third quarter of 2020 were favorably impacted by above-average temperatures and below-average precipitation.

Overall, varied weather conditions in the second quarter of 2021 favorably impacted our sales growth. While the southern states saw mild temperatures and above-average precipitation, the western states, particularly California, experienced severely high temperatures and drought. The average U.S. temperature in June was the hottest on record in 127 years. Comparatively, in the second quarter of 2020, we observed generally mild weather conditions with warmer weather throughout the western United States.

~~Sales~~ in the first quarter of ~~2021~~2022 were less favorable than weather conditions in the first quarter of 2021. Sales benefited from above-average temperatures along much of the west and the east coast, although Texas experienced cooler-than-normal temperatures. In addition, some seasonal markets had unfavorable weather compared to first quarter of 2021 when construction activity started earlier than normal. Similarly, results in Europe were hindered by unfavorable weather conditions. In the first quarter of 2021, sales benefited from favorable and generally mild weather conditions throughout the contiguous 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 ~~the existing,~~already strong replacement ~~opportunity in that market. In contrast, sales in the first quarter of 2020 benefited from much above-average temperatures throughout the United States, particularly in the southern United States.~~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 assumptions about matters that are inherently and highly uncertain at the time the estimates are made; and

•those for which changes in the estimates 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 ~~2020~~2021 Annual Report on Form 10-K. We have not changed any of these policies from those previously disclosed in that report.

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;

•the quality of our receivables;

•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 obligations, debt repayment obligations and other general corporate 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. We have funded our capital expenditures and share repurchases in substantially the same manner.

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

•capital expenditures primarily for maintenance and growth of our sales center network, technology-related investments and fleet vehicles;

•inventory and 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-authorized share repurchase program.

We 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 approximate our historical average of 1.0% of net sales. Capital expenditures were 0.7% of net sales in 2021, 0.6% of net sales in 2020 and 1.0% of net sales in 2019 and ~~1.1% of net sales in 2018. Over the last five years, capital expenditures~~ have averaged roughly 1.0% of net ~~sales. Capital expenditures in 2020 were lower than our historical average due to cost-saving measures implemented at~~sales over the beginning of the COVID-19 pandemic. Although we have increased our capital spending in 2021, we expect our capital expenditures for the year to be lower than our historical average of 1.0% of net sales due to our significant sales growth.past five years.

Sources and Uses of Cash

The following table summarizes our cash flows (in thousands):


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2021		2020			2022		2021
Operating activities	Operating activities	$	359,065	$	388,914	Operating activities	$	(208,109)	$	77,113
Investing activities	Investing activities	(42,110)		(41,552)		Investing activities	(9,159)		(9,522)
Financing activities	Financing activities	(267,765)		(300,161)		Financing activities	228,717		(75,194)

Net cash used in operations was $208.1 million for the first three months of 2022 compared to net cash provided by operations of ~~$359.1~~$77.1 million for the first ~~nine~~three months of ~~2021 decreased $29.8~~2021. The decrease in our operating cash flows was driven by incremental net working capital outflows, which reflect increased inventory purchases and other working capital changes due to our sales growth and recent acquisitions. In addition, our operating cash flows were impacted by federal tax payments of $79.5 million ~~compared to~~in the first ~~nine months~~quarter of ~~2020, primarily reflecting our supply chain investments~~2022, which were allowed to be deferred and included in ~~inventory to enable us to continue to meet strong customer demand.~~accrued expenses and other liabilities at December 31, 2021.

Net cash used in investing activities for the first ~~nine~~three months of ~~2021 increased~~2022 decreased slightly compared to the first ~~nine~~three months of ~~2020. Capital expenditures increased $7.3 million year-over year following the delay in capital spending last year~~2021 due to ~~the onset of the COVID-19 pandemic, while~~a decrease in cash used for the acquisition of businesses ~~decreased $6.8~~of $0.7 million, offset by an increase in capital expenditures of $0.3 million.

Net cash provided by financing activities increased $303.9 million to $228.7 million for the first ~~nine~~three months of ~~2021~~2022 compared to ~~the first nine months of 2020.~~

~~Net~~net cash used in financing activities ~~was $267.8~~of $75.2 million for the first ~~nine~~three months of ~~2021 compared to $300.2 million for the first nine months of 2020, which~~2021. The increase in cash provided by financing activities reflects a ~~$119.9~~$304.4 million increase in net debt proceeds and a $9.1 million decrease in ~~net debt payments, additional~~ share repurchases, ~~of $61.8 million and~~partially offset by an increase in dividends paid of ~~$18.9 million during the first nine months of 2021.~~$8.8 million.

Future Sources and Uses of Cash

~~Revolving~~ Credit Facility

~~On September 27,~~Our Credit Facility, as amended through December 30, 2021, ~~we amended and restated our 2017 credit agreement (as amended, the “Credit Agreement”) to extend its maturity date from September 29, 2022 to September 25, 2026, and to increase our~~provides for $1.25 billion in borrowing capacity ~~from~~consisting of a $750.0 million ~~to $1.0 billion through the addition of~~five-year unsecured revolving credit facility and a ~~delayed-draw~~$500.0 million term loan facility. The Credit Facility includes a $750.0 million revolving credit facility and sublimits for the issuance of ~~$250.0 million. Under this term loan facility, we may draw~~swingline loans and standby letters of credit. The term loans ~~at any time prior to March 25, 2022. Any such term loans would~~ require quarterly amortization payments aggregating to 20% of the original principal amount of the loan during the third, fourth and fifth years of the loan, with all remaining principal due on the Credit Facility maturity date of September 25, 2026. All other terms of any such term loans would be substantially similar to those governing revolving credit loans under the Credit Agreement. Under the Credit Agreement, we continue to have access to a $750 million unsecured revolving credit facility (the “Credit Facility”) on substantially the same terms and subject to the same sublimits for swingline loans and standby letters of credit as in the past, other than the amendments described below.

~~The Credit Agreement further amended and restated the Credit Facility in the following ways:~~

•~~making available lower interest rates;~~

•~~increasing the amount of incremental facility commitments that we can request from $75.0 million to $250.0 million; and~~

•~~providing additional capacity under certain negative covenants related to indebtedness, liens, investments, acquisitions, share repurchases and dividends.~~

We intend to continue to use the Credit Facility for general corporate purposes, for future share repurchases and to fund future growth initiatives.

At ~~September 30, 2021,~~March 31, 2022, there was ~~$170.3~~$532.3 million of revolving borrowings outstanding, a $500.0 million term loan, a $4.8 million standby letter of credit outstanding and ~~$574.9~~$212.9 million available for borrowing under the Credit Facility. Currently, we pay interest on revolving borrowings under the Credit Facility at a variable rate based on the one month London Interbank Offered Rate (LIBOR), plus an applicable margin. The weighted average effective interest rate for the Credit Facility as of ~~September 30, 2021~~March 31, 2022 was approximately ~~2.0%~~1.7%, excluding commitment fees.

Term Facility

OnOur Term Facility, as amended on October 12, 2021, we amended our 2019 credit agreement (as amended, the “Term Facility Agreement”) among us, as Borrower, and Bank of America, N.A., as the Lender. Among other items, the amendment provides additional capacity under certain negative covenants related to indebtedness, liens, investments, acquisitions, share repurchases and dividends to match the recent changes to the covenants in the Credit Agreement. The term facility available under this Agreement (the “Term Facility”) 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 in December 2019, adding borrowing capacity for future share repurchases, acquisitions and growth-oriented working capital expansion. The Term Facility is repaid in quarterly ~~amortization~~ installments of 1.250% of the ~~facility's~~Term Facility on the last business day of each quarter beginning in the first quarter of 2020. We classify the entire outstanding balance as Long-term debt ~~balance.~~on our Consolidated Balance Sheets as we intend and have the ability to refinance the obligations on a long-term basis. The total of the quarterly ~~amortization~~ payments ~~over the life of the facility~~ will be equal to 33.75% of the Term Facility with the final principal ~~payment,~~repayment, equal to 66.25% of the Term Facility, due on the maturity date. We may prepay amounts outstanding under the Term Facility without penalty other than interest breakage costs.

At ~~September 30, 2021,~~March 31, 2022, there was ~~$168.8~~$164.2 million outstanding under the Term Facility with a weighted average effective interest rate of ~~2.9%~~1.6%. We pay interest on borrowings under the Term Facility at a variable rate based on the one month LIBOR, plus an applicable margin.

Receivables Securitization Facility

Our two-year accounts receivable securitization facility (the Receivables Facility) offers us a ~~lower cost~~lower-cost form of ~~financing, with a peak funding capacity of~~financing. Under this facility, we can borrow up to ~~$295.0~~$350.0 million between ~~May 1~~April through June and ~~May 31, which includes an additional seasonal funding capacity that is available between March 1 and July 31. Other funding capacities range~~ from ~~$120.0~~$175.0 million to ~~$275.0~~$315.0 million ~~throughout~~during the remaining months of the year. The Receivables Facility matures on November 1, ~~2021. We intend to amend the Receivables Facility on or ahead of its maturity date.~~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.

The Receivables Facility provides for the sale of certain of our receivables to a ~~wholly owned~~wholly-owned subsidiary (the Securitization Subsidiary). The Securitization Subsidiary transfers variable undivided percentage interests in the receivables and related rights to certain third-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 ~~September 30, 2021,~~March 31, 2022, there was ~~$15.0~~$290.0 million outstanding under the Receivables Facility at a weighted average effective interest rate of ~~0.8%~~1.2%, excluding commitment fees.

Financial Covenants

Financial covenants of the Credit Facility and the Term ~~Facility (each as recently revised) and the Receivables~~ 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 ~~September 30, 2021,~~March 31, 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 ~~September 30, 2021,~~March 31, 2022, our average total leverage ratio equaled ~~0.48~~1.06 (compared to ~~0.53~~0.77 as of ~~June 30,~~December 31, 2021) and the TTM average total ~~debt~~indebtedness amount used in this calculation was ~~$397.6 million.~~$1.1 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 ~~September 30, 2021,~~March 31, 2022, our fixed charge ratio equaled ~~11.31~~12.38 (compared to ~~10.48~~11.76 as of ~~June 30,~~December 31, 2021) and TTM Rental Expense was ~~$70.1~~$73.2 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 ~~the Credit Facility and the Term Facility~~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 ~~September 30, 2021,~~March 31, 2022, we had three interest rate swap contracts in place and two forward-starting interest rate swap contracts, each of which ~~became effective on November 20, 2020, and terminate on September 29, 2022. These swap contracts were previously forward-starting and convert~~has the effect of converting our exposure to variable interest rates on our variable rate borrowings to fixed interest ~~rates~~rates. For more information, see Note 4 of ~~2.0925% and 1.5500% on notional amounts~~“Notes to Consolidated Financial Statements” included in Part I, Item 1 of $75.0 million each. The third interest rate swap contract currently in place became effective on February 26, 2021, and terminates on February 28, 2025. This swap contract was previously forward-starting and converts the variable interest rate on our variable rate borrowings to a fixed rate of 1.3800% on a notional amount of $150.0 million. Interest expense related to the notional amounts under these swap contracts is based on the fixed rate plus the applicable margin on our variable rate borrowings.

~~The following table provides details related to each of our forward-starting interest rate swap contracts:~~

Derivative Inception Date Effective Date Termination Date Notional
Amount
(in millions) Fixed
Interest
Rate
Forward-starting interest rate swap 1 March 9, 2020 September 29, 2022 February 26, 2027 $150.0 0.7400%
Forward-starting interest rate swap 2 March 9, 2020 February 28, 2025 February 26, 2027 $150.0 0.8130%

Compliance and Future Availability

As of ~~September 30, 2021,~~March 31, 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 ~~2020~~2021 Annual Report on Form 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~~April 25, ~~2021, $494.7~~2022, $427.1 million of the current Board-authorized amount under our share repurchase program remained available. We expect to repurchase 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 ~~Credit and Receivables Facilities.~~above-described credit facilities.

3123

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

There have been no material changes during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 from what we reported in our ~~2020~~2021 Annual Report on Form 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 ~~2020~~2021 Annual Report on Form 10-K.

Currency Risk

There have been no material changes during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 from what we reported in our ~~2020~~2021 Annual Report on Form 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 ~~2020~~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 ~~September 30, 2021,~~March 31, 2022, management, including our CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures. Based on that evaluation, management, including our CEO and CFO, concluded that as of ~~September 30, 2021,~~March 31, 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.

3224

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 ~~2020~~2021 Annual Report on Form 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 ~~third~~first quarter of ~~2021:~~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)
July 1-31, 2021 36,987 $ 466.20 36,597 $ 525,320,228
August 1-31, 2021 49,178 $ 482.19 49,178 $ 501,607,126
September 1-30, 2021 13,976 $ 492.51 13,976 $ 494,723,778
Total 100,141 $ 477.73 99,751


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)
January 1-31, 2022	21,343	$	499.71	15,191	$	487,443,561
February 1-28, 2022	52,236	$	435.37	45,891	$	467,548,308
March 1-31, 2022	64,589	$	449.18	55,401	$	442,785,865
Total	138,168	$	451.76	116,483

(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. ~~390~~21,685 shares were surrendered for this purpose in the ~~third~~first quarter of ~~2021.~~2022.

(2)As of ~~October~~April 25, ~~2021, $494.7~~2022, $427.1 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.

3325

Item 6. Exhibits

Exhibits filed as part of this report are listed below.

Incorporated by Reference

No.

Description

Filed/ Furnished with this
Form 10-Q

Form

File No.

Date Filed

3.1

Restated Certificate of Incorporation of the Company.

10-Q

000-26640

8/9/2006

3.2

Amended and Restated Bylaws of the Company.

8-K

000-26640

2/8/2019

4.1

Form of certificate representing shares of common stock of the Company.

8-K

000-26640

5/19/2006

~~10.1~~

~~First Amendment to Credit Agreement, dated October 12, 2021 by and among Pool Corporation as Borrower, the Guarantors and BANK OF AMERICA, N.A as Lender.~~

~~10.2~~

Second Amended and Restated Credit Agreement dated as of September 27, 2021, by and among Pool Corporation, as U.S. Borrower, SCP Distributors Canada Inc., as Canadian Borrower, SCP International, Inc., as Euro Borrower, Wells Fargo Bank, National Association, as Administrative Agent, and certain other lenders party thereto.

~~8-K~~

~~000-26640~~

~~9/29/2021~~

31.1

Certification by Chief 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.

31.2

Certification by Chief 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.

32.1

Certification by Chief Executive Officer and Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

+ Attached as Exhibit 101 to this report are the following items formatted in iXBRL (Inline Extensible Business Reporting Language):

1.Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~September 30, 2020;~~March 31, 2021;

2.Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~September 30, 2020;~~March 31, 2021;

3.Consolidated Balance Sheets at ~~September 30, 2021,~~March 31, 2022, December 31, ~~2020~~2021 and ~~September 30, 2020;~~March 31, 2021;

4.Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~September 30, 2020;~~March 31, 2021;

5.Consolidated Statements of Changes in Stockholders’ Equity for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~September 30, 2020;~~March 31, 2021; and

6.Notes to Consolidated Financial Statements.

3526

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~~April 28, ~~2021.~~2022.


						POOL CORPORATION




			By:			/s/ Melanie Housey Hart
						Melanie Housey Hart
						Vice President and Chief Financial Officer, and duly authorized signatory on behalf of the registrant

3627


	Fair Value at September 30,
	2021		2020
Level 2
Unrealized gains on interest rate swaps	$	5,488	$	—
Unrealized losses on interest rate swaps	6,308		14,828

Level 3
Contingent consideration liabilities	$	983	$	869