x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) |
Large accelerated filer x | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company o |
Emerging growth company o |
Page | |||
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net sales | $ | 811,311 | $ | 743,401 | $ | 2,455,015 | $ | 2,278,005 | |||||||
Cost of sales | 576,308 | 526,795 | 1,745,283 | 1,618,114 | |||||||||||
Gross profit | 235,003 | 216,606 | 709,732 | 659,891 | |||||||||||
Selling and administrative expenses | 142,666 | 134,678 | 421,812 | 392,779 | |||||||||||
Operating income | 92,337 | 81,928 | 287,920 | 267,112 | |||||||||||
Interest and other non-operating expenses, net | 4,931 | 4,009 | 14,449 | 11,608 | |||||||||||
Income before income taxes and equity earnings | 87,406 | 77,919 | 273,471 | 255,504 | |||||||||||
Income tax provision | 18,206 | 29,179 | 55,989 | 89,951 | |||||||||||
Equity earnings in unconsolidated investments, net | 61 | 43 | 167 | 121 | |||||||||||
Net income | 69,261 | 48,783 | 217,649 | 165,674 | |||||||||||
Net loss attributable to noncontrolling interest | — | — | — | 294 | |||||||||||
Net income attributable to Pool Corporation | $ | 69,261 | $ | 48,783 | $ | 217,649 | $ | 165,968 | |||||||
Earnings per share: | |||||||||||||||
Basic | $ | 1.71 | $ | 1.20 | $ | 5.39 | $ | 4.04 | |||||||
Diluted | $ | 1.66 | $ | 1.16 | $ | 5.20 | $ | 3.89 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 40,422 | 40,659 | 40,416 | 41,065 | |||||||||||
Diluted | 41,797 | 42,207 | 41,831 | 42,691 | |||||||||||
Cash dividends declared per common share | $ | 0.45 | $ | 0.37 | $ | 1.27 | $ | 1.05 |
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net income | $ | 69,261 | $ | 48,783 | $ | 217,649 | $ | 165,674 | |||||||
Other comprehensive income (loss): | |||||||||||||||
Foreign currency translation adjustments | 690 | 1,842 | (2,188 | ) | 6,432 | ||||||||||
Change in unrealized gains and losses on interest rate swaps, net of change in taxes of $(177), $(181), $(636) and $(432) | 530 | 283 | 1,908 | 675 | |||||||||||
Total other comprehensive income (loss) | 1,220 | 2,125 | (280 | ) | 7,107 | ||||||||||
Comprehensive income | 70,481 | 50,908 | 217,369 | 172,781 | |||||||||||
Comprehensive loss attributable to noncontrolling interest | — | — | — | 74 | |||||||||||
Comprehensive income attributable to Pool Corporation | $ | 70,481 | $ | 50,908 | $ | 217,369 | $ | 172,855 |
September 30, | September 30, | December 31, | ||||||||||
2018 | 2017 | 2017 (1) | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 35,693 | $ | 36,398 | $ | 29,940 | ||||||
Receivables, net | 90,775 | 90,142 | 76,597 | |||||||||
Receivables pledged under receivables facility | 196,998 | 172,654 | 119,668 | |||||||||
Product inventories, net | 609,983 | 484,287 | 536,474 | |||||||||
Prepaid expenses and other current assets | 19,457 | 14,832 | 19,569 | |||||||||
Total current assets | 952,906 | 798,313 | 782,248 | |||||||||
Property and equipment, net | 109,942 | 103,880 | 100,939 | |||||||||
Goodwill | 189,029 | 189,024 | 189,435 | |||||||||
Other intangible assets, net | 12,305 | 13,206 | 13,223 | |||||||||
Equity interest investments | 1,163 | 1,168 | 1,127 | |||||||||
Other assets | 18,413 | 16,333 | 14,090 | |||||||||
Total assets | $ | 1,283,758 | $ | 1,121,924 | $ | 1,101,062 | ||||||
Liabilities and stockholders’ equity | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 204,706 | $ | 209,062 | $ | 245,249 | ||||||
Accrued expenses and other current liabilities | 75,639 | 87,887 | 65,482 | |||||||||
Short-term borrowings and current portion of long-term debt | 9,343 | 8,609 | 10,835 | |||||||||
Total current liabilities | 289,688 | 305,558 | 321,566 | |||||||||
Deferred income taxes | 24,802 | 27,244 | 24,585 | |||||||||
Long-term debt, net | 571,360 | 555,964 | 508,815 | |||||||||
Other long-term liabilities | 25,170 | 22,614 | 22,950 | |||||||||
Total liabilities | 911,020 | 911,380 | 877,916 | |||||||||
Stockholders’ equity: | ||||||||||||
Common stock, $0.001 par value; 100,000,000 shares authorized; 40,479,584, 40,122,935 and 40,212,477 shares issued and outstanding at September 30, 2018, September 30, 2017 and December 31, 2017, respectively | 40 | 40 | 40 | |||||||||
Additional paid-in capital | 449,276 | 420,946 | 426,750 | |||||||||
Retained deficit | (68,943 | ) | (202,693 | ) | (196,316 | ) | ||||||
Accumulated other comprehensive loss | (7,635 | ) | (7,749 | ) | (7,328 | ) | ||||||
Total stockholders’ equity | 372,738 | 210,544 | 223,146 | |||||||||
Total liabilities and stockholders’ equity | $ | 1,283,758 | $ | 1,121,924 | $ | 1,101,062 |
Nine Months Ended | ||||||||
September 30, | ||||||||
2018 | 2017 | |||||||
Operating activities | ||||||||
Net income | $ | 217,649 | $ | 165,674 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 19,499 | 17,947 | ||||||
Amortization | 1,408 | 1,132 | ||||||
Share-based compensation | 9,793 | 9,496 | ||||||
Equity earnings in unconsolidated investments, net | (167 | ) | (121 | ) | ||||
Other | 3,584 | 1,074 | ||||||
Changes in operating assets and liabilities, net of effects of acquisitions: | ||||||||
Receivables | (93,911 | ) | (90,204 | ) | ||||
Product inventories | (80,142 | ) | 9,057 | |||||
Prepaid expenses and other assets | 143 | (1,523 | ) | |||||
Accounts payable | (40,143 | ) | (27,328 | ) | ||||
Accrued expenses and other current liabilities | 13,547 | 26,816 | ||||||
Net cash provided by operating activities | 51,260 | 112,020 | ||||||
Investing activities | ||||||||
Acquisition of businesses, net of cash acquired | (578 | ) | (6,879 | ) | ||||
Purchases of property and equipment, net of sale proceeds | (27,976 | ) | (37,709 | ) | ||||
Other investments, net | — | 4 | ||||||
Net cash used in investing activities | (28,554 | ) | (44,584 | ) | ||||
Financing activities | ||||||||
Proceeds from revolving line of credit | 820,967 | 918,338 | ||||||
Payments on revolving line of credit | (813,996 | ) | (857,609 | ) | ||||
Proceeds from asset-backed financing | 193,400 | 156,600 | ||||||
Payments on asset-backed financing | (138,400 | ) | (97,800 | ) | ||||
Proceeds from short-term borrowings and current portion of long-term debt | 16,118 | 25,001 | ||||||
Payments on short-term borrowings and current portion of long-term debt | (17,610 | ) | (17,497 | ) | ||||
Payments of deferred and contingent acquisition consideration | (265 | ) | (199 | ) | ||||
Payments of deferred financing costs | (8 | ) | (909 | ) | ||||
Purchase of redeemable noncontrolling interest | — | (2,573 | ) | |||||
Proceeds from stock issued under share-based compensation plans | 12,732 | 8,647 | ||||||
Payments of cash dividends | (51,371 | ) | (43,165 | ) | ||||
Purchases of treasury stock | (38,906 | ) | (141,580 | ) | ||||
Net cash used in financing activities | (17,339 | ) | (52,746 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 386 | (248 | ) | |||||
Change in cash and cash equivalents | 5,753 | 14,442 | ||||||
Cash and cash equivalents at beginning of period | 29,940 | 21,956 | ||||||
Cash and cash equivalents at end of period | $ | 35,693 | $ | 36,398 |
September 30, | December 31, | ||||||||||
2018 | 2017 | 2017 | |||||||||
Foreign currency translation adjustments | $ | (9,692 | ) | $ | (7,370 | ) | $ | (7,478 | ) | ||
Unrealized gains (losses) on interest rate swaps, net of tax (1) | 2,057 | (379 | ) | 150 | |||||||
Accumulated other comprehensive loss | $ | (7,635 | ) | $ | (7,749 | ) | $ | (7,328 | ) |
(1) | In February 2018, the Financial Accounting Standards Board (FASB) issued guidance that allows entities the option to reclassify the tax effects related to items in accumulated other comprehensive income (loss) to retained earnings (deficit) if deemed to be stranded in accumulated other comprehensive income (loss) due to U.S. tax reform. We do not have any material amounts stranded in Accumulated other comprehensive loss as a result of U.S. tax reform. |
Standard | Description | Effective Date | Effect on Financial Statements and Other Significant Matters |
ASU 2016-02, Leases | Requires lessees to record most leases on their balance sheets but recognize expenses in a manner similar to current guidance. The guidance is required to be applied using a modified retrospective approach. | Annual periods beginning after December 15, 2018 | We believe the adoption of ASU 2016-02 will significantly increase assets and liabilities on our Consolidated Balance Sheets as we record a right-of-use asset and corresponding liability for each of our existing operating leases. We are currently testing all of the information we have gathered to properly account for the leases under the new standard and to quantify the balance sheet impacts. We are also implementing the related process changes and testing internal controls. Based on our current lease portfolio, we do not expect a material impact on our results of operations and cash flows. Upon adoption, we expect to apply the package of practical expedients available within the new standard, which is intended to provide some relief to issuers. We will also have expanded disclosures upon adoption of this new accounting pronouncement. |
Standard | Description | Effective Date | Effect on Financial Statements and Other Significant Matters |
ASU 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities | Eliminates the requirement to separately measure and report hedge ineffectiveness. For qualifying cash flow and net investment hedges, the change in the fair value of the hedging instrument will be recorded in Other Comprehensive Income (OCI), and amounts deferred in OCI will be reclassified to earnings in the same income statement line item that is used to present the earnings effect of the hedged item. | Annual periods beginning after December 15, 2018 | We are currently evaluating the effect this will have on our financial position, results of operations and related disclosures. |
ASU 2016-13, Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments | Changes the way companies evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. The new standard also requires enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination for most financing receivables. The guidance must be applied using a cumulative-effect transition method. | Annual periods beginning after December 15, 2019 | We are currently evaluating the effect this will have on our financial position, results of operations and related disclosures. |
ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment | Eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (commonly referred to as Step 2 under the current guidance). Rather, the measurement of a goodwill impairment charge will be based on the excess of a reporting unit’s carrying value over its fair value (Step 1 under the current guidance). This guidance should be applied prospectively. | Annual and interim impairment tests performed in periods beginning after December 15, 2019 | We are currently evaluating the effect this will have on our financial position, results of operations and related disclosures. |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income | $ | 69,261 | $ | 48,783 | $ | 217,649 | $ | 165,674 | ||||||||
Net loss attributable to noncontrolling interest | — | — | — | 294 | ||||||||||||
Net income attributable to Pool Corporation | $ | 69,261 | $ | 48,783 | $ | 217,649 | $ | 165,968 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 40,422 | 40,659 | 40,416 | 41,065 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options and employee stock purchase plan | 1,375 | 1,548 | 1,415 | 1,626 | ||||||||||||
Diluted | 41,797 | 42,207 | 41,831 | 42,691 | ||||||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 1.71 | $ | 1.20 | $ | 5.39 | $ | 4.04 | ||||||||
Diluted | $ | 1.66 | $ | 1.16 | $ | 5.20 | $ | 3.89 | ||||||||
Anti-dilutive stock options excluded from diluted earnings per share computations | — | 108 | — | 108 |
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. |
Fair Value at September 30, | ||||||||
2018 | 2017 | |||||||
Level 2 | ||||||||
Unrealized gains on interest rate swaps | $ | 3,542 | $ | 1,201 | ||||
Unrealized losses on interest rate swaps | — | 1,791 | ||||||
Level 3 | ||||||||
Contingent consideration liabilities | $ | 1,431 | $ | 1,924 |
Derivative | Amendment Date | Notional Amount (in millions) | Fixed Interest Rate | |||
Interest rate swap 1 | October 1, 2015 | $75.0 | 2.273% | |||
Interest rate swap 2 | October 1, 2015 | $25.0 | 2.111% | |||
Interest rate swap 3 | October 1, 2015 | $50.0 | 2.111% |
Derivative | Inception Date | Notional Amount (in millions) | Fixed Interest Rate | |||
Forward-starting interest rate swap 1 | July 6, 2016 | $150.0 | 1.1425% |
September 30, | ||||||||
2018 | 2017 | |||||||
Variable rate debt | ||||||||
Short-term borrowings | $ | 321 | $ | — | ||||
Current portion of long-term debt: | ||||||||
Australian credit facility | 9,022 | 8,609 | ||||||
Short-term borrowings and current portion of long-term debt | 9,343 | 8,609 | ||||||
Long-term portion: | ||||||||
Revolving credit facility | 417,410 | 415,277 | ||||||
Receivables securitization facility | 155,000 | 142,300 | ||||||
Less: financing costs, net | 1,050 | 1,613 | ||||||
Long-term debt, net | 571,360 | 555,964 | ||||||
Total debt | $ | 580,703 | $ | 564,573 |
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Cost of sales | 71.0 | 70.9 | 71.1 | 71.0 | ||||||||
Gross profit | 29.0 | 29.1 | 28.9 | 29.0 | ||||||||
Operating expenses | 17.6 | 18.1 | 17.2 | 17.2 | ||||||||
Operating income | 11.4 | 11.0 | 11.7 | 11.7 | ||||||||
Interest and other non-operating expenses, net | 0.6 | 0.5 | 0.6 | 0.5 | ||||||||
Income before income taxes and equity earnings | 10.8 | % | 10.5 | % | 11.1 | % | 11.2 | % |
(Unaudited) | Base Business | Excluded | Total | |||||||||||||||||||||
(in thousands) | Three Months Ended | Three Months Ended | Three Months Ended | |||||||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
Net sales | $ | 800,971 | $ | 738,391 | $ | 10,340 | $ | 5,010 | $ | 811,311 | $ | 743,401 | ||||||||||||
Gross profit | 231,841 | 215,078 | 3,162 | 1,528 | 235,003 | 216,606 | ||||||||||||||||||
Gross margin | 28.9 | % | 29.1 | % | 30.6 | % | 30.5 | % | 29.0 | % | 29.1 | % | ||||||||||||
Operating expenses | 139,392 | 132,663 | 3,274 | 2,015 | 142,666 | 134,678 | ||||||||||||||||||
Expenses as a % of net sales | 17.4 | % | 18.0 | % | 31.7 | % | 40.2 | % | 17.6 | % | 18.1 | % | ||||||||||||
Operating income (loss) | 92,449 | 82,415 | (112 | ) | (487 | ) | 92,337 | 81,928 | ||||||||||||||||
Operating margin | 11.5 | % | 11.2 | % | (1.1 | )% | (9.7 | )% | 11.4 | % | 11.0 | % |
Acquired | Acquisition Date | Net Sales Centers Acquired | Periods Excluded | |||
Pool Power (1) | January 2018 | 1 | July - September 2018 | |||
Chem Quip(1) | December 2017 | 5 | July - September 2018 | |||
Intermark | December 2017 | 1 | July - September 2018 | |||
E-Grupa | October 2017 | 1 | July - September 2018 | |||
Newline Pool Products | July 2017 | 1 | July - September 2018 and July - September 2017 | |||
Lincoln Aquatics (1) | April 2017 | 1 | July 2018 and July 2017 |
(1) | We acquired certain distribution assets of each of these companies. |
December 31, 2017 | 351 | |
Acquired location | 1 | |
New locations | 9 | |
Consolidated location | (1 | ) |
September 30, 2018 | 360 |
Three Months Ended | ||||||||||||||
September 30, | ||||||||||||||
(in millions) | 2018 | 2017 | Change | |||||||||||
Net sales | $ | 811.3 | $ | 743.4 | $ | 67.9 | 9% |
• | strong demand for discretionary products, as evidenced by improvements in sales growth rates for product offerings such as building materials and equipment (see discussion below); |
• | market share gains, particularly in building materials and commercial products (see discussion below); and |
• | inflationary product cost increases (estimated at approximately 1%). |
Three Months Ended | ||||||||||||||
September 30, | ||||||||||||||
(in millions) | 2018 | 2017 | Change | |||||||||||
Gross profit | $ | 235.0 | $ | 216.6 | $ | 18.4 | 8% | |||||||
Gross margin | 29.0 | % | 29.1 | % |
Three Months Ended | ||||||||||||||
September 30, | ||||||||||||||
(in millions) | 2018 | 2017 | Change | |||||||||||
Operating expenses | $ | 142.7 | $ | 134.7 | $ | 8.0 | 6% | |||||||
Operating expenses as a % of net sales | 17.6 | % | 18.1 | % |
(Unaudited) | Base Business | Excluded | Total | |||||||||||||||||||||
(in thousands) | Nine Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
Net sales | $ | 2,419,766 | $ | 2,266,386 | $ | 35,249 | $ | 11,619 | $ | 2,455,015 | $ | 2,278,005 | ||||||||||||
Gross profit | 699,058 | 656,433 | 10,674 | 3,458 | 709,732 | 659,891 | ||||||||||||||||||
Gross margin | 28.9 | % | 29.0 | % | 30.3 | % | 29.8 | % | 28.9 | % | 29.0 | % | ||||||||||||
Operating expenses | 409,791 | 388,299 | 12,021 | 4,480 | 421,812 | 392,779 | ||||||||||||||||||
Expenses as a % of net sales | 16.9 | % | 17.1 | % | 34.1 | % | 38.6 | % | 17.2 | % | 17.2 | % | ||||||||||||
Operating income (loss) | 289,267 | 268,134 | (1,347 | ) | (1,022 | ) | 287,920 | 267,112 | ||||||||||||||||
Operating margin | 12.0 | % | 11.8 | % | (3.8 | )% | (8.8 | )% | 11.7 | % | 11.7 | % |
Acquired | Acquisition Date | Net Sales Centers Acquired | Periods Excluded | |||
Pool Power (1) | January 2018 | 1 | January - September 2018 | |||
Chem Quip(1) | December 2017 | 5 | January - September 2018 | |||
Intermark | December 2017 | 1 | January - September 2018 | |||
E-Grupa | October 2017 | 1 | January - September 2018 | |||
Newline Pool Products | July 2017 | 1 | January - September 2018 and July - September 2017 | |||
Lincoln Aquatics (1) | April 2017 | 1 | January - July 2018 and May - July 2017 |
(1) | We acquired certain distribution assets of each of these companies. |
Nine Months Ended | ||||||||||||||
September 30, | ||||||||||||||
(in millions) | 2018 | 2017 | Change | |||||||||||
Net sales | $ | 2,455.0 | $ | 2,278.0 | $ | 177.0 | 8% |
• | strong demand for discretionary products, as evidenced by improvements in sales growth rates for product offerings such as building materials and equipment (see discussion below); |
• | market share gains, particularly in building materials and commercial products (see discussion below); |
• | sales growth of 8% from irrigation products which represented 9% of net sales; and |
• | inflationary product cost increases (estimated at approximately 1%). |
Nine Months Ended | ||||||||||||||
September 30, | ||||||||||||||
(in millions) | 2018 | 2017 | Change | |||||||||||
Gross profit | $ | 709.7 | $ | 659.9 | $ | 49.8 | 8% | |||||||
Gross margin | 28.9 | % | 29.0 | % |
Nine Months Ended | ||||||||||||||
September 30, | ||||||||||||||
(in millions) | 2018 | 2017 | Change | |||||||||||
Operating expenses | $ | 421.8 | $ | 392.8 | $ | 29.0 | 7% | |||||||
Operating expenses as a % of net sales | 17.2 | % | 17.2 | % |
(Unaudited) | QUARTER | |||||||||||||||||||||||||||||||
(in thousands) | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||||
Third | Second | First | Fourth | Third | Second | First | Fourth | |||||||||||||||||||||||||
Statement of Income Data | ||||||||||||||||||||||||||||||||
Net sales | $ | 811,311 | $ | 1,057,804 | $ | 585,900 | $ | 510,183 | $ | 743,401 | $ | 988,163 | $ | 546,441 | $ | 445,235 | ||||||||||||||||
Gross profit | 235,003 | 308,655 | 166,073 | 145,398 | 216,606 | 289,664 | 153,621 | 127,777 | ||||||||||||||||||||||||
Operating income | 92,337 | 162,042 | 33,541 | 17,259 | 81,928 | 154,186 | 30,998 | 9,743 | ||||||||||||||||||||||||
Net income | 69,261 | 117,049 | 31,339 | 25,665 | 48,783 | 94,620 | 22,270 | 2,572 | ||||||||||||||||||||||||
Balance Sheet Data | ||||||||||||||||||||||||||||||||
Total receivables, net | $ | 287,773 | $ | 404,415 | $ | 314,596 | $ | 196,265 | $ | 262,796 | $ | 370,285 | $ | 290,019 | $ | 166,151 | ||||||||||||||||
Product inventories, net | 609,983 | 606,583 | 703,793 | 536,474 | 484,287 | 542,805 | 647,884 | 486,116 | ||||||||||||||||||||||||
Accounts payable | 204,706 | 300,232 | 467,795 | 245,249 | 209,062 | 273,309 | 465,928 | 230,728 | ||||||||||||||||||||||||
Total debt | 580,703 | 657,120 | 568,110 | 519,650 | 564,573 | 553,480 | 490,217 | 438,042 |
Weather | Possible Effects | |
Hot and dry | • | Increased purchases of chemicals and supplies for existing swimming pools |
• | Increased purchases of above-ground pools and irrigation products | |
Unseasonably cool weather or extraordinary amounts of rain | • | Fewer pool and landscape installations |
• | Decreased purchases of chemicals and supplies | |
• | Decreased purchases of impulse items such as above-ground pools and accessories | |
Unseasonably early warming trends in spring/late cooling trends in fall | • | A longer pool and landscape season, thus positively impacting our sales |
(primarily in the northern half of the U.S. and Canada) | ||
Unseasonably late warming trends in spring/early cooling trends in fall | • | A shorter pool and landscape season, thus negatively impacting our sales |
(primarily in the northern half of the U.S. and Canada) |
• | 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. |
• | capital expenditures primarily for maintenance and growth of our sales center structure, technology-related investments and fleet vehicles; |
• | strategic acquisitions executed opportunistically; |
• | payment of cash dividends as and when declared by our Board of Directors (Board); |
• | repayment of debt to maintain an average total leverage ratio (as defined below) between 1.5 and 2.0; and |
• | repurchases of our common stock under our Board-authorized share repurchase program. |
Nine Months Ended | ||||||||
September 30, | ||||||||
2018 | 2017 | |||||||
Operating activities | $ | 51,260 | $ | 112,020 | ||||
Investing activities | (28,554 | ) | (44,584 | ) | ||||
Financing activities | (17,339 | ) | (52,746 | ) |
• | 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, 2018, our average total leverage ratio equaled 1.68 (compared to 1.72 as of June 30, 2018) and the TTM average total debt amount used in this calculation was $577.8 million. |
• | 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, 2018, our fixed charge ratio equaled 5.44 (compared to 5.40 as of June 30, 2018) and TTM Rental Expense was $56.7 million. |
• | those that require the use of assumptions about matters that are inherently and highly uncertain at the time the estimates are made; and |
• | those for which changes in the estimate or assumptions, or the use of different estimates and assumptions, could have a material impact on our consolidated results of operations or financial condition. |
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan (2) | Maximum Approximate Dollar Value of Shares That May Yet be Purchased Under the Plan (3) | ||||||||||
July 1 - 31, 2018 | 198 | $ | 153.25 | — | $ | 218,340,678 | ||||||||
August 1 - 31, 2018 | — | $ | — | — | $ | 218,340,648 | ||||||||
September 1 - 30, 2018 | — | $ | — | — | $ | 218,340,678 | ||||||||
Total | 198 | $ | 153.25 | — |
(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. All 198 shares were surrendered for this purpose in the third quarter of 2018. |
(2) | In May 2018, our Board authorized an additional $200.0 million under our share repurchase program for the repurchase of shares of our common stock in the open market at prevailing market prices or in privately negotiated transactions. |
(3) | As of October 25, 2018, $186.1 million of the authorized amount remained available under our current share repurchase program. |
Incorporated by Reference | ||||||||||
No. | Description | Filed/ Furnished with this Form 10-Q | Form | File No. | Date Filed | |||||
Restated Certificate of Incorporation of the Company. | 10-Q | 000-26640 | 8/9/2006 | |||||||
Amended and Restated Bylaws of the Company. | 8-K | 000-26640 | 12/20/2012 | |||||||
Form of certificate representing shares of common stock of the Company. | 8-K | 000-26640 | 5/19/2006 | |||||||
Certification by Mark W. Joslin pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | |||||||||
Certification by Manuel J. Perez de la Mesa pursuant to Rule 13a-14(a) and 15d‑14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | |||||||||
Certification by Manuel J. Perez de la Mesa and Mark W. Joslin furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | |||||||||
101.INS | + | XBRL Instance Document | X | |||||||
101.SCH | + | XBRL Taxonomy Extension Schema Document | X | |||||||
101.CAL | + | XBRL Taxonomy Extension Calculation Linkbase Document | X | |||||||
101.DEF | + | XBRL Taxonomy Extension Definition Linkbase Document | X | |||||||
101.LAB | + | XBRL Taxonomy Extension Label Linkbase Document | X | |||||||
101.PRE | + | XBRL Taxonomy Extension Presentation Linkbase Document | X |
1. | Consolidated Statements of Income for the three and nine months ended September 30, 2018 and September 30, 2017; |
2. | Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and September 30, 2017; |
3. | Consolidated Balance Sheets at September 30, 2018, December 31, 2017 and September 30, 2017; |
4. | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and |
5. | Notes to Consolidated Financial Statements. |
POOL CORPORATION | ||
By: | /s/ Mark W. Joslin | |
Mark W. Joslin | ||
Senior Vice President and Chief Financial Officer, and duly authorized signatory on behalf of the registrant |
1. | I have reviewed this quarterly report on Form 10-Q of Pool Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
Date: | October 30, 2018 | /s/ Mark W. Joslin |
Mark W. Joslin | ||
Senior Vice President and Chief Financial Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Pool Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
Date: | October 30, 2018 | /s/ Manuel J. Perez de la Mesa |
Manuel J. Perez de la Mesa | ||
President and Chief Executive Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Manuel J. Perez de la Mesa | |
Manuel J. Perez de la Mesa | |
President and Chief Executive Officer | |
/s/ Mark W. Joslin | |
Mark W. Joslin | |
Senior Vice President and Chief Financial Officer | |
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Document and Entity Information - USD ($) |
9 Months Ended | ||
---|---|---|---|
Sep. 30, 2018 |
Oct. 25, 2018 |
Jun. 30, 2017 |
|
Entity [Abstract] | |||
Entity Registrant Name | POOL CORP | ||
Entity Central Index Key | 0000945841 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $ 4,704,253,988 | ||
Entity Common Stock, Shares Outstanding | 40,263,296 | ||
Document Fiscal Year Focus | 2018 | ||
Document Fiscal Period Focus | Q3 | ||
Document Type | 10-Q | ||
Amendment Flag | false | ||
Document Period End Date | Sep. 30, 2018 | ||
Entity Emerging Growth Company | false | ||
Entity Small Business | false |
Consolidated Statements of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Net sales | $ 811,311 | $ 743,401 | $ 2,455,015 | $ 2,278,005 |
Cost of sales | 576,308 | 526,795 | 1,745,283 | 1,618,114 |
Gross profit | 235,003 | 216,606 | 709,732 | 659,891 |
Selling and administrative expenses | 142,666 | 134,678 | 421,812 | 392,779 |
Operating income | 92,337 | 81,928 | 287,920 | 267,112 |
Interest and other non-operating expenses, net | 4,931 | 4,009 | 14,449 | 11,608 |
Income before income taxes and equity earnings | 87,406 | 77,919 | 273,471 | 255,504 |
Provision for income taxes | 18,206 | 29,179 | 55,989 | 89,951 |
Equity earnings in unconsolidated investments, net | 61 | 43 | 167 | 121 |
Net income | 69,261 | 48,783 | 217,649 | 165,674 |
Net loss attributable to noncontrolling interest | 0 | 0 | 0 | 294 |
Net income attributable to Pool Corporation | $ 69,261 | $ 48,783 | $ 217,649 | $ 165,968 |
Earnings per share: | ||||
Basic (in dollars per share) | $ 1.71 | $ 1.20 | $ 5.39 | $ 4.04 |
Diluted (in dollars per share) | $ 1.66 | $ 1.16 | $ 5.20 | $ 3.89 |
Weighted average shares outstanding: [Abstract] | ||||
Basic (in shares) | 40,422 | 40,659 | 40,416 | 41,065 |
Diluted (in shares) | 41,797 | 42,207 | 41,831 | 42,691 |
Cash dividends declared per common share | $ 0.45 | $ 0.37 | $ 1.27 | $ 1.05 |
Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Net income | $ 69,261 | $ 48,783 | $ 217,649 | $ 165,674 |
Other comprehensive income (loss): | ||||
Foreign currency translation adjustments | 690 | 1,842 | (2,188) | 6,432 |
Change in unrealized gains and losses on interest rate swaps, net of changes in taxes | 530 | 283 | 1,908 | 675 |
Total other comprehensive income (loss) | 1,220 | 2,125 | (280) | 7,107 |
Comprehensive income | 70,481 | 50,908 | 217,369 | 172,781 |
Comprehensive loss attributable to noncontrolling interest | 0 | 0 | 0 | 74 |
Comprehensive income attributable to Pool Corporation | $ 70,481 | $ 50,908 | $ 217,369 | $ 172,855 |
Consolidated Statements of Comprehensive Income (Parenthetical) (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Statement of Comprehensive Income [Abstract] | ||||
Tax effect of change in unrealized gains and losses on interest rate swaps | $ (177) | $ (181) | $ (636) | $ (432) |
Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
---|---|---|---|
Current assets: | |||
Cash and cash equivalents | $ 35,693 | $ 29,940 | $ 36,398 |
Receivables, net | 90,775 | 76,597 | 90,142 |
Receivables pledged under receivables facility | 196,998 | 119,668 | 172,654 |
Product inventories, net | 609,983 | 536,474 | 484,287 |
Prepaid expenses and other current assets | 19,457 | 19,569 | 14,832 |
Total current assets | 952,906 | 782,248 | 798,313 |
Property and equipment, net | 109,942 | 100,939 | 103,880 |
Goodwill | 189,029 | 189,435 | 189,024 |
Other intangible assets, net | 12,305 | 13,223 | 13,206 |
Equity interest investments | 1,163 | 1,127 | 1,168 |
Other assets | 18,413 | 14,090 | 16,333 |
Total assets | 1,283,758 | 1,101,062 | 1,121,924 |
Current liabilities: | |||
Accounts payable | 204,706 | 245,249 | 209,062 |
Accrued expenses and other current liabilities | 75,639 | 65,482 | 87,887 |
Short-term borrowings and current portion of long-term debt | 9,343 | 10,835 | 8,609 |
Total current liabilities | 289,688 | 321,566 | 305,558 |
Deferred income taxes | 24,802 | 24,585 | 27,244 |
Long-term debt, net | 571,360 | 508,815 | 555,964 |
Other long-term liabilities | 25,170 | 22,950 | 22,614 |
Total liabilities | 911,020 | 877,916 | 911,380 |
Stockholders' equity: | |||
Common stock | 40 | 40 | 40 |
Additional paid-in capital | 449,276 | 426,750 | 420,946 |
Retained deficit | (68,943) | (196,316) | (202,693) |
Accumulated other comprehensive loss | (7,635) | (7,328) | (7,749) |
Total stockholders' equity | 372,738 | 223,146 | 210,544 |
Total liabilities and stockholders' equity | $ 1,283,758 | $ 1,101,062 | $ 1,121,924 |
Consolidated Balance Sheets (Parenthetical) (Unaudited) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
---|---|---|---|
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 | $ 0.001 |
Common stock, authorized (in shares) | 100,000,000 | 100,000,000 | 100,000,000 |
Common stock, shares issued (in shares) | 40,479,584 | 40,212,477 | 40,122,935 |
Common stock, outstanding (in shares) | 40,479,584 | 40,212,477 | 40,122,935 |
Summary of Significant Accounting Policies |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | 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. All of our subsidiaries are wholly owned. From July 31, 2014 to June 29, 2017, we owned a 60% interest in Pool Systems Pty. Ltd. (PSL), an Australian company. Our ownership percentage constituted a controlling interest in the acquired company, which required us to consolidate PSL’s financial position and results of operations from the date of acquisition. On June 29, 2017, we purchased the remaining 40% interest in PSL. Thus, we have continued to consolidate PSL, but there is no longer a separate noncontrolling interest reported on our Consolidated Statements of Income, nor Redeemable noncontrolling interest reported on our Consolidated Balance Sheets. The 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 2017 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 2017 Annual Report on Form 10-K. The results for our three and nine month periods ended September 30, 2018 are not necessarily indicative of the expected results for our fiscal year ending December 31, 2018. Newly Adopted Accounting Pronouncements On January 1, 2018, we adopted Accounting Standards Update (ASU) 2014-09, Revenue - Revenue from Contracts with Customers, and all the related amendments, which are also codified into Accounting Standards Codification (ASC) 606. We elected to adopt this guidance using the modified retrospective method. The adoption of this standard did not have a material impact on our financial position or results of operations. We did not restate prior period information for the effects of the new standard, nor did we adjust the opening balance of our retained deficit to account for the implementation of the new requirements of this standard. We do not expect the adoption of this guidance to have a material effect on our results of operations in future periods. Under the new standard, we recognize a sale when a customer obtains control of the product, and we record the amount that reflects the consideration we expect to receive in exchange for such product. As under the previous accounting guidance, we continue to recognize a sale when a customer picks up product at any sales center, when we deliver product to their premises or job sites via our trucks or when we present the product to a third-party carrier. For bill and hold sales, we determine when the customer obtains control of the product on a case-by-case basis to determine the amount of revenue to defer each period. Our adoption of this guidance also resulted in balance sheet reclassifications for recording our estimate of customer returns. ASC 606 requires the recognition of a current liability for the gross amount of estimated returns and a current asset for the cost of the related products. This change did not have a material impact on our Consolidated Balance Sheet as of September 30, 2018. On January 1, 2018, we adopted ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The new guidance specifies how cash flows should be classified for debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds for the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance, distributions from equity method investees and beneficial interests in securitization transactions. Our adoption of ASU 2016-15 had no impact on our statement of cash flows as our previous classifications related to contingent consideration payments and distributions from equity method investees is consistent with the requirements of ASU 2016-15. Revenue Recognition We consider our distribution of products to represent one reportable revenue stream. Our products are similar in nature, and our revenue recognition policy is the same across our distribution networks. Our customers share similar characteristics and purchase products across all categories. We recognize revenue when our customers take control of our products. Customers may obtain our products by picking them up at any sales center location or through delivery to their premises or job sites by our trucks or third-party carriers. For customer pick-ups or deliveries by our trucks, control passes when our customers receive our products. For third-party deliveries, control passes when we present our products to the third-party carriers. We include shipping and handling fees billed to customers as freight out income within net sales. We measure revenue as the amount of consideration we expect to receive in exchange for transferring our products. Consideration may vary due to volume incentives and expected customer returns. We offer volume incentives to some of our customers and account for these incentives as a reduction of sales. We estimate the amount of volume incentives earned based on our estimate of cumulative sales for the fiscal year relative to our customers’ progress toward achieving minimum purchase requirements. We record customer returns, including those associated with customer early buy programs, as a reduction of sales. Based on available information related to our customers’ returns, we record an allowance for estimated returns, which historically has not been material. We regularly review our marketing programs, coupons and customary business practices to determine if any variable consideration exists under ASC 606. Other items that we record as reductions to sales include cash discounts, pricing adjustments and credit card fees related to customer payments. The majority of our sales transactions do not contain additional performance obligations after delivery; therefore, we do not have multiple performance obligations for which to allocate the transaction price. We elected to continue to recognize shipping and handling costs associated with outbound freight in selling and administrative expenses. We report sales net of tax amounts that we collect from our customers and remit to governmental authorities. These tax amounts may include, but are not limited to, sales, use, value-added and some excise taxes. Income Taxes Both the Tax Cuts and Jobs Act (the Act), enacted by Congress in December 2017, and ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which we adopted on January 1, 2017, impacted our provision for income taxes by substantially reducing our income tax rate in the first nine months of 2018 compared to the first nine months of 2017. As of September 30, 2018, we have not completed our accounting for all of the tax effects of the Act. We filed our federal income tax return in the third quarter of 2018, and our return to provision adjustment, which addresses the provisional tax benefit we recorded under Staff Accounting Bulletin (SAB) 118 at December 31, 2017, was not material. We have considered the impact of the statutory changes from the Act on our estimated effective tax rate for 2018, including reasonable estimates of those provisions effective for the 2018 tax year. The Act also created a new requirement that certain income earned by foreign subsidiaries, global intangible low-taxed income (GILTI), be included in the gross income of their U.S. shareholder. Entities may make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or recognize such taxes as a current-period expense when incurred. We elected to treat the tax effect of GILTI as a current-period expense when incurred. 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 in the income statement in the period in which stock options are exercised or restrictions on awards lapse. We recorded excess tax benefits of $13.9 million in the first nine months of 2018 compared to $7.7 million in the same period of 2017. Retained Deficit We account for the retirement of treasury shares as a reduction of retained earnings (deficit). As of September 30, 2018, the Retained deficit 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 $1,278.2 million and cumulative dividends of $477.1 million. Accumulated Other Comprehensive Loss The table below presents the components of our Accumulated other comprehensive loss balance (in thousands):
Recent Accounting Pronouncements Pending Adoption The following table summarizes the recent accounting pronouncements that we plan to adopt in future periods:
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Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Note 2 – Earnings Per Share We calculate basic earnings per share (EPS) by dividing Net income attributable to Pool Corporation by the weighted average number of common shares outstanding. We include outstanding unvested restricted stock awards of our common stock in the basic weighted average share calculation. Diluted EPS reflects the dilutive effects of potentially dilutive securities, which include in-the-money outstanding stock options and shares to be purchased under our employee stock purchase plan. Using the treasury stock method, the effect of dilutive securities includes these additional shares of common stock that would have been outstanding based on the assumption that these potentially dilutive securities had been issued. Stock options with exercise prices that are higher than the average market prices of our common stock for the periods presented are excluded from the diluted EPS calculation because the 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):
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Acquisitions |
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Business Combinations [Abstract] | |
Acquisitions | Note 3 – Acquisitions In January 2018, we acquired Tore Pty. Ltd. (doing business as Pool Power), a wholesale distributor of pool and spa equipment in South Australia, with one distribution center in Adelaide, Australia. In December 2017, we acquired the distribution assets of Chem Quip, Inc. (Chem Quip), a wholesale distributor of residential and commercial swimming pool equipment, chemicals and supplies, with five distribution locations in central and northern California. In December 2017, we acquired Kripsol Intermark Malaga S.L. (Intermark), a swimming pool equipment and supplies distributor, with one location in southern Spain. In October 2017, we acquired E-Grupa, a national swimming pool equipment and supplies distributor, with one location in Croatia. 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. In July 2017, we acquired New Star Holdings Pty. Ltd. (doing business as Newline Pool Products), a swimming pool equipment and supplies distributor, with one distribution center in Brisbane, Australia. In April 2017, we acquired the distribution assets of Lincoln Equipment, Inc. (doing business as Lincoln Aquatics), a national distributor of equipment and supplies to commercial and institutional swimming pool customers, with one location in California. We have completed our acquisition accounting for these acquisitions. These acquisitions did not have a material impact on our financial position or results of operations, either individually or in the aggregate. |
Fair Value Measurements and Interest Rate Swaps |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements and Interest Rate Swaps | 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:
The table below presents the estimated fair values of our interest rate swap contracts, our forward-starting interest rate swap contract and our contingent consideration liabilities (in thousands):
Interest Rate Swaps We utilize interest rate swap contracts and forward-starting interest rate swap contracts to reduce our exposure to fluctuations in variable interest rates for future interest payments on our unsecured syndicated senior credit facility (the Credit Facility). For determining the fair value of our 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 payments and the fixed interest rate settlements from our swap counterparties as an adjustment to interest expense over the life of the swaps. We designated these swaps as cash flow hedges, and to the extent effective we record the changes in the estimated fair value of the swaps to Accumulated other comprehensive loss on our Consolidated Balance Sheets. To the extent our interest rate swaps are determined to be ineffective, we recognize the changes in the estimated fair value of our swaps in earnings. We currently have three interest rate swap contracts in place, which became effective on October 19, 2016. These swaps were previously forward-starting contracts that were amended in October 2015 to bring the fixed rates per our forward-starting contracts in line with current market rates and extend the hedged period for future interest payments on our Credit Facility. As amended, these swap contracts terminate on November 20, 2019. In the first nine months of 2018, we recognized a benefit of $1.5 million as a result of ineffectiveness for the period. These amounts were recorded in Interest and other non-operating expenses, net on our Consolidated Statements of Income. The following table provides additional details related to each of these amended swap contracts:
Upon amendment of the original hedge agreements, we were required to freeze the amounts related to the changes in the fair values of these swap contracts in Accumulated other comprehensive loss. On September 30, 2018, these balances became fully amortized. In the first nine months of 2018, we recorded expense of $1.4 million as amortization of the unrealized loss in Interest and other non-operating expenses, net. For the three interest rate swap contracts in effect at September 30, 2018, 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 on the Consolidated Balance Sheets to Interest and other non-operating expenses, net on the Consolidated Statements of Income. These amounts were not material in the nine month periods ended September 30, 2018 and September 30, 2017. In July 2016, we entered into an additional forward-starting interest rate swap contract to extend the hedged period for future interest payments on our Credit Facility to its maturity date at that time. This swap contract will convert the variable interest rate to a fixed interest rate on borrowings under the Credit Facility. This contract becomes effective on November 20, 2019 and terminates on November 20, 2020. The following table provides additional details related to this swap contract:
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 and forward-starting interest rate swap contracts are subject to master netting arrangements. According to our accounting policy, we do not offset the fair values of assets with the fair values of liabilities related to these contracts. Contingent Consideration Liabilities As of September 30, 2018, our Consolidated Balance Sheets reflected $0.6 million in Accrued expenses and other current liabilities and $0.8 million in Other long-term liabilities for contingent consideration related to future payouts for our acquisitions of The Melton Corporation (Melton), which we acquired in November 2015, Metro Irrigation Supply Company Ltd. (Metro), which we acquired in April 2016, and Newline Pool Products (Newline), which we acquired in July 2017. In the first nine months of 2018, we paid approximately $0.2 million in contingent consideration to Melton based on 2017 results. Since the acquisition dates, we have recorded immaterial adjustments to our original estimates based on the calculated 2017 and 2018 payouts related to the respective fiscal years and estimated future payouts considering results through September 2018. Adjustments to the fair value of contingent consideration are recognized in earnings in the period in which we determine that the fair value changed. As of September 30, 2018, we have determined that the contingent consideration liability was in a range of acceptable estimates for all applicable periods. Other The carrying values of cash, receivables, accounts payable and accrued liabilities approximate fair value due to the short maturity of those instruments (Level 1 inputs). 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). |
Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt | Note 5 – Debt The table below presents the components of our debt (in thousands):
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 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. |
Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accumulated Other Comprehensive Loss | The table below presents the components of our Accumulated other comprehensive loss balance (in thousands):
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Schedule of Recent Accounting Pronouncements | The following table summarizes the recent accounting pronouncements that we plan to adopt in future periods:
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Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computation of earnings per share and reconciliation of basic and diluted weighted average common shares outstanding | The table below presents the computation of EPS, including the reconciliation of basic and diluted weighted average shares outstanding (in thousands, except EPS):
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Fair Value Measurements and Interest Rate Swaps (Tables) |
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Derivative [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Estimated fair value of contracts | The table below presents the estimated fair values of our interest rate swap contracts, our forward-starting interest rate swap contract and our contingent consideration liabilities (in thousands):
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Interest Rate Swap Agreements[Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Schedule of Interest Rate Derivatives | The following table provides additional details related to each of these amended swap contracts:
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Schedule of Interest Rate Derivatives | The following table provides additional details related to this swap contract:
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Debt (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Debt | The table below presents the components of our debt (in thousands):
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Summary of Significant Accounting Policies Controlling Interest Percentage (Details) |
Sep. 30, 2018 |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Controlling interest percentage by parent | 60.00% |
Noncontrolling interest percentage by parent | 40.00% |
Summary of Significant Accounting Policies Retained Deficit (Details) $ in Millions |
Sep. 30, 2018
USD ($)
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Retained Earnings (Accumulated Deficit) [Abstract] | |
Cumulative share repurchases | $ 1,278.2 |
Cumulative dividends | $ 477.1 |
Summary of Significant Accounting Policies Income Taxes (Details) - USD ($) $ in Millions |
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Sep. 30, 2017 |
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Accounting Policies [Abstract] | ||
Excess tax benefit | $ 13.9 | $ 7.7 |
Summary of Significant Accounting Policies - Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
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Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Accumulated other comprehensive loss | $ (7,635) | $ (7,328) | $ (7,749) |
AOCI Attributable to Parent | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Accumulated other comprehensive loss | (7,635) | (7,328) | (7,749) |
Foreign currency translation adjustments | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Accumulated other comprehensive loss | (9,692) | (7,478) | (7,370) |
Unrealized gains (losses) on interest rate swaps, net of tax | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Accumulated other comprehensive loss | $ 2,057 | $ 150 | $ (379) |
Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
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Earnings Per Share [Abstract] | ||||
Net income | $ 69,261 | $ 48,783 | $ 217,649 | $ 165,674 |
Net loss attributable to noncontrolling interest | 0 | 0 | 0 | 294 |
Net income attributable to Pool Corporation | $ 69,261 | $ 48,783 | $ 217,649 | $ 165,968 |
Weighted average shares outstanding: [Abstract] | ||||
Basic (in shares) | 40,422 | 40,659 | 40,416 | 41,065 |
Effect of dilutive securities: [Abstract] | ||||
Stock options and employee stock purchase plan (in shares) | 1,375 | 1,548 | 1,415 | 1,626 |
Diluted (in shares) | 41,797 | 42,207 | 41,831 | 42,691 |
Basic (in dollars per share) | $ 1.71 | $ 1.20 | $ 5.39 | $ 4.04 |
Diluted (in dollars per share) | $ 1.66 | $ 1.16 | $ 5.20 | $ 3.89 |
Anti-dilutive stock options excluded from diluted earnings per share computations (in shares) | 0 | 108 | 0 | 108 |
Interest Rate Swaps (Details 2) - Forward-starting Interest Rate Swap 1 [Member] $ in Millions |
9 Months Ended |
---|---|
Sep. 30, 2018
USD ($)
| |
Derivative [Line Items] | |
Forward-starting interest rate swap agreement, inception date | Jul. 06, 2016 |
Forward-starting interest rate swap agreement, effective date | Nov. 20, 2019 |
Forward-starting interest rate swap agreement, notional amount | $ 150.0 |
Forward-starting interest rate swap agreement, fixed interest rate | 1.1425% |
Forward-starting interest rate swap agreement, termination date | Nov. 20, 2020 |
Fair Value Measurements (Details 3) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Sep. 30, 2017 |
---|---|---|
Derivatives, Fair Value [Line Items] | ||
Unrealized gains on interest rate swaps | $ 3,542 | $ 1,201 |
Unrealized losses on interest rate swaps | 0 | 1,791 |
Contingent consideration liabilities | $ 1,431 | $ 1,924 |
Fair Value Measurements (Details 4) $ in Millions |
9 Months Ended |
---|---|
Sep. 30, 2018
USD ($)
| |
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |
Contingent consideration liability, current | $ 0.6 |
Contingent consideration liability, noncurrent | 0.8 |
The Melton Corporation [Member] | |
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |
Contingent consideration settled, transferred out of fair value (Level 3) | $ 0.2 |
Debt - Schedule of Debt (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
---|---|---|---|
Debt Instrument [Line Items] | |||
Short-term borrowings | $ 321 | $ 0 | |
Australian credit facility | 9,022 | 8,609 | |
Short-term borrowings and current portion of long-term debt | 9,343 | $ 10,835 | 8,609 |
Long-term portion: | |||
Less: financing costs, net | 1,050 | 1,613 | |
Long-term debt, net | 571,360 | 555,964 | |
Total debt | 580,703 | 564,573 | |
Revolving Credit Facility | |||
Long-term portion: | |||
Long-term debt, gross | 417,410 | 415,277 | |
Receivables Securitization Facility | |||
Long-term portion: | |||
Long-term debt, gross | $ 155,000 | $ 142,300 |
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