0001564590-21-026039.txt : 20210510 0001564590-21-026039.hdr.sgml : 20210510 20210510160614 ACCESSION NUMBER: 0001564590-21-026039 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 78 CONFORMED PERIOD OF REPORT: 20210403 FILED AS OF DATE: 20210510 DATE AS OF CHANGE: 20210510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Leslie's, Inc. CENTRAL INDEX KEY: 0001821806 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-39667 FILM NUMBER: 21907165 BUSINESS ADDRESS: STREET 1: 2005 E. INDIAN SCHOOL ROAD CITY: PHOENIX STATE: AZ ZIP: 85016 BUSINESS PHONE: 602-366-3817 MAIL ADDRESS: STREET 1: 2005 E. INDIAN SCHOOL ROAD CITY: PHOENIX STATE: AZ ZIP: 85016 10-Q 1 lesl-10q_20210403.htm 10-Q lesl-10q_20210403.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended April 3, 2021

OR

 

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

For the transition period from        to         

Commission File Number: 001-39667

 

 

LESLIE’S, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

20-8397425

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

2005 East Indian School Road

Phoenix, AZ

85016

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (602) 366-3999

 

 

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

 

LESL

 

The 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  ☒    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation 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  ☒    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. 

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

As of May 7, 2021, the registrant had 187,918,474 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Stockholders’ Deficit

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 3.

Defaults Upon Senior Securities

25

Item 4.

Mine Safety Disclosures

25

Item 5.

Other Information

25

Item 6.

Exhibits

26

 

 

 

Signatures

27

 

 

 

i


Table of Contents

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. Our actual results could differ materially from those indicated in these forward-looking statements for a variety of reasons, including, among others:

 

our ability to execute on our growth strategies;

 

our ability to maintain favorable relationships with suppliers and manufacturers;

 

competition from mass merchants and specialty retailers;

 

impacts on our business from the sensitivity of our business to weather conditions, changes in the economy, and the housing market;

 

our ability to implement technology initiatives that deliver the anticipated benefits, without disrupting our operations;

 

regulatory changes and development affecting our current and future products;

 

our ability to obtain additional capital to finance operations;

 

commodity price inflation and deflation;

 

impacts on our business from the COVID-19 pandemic; and

 

other risks and uncertainties, including those listed in the section titled “Risk Factors” in our filings with the United States Securities and Exchange Commission

You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended October 3, 2020, Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended January 2, 2021, Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q, and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. And while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q are based on events or circumstances as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.

1


Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

LESLIE’S, INC.

Condensed Consolidated Balance Sheets

(Amounts in Thousands, Except Share and Per Share Amounts)

 

 

 

April 3, 2021

 

 

October 3, 2020

 

 

March 28, 2020

 

Assets

 

(Unaudited)

 

 

(Audited)

 

 

(Unaudited)

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

90,328

 

 

$

157,072

 

 

$

11,934

 

Accounts and other receivables, net

 

 

41,733

 

 

 

31,481

 

 

 

30,924

 

Inventories

 

 

277,860

 

 

 

148,966

 

 

 

244,662

 

Prepaid expenses and other current assets

 

 

58,331

 

 

 

34,614

 

 

 

41,609

 

Total current assets

 

 

468,252

 

 

 

372,133

 

 

 

329,129

 

Property and equipment, net

 

 

63,632

 

 

 

66,391

 

 

 

72,169

 

Operating lease right-of-use assets

 

 

181,581

 

 

 

177,655

 

 

 

200,746

 

Goodwill and other intangibles, net

 

 

127,851

 

 

 

121,186

 

 

 

122,213

 

Deferred tax assets

 

 

15,293

 

 

 

6,583

 

 

 

 

Other assets

 

 

2,302

 

 

 

2,490

 

 

 

1,270

 

Total assets

 

$

858,911

 

 

$

746,438

 

 

$

725,527

 

Liabilities and stockholders’ deficit

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

181,524

 

 

$

92,372

 

 

$

143,197

 

Accrued expenses

 

 

82,338

 

 

 

101,167

 

 

 

67,091

 

Operating lease liabilities

 

 

55,395

 

 

 

54,459

 

 

 

59,721

 

Income taxes payable

 

 

 

 

 

1,857

 

 

 

 

Current portion of long-term debt

 

 

8,100

 

 

 

8,341

 

 

 

8,341

 

Total current liabilities

 

 

327,357

 

 

 

258,196

 

 

 

278,350

 

Deferred tax liabilities

 

 

 

 

 

 

 

 

4,273

 

Operating lease liabilities, noncurrent

 

 

130,496

 

 

 

130,234

 

 

 

151,059

 

Long-term debt, net

 

 

789,339

 

 

 

1,179,550

 

 

 

1,234,003

 

Other long-term liabilities

 

 

2,729

 

 

 

5,457

 

 

 

5

 

Total liabilities

 

 

1,249,921

 

 

 

1,573,437

 

 

 

1,667,690

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficit

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 1,000,000,000 shares authorized and

   186,884,621 issued and outstanding as of April 3, 2021 and

   156,500,000 shares authorized, issued and outstanding as of

   October 3, 2020 and March 28, 2020, respectively.

 

 

187

 

 

 

157

 

 

 

157

 

Additional paid in capital (deficit)

 

 

194,605

 

 

 

(278,063

)

 

 

(278,653

)

Retained deficit

 

 

(585,802

)

 

 

(549,093

)

 

 

(663,667

)

Total stockholders’ deficit

 

 

(391,010

)

 

 

(826,999

)

 

 

(942,163

)

Total liabilities and stockholders’ deficit

 

$

858,911

 

 

$

746,438

 

 

$

725,527

 

 

See accompanying notes which are an integral part of these condensed consolidated financial statements.

 

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LESLIE’S, INC.

Condensed Consolidated Statements of Operations

(Amounts in Thousands, Except Per Share Amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

April 3, 2021

 

 

March 28, 2020

 

 

April 3, 2021

 

 

March 28, 2020

 

Sales

 

$

192,441

 

 

$

126,377

 

 

$

337,447

 

 

$

249,355

 

Cost of merchandise and services sold

 

 

120,758

 

 

 

86,464

 

 

 

214,049

 

 

 

168,364

 

Gross profit

 

 

71,683

 

 

 

39,913

 

 

 

123,398

 

 

 

80,991

 

Selling, general and administrative expenses

 

 

70,374

 

 

 

56,048

 

 

 

147,863

 

 

 

115,769

 

Operating income (loss)

 

 

1,309

 

 

 

(16,135

)

 

 

(24,465

)

 

 

(34,778

)

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

8,126

 

 

 

22,709

 

 

 

19,642

 

 

 

45,126

 

Loss on debt extinguishment

 

 

1,888

 

 

 

 

 

 

9,169

 

 

 

 

Other expenses, net

 

 

1,057

 

 

 

187

 

 

 

1,057

 

 

 

324

 

Total other expense

 

 

11,071

 

 

 

22,896

 

 

 

29,868

 

 

 

45,450

 

Loss before taxes

 

 

(9,762

)

 

 

(39,031

)

 

 

(54,333

)

 

 

(80,228

)

Income tax benefit

 

 

(3,310

)

 

 

(9,205

)

 

 

(17,624

)

 

 

(24,215

)

Net loss

 

$

(6,452

)

 

$

(29,826

)

 

$

(36,709

)

 

$

(56,013

)

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.03

)

 

$

(0.19

)

 

$

(0.20

)

 

$

(0.36

)

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

186,810

 

 

 

156,500

 

 

 

181,900

 

 

 

156,500

 

 

See accompanying notes which are an integral part of these condensed consolidated financial statements.

 

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LESLIE’S, INC.

Condensed Consolidated Statements of Stockholders’ Deficit

(Amounts in Thousands)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

Paid in

Capital

 

 

Retained

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

(Deficit)

 

 

Deficit

 

 

Deficit

 

Balance, December 28, 2019

 

 

156,500

 

 

$

157

 

 

$

(279,251

)

 

$

(633,841

)

 

$

(912,935

)

Equity-based compensation

 

 

 

 

 

 

 

 

598

 

 

 

 

 

 

598

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(29,826

)

 

 

(29,826

)

Balance, March 28, 2020

 

 

156,500

 

 

$

157

 

 

$

(278,653

)

 

$

(663,667

)

 

$

(942,163

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 2, 2021

 

 

186,619

 

 

$

187

 

 

$

192,753

 

 

$

(579,350

)

 

$

(386,410

)

Issuance of shares under stock incentive plans

 

 

266

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon initial public offering,

   net of offering costs

 

 

 

 

 

 

 

 

(99

)

 

 

 

 

 

(99

)

Equity-based compensation

 

 

 

 

 

 

 

 

1,951

 

 

 

 

 

 

1,951

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,452

)

 

 

(6,452

)

Balance, April 3, 2021

 

 

186,885

 

 

$

187

 

 

$

194,605

 

 

$

(585,802

)

 

$

(391,010

)

 

 

 

Common Stock

 

 

Additional

Paid in

Capital

 

 

Retained

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

(Deficit)

 

 

Deficit

 

 

Deficit

 

Balance, September 28, 2019

 

 

156,500

 

 

$

157

 

 

$

(279,848

)

 

$

(607,666

)

 

$

(887,357

)

Impact of adoption of new accounting pronouncements

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

12

 

Equity-based compensation

 

 

 

 

 

 

 

 

1,195

 

 

 

 

 

 

1,195

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(56,013

)

 

 

(56,013

)

Balance, March 28, 2020

 

 

156,500

 

 

$

157

 

 

$

(278,653

)

 

$

(663,667

)

 

$

(942,163

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, October 3, 2020

 

 

156,500

 

 

$

157

 

 

$

(278,063

)

 

$

(549,093

)

 

$

(826,999

)

Issuance of shares under stock incentive plans

 

 

385

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon initial public offering,

   net of offering costs

 

 

30,000

 

 

 

30

 

 

 

458,557

 

 

 

 

 

 

458,587

 

Equity-based compensation

 

 

 

 

 

 

 

 

14,111

 

 

 

 

 

 

14,111

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(36,709

)

 

 

(36,709

)

Balance, April 3, 2021

 

 

186,885

 

 

$

187

 

 

$

194,605

 

 

$

(585,802

)

 

$

(391,010

)

 

See accompanying notes which are an integral part of these condensed consolidated financial statements.

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Table of Contents

LESLIE’S, INC.

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

April 3, 2021

 

 

March 28, 2020

 

Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(36,709

)

 

$

(56,013

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

12,858

 

 

 

14,088

 

Equity-based compensation

 

 

14,111

 

 

 

1,195

 

Amortization of deferred financing costs and debt discounts

 

 

1,134

 

 

 

1,685

 

Provision for doubtful accounts

 

 

64

 

 

 

149

 

Deferred income taxes

 

 

(8,711

)

 

 

3,033

 

(Gain) loss on disposition of assets

 

 

(1,753

)

 

 

470

 

Loss on debt extinguishment

 

 

9,169

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts and other receivables

 

 

(10,316

)

 

 

(11,046

)

Inventories

 

 

(127,814

)

 

 

(93,933

)

Prepaid expenses and other current assets

 

 

(23,473

)

 

 

(20,063

)

Other assets

 

 

228

 

 

 

150

 

Accounts payable and accrued expenses

 

 

64,332

 

 

 

50,829

 

Income taxes payable

 

 

(1,857

)

 

 

(6,713

)

Operating lease assets and liabilities, net

 

 

(2,728

)

 

 

10,034

 

Net cash used in operating activities

 

 

(111,465

)

 

 

(106,135

)

Investing Activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(9,490

)

 

 

(12,478

)

Acquisitions, net of cash acquired

 

 

(6,040

)

 

 

(6,188

)

Proceeds from disposition of fixed assets

 

 

2,404

 

 

 

6

 

Net cash used in investing activities

 

 

(13,126

)

 

 

(18,660

)

Financing Activities

 

 

 

 

 

 

 

 

Borrowings on revolving commitment

 

 

 

 

 

181,750

 

Payments on revolving commitment

 

 

 

 

 

(131,750

)

Repayment of long term debt

 

 

(392,085

)

 

 

(4,170

)

Issuance of long term debt

 

 

907

 

 

 

 

Payment of deferred financing costs

 

 

(9,562

)

 

 

 

Proceeds from issuance of common stock upon initial public offering, net

 

 

458,587

 

 

 

 

Net cash provided by financing activities

 

 

57,847

 

 

 

45,830

 

Net decrease in cash and cash equivalents

 

 

(66,744

)

 

 

(78,965

)

Cash and cash equivalents, beginning of period

 

 

157,072

 

 

 

90,899

 

Cash and cash equivalents, end of period

 

$

90,328

 

 

$

11,934

 

Supplemental Disclosure of Cash Payments for:

 

 

 

 

 

 

 

 

Interest

 

$

27,081

 

 

$

44,762

 

Income taxes

 

 

3,078

 

 

 

2,882

 

 

See accompanying notes which are an integral part of these condensed consolidated financial statements.

 

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Table of Contents

 

LESLIE’S, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Business and Operations

Leslie’s, Inc. (“Leslie’s,” “we,” “our,” “us,” “its,” or the “Company”) is the leading direct-to-consumer pool and spa care brand. We market and sell pool and spa supplies and related products and services, which primarily consist of maintenance items such as chemicals, equipment and parts, cleaning accessories, as well as safety, recreational, and fitness-related products. We currently market our products through 940 company-operated locations in 38 states and e-commerce websites.

Note 2—Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

We prepared the accompanying interim condensed consolidated financial statements following United States generally accepted accounting principles (“GAAP”). The financial statements include all normal and recurring adjustments that are necessary for a fair presentation of our financial position and operating results. The condensed consolidated financial statements include the accounts of Leslie’s, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated. These interim condensed consolidated financial statements and the related notes should be read in conjunction with the audited condensed consolidated financial statements and notes for the years ended October 3, 2020 and September 28, 2019.

Initial and Subsequent Public Offering

In November 2020, the Company completed an initial public offering (“IPO”) of 30.0 million shares of common stock at a public offering price of $17.00 per share for net proceeds of $458.7 million, after deducting underwriting discounts and commissions of $45.0 million and offering costs of $6.3 million. The shares of common stock sold in the IPO and the net proceeds from the IPO included the full exercise of the underwriters’ option to purchase additional shares. The Company used the net proceeds from the IPO to repay the entire outstanding amount related to its $390.0 million Senior Unsecured Notes. The remaining proceeds will be used for working capital and general corporate purposes.

In February 2021, certain of the Company’s stockholders, completed a subsequent public offering of 29.0 million shares of common stock, with a 30-day option for the underwriters to purchase up to 4.4 million additional shares of common stock, at a public offering price of $26.00 per share for net proceeds of $731.4 million, after deducting underwriting discounts and commissions of $22.6 million.  All proceeds from the sale of shares of common stock in this offering were received by the selling stockholders.

Stock Split

All share and per share information included in the accompanying condensed consolidated financial statements has been adjusted to reflect a 156,500-for-1 stock split which was effected on October 23, 2020. The par value of the common stock was not adjusted as the result of the stock split.

Fiscal Periods

We operate on a fiscal calendar that results in a fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to September 30th. In a 52-week fiscal year, each quarter contains 13 weeks of operations; in a 53-week fiscal year, each of the first, second and third quarters includes 13 weeks of operations and the fourth quarter includes 14 weeks of operations. References to fiscal year 2021 refer to the fiscal year ending October 2, 2021, which contains 52 weeks, and references to fiscal year 2020 refer to the fiscal year ended October 3, 2020, which contained 53 weeks. References to the three months ended April 3, 2021 and the three months ended March 28, 2020 refer to the 13 weeks ended April 3, 2021 and March 28, 2020, respectively. References to the six months ended April 3, 2021 and the six months ended March 28, 2020 refer to the 26 weeks ended April 3, 2021 and March 28, 2020, respectively.

Use of Estimates

To prepare financial statements that conform to GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Our most significant estimates relate to the allowance for doubtful accounts, inventory obsolescence reserves, vendor programs, income taxes, self-insurance, and goodwill impairment evaluations. We continually review our estimates and make adjustments as necessary, but actual results could be significantly different from what we expected when we made these estimates.

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Table of Contents

Fair Value Measurements

As of April 3, 2021 and October 3, 2020, we held no assets that were required to be measured at fair value on a recurring basis.

Fair Value of Financial Instruments

We evaluate our financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification for each reporting period.

The fair value of the Term Loan due in 2028 (see Note 7) was determined to be $804.7 million as of April 3, 2021. These fair value estimates, determined to be Level 2, are subjective in nature and involve uncertainties and matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

The fair value of the interest rate cap agreements (see Note 7) was determined to be Level 2 and is included in other assets on the condensed consolidated balance sheets as of October 3, 2020. Our interest rate cap agreements expired in March 2021; consequently, we had no interest rate cap agreements as of April 3, 2021. Changes in fair value of the interest rate cap are recorded in other expenses, net on our condensed consolidated statements of operations.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term maturity of these instruments.

There were no transfers between levels in the fair value hierarchy during the three and six months ended April 3, 2021 and March 28, 2020, respectively.

Seasonality

Our business is highly seasonal. In general, sales and earnings are highest during our fiscal third and fourth quarters, which include April through September and represent the peak months of swimming pool use. Sales are substantially lower during our fiscal first and second quarters.

Prior Period Reclassifications

Reclassifications of certain immaterial prior period amounts have been made to conform to current period presentation.

Note 3—Business Combinations

The following acquisitions did not have a material impact on our financial position or results of operations. Our condensed consolidated financial statements include the results of operations of these acquisitions from the date of acquisition. The total purchase consideration was allocated to the assets acquired and the liabilities assumed at their estimated fair values as of the date of acquisition, as determined by management. The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed has been recorded as goodwill. The goodwill resulting from these acquisitions are deductible for income tax purposes.

Fiscal 2021 Acquisition

In March 2021, we acquired the assets of a retailer of supplies and services for hot tubs, swim spas and fireplaces. The acquisition included four store locations in the Denver, Colorado area and expanded our physical presence to 38 states. Our estimates and assumptions are subject to change as we gather additional information throughout the measurement period, which is up to 12 months after the acquisition date, and if we make changes to the amounts recorded, such amounts are recorded in the period in which they are identified.

Fiscal 2020 Acquisition

In October 2019, we acquired the assets of a retailer of supplies and services for hot tubs, swim spas and saunas. The acquisition included six locations in the Pacific Northwest and expanded our physical presence to 37 states. The purchase accounting for this acquisition is complete.

Note 4 —Goodwill and Other Intangibles, Net

Goodwill

The carrying amounts of goodwill are as follows (in thousands):

 

 

Carrying Value

 

Balance, April 3, 2021

 

$

97,692

 

Balance, October 3, 2020

 

 

93,295

 

Balance, March 28, 2020

 

 

92,821

 

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Table of Contents

 

 

Other Intangible Assets

Other intangible assets consisted of the following as of April 3, 2021 (in thousands, except weighted average remaining useful life):

 

 

 

Weighted

Average

Remaining

Useful Life

(in Years)

 

 

Gross

Carrying

Value

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

Trade name and trademarks (finite life)

 

 

1.6

 

 

$

5,540

 

 

$

(5,195

)

 

$

345

 

Trade name and trademarks (indefinite life)

 

Indefinite

 

 

 

18,550

 

 

 

 

 

 

18,550

 

Non-compete agreements

 

 

4.4

 

 

 

9,833

 

 

 

(7,014

)

 

 

2,819

 

Consumer relationships

 

 

3.2

 

 

 

18,500

 

 

 

(10,853

)

 

 

7,647

 

Internally developed software

 

 

2.0

 

 

 

4,000

 

 

 

(3,530

)

 

 

470

 

Other

 

 

0.7

 

 

 

1,000

 

 

 

(975

)

 

 

25

 

Total

 

 

 

 

 

$

57,423

 

 

$

(27,567

)

 

$

29,856

 

 

Other intangible assets are as follows as of October 3, 2020 (in thousands, except weighted average remaining useful life):

 

 

 

Weighted

Average

Remaining

Useful Life

(in Years)

 

 

Gross

Carrying

Value

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

Trade name and trademarks (finite life)

 

 

2.6

 

 

$

5,540

 

 

$

(5,139

)

 

$

401

 

Trade name and trademarks (indefinite life)

 

Indefinite

 

 

 

17,750

 

 

 

 

 

 

17,750

 

Non-compete agreements

 

 

4.9

 

 

 

8,633

 

 

 

(6,872

)

 

 

1,761