Date: 2/11/2021 Form: 8-K - Current report
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0000945841false00009458412021-02-112021-02-11

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 8-K
______________
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 11, 2021
______________

POOL CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware0-2664036-3943363
(State or other jurisdiction of(Commission(IRS Employer
incorporation or organization)File Number)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)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:
 
  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per sharePOOLNASDAQ Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

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




Item 2.02 Results of Operations and Financial Condition.

The following information is being provided under Form 8-K Item 2.02 and should not be deemed incorporated by reference by any general statement incorporating by reference this Current Report on Form 8-K into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates this information by reference, and none of this information should be deemed "filed" under such acts.

On February 11, 2021, Pool Corporation, a Delaware corporation, issued a press release announcing fiscal 2020 results and providing 2021 earnings guidance.

A copy of the release is included herein as Exhibit 99.1.

Item 7.01 Regulation FD Disclosure.

On February 11, 2021, Pool Corporation issued the press release included herein as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits.
 
(d)    Exhibits
Press Release issued by Pool Corporation on February 11, 2021, announcing fiscal 2020 results and providing 2021 earnings guidance.
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

POOL CORPORATION
By: /s/ Mark W. Joslin
Mark W. Joslin
       Senior Vice President and Chief Financial Officer
 


Dated: February 11, 2021

               
 



poolcorplogoa101a.jpg

Exhibit 99.1

FOR IMMEDIATE RELEASE


POOL CORPORATION REPORTS RECORD 2020 RESULTS
AND PROVIDES 2021 EARNINGS GUIDANCE

Highlights include:

Record annual net sales of $3.9 billion for 2020, up 23% from 2019, including a 44% increase in Q4 2020
2020 operating margin of 11.8%, up 110 bps from 2019
Record 2020 diluted EPS of $8.97, an increase of 40% over 2019, or an increase of 44% excluding tax benefits in both periods and non-cash impairments recorded in Q1 2020
Cash provided by operations of $397.6 million, an improvement of $98.8 million from 2019
2021 diluted EPS guidance range of $9.12 - $9.62, including an estimated $0.11 tax benefit
______________________

COVINGTON, LA. (February 11, 2021) – Pool Corporation (Nasdaq/GSM:POOL) today announced fourth quarter and full year 2020 results.

"As the pandemic forced families to spend more time at home in 2020, they sought out opportunities to create or expand existing home-based outdoor living and entertainment spaces. This created unprecedented demand throughout our markets. Our scale and execution, combined with favorable weather conditions, drove truly remarkable results for the year, including an exceptionally strong fourth quarter. I am extremely proud of the outstanding efforts of the POOLCORP team, whose commitment to our customers, while maintaining a safe environment for fellow employees and our communities under very challenging conditions, is second to none,” commented Peter D. Arvan, president and CEO.

Net sales increased 23% to a record high of $3.9 billion for the year ended December 31, 2020 compared to $3.2 billion in 2019, while base business sales increased 22%. We realized broad sales gains across nearly all product categories. Our sales benefited from greater swimming pool usage and high demand for residential pool products, which was driven by home-centric trends influenced by the COVID-19 pandemic and aided by warmer weather conditions during the year.

Gross profit reached a record $1.1 billion for the year ended December 31, 2020, a 22% increase over gross profit of $924.9 million in 2019. Gross margin declined 20 basis points to 28.7% in 2020 compared to 28.9% in 2019. The decline in gross margin is primarily due to sales of lower margin, big-ticket items, such as pool equipment and in-ground and above-ground pools, which comprised a larger portion of our product mix in 2020 compared to 2019.

Selling and administrative expenses (operating expenses) increased 14%, or $83.2 million, to $666.9 million in 2020, up from $583.7 million in 2019, with base business operating expenses up 12% over 2019. Over half of the increase in operating expenses, or $43.9 million, reflects higher performance-based compensation earned by employees in 2020, while another 20% of the increase, or $16.9 million, came from acquired businesses. Excluding $6.9 million of impairment charges we recorded in the first quarter of 2020 and performance-based compensation in both periods, operating expenses increased 6%, reflecting growth-driven labor and freight expenses and greater facility-related costs partially offset by lower discretionary spending. As a result of strong expense control and our ability to leverage our existing network, operating expenses as a percentage of net sales declined 130 basis points to 16.9% in 2020 compared to 18.2% in 2019.




Operating income for the year increased 36% to $464.0 million, up from $341.2 million in 2019. Adjusted operating income, excluding non-cash impairments, increased 38% from the prior year to $471.0 million. See the reconciliation of GAAP to non-GAAP measures below and in the addendum of this release. Operating margin increased 110 basis points to 11.8% in 2020 compared to 10.7% in 2019.

We recorded a $28.6 million, or $0.70 per diluted share, benefit from Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, for the year ended December 31, 2020 compared to a benefit of $23.5 million, or $0.57 per diluted share, realized in 2019.

Net income increased 40% to a record $366.7 million in 2020 compared to $261.6 million in 2019. Adjusted net income, excluding the $6.3 million, or $0.15 per diluted share, impact of non-cash impairments, net of tax, increased 43% to $373.0 million. Earnings per share increased 40% to a record $8.97 per diluted share compared to $6.40 per diluted share in 2019. Excluding the impact of non-cash impairments, net of tax, in 2020 and the impact from ASU 2016-09 in both periods, adjusted diluted earnings per share increased 44% to $8.42 in 2020 compared to $5.83 in 2019. Adjusted EBITDA (as defined in the addendum to this release) increased 34% to $512.7 million in 2020 compared to $382.2 million in 2019 and was 13.0% of net sales in 2020 compared to 11.9% of net sales in 2019.

On the balance sheet at December 31, 2020, total net receivables, including pledged receivables, increased 28% compared to 2019, driven by our December sales growth and partially offset by improved collections. Inventory levels increased 11% to $781.0 million compared to $702.3 million in 2019, reflecting normal inventory growth and $42.2 million of inventory from recently acquired businesses. Accrued expenses and other current liabilities increased $82.9 million to $143.7 million in 2020, primarily reflecting increases in accrued performance-based compensation, unrealized losses on interest rate swaps and deferred payroll tax payments. Total debt outstanding decreased $95.4 million, or 19%, compared to last year’s balance, as we have utilized our operating cash flows to decrease debt balances.

Cash provided by operations was $397.6 million in 2020 compared to $298.8 million in 2019, an improvement of $98.8 million. The improvement in cash provided by operations primarily reflects an increase in net income and accrued expenses and other current liabilities, which was partially offset by year-over-year increases in our accounts receivables and inventory balances. Our return on invested capital (as defined in the addendum to this release) for 2020 was 39.2% compared to 29.3% in 2019.

Net sales increased 44% to $839.3 million in the fourth quarter of 2020 compared to $582.2 million in the fourth quarter of 2019. Sales in the fourth quarter of 2020 benefited from continued stay-at-home trends, favorable weather nationwide and acquisitions. Acquisitions added 4% to sales growth in the quarter. Gross margin increased 70 basis points to 28.5% in the fourth quarter of 2020 from 27.8% in the fourth quarter of 2019 with increased purchase volumes driving improvements in supply chain management.

Operating expenses increased 21% to $164.7 million in the fourth quarter of 2020 compared to $136.3 million in the fourth quarter of 2019, primarily reflecting higher performance-based compensation earned by employees and expenses from recently acquired businesses. As a percentage of net sales, operating expenses decreased to 19.6% in the fourth quarter of 2020 compared to 23.4% in the same period of 2019.

Operating income in the fourth quarter of 2020 increased 188% to $74.4 million compared to $25.8 million in the same period of 2019. Operating margin increased 450 basis points in the fourth quarter. We recorded a $6.0 million benefit from ASU 2016-09, or $0.15 per diluted share, in the fourth quarter of 2020 compared to a benefit of $2.4 million, or $0.06 per diluted share, realized in the fourth quarter of 2019. Net income in the fourth quarter of 2020 was $59.2 million compared to $18.0 million in the comparable 2019 period. Earnings per diluted share increased 230% to $1.45 in the fourth quarter of 2020 compared to $0.44 for the same period in 2019. Excluding the impact from ASU 2016-09 in both periods, earnings per diluted share increased 242% to $1.30 compared to $0.38 for the same period in 2019.

2


"We expect the benefits from our investments in capacity creation and our most recent acquisitions, along with new sales center openings, will contribute to solid growth in 2021. Long-term demand within our industry remains strong, and we believe results in 2021 will continue to benefit from robust consumer interest in outdoor living. Building on the momentum that we gained in 2020, our guidance range assumes strong growth in the first half of the year. In the second half of the year, we expect to face tougher year-over-year comparisons and inherent industry capacity constraints, although we remain encouraged by positive industry outlooks. We project earnings for 2021 will grow on top of the incredible results delivered in 2020 and be in the range of $9.12 to $9.62 per diluted share, including an estimated $0.11 favorable impact from ASU 2016-09,” said Arvan.

(Unaudited)2021 Guidance Range
2020FloorCeiling
Diluted EPS$8.97 $9.12 $9.62 
     After-tax non-cash impairment charges0.15 — — 
     ASU 2016-09 tax benefit(0.70)(0.11)(0.11)
Adjusted Diluted EPS$8.42 $9.01 $9.51 
     Year-over-year growth%13 %

Based on our December 31, 2020 stock price, we estimate that we have approximately $4.5 million in unrealized excess tax benefits related to stock options that will expire and restricted stock awards that will vest in the first quarter of 2021, adding $0.11 in diluted earnings per share in that period. We have included the estimated first quarter benefit in our annual earnings guidance; however, additional tax benefits could be recognized related to stock option exercises in 2021 from grants that expire in years after 2021, for which we have not included any expected benefits.

POOLCORP is the world’s largest wholesale distributor of swimming pool and related backyard products. As of December 31, 2020, POOLCORP operates 398 sales centers in North America, Europe and Australia, through which it distributes more than 200,000 national brand and private label products to roughly 120,000 wholesale customers. For more information, please visit www.poolcorp.com.

This news release includes "forward-looking” statements that involve risks and uncertainties that are generally identifiable through the use of words such as "believe,” "expect,” "anticipate,” "intend,” "plan,” "estimate,” "project,” "should” and similar expressions and include projections of earnings. The forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date of this release, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. Actual results may differ materially due to a variety of factors, including impacts on our business from the COVID-19 pandemic and the extent to which home-centric trends will continue, accelerate or reverse; the sensitivity of our business to weather conditions; changes in the economy and the housing market; our ability to maintain favorable relationships with suppliers and manufacturers; competition from other leisure product alternatives and mass merchants; our ability to continue to execute our growth strategies; excess tax benefits or deficiencies recognized under ASU 2016-09 and other risks detailed in POOLCORP’s 2019 Annual Report on Form 10-K, 2020 Quarterly Reports on Form 10-Q and other reports and filings filed with the Securities and Exchange Commission (SEC) as updated by POOLCORP’s subsequent filings with the SEC.

Curtis J. Scheel
Director of Investor Relations
985.801.5341
curtis.scheel@poolcorp.com
3


POOL CORPORATION
Consolidated Statements of Income
(In thousands, except per share data)

Three Months EndedYear Ended
December 31,December 31,
202020192020
2019 (1)
Net sales$839,261 $582,234 $3,936,623 $3,199,517 
Cost of sales600,166 420,184 2,805,721 2,274,592 
Gross profit239,095 162,050 1,130,902 924,925 
Percent28.5 %27.8 %28.7 %28.9 %
Selling and administrative expenses164,744 136,252 659,931 583,679 
Impairment of goodwill and other assets — 6,944 — 
Operating income74,351 25,798 464,027 341,246 
Percent8.9 %4.4 %11.8 %10.7 %
Interest and other non-operating expenses, net 3,061 5,234 12,353 23,772 
Income before income taxes and equity earnings 71,290 20,564 451,674 317,474 
Provision for income taxes12,163 2,592 85,231 56,161 
Equity earnings in unconsolidated investments, net 47 52 295 262 
Net income$59,174 $18,024 $366,738 $261,575 
Earnings per share:
Basic$1.47 $0.45 $9.14 $6.57 
Diluted$1.45 $0.44 $8.97 $6.40 
Weighted average shares outstanding:
Basic40,202 40,047 40,106 39,833 
Diluted40,873 40,952 40,865 40,865 
Cash dividends declared per common share$0.58 $0.55 $2.29 $2.10 

(1)    Derived from audited financial statements.




4


POOL CORPORATION
Condensed Consolidated Balance Sheets
(In thousands)

December 31,December 31,
Change
2020
2019 (1)
$
%
Assets
Current assets:
Cash and cash equivalents
$34,128 $28,583 $5,545 19 %
Receivables, net (2)
122,252 76,648 45,604 59 
Receivables pledged under receivables facility
166,948 149,891 17,057 11 
Product inventories, net (3)
780,989 702,274 78,715 11 
Prepaid expenses and other current assets17,610 16,172 1,438 
Total current assets
1,121,927 973,568 148,359 15 
Property and equipment, net
108,241 112,246 (4,005)(4)
Goodwill
268,167 188,596 79,571 42 
Other intangible assets, net
12,181 11,038 1,143 10 
Equity interest investments
1,292 1,227 65 
Operating lease assets205,875 176,689 29,186 17 
Other assets
21,987 19,902 2,085 10 
Total assets
$1,739,670 $1,483,266 $256,404 17 %
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$266,753 $261,963 $4,790 %
Accrued expenses and other current liabilities
143,694 60,813 82,881 136 
Short-term borrowings and current portion of long-term debt
11,869 11,745 124 
Current operating lease liabilities60,933 56,325 4,608 
Total current liabilities
483,249 390,846 92,403 24 
Deferred income taxes
27,653 32,598 (4,945)(15)
Long-term debt, net
404,149 499,662 (95,513)(19)
Other long-term liabilities
38,261 27,970 10,291 37 
Non-current operating lease liabilities146,888 122,010 24,878 20 
Total liabilities
1,100,200 1,073,086 27,114 
Total stockholders’ equity
639,470 410,180 229,290 56 
Total liabilities and stockholders’ equity$1,739,670 $1,483,266 $256,404 17 %

(1)Derived from audited financial statements.
(2)The allowance for doubtful accounts was $4.8 million at December 31, 2020 and $5.5 million at December 31, 2019.
(3)The inventory reserve was $11.4 million at December 31, 2020 and $9.0 million at December 31, 2019.

5


POOL CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands)
Year Ended
December 31,
2020
2019 (1)
Change
Operating activities
Net income$366,738 $261,575 $105,163 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation27,967 27,885 82 
Amortization1,431 1,389 42 
Share-based compensation14,516 13,472 1,044 
Equity earnings in unconsolidated investments, net(295)(262)(33)
Net losses on foreign currency transactions1,748 1,347 401 
Impairment of goodwill and other assets6,944 — 6,944 
Other(396)7,551 (7,947)
Changes in operating assets and liabilities, net of effects of acquisitions:
Receivables(38,688)(15,691)(22,997)
Product inventories(42,447)(14,165)(28,282)
Prepaid expenses and other assets(13,744)(4,218)(9,526)
Accounts payable(9,212)16,860 (26,072)
Accrued expenses and other current liabilities83,019 3,033 79,986 
Net cash provided by operating activities397,581 298,776 98,805 
Investing activities
Acquisition of businesses, net of cash acquired(124,587)(8,901)(115,686)
Purchase of property and equipment, net of sale proceeds(21,702)(33,362)11,660 
Net cash used in investing activities(146,289)(42,263)(104,026)
Financing activities
Proceeds from revolving line of credit1,053,968 1,066,529 (12,561)
Payments on revolving line of credit(1,145,616)(1,415,988)270,372 
Proceeds from asset-backed financing326,700 189,000 137,700 
Payments on asset-backed financing(321,700)(182,500)(139,200)
Proceeds from term facility 185,000 (185,000)
Payments on term facility(9,250)— (9,250)
Proceeds from short-term borrowings and current portion of long-term debt 13,822 30,863 (17,041)
Payments on short-term borrowings and current portion of long-term debt(13,698)(28,286)14,588 
Payments of deferred acquisition consideration(281)(312)31 
Payments of deferred financing costs(12)(406)394 
Proceeds from stock issued under share-based compensation plans19,824 18,574 1,250 
Payments of cash dividends(91,929)(83,772)(8,157)
Purchases of treasury stock(76,199)(23,188)(53,011)
Net cash used in financing activities(244,371)(244,486)115 
Effect of exchange rate changes on cash and cash equivalents(1,376)198 (1,574)
Change in cash and cash equivalents5,545 12,225 (6,680)
Cash and cash equivalents at beginning of period28,583 16,358 12,225 
Cash and cash equivalents at end of period$34,128 $28,583 $5,545 

(1)    Derived from audited financial statements.
6


ADDENDUM

Base Business

The following tables break out our consolidated results into the base business component and the excluded components (sales centers excluded from base business):

(Unaudited)Base BusinessExcludedTotal
(in thousands)Three Months EndedThree Months EndedThree Months Ended
December 31,December 31,December 31,
202020192020201920202019
Net sales$807,156 $581,817 $32,105 $417 $839,261 $582,234 
Gross profit232,247 162,312 6,848 (262)239,095 162,050 
Gross margin28.8 %27.9 %21.3 %(62.8)%28.5 %27.8 %
Operating expenses154,335 136,004 10,409 248 164,744 136,252 
Expenses as a % of net sales19.1 %23.4 %32.4 %59.5 %19.6 %23.4 %
Operating income (loss)77,912 26,308 (3,561)(510)74,351 25,798 
Operating margin9.7 %4.5 %(11.1)%(122.3)%8.9 %4.4 %

(Unaudited)Base BusinessExcludedTotal
(in thousands)Year EndedYear EndedYear Ended
December 31,December 31,December 31,
202020192020201920202019
Net sales$3,886,079 $3,183,940 $50,544 $15,577 $3,936,623 $3,199,517 
Gross profit1,117,303 922,193 13,599 2,732 1,130,902 924,925 
Gross margin28.8 %29.0 %26.9 %17.5 %28.7 %28.9 %
Operating expenses (1)
650,020 579,068 16,855 4,611 666,875 583,679 
Expenses as a % of net sales16.7 %18.2 %33.3 %29.6 %16.9 %18.2 %
Operating income (loss) (1)
467,283 343,125 (3,256)(1,879)464,027 341,246 
Operating margin12.0 %10.8 %(6.4)%(12.1)%11.8 %10.7 %
(1)Base business and total include $6.9 million of impairment from goodwill and other assets.

7


We have excluded the results of the following acquisitions from base business for the periods identified:



Acquired

Acquisition
Date
Net
Sales Centers
Acquired

Periods
Excluded
TWC Distributors, Inc. (1)
December 202010December 2020
Jet Line Products, Inc.October 20209October - December 2020
Northeastern Swimming Pool Distributors, Inc. (1)
September 20202September - December 2020
Master Tile Network LLC (1)
February 20204February - December 2020
W.W. Adcock, Inc. (1)
January 20194January - March 2020 and January - March 2019
Turf & Garden, Inc. (1)
November 20184January 2020 and
January 2019
(1)We acquired certain distribution assets of each of these companies.

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

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

The table below summarizes the changes in our sales centers during 2020.

December 31, 2019373
Acquired locations25
New locations3
Closed/consolidated locations(3)
December 31, 2020398



8


Adjusted EBITDA

We define Adjusted EBITDA as net income or net loss plus interest and other non-operating expense, income taxes, depreciation, amortization, share-based compensation, goodwill and other non-cash impairments and equity earnings or losses in unconsolidated investments.  Adjusted EBITDA is not a measure of cash flow or liquidity as determined by generally accepted accounting principles (GAAP). We have included Adjusted EBITDA as a supplemental disclosure, because we believe that it is widely used by our investors, industry analysts and others as a useful supplemental liquidity measure in conjunction with cash flows provided by or used in operating activities to help investors understand our ability to provide cash flows to fund growth, service debt, repurchase shares and pay dividends as well as compare our cash flow generating capacity from year to year.

We believe Adjusted EBITDA should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, cash flows provided by or used in operating, investing and financing activities or other income statement or cash flow statement line items reported in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, which may limit its usefulness as a comparative measure.

The table below presents a reconciliation of Adjusted EBITDA to net cash provided by operating activities. Please see page 6 for our Condensed Consolidated Statements of Cash Flows.
(Unaudited)Year Ended December 31,
(in thousands)20202019
Adjusted EBITDA$512,738 $382,212 
Add:
Interest and other non-operating expenses, net of interest income (1)
(10,206)(21,992)
Provision for income taxes(85,231)(56,161)
Net losses on foreign currency transactions1,748 1,347 
Other(396)7,551 
Change in operating assets and liabilities(21,072)(14,181)
Net cash provided by operating activities$397,581 $298,776 
(1)Shown net of net losses on foreign currency transactions and excludes amortization of deferred financing costs as discussed below.

The table below presents a reconciliation of net income to Adjusted EBITDA.
(Unaudited)Year Ended December 31,
(in thousands)20202019
Net income$366,738 $261,575 
Add:
Interest and other non-operating expenses (1)
10,605 22,425 
Provision for income taxes85,231 56,161 
Share-based compensation14,516 13,472 
Equity earnings in unconsolidated investments, net(295)(262)
Impairment of goodwill and other assets6,944 — 
Depreciation27,967 27,885 
Amortization (2)
1,032 956 
Adjusted EBITDA$512,738 $382,212 
(1)Shown net of interest income and net losses on foreign currency transactions and includes amortization of deferred financing costs as discussed below.
(2)Excludes amortization of deferred financing costs of $399 for 2020 and $433 for 2019. This non-cash expense is included in Interest and other non-operating expenses, net on the Consolidated Statements of Income.
9


Return on Invested Capital

We calculate Return on Invested Capital (ROIC) using trailing four quarter results. We define ROIC as Net income adjusted for Interest and other non-operating expenses, net (net of taxes at the effective tax rate), divided by the sum of average Long-term debt, net, average Short-term borrowings and the current portion of long-term debt and average Total stockholders’ equity from our financial statements.  We have included ROIC as a supplemental disclosure, because we believe that it may be used by our investors, industry analysts and others as a measure of the efficiency and effectiveness of our use of capital.

ROIC is not a measure of financial performance under GAAP. We believe ROIC should be considered in addition to, not as a substitute for, operating income or loss, net income or loss, cash flows provided by or used in operating, investing and financing activities or other income statement, balance sheet or cash flow statement line items reported in accordance with GAAP. Other companies may calculate ROIC differently than we do, which may limit its usefulness as a comparative measure.

The table below presents our calculation of ROIC at December 31, 2020 and 2019.

(Unaudited)Year Ended December 31,
(in thousands)20202019
Numerator (trailing four quarters total):
Net income$366,738 $261,575 
Interest and other non-operating expenses, net12,353 23,772 
Less: taxes on Interest and other non-operating expenses, net at 18.9%
and 17.7%, respectively
(2,335)(4,208)
$376,756 $281,139 
Denominator (average of trailing four quarters):
Long-term debt, net$432,829 $595,247 
Short-term borrowings and current portion of long-term debt12,373 17,323 
Total stockholders’ equity516,040 346,049 
$961,242 $958,619 
Return on invested capital39.2 %29.3 %


10


Adjusted Diluted EPS and Adjusted 2021 Diluted EPS Guidance

We have included adjusted diluted EPS, which is a non-GAAP financial measure, in this press release as a supplemental disclosure to demonstrate the impact of our non-cash impairment charge recorded in the first quarter of 2020 and tax benefits from ASU 2016-09 on our 2020 and 2019 diluted EPS and to provide investors and others with additional information about our potential future operating performance. We believe adjusted diluted EPS should be considered in addition to, not as a substitute for, diluted EPS presented in accordance with GAAP and in the context of our other forward-looking and cautionary statements in this press release.

The table below presents a reconciliation of diluted EPS to adjusted diluted EPS.
(Unaudited)Year Ended December 31,
20202019
Diluted EPS$8.97 $6.40 
     After-tax non-cash impairment charges0.15 — 
     ASU 2016-09 tax benefit(0.70)(0.57)
Adjusted Diluted EPS$8.42 $5.83 

Please see page 3 for a reconciliation of projected 2021 diluted EPS to adjusted projected 2021 diluted EPS. We have included adjusted projected 2021 diluted EPS, which is a non-GAAP financial measure, in this press release as a supplemental disclosure to demonstrate the impact of projected tax benefits from ASU 2016-09 on our projected 2021 diluted EPS and to provide investors and others with additional information about our potential future operating performance. We believe adjusted projected 2021 diluted EPS should be considered in addition to, not as a substitute for, projected 2021 diluted EPS presented in accordance with GAAP and in the context of our other forward-looking and cautionary statements in this press release.


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Adjusted Income Statement Information

We have included adjusted operating income and adjusted net income, which are non-GAAP financial measures, in this press release as supplemental disclosures, because we believe these measures are useful to investors and others in assessing our year-over-year operating performance. We believe these measures should be considered in addition to, not as a substitute for, operating income and net income presented in accordance with GAAP, respectively, and in the context of our other disclosures in this press release. Other companies may calculate these non-GAAP financial measures differently than we do, which may limit their usefulness as comparative measures.

The table below presents a reconciliation of operating income to adjusted operating income.
(Unaudited)Year Ended December 31,
(in thousands)2020
Operating income$464,027 
Impairment of goodwill and other assets6,944 
Adjusted operating income$470,971 

The table below presents a reconciliation of net income to adjusted net income.
(Unaudited)Year Ended December 31,
(in thousands)2020
Net income$366,738 
Impairment of goodwill and other assets6,944 
Tax impact on impairment of long-term note (1)
(654)
Adjusted net income$373,028 

(1)As described in our April 23, 2020 earnings release, our effective tax rate at March 31, 2020 was a 0.1% benefit. Excluding impairment from goodwill and intangibles and tax benefits from ASU 2016-09 recorded in the first quarter of 2020, our effective tax rate for the first quarter of 2020 was 25.4%, which we used to calculate the tax impact related to the $2.5 million long-term note impairment.



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